Chronicle Journal: Finance

Compass Diversified Holdings Reports 2007 Third Quarter Financial Results

WESTPORT, Conn., Nov. 9 /PRNewswire-FirstCall/ -- Compass Diversified Holdings (NASDAQ:CODI) and Compass Group Diversified Holdings LLC (collectively, "CODI" or the "Company") announced today the consolidated results of operations for the three and nine months ended September 30, 2007.

CODI reported cash flow available for distribution ("CAD") of $12.8 million for the quarter ended September 30, 2007, compared to $7.9 million in the prior year quarter. For the nine-months ended September 30, 2007, CAD was $28.6 million. Cumulatively, from its initial public offering on May 16, 2006 through September 30, 2007, CODI has reported CAD of $52.3 million and a coverage ratio of approximately 1.3x on all distributions paid though October 26, 2007. The CAD for the quarter ended and nine months ended September 30, 2007 only reflects the cash flows of American Furniture Manufacturing, Inc. ("American Furniture") since its date of acquisition on August 31, 2007 and the cash flows of Halo Branded Solutions, Inc. and Aeroglide Corporation from the date of their acquisition on February 28, 2007.

On October 9, 2007, CODI's Board of Directors declared a distribution of $0.325 per share, which was paid on October 26, 2007 to all CODI shareholders of record as of October 23, 2007. The Company intends to continue to declare and pay regular quarterly cash distributions on all outstanding shares.

Commenting on the Company's performance, Joe Massoud, CEO of Compass Diversified Holdings, stated, "We are pleased with the performance of each of our seven subsidiary businesses, including the three acquired platform subsidiaries added in 2007. Their contributions have allowed us to increase our quarterly cash distribution by approximately 24% since our initial public offering in May of 2006. While there is evidence that the economy appears to be softening, we believe that our diversified mix of subsidiaries will continue to perform well and anticipate the combined operating results for our seven subsidiary businesses will continue to be in line with our expectations for the remainder of 2007. On the whole, our businesses serve numerous domestic and international geographic markets, participate in a wide variety of industries and have limited exposure to individual customers. Even the most cyclical of our businesses, our staffing company, has substantially outperformed its industry and its competitors in revenue maintenance and growth over the course of 2007.

"We are excited about the opportunity presented by the current economic environment and financing conditions in our markets. Our business model allows us to finance add-on or new platform acquisitions efficiently without specific transaction financing, giving us a significant advantage as compared to other potential acquirors. We are confident in our ability to capitalize on this advantage over the coming twelve to eighteen months.

Mr. Massoud added, "In preparing for what we consider to be a potentially attractive acquisition environment, we are considering the potential issuance of up to $200 million of term debt to raise additional capital. If raised, this term debt would supplement our current revolver, increasing our capacity to pursue interesting add-on and platform subsidiary opportunities. Accordingly, we have asked S&P and Moody's to rate the company as well as the potential term debt issuance. We received a corporate credit rating and a term debt rating of BB- from S&P and a Ba3 corporate credit rating and a term loan rating of B1 from Moody's.

"One other recent item on which I would like to comment is our recent filing of two registration statements. One of these enables our board to implement a distribution reinvestment plan for our shareholders, and the other registers CODI shares held by Compass Group Investments, Ltd., Concorde Equity, Inc. and Pharos Inc. This was done under a contractual commitment that we made at the time of the issuance of the shares and not in response to any specific demand made by any of these shareholders. To our knowledge, there are currently no plans by any of these parties to sell any of their owned shares," concluded Massoud.

As of September 30, 2007, CODI had approximately $6.4 million in cash and cash equivalents. The Company had $24.0 million in revolving loans outstanding and approximately $228 million in availability under its revolving credit facility with Madison Capital Funding LLC.

On August 31, 2007, CODI acquired American Furniture for approximately $95.6 million, representing under five and a half times American Furniture's current earnings before interest, taxes, depreciation and amortization ("EBITDA").

Conference Call

Management will host a conference call this morning at 9:00 a.m. ET to discuss the latest corporate developments and financial results. The dial-in number for callers in the U.S. is (888) 677-8769 and the dial-in number for international callers is (913) 312-0394. The access code for all callers is 6435957. A live webcast will also be available on the Company's website at www.compassdiversifiedholdings.com.

A replay of the call will be available through November 22, 2007. To access the replay, please dial (888) 203-1112 in the U.S. and (719) 457-0820 outside the U.S., and then enter the access code 6435957.

About Compass Diversified Holdings ("CODI")

CODI was formed to acquire and manage a group of middle market businesses that are headquartered in North America. CODI provides public investors with an opportunity to participate in the ownership and growth of companies which have historically been owned by private equity firms, wealthy individuals or families. CODI's disciplined approach to its target market provides opportunities to methodically purchase attractive businesses at values that are accretive to its shareholders. For sellers of businesses, CODI's unique structure allows CODI to acquire businesses efficiently with no financing contingencies and, following acquisition, to provide its companies with substantial access to growth capital.

Upon acquisition, CODI works with the executive teams of its subsidiary companies to identify and capitalize on opportunities to grow those companies' earnings and cash flows. These cash flows support distributions to CODI shareholders, which are intended to be steady and growing over the long term.

    Subsidiary Businesses

    Aeroglide Holdings, Inc. and its consolidated subsidiaries, referred to as
    Aeroglide, is a designer and manufacturer of industrial drying and cooling
    equipment, primarily used in the production of a variety of human foods,
    animal and pet feeds, and industrial products. Aeroglide is based in Cary,
    NC.

    American Furniture Manufacturing, Inc., and its consolidated subsidiaries,
    referred to as American Furniture, is a low-cost manufacturer of
    upholstered stationary and motion furniture, including sofas, loveseats,
    sectionals, recliners and complementary products. American Furniture has
    the ability to ship any product in its line within 48 hours of receiving
    an order. American Furniture is based in Ecru, MS.

    Anodyne Medical Device, Inc. and its consolidated subsidiaries, referred
    to as AMD, is a manufacturer of medical support surfaces and patient
    positioning devices, primarily used for the prevention and treatment of
    pressure wounds experienced by patients with limited or no mobility. AMD
    is based in Los Angeles, CA.

    CBS Personnel Holdings, Inc. and its consolidated subsidiaries, referred
    to as CBS Personnel, is a provider of temporary staffing services in the
    United States. CBS Personnel is headquartered in Cincinnati, OH and
    operates 144 branch locations in 18 states.

    Compass AC Holdings, Inc. and its consolidated subsidiaries, referred to
    as Advanced Circuits, is a manufacturer of low-volume quick-turn and
    prototype rigid printed circuit boards ("PCBs"). Advanced Circuits is
    based in Aurora, CO.

    Halo Lee Wayne LLC and its consolidated subsidiaries, referred to as Halo,
    is a distributor of customized promotional products and serves more than
    30,000 customers as a one-stop-shop resource for design, sourcing,
    management and fulfillment across all categories of its customers'
    promotional products needs. Halo is based in Sterling, IL.

    Silvue Technologies Group, Inc. and its consolidated subsidiaries,
    referred to as Silvue, is a developer and manufacturer of proprietary,
    high-performance coating systems for polycarbonate, glass, acrylic, metals
    and other substrate materials used in the premium eyewear, aerospace,
    automotive and industrial markets.  Silvue is based in Anaheim, CA.

To find out more about Compass Diversified Holdings, please visit www.compassdiversifiedholdings.com.

Cautionary and Forward-Looking Statements

The overview of Compass Diversified Holdings' results in this press release may not be adequate for making an informed investment judgment. Investors are urged to read CODI's 10-Q, which will be posted at www.compassdiversifiedholdings.com, as well as to take into consideration the seasonal nature of certain of the Company's subsidiary businesses and their results.

This press release may contain certain forward-looking statements, including statements with regard to the future performance of CODI. Words such as "believes," "expects," "projects," and "future" or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements, and some of these factors are enumerated in the risk factor discussion in the Form 10K filed by CODI with the Securities and Exchange Commission for the year ended December 31, 2006 and the Form 10Qs filed by CODI for the quarters ended March 31, 2006, June 30, 2006, September 30, 2006, March 31, 2007 and June 30, 2007 and other filings with the Securities and Exchange Commission. CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



                           Compass Diversified Holdings
                       Condensed Consolidated Balance Sheet
                                   (unaudited)

    (in thousands)                                               September 30,
                                                                     2007

    Assets
    Current assets:
      Cash and cash equivalents                                      $6,397
      Accounts receivable, less allowance of $3,649                 126,398
      Inventories                                                    33,238
      Prepaid expenses and other current assets                      17,123

        Total current assets                                        183,156

      Property, plant and equipment, net                             27,017
      Goodwill                                                      265,025
      Intangible assets, net                                        209,017
      Deferred debt issuance costs, net                               5,249
      Other non-current assets                                       18,753

    Total assets                                                   $708,217


    Liabilities and stockholders' equity
    Current liabilities:
      Accounts payable and accrued expenses                         $97,972
      Due to related party                                              524
      Current portion of long-term debt                              26,864

        Total current liabilities                                   125,360

    Supplemental put obligation                                      19,167
    Deferred income taxes                                            67,339
    Other non-current liabilities                                    19,494

    Total liabilities                                               231,360

    Minority interests                                               30,393

    Stockholders' equity
    Trust shares, no par value, 500,000 authorized; 31,525
     shares issued  and outstanding                                 443,634
    Accumulated earnings                                              2,830
        Total stockholders' equity                                  446,464
    Total liabilities and stockholders' equity                     $708,217



                           Compass Diversified Holdings
                  Condensed Consolidated Statement of Operation
                                   (Unaudited)



                                        Three     Three     Nine      Nine
                                        Months    Months    Months    Months
                                        Ended     Ended     Ended     Ended
    (in thousands, except per share   Sept. 30, Sept. 30, Sept. 30,  Sept. 30,
     data)                               2007      2006      2007      2006

    Net sales                          $235,282  $159,073  $629,820  $239,267
    Cost of sales                       172,290   120,903   466,037   182,193
               Gross profit              62,992    38,170   163,783    57,074
    Operating expenses:
         Staffing expense                13,440    13,468    41,922    20,439
         Selling, general and
          administrative expenses        31,335    13,118    78,114    20,769
         Supplemental put expense         2,174     8,016     4,591     8,016
         Fees to manager                  2,692     1,784     7,477     2,573
         Amortization expense             4,969     2,738    14,382     3,966
               Operating income (loss)    8,382      (954)   17,297     1,311

    Other income (expense):
         Interest income                    569       347     1,898       463
         Interest expense                (1,202)   (2,338)   (4,271)   (3,411)
         Amortization of debt issuance
          costs                            (308)     (321)     (861)     (479)
         Other income, net                  245       320       275       612

       Income (loss) from continuing
        operations before income taxes
        and minority interests            7,686    (2,946)   14,338    (1,504)
    Provision for income taxes            2,711     2,603     5,699     3,400
    Minority interest                       620       780       869     1,095

               Income (loss) from
                continuing operations     4,355    (6,329)    7,770    (5,999)

    Income from discontinued
     operations, net of income tax            -     2,445         -     4,227
    Gain on sale of discontinued
     operations, net of income taxes          -         -    36,038         -

               Net income (loss)         $4,355   $(3,884)  $43,808   $(1,772)

    Basic and fully diluted income
     (loss) per share                     $0.14    $(0.19)    $1.67    $(0.18)

    Weighted average number of shares
     outstanding - basic and fully
     diluted                             31,525    20,120    26,316    10,031

    Cash distributions declared per
     share                               $0.325   $0.2625    $0.925   $0.3952



                          Compass Diversified Holdings
                 Condensed Consolidated Statement of Cash Flows
                                   (unaudited)

                                                 Nine Months       Nine Months
                                                    Ended             Ended
    (in thousands)                             Sept. 30, 2007   Sept. 30, 2006

    Cash flows from operating activities:
    Net income (loss)                              $43,808           $(1,772)
    Adjustments to reconcile net income (loss)
     to net cash provided by operating
     activities:
       Gain on sale of Crosman                     (36,038)              -
       Depreciation and amortization expense        17,988             5,682
       Amortization of debt issuance costs             857               479
       Supplemental put expense                      4,591             8,016
       Minority interests                              869             1,896
       Stockholder notes and other                     226             1,543
       Deferred taxes                               (2,373)             (624)

    Changes in operating assets and liabilities,
     net of acquisition:
       Increase in accounts receivable             (14,511)           (4,357)
       Increase in inventories                        (787)           (8,323)
       Decrease in prepaid expenses and other
        current assets                               2,433               408
       Increase in accounts payable and accrued
        expenses                                    12,386             7,349
       Decrease in supplemental put obligation      (7,880)              -
              Net cash provided by operating
               activities                           21,569            10,297

    Cash flows from investing activities:
          Acquisition of businesses, net of
           cash acquired                          (224,799)         (341,809)
          Crosman disposition                      119,856               -
          Purchases of property and equipment       (4,969)           (4,031)
              Net cash used in investing
               activities                         (109,912)         (345,840)

    Cash flows from financing activities:
          Proceeds from issuance of trust shares,
           net                                     168,673           284,962
          Net borrowing (repayment) of debt        (60,733)           71,574
          Debt issuance costs                       (1,079)           (6,307)
          Other                                      2,655               756
          Distributions paid                       (21,728)           (2,587)
              Net cash provided by financing
               activities                           87,788           348,398

    Net increase (decrease) in cash and cash
     equivalents                                      (555)           12,855
    Foreign currency adjustment                        (54)               94
    Cash and cash equivalents - beginning of
     period                                          7,006               100
    Cash and cash equivalents - end of period       $6,397           $13,049



                           Compass Diversified Holdings
      Condensed Consolidated Table of Cash Flows Available for Distribution
                                     ("CAD")
                                   (unaudited)

                                         Three     Three     Nine     Nine
                                         Months    Months    Months   Months
                                         Ended     Ended     Ended    Ended
                                       Sept. 30, Sept. 30, Sept. 30, Sept. 30,
    (in thousands)                        2007      2006      2007     2006

    Net income (loss)                    $4,355   $(3,884)  $43,808  $(1,772)
       Adjustment to reconcile net
        income (loss) to cash provided
        by operating activities:
          Gain on sale of Crosman             -         -   (36,038)       -
          Depreciation and amortization   7,001     3,813    17,988    5,682
          Amortization of debt issuance
           costs                            304       321       857      479
          Supplemental put expense        2,174     8,016     4,591    8,016
          Stockholder notes and other      (207)      331       225    1,881
          Minority interest                 620     1,187       869    1,896
          Deferred taxes                 (1,217)     (652)   (2,373)    (624)
          Changes in operating assets
           and liabilities                2,838    (7,444)   (8,359)  (5,261)
    Net cash provided by operating
     activities                          15,868     1,688    21,568   10,297
    Plus:
          Unused fee on revolving credit
           facility (1)                     864       554     1,915      842
          Changes in operating assets
           and liabilities               (2,838)    7,444     8,359    5,261
    Less:
          Maintenance capital
           expenditures (2)               1,109     1,804     3,256    2,517

    Estimated cash flow available for
     distribution                       $12,785    $7,882   $28,586  $13,883


    Distribution paid in April 2007                          $6,135
    Distribution paid in July
     2006/2007                                                9,458   $2,547
    Distribution paid in October
     2006/2007                          $10,246    $5,368    10,246    5,368
                                        $10,246    $5,368   $25,839   $7,915


    (1) Represents the 1% commitment fee on the unused portion of the
        Revolving Credit Facility.

    (2) Represents maintenance capital expenditures that were funded from
        operating cash flow and excludes approximately $1.7 million of growth
        capital expenditures for the nine months ended Sept. 30, 2007.


    Compass Diversified Holdings    Investor Relations Contact:
    James J. Bottiglieri            KCSA Worldwide
    Chief Financial Officer         Jeffrey Goldberger / Garth Russell
    203.221.1703                    212.896.1249 / 212.896.1250
    jbottiglieri@compassequity.com  jgoldberger@kcsa.com / grussell@kcsa.com

Source: Compass Diversified Holdings

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