Chronicle Journal: Finance

Compass Diversified Holdings Reports 2008 Second Quarter Financial Results

WESTPORT, Conn., Aug. 11 /PRNewswire-FirstCall/ -- Compass Diversified Holdings (Nasdaq: CODI) ("CODI" or the "Company"), a leading acquirer and manager of middle market businesses, announced today its consolidated operating results for the three and six months ended June 30, 2008.

2008 Second Quarter Highlights include:

-- Increase in Net Income in the current year quarter to $72.6 million from $2.5 million for the comparable prior year period, driven by the successful sale of two subsidiary companies for a combined gain to CODI of approximately $72.3 million;

-- Generation of Cash Flow Available for Distribution and Reinvestment ("Cash Flow" or "CAD") of $13.9 million, up from $9.4 million in the prior year quarter, a 47.7 % increase;

-- Acquisition of more than 200,000 shares of CODI in the open market by the Company's Board of Directors and management team since May 15, 2008; and

-- Declaration of cash distribution of $0.325 per share for the second quarter.

CODI increased its Cash Flow (see note regarding use of Non-GAAP Financial Measures below) to $13.9 million for the quarter ended June 30, 2008, as compared to $9.4 million for the prior year period. On a trailing twelve month basis, CODI's Cash Flow for the period ending June 30, 2008 was $54.3 million. CODI's weighted average number of shares for the quarter ending June 30, 2008, the quarter ending June 30, 2007 and the twelve months ending June 30, 2008 were approximately 31.5 million, 26.8 million and 31.5 million, respectively.

CODI's Cash Flow is calculated after taking into account all interest expense, cash taxes paid and maintenance capital expenditures, and includes the operating results for each of our subsidiaries for the periods during which CODI owned them. However, Cash Flow excludes the gains from sales of businesses.

Net income for the quarter ended June 30, 2008 was $72.6 million, as compared to $2.5 million for the quarter ended June 30, 2007. This increase primarily was due to the sale of two subsidiary businesses, Silvue Technologies Group, Inc. ("Silvue") and Aeroglide Holdings Inc. ("Aeroglide"), in June of 2008, which collectively produced $72.3 million in gains.

As of June 30, 2008, CODI had approximately $100.2 million in cash and cash equivalents and approximately $300 million in availability under its revolving credit facility. The Company has no significant debt maturities until 2012.

Based on the strength of the Company's performance, on July 10, 2008, CODI's Board of Directors declared a distribution of $0.325 per share, which was paid on July 29, 2008 to all CODI shareholders of record as of July 24, 2008.

Commenting on the quarter, Joe Massoud, CEO of Compass Diversified Holdings, said, "As a whole, our current family of subsidiary companies performed very well in the second quarter of 2008. We are pleased with the 47.7% growth in Cash Flow as compared to the prior year, despite a difficult economic environment. For the full year, given how we currently see our businesses responding to the economy, we expect our company to produce between $51 million and $56 million of Cash Flow. These estimates assume retention of the substantial cash on our balance sheet and no additional deployment of this significant capital capacity prior to the end of the year. Should we be able to consummate an accretive acquisition this year, which we hope to do, 2008 Cash Flow would be higher."

Massoud continued, "From a shareholder point of view, we are currently valued at less than seven times the midpoint of our 2008 estimate for Cash Flow. We consider this an attractive valuation for a business with our demonstrated track record and prospects for growth. We also pay our shareholders a current yield of approximately 11%, while reinvesting the substantial remainder of our Cash Flow into our business on behalf of our shareholders. In addition, we provide an extraordinarily high level of reporting transparency, allowing shareholders to clearly understand our earnings and cash flow, as well as our ability to continue to pay and grow these distributions."

"In the second quarter, we completed the sale of two subsidiary companies, Aeroglide and Silvue. In combination with our sale of Crosman in early 2007, we have now proven the value of our underlying businesses through the generation of over $100 million in gains for our shareholders in just over two years. In addition, these sales provide substantial liquidity for us at a time when the environment provides us ample opportunities to take advantage of our unique financing model. Our current experience is that we are virtually without competitors in terms of our ability to make attractive acquisitions without dependence on the credit markets. We hope to acquire at least one additional platform subsidiary in 2008," concluded Massoud.

On June 24, 2008, CODI consummated the sale of Aeroglide and on June 25, 2008 consummated the sale of Silvue. Aeroglide was sold to Buhler Holding AG ("Buhler") for a total enterprise value of $95 million and CODI received approximately $85.6 million of total proceeds from the sale. The Company recorded a gain on the sale of Aeroglide of approximately $34 million in the fiscal quarter ended June 30, 2008. Pursuant to a definitive agreement signed on May 9, 2008, Silvue was sold to Mitsui Chemicals, Inc. for a total enterprise value of approximately $95 million, and CODI received approximately $70.6 million of total proceeds from the sale. The Company recorded a gain on the sale of Silvue of approximately $38.3 million.

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 (877) 440-5804 and the dial-in number for international callers is (719) 325-4915. The access code for all callers is 4595917. 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 August 23, 2008. 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 4595917.

Note Regarding Use of Non-GAAP Financial Measures

CAD or Cash Flow, are non-GAAP measures used by the Company to assess its performance, as well as its ability to sustain and increase quarterly distributions. A number of CODI's businesses have seasonal earnings patterns, with the first quarter typically being the slowest of the year. Accordingly, the Company believes that the most appropriate measure of its performance is over a trailing or expected 12 month period. We have reconciled CAD, or Cash Flow, to Net Income and Cash Flow Provided by Operating Activities on the Attached Schedules. We consider Net Income and Cash Flow Provided by Operating Activities to be the most directly comparable GAAP financial measures to CAD, or Cash Flow.

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 profits.

Subsidiary Businesses

AFM Holdings Corporation and its consolidated subsidiaries, referred to as American Furniture, is a low-cost manufacturer of upholstered stationary and motion furniture with 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 435 branch locations in 35 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.

Fox Factory Holding Corp. and its consolidated subsidiaries, referred to as Fox, is a designer, manufacturer and marketer of high-end suspension products for mountain bikes, all terrain vehicles, snowmobiles and other off-road vehicles. Fox is based in Watsonville, CA.

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.

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

Forward Looking Statements

This press release contains 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, 2007 and other filings with the Securities and Exchange Commission. In particular, the domestic and global economic environment has a significant impact on certain of our subsidiary companies, including our largest, CBS Personnel Holdings, Inc. The condition of the economy also impacts, to varying degrees, each of our other subsidiary businesses. Furthermore, we are uncertain as to our ability to consummate acquisitions which are accretive to shareholders, either in 2008, or beyond. CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

    Tables Below



                         Compass Diversified Holdings
                    Condensed Consolidated Balance Sheets
                                 (unaudited)

    (in thousands)                                  June 30,        Dec. 31,
                                                      2008            2007

    Assets
    Current assets:
     Cash and cash equivalents                     $100,221         $115,500
     Accounts receivable, less allowances
      of $7,106 and $3,204                          184,841          111,718
     Inventories                                     55,581           35,492
     Prepaid expenses and other current
      assets                                         39,782           11,088
     Current assets of discontinued
      operations                                        -             25,443

        Total current assets                        380,425          299,241

     Property, plant and equipment, net              30,593           20,437
     Goodwill                                       311,953          218,817
     Intangible assets, net                         261,874          163,378
     Deferred debt issuance costs, net                8,979            9,613
     Other non-current assets                        18,421           17,549
     Assets of discontinued operations                  -             98,967

    Total assets                                 $1,012,245         $828,002


    Liabilities and stockholders' equity
    Current liabilities:
     Accounts payable and accrued expenses         $157,725          $75,716
     Due to related party                               823              814
     Profit allocation due to Manager                15,000                -
     Current portion of long-term debt                2,000            2,000
     Current liabilities of discontinued
      operations                                        -             28,083

        Total current liabilities                   175,548          106,613

    Long-term debt                                  152,000          148,000
    Supplemental put obligation                      13,570           21,976
    Deferred income taxes                            62,691           59,478
    Other non-current liabilities                    43,823           21,419
    Non-current liabilities of
     discontinued operations                            -             15,799

    Total liabilities                               447,632          373,285

    Minority interests                               79,207           21,867

    Stockholders' equity
    Trust shares, no par value, 500,000
     authorized; 31,525 shares issued and
     outstanding                                    423,213          443,705
    Accumulated other comprehensive
     income                                           1,240                -
    Accumulated earnings (deficit)                   60,953          (10,855)
        Total stockholders' equity                  485,406          432,850
    Total liabilities and stockholders' equity   $1,012,245         $828,002



                         Compass Diversified Holdings
               Condensed Consolidated Statements of Operations
                                 (unaudited)

                                       Three Months Ended   Six Months Ended
    (in thousands, except per share     June 30,  June 30,  June 30,  June 30,
      data)                               2008      2007      2008      2007

    Net sales                          $398,910  $197,513  $750,045  $362,928
    Cost of sales                       311,049   149,824   587,376   278,909
             Gross profit                87,861    47,689   162,669    84,019
    Operating expenses:
         Staffing expense                27,470    14,470    52,540    28,482
         Selling, general and
          administrative expenses        41,842    22,613    78,524    36,824
         Supplemental put expense         4,276     1,024     6,594     2,417
         Fees to manager                  3,544     2,388     7,195     4,442
         Amortization expense             6,131     2,969    12,261     5,588
             Operating income             4,598     4,225     5,555     6,266

    Other income (expense):
         Interest income                    266       728       581     1,327
         Interest expense                (4,674)   (1,557)   (9,346)   (3,031)
         Amortization of debt issuance
          costs                            (497)     (283)     (982)     (553)
         Other income, net                  102        (5)      357         1

             Income (loss) from
              continuing operations
              before income taxes          (205)    3,108    (3,835)    4,010
                    and minority
                     interest
    Provision for income taxes              848     1,650       555     2,675
    Minority interest in net income
     (loss)                               1,218        76       705       (99)

             Income (loss) from
              continuing operations      (2,271)    1,382    (5,095)    1,434

    Income from discontinued
     operations, net of income tax        2,577     1,150     4,607     1,981
    Gain on sale of discontinued
     operations, net of income tax       72,296         -    72,296    36,038

             Net income                 $72,602    $2,532   $71,808   $39,453

    Basic and fully diluted net income
     per share                            $2.30     $0.09     $2.28     $1.67

    Weighted average number of shares
     outstanding - basic and fully
     diluted                             31,525    26,837    31,525    23,661

    Cash distributions paid per share    $0.325     $0.30     $0.65     $0.60



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

                                                 Six Months        Six Months
                                                   Ended             Ended
    (in thousands)                             June 30, 2008     June 30, 2007

    Cash flows from operating activities:
    Net income                                     $71,808           $39,453
    Adjustments to reconcile net income
     to net cash provided by operating activities:
       Gain on sale of 2008 dispositions           (72,296)                -
       Gain on sale of 2007 disposition                  -           (36,038)
       Depreciation and amortization expense        18,218            11,540
       Amortization of debt issuance costs             982               549
       Supplemental put expense                      6,594             2,417
       Minority interests                            1,254               249
       Stockholder notes and option costs            1,134              (117)
       Deferred taxes                               (5,761)           (1,156)
       Other                                          (162)                -

    Changes in operating assets and
     liabilities, net of acquisition:
       Decrease (increase) in accounts receivable    7,722            (2,666)
       Increase in inventories                      (5,070)             (806)
       (Increase) decrease in prepaid
        expenses and other current assets          (17,170)              522
       Increase (decrease) in accounts
        payable and accrued expenses                17,886              (366)
       Decrease in supplemental put obligation           -            (7,880)
       Other                                           (85)                -
              Net cash provided by
               operating activities                 25,054             5,701

    Cash flows from investing activities:
          Acquisition of businesses, net
           of cash acquired                       (172,550)         (127,937)
          Proceeds from 2008 dispositions          153,070
          Proceeds from 2007 disposition                 -           119,856
          Purchases of property and equipment       (7,148)           (3,835)
          Other                                       (303)                -
              Net cash used in investing
               activities                          (26,931)          (11,916)

    Cash flows from financing activities:
          Proceeds from issuance of Trust
           shares, net                                   -           168,672
          Net borrowing (repayment) of
           revolving line of credit borrowings       3,468           (84,964)
          Debt issuance costs                            -              (860)
          Distributions paid                       (20,492)          (12,270)
          Other                                       (156)            1,911
              Net cash provided by
               financing activities                (17,180)           72,489

    Net increase (decrease) in cash and
     cash equivalents                              (19,057)           66,274
    Foreign currency adjustment                        (80)              (52)
    Cash and cash equivalents - beginning
     of period                                     119,358             7,006
    Cash and cash equivalents - end of period     $100,221           $73,228



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

                                              Three Months       Six Months
                                                 Ended             Ended
                                           June 30, June 30, June 30, June 30,
    (in thousands)                           2008     2007     2008     2007

    Net income                              $72,602  $2,532  $71,808  $39,453
      Adjustment to reconcile net income to
       cash provided by operating
       activities:
          Gain on sale of businesses        (72,296)    -    (72,296) (36,038)
          Depreciation and amortization       9,027   6,795   18,218   11,540
          Amortization of debt issuance
           costs                                497     283      982      549
          Supplemental put expense            4,276   1,024    6,594    2,417
          Stockholder notes and other           768     451    1,134     (117)
          Minority interest                   1,544     207    1,254      249
          Deferred taxes                     (4,316)   (620)  (5,761)  (1,156)
          Other                                (320)    (68)    (162)       -
          Changes in operating assets and
           liabilities                      (16,888) (3,420)   3,283  (11,196)
    Net cash provided by operating
     activities                              (5,106)  7,184   25,054    5,701
    Plus:
          Unused fee on credit facilities (1)   663     563    1,392    1,051
          Staffmark integration and
           restructuring expenses             2,883       -    4,458        -
          Changes in operating assets and
           liabilities                       16,888   3,420   (3,283)  11,196
    Less:
          Maintenance capital expenditures
           (2)                                1,473   1,787    3,889    2,147

    Estimated cash flow available for
     distribution                           $13,855  $9,380  $23,732  $15,801


    Distribution paid in April 2008/2007                     $10,246   $6,135
    Distribution paid in July 2008/2007     $10,246  $9,458   10,246    9,458
                                            $10,246  $9,458  $20,492  $15,593

    (1)  Represents the commitment fee on the unused portion of the Credit
         Facilities.
    (2)  Represents maintenance capital expenditures that were funded from
         operating cash flow and excludes approximately $3.3 million
         and $1.6 million of growth capital expenditures for the six months
         ended June 30, 2008 and June 30, 2007, respectively.

SOURCE Compass Diversified Holdings

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