Chronicle Journal: Finance

Compass Diversified Holdings Reports Third Quarter 2008 Financial Results

WESTPORT, Conn., Nov. 10 /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 nine months ended September 30, 2008.

2008 Third Quarter Highlights

-- Generated Cash Flow Available for Distribution and Reinvestment ("Cash Flow" or "CAD") of $15.7 million, up from $12.8 million in the prior year quarter, a 22.5% increase; and

-- Increased third quarter cash distribution by 5% to $0.34 per share. Distribution has now been increased by approximately 30% since May 2006 IPO.

CODI increased its Cash Flow (see note regarding use of Non-GAAP Financial Measures below) to $15.7 million for the quarter ended September 30, 2008, as compared to $12.8 million for the prior year period. On a trailing twelve month basis, CODI's Cash Flow for the period ending September 30, 2008 was $57.1 million. CODI's weighted average number of shares for the quarter ending September 30, 2008, the quarter ending September 30, 2007 and the twelve months ending September 30, 2008 was approximately 31.5 million for each respective period.

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 which have totaled over $105 million since CODI's initial public offering.

Net income for the quarter ended September 30, 2008 was $5.3 million, as compared to $4.4 million for the quarter ended September 30, 2007.

As of September 30, 2008, CODI had $89.7 million in cash and cash equivalents and over $280 million in availability under its revolving credit facility. The Company has no significant debt maturities until 2012.

On October 9, 2008, CODI's Board of Directors declared an increase in the Company's dividend by 5% to $0.34 per share. The distribution was paid on October 31, 2008 to all CODI shareholders of record as of October 24, 2008.

Joe Massoud, CEO of Compass Diversified Holdings, said, "During the third quarter, we once again posted solid results and increased our dividend while positioning the Company for strong operating performance through economically difficult times. Specifically, we expanded cash available for distribution 22.5% to $15.7 million. We also declared our third dividend increase since going public in 2006, based on the successful application of our unique business model and performance of our portfolio of subsidiary companies. We have now increased our distributions by approximately 30% in the two and a half years since going public. "

Mr. Massoud continued, "Going forward, with a diverse mix of leading niche businesses and considerable financial flexibility, we believe CODI remains well positioned over the long term. While near term macroeconomic conditions are challenging and will impact certain subsidiary businesses, our overall portfolio remains strong, and will continue to generate Cash Flow that will allow us to both pay sizeable distributions to our shareholders and reinvest in our business. We also plan to take advantage of our substantial available capital and extremely healthy liquidity position. In accomplishing this important objective, we intend to use our financial strength to enhance the market positions of our subsidiaries and actively pursue attractive new platform business opportunities that meet our strict valuation and diligence requirements."

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) 795-3610 and the dial-in number for international callers is (719) 325-4807. The access code for all callers is 4411756. 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 24, 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 4411756.

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 cash flows. These cash flows support distributions to CODI shareholders.

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 Coral Springs, FL.

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.

This press release may contain certain forward-looking statements, including statements with regard to the future performance of the Company. 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 10-K 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. CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

A copy of this press release, and of past press releases, is available on the
               Compass Diversified Holdings website located at
                     www.compassdiversifiedholdings.com.


    Compass Diversified Holdings
    James J. Bottiglieri
    Chief Financial Officer
    203.221.1703
    jim@compassequity.com

    Investor Relations and Media Contacts:
    The IGB Group
    Leon Berman / Tyler Wilson
    212.477.8438 / 646.673.9701
    lberman@igbir.com / twilson@igbir.com



                         Compass Diversified Holdings
                    Condensed Consolidated Balance Sheets
                                 (unaudited)

    (in thousands)                             September 30,     December 31,
                                                    2008              2007
    Assets
    Current assets:
      Cash and cash equivalents                    $89,676          $115,500
      Accounts receivable, less allowances
       of $6,190 and $3,204                        192,907           111,718
      Inventories                                   50,418            35,492
      Prepaid expenses and other current assets     25,037            11,088
      Current assets of discontinued
       operations                                        -            25,443

          Total current assets                     358,038           299,241

      Property, plant and equipment, net            29,804            20,437
      Goodwill                                     314,346           218,817
      Intangible assets, net                       255,684           163,378
      Deferred debt issuance costs, net              8,722             9,613
      Other non-current assets                      17,926            17,549
      Assets of discontinued operations                  -            98,967

    Total assets                                  $984,520          $828,002


    Liabilities and stockholders' equity
    Current liabilities:
      Accounts payable and accrued expenses       $152,024           $75,716
      Due to related party                             689               814
      Current portion of long-term debt              2,000             2,000
      Current liabilities of discontinued
       operations                                        -            28,083

          Total current liabilities                154,713           106,613

    Long-term debt                                 151,500           148,000
    Supplemental put obligation                     12,858            21,976
    Deferred income taxes                           63,043            59,478
    Other non-current liabilities                   45,290            21,419
    Non-current liabilities of
     discontinued operations                             -            15,799

    Total liabilities                              427,404           373,285

    Minority interests                              77,510            21,867

    Stockholders' equity
    Trust shares, no par value, 500,000
     authorized; 31,525 shares issued and
     outstanding                                   412,969           443,705
    Accumulated other comprehensive income             426                 -
    Accumulated earnings (deficit)                  66,211           (10,855)
          Total stockholders' equity               479,606           432,850
    Total liabilities and stockholders' equity    $984,520          $828,002



                           Compass Diversified Holdings
                 Condensed Consolidated Statements of Operations
                                   (unaudited)

                                     Three Months Ended   Nine Months Ended
    (in thousands, except           September September  September  September
    per share data)                  30, 2008  30, 2007   30, 2008   30, 2007

    Net sales                        $413,601  $215,476  $1,163,646  $578,404
    Cost of sales                     322,606   161,868     909,982   440,777
             Gross profit              90,995    53,608     253,664   137,627
    Operating expenses:
         Staffing expense              25,872    13,440      78,412    41,922
         Selling, general and
          administrative expenses      42,597    24,818     121,121    61,642
         Supplemental put expense        (765)    2,174       5,829     4,591
         Fees to manager                3,758     2,479      10,953     6,921
         Amortization expense           6,171     3,324      18,432     8,912
             Operating income          13,362     7,373      18,917    13,639

    Other income (expense):
         Interest income                  559       568       1,140     1,895
         Interest expense              (4,199)   (1,184)    (13,545)   (4,215)
         Amortization of debt
          issuance costs                 (491)     (305)     (1,473)     (858)
         Other income, net                 48       247         405       248

             Income (loss) from
              continuing operations
              before income taxes
              and minority
              interest                  9,279     6,699       5,444    10,709
    Provision for income taxes          3,067     2,706       3,622     5,381
    Minority interest in net income
     (loss)                             1,590       538       2,295       439

             Income (loss) from
              continuing operations     4,622     3,455        (473)    4,889

    Income from discontinued
     operations, net of income tax          -       900       4,607     2,881
    Gain on sale of discontinued
     operations, net of income tax        636         -      72,932    36,038

             Net income                $5,258    $4,355     $77,066   $43,808

    Basic and fully diluted net
     income per share                   $0.17     $0.14       $2.44     $1.67

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

    Cash distributions declared per
     share                              $0.34    $0.325       $0.99    $0.925



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

                                                Nine Months       Nine Months
                                                   Ended             Ended
                                                 September 30,  September 30,
    (in thousands)                                   2008             2007

    Cash flows from operating activities:
    Net income                                     $77,066           $43,808
    Adjustments to reconcile net income
     to net cash provided by operating
     activities:
       Gain on sale of 2008 dispositions           (72,932)                -
       Gain on sale of 2007 disposition                  -           (36,038)
       Depreciation and amortization expense        26,580            17,988
       Amortization of debt issuance costs           1,445               857
       Supplemental put expense                      5,829             4,591
       Minority interests                            2,844               869
       Stockholder notes and option costs            1,943               226
       Deferred taxes                               (7,010)           (2,373)
       Other                                           296                 -

    Changes in operating assets and
     liabilities, net of acquisition:
       Increase in accounts receivable                (310)          (14,511)
      (Increase) decrease in inventories                93              (787)
       (Increase) decrease in prepaid
        expenses and other current assets           (8,672)            2,433
       Increase in accounts payable and
        accrued expenses                            13,631            12,386
       Decrease in supplemental put
        obligation                                 (14,947)           (7,880)
              Net cash provided by
               operating activities                 25,856            21,569

    Cash flows from investing activities:
          Acquisition of businesses, net
           of cash acquired                       (173,561)         (224,799)
          Proceeds from 2008 dispositions          153,439                 -
          Proceeds from 2007 disposition                 -           119,856
          Purchases of property and
           equipment                                (8,587)           (4,969)
          Other                                       (328)                -
              Net cash used in investing
               activities                          (29,037)         (109,912)

    Cash flows from financing activities:
          Proceeds from issuance of Trust
           shares, net                                   -           168,673
          Net borrowing (repayment) of
           revolving line of credit borrowings       2,968           (60,733)
          Debt issuance costs                         (551)           (1,079)
          Distributions paid                       (30,736)          (21,728)
          Other                                      1,898             2,655
              Net cash provided by
               financing activities                (26,421)           87,788

    Net decrease in cash and cash
     equivalents                                   (29,602)             (555)
    Foreign currency adjustment                        (80)              (54)
    Cash and cash equivalents -
     beginning of period                           119,358             7,006
    Cash and cash equivalents -
     end of period                                 $89,676            $6,397



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

                                       Three Months Ended   Nine Months Ended
                                       September September September September
    (in thousands)                     30, 2008  30, 2007  30, 2008  30, 2007

    Net income                           $5,258    $4,355   $77,066  $43,808
      Adjustment to reconcile net
       income to cash provided by
       operating activities:
          Gain on sale of businesses       (636)        -   (72,932) (36,038)
          Depreciation and amortization   8,362     6,448    26,580   17,988
          Amortization of debt issuance
           costs                            463       308     1,445      857
          Supplemental put expense         (765)    2,174     5,829    4,591
          Stockholder notes and other       809       706     1,943      589
          Minority interest               1,590       620     2,844      869
          Deferred taxes                 (1,249)   (1,217)   (7,010)  (2,373)
          Other                             458      (364)      296     (364)
          Changes in operating assets
           and liabilities              (13,488)    2,837   (10,205)  (8,359)
    Net cash provided by operating
     activities                             802    15,867    25,856   21,568
    Plus:
          Unused fee on credit
           facilities (1)                   863       864     2,255    1,915
          Staffmark integration and
           restructuring expenses         2,018         -     6,476        -
          Changes in operating assets
           and liabilities               13,488    (2,837)   10,205    8,359
    Less:
          Maintenance capital
           expenditures (2)               1,507     1,109     5,396    3,256

    Estimated cash flow available for
     distribution                       $15,664   $12,785   $39,396  $28,586


    Distribution paid in
     April 2008/2007                                        $10,246   $6,135
    Distribution paid in
     July 2008/2007                                          10,246    9,458
    Distribution paid in
     October 2008/2007                  $10,719   $10,246    10,719   10,246
                                        $10,719   $10,246   $31,211  $25,839

    (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 $3.2 million and $1.7
        million of growth capital expenditures for the nine months ended Sept.
        30, 2008 and Sept. 30, 2007, respectively.

SOURCE Compass Diversified Holdings

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