Chronicle Journal: Finance

Compass Diversified Holdings Reports Fourth Quarter and Full Year 2008 Financial Results

Generates Cash Flow Available for Distribution and Reinvestment of $50.6 million for 2008 and $11.2 million for the Quarter Ended December 31, 2008

WESTPORT, Conn., March 13 /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 twelve months ended December 31, 2008.

2008 and Year-to-Date 2009 Highlights

  • Generated Cash Flow Available for Distribution and Reinvestment ("Cash Flow" or "CAD") of $11.2 million for fourth quarter of 2008 and $50.6 million for the full year 2008;
  • Reported net income of $1.2 million for the fourth quarter of 2008 and $78.3 million for the full year 2008;
  • Paid fourth quarter 2008 cash distribution of $0.34 per share, bringing cumulative distributions paid for 2008 to $1.33; and
  • Reduced debt position in February of 2009 by repaying at par $75 million of debt under its term loan facility due in December of 2013, realizing net interest expense savings while maintaining significant financial flexibility.

CODI reported Cash Flow (see note regarding use of Non-GAAP Financial Measures below) for the year ending December 31, 2008 of $50.6 million, as compared to $46.3 million for the prior year period. CODI's Cash Flow for the quarter ended December 31, 2008 was $11.2 million as compared to $17.7 million for the prior year period. CODI's weighted average number of shares for the quarter and twelve months ending December 31, 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 subsidiary for the periods during which CODI owned them. However, Cash Flow excludes the gains from sales of businesses which have totaled over $109 million since CODI's initial public offering.

Net income for the quarter ended December 31, 2008 was $1.2 million, as compared to a net loss of $3.4 million for the quarter ended December 31, 2007. CODI's net income for the year ended December 31, 2008 was $78.3 million, as compared to $40.4 million for the prior year period.

As of December 31, 2008, CODI had $97.5 million in cash and cash equivalents and $340 million in availability under its revolving credit facility. The Company has no significant debt maturities until 2013.

On January 9, 2009, CODI announced that its Board of Directors declared a distribution of $0.34 per share. The distribution was paid on January 30, 2009 to all CODI shareholders of record as of January 23, 2009.

Commenting on the quarter and year, Joe Massoud, CEO of Compass Diversified Holdings, said, "During 2008, CODI achieved strong results in a challenging environment, further demonstrating the strength of our business model, which is predicated upon owning niche leading businesses in diverse industries. With the $1.33 per share in distributions for 2008, the Company has paid cumulative cash distributions of $3.28 per share since going public in May of 2006. For the year ended December 31, 2008, we generated cash flows well in excess of our distribution levels, and have done so since our IPO, generating $28.5 million of CAD in excess of distributions paid for the period through December 31, 2008. Importantly, as a measure of cash flow generation, CAD does not include gains from sales of businesses, of which we achieved an impressive $2.33 per share in 2008 and have achieved $4.08 per share since our IPO. Going forward, while the economic environment will clearly impact the near term cumulative performance of our subsidiaries, we expect to utilize our company's financial flexibility, as well as the relative strength of each of our subsidiaries within their respective industries, to enhance further their competitive positions. We believe that efforts to gain market share, combined with a detailed and disciplined focus on cost management, will allow our subsidiaries to emerge from the recession as even stronger and more valuable businesses."

Mr. Massoud concluded, "During the quarter, we also took proactive measures to manage costs prudently at the parent level. Specifically, we reduced our debt by repaying $75 million under our term loan facility due in December of 2013, providing substantial savings to CODI in net interest expense, as well as delivering a meaningful reduction in management fees paid by the Company to its manager. Importantly, despite paying down this debt, we have maintained our considerable financial flexibility with an undrawn $340 million acquisition revolver and over $20 million in cash. We also continue to have no material debt maturities until late 2013. We remain patient and disciplined in the face of the current market volatility in deploying our capital to acquire new subsidiary companies. With low leverage and significant access to capital, we are in a strong position to pursue accretive acquisition opportunities that drive long-term shareholder value as valuations come down and earnings levels begin to stabilize."

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) 741-4253 and the dial-in number for international callers is (719) 325-4817. The access code for all callers is 2140277. 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 March 20, 2009. 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 2140277.

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")

Compass Diversified Holdings ("CODI") was formed to acquire and manage a group of middle market businesses that are headquartered in North America. Its subsidiaries are a diverse group of businesses with highly defensible market positions.

CODI's structure involves acquisition of controlling ownership interests in its subsidiaries in order to maximize its ability to impact each subsidiary's performance. The Company provides both debt and equity capital for its subsidiaries, contributing to their financial and operating flexibility. CODI's model involves discipline in identifying and valuing businesses, proactive engagement with the management teams of the companies it acquires and the monetization of its subsidiaries when it believes that doing so will maximize shareholder value. The Company seeks to provide an extraordinarily high level of transparency in financial reporting and governance processes for the benefit of its shareholders. CODI currently has six subsidiaries operating in distinct market niches. The cash flows generated by these businesses are utilized in pursuit of CODI's dual objectives of investing in the long-term growth of the Company and making distributions of cash to its 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, which are primarily used for the prevention and treatment of pressure wounds experienced by patients with limited to no mobility. AMD is based in Los Angeles, CA.

CBS Personnel Holdings, Inc. and its consolidated subsidiaries, referred to as Staffmark, is a provider of temporary staffing services in the United States. Staffmark is headquartered in Cincinnati, OH and operates over 300 locations in 29 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, 2008 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
                  Condensed Consolidated Balance Sheets

     (in thousands)                         December 31, December 31,
                                                2008        2007
                                              --------   --------

    Assets
    Current assets:
      Cash and cash equivalents                $97,473   $115,500
      Accounts receivable, less allowance
       of $4,824 and $3,204                    164,035    111,718
      Inventories                               50,909     35,492
      Prepaid expenses and other
       current assets                           22,784     11,088
      Current assets of
       discontinued operations                       -     25,443
                                                ------     ------

          Total current assets                 335,201    299,241

      Property, plant and equipment, net        30,763     20,437
      Goodwill                                 339,095    218,817
      Intangible assets, net                   249,489    163,378
      Deferred debt issuance costs, net          8,251      9,613
      Other non-current assets                  21,537     17,549
      Non-current assets of
       discontinued operations                       -     98,967
                                                ------     ------

    Total assets                              $984,336   $828,002
                                              ========   ========
    Liabilities and stockholders' equity
    Current liabilities:
      Accounts payable and accrued expenses   $105,808    $68,275
      Due to related party                         604        814
      Current portion of long-term debt          2,000      2,000
      Current portion of workers'
       compensation liability                   26,916      6,881
      Other liabilities                          4,042        560
      Current liabilities of
       discontinued operations                       -     28,083
                                                ------     ------

          Total current liabilities            139,370    106,613

    Long-term debt                             151,000    148,000
    Supplemental put obligation                 13,411     21,976
    Deferred income taxes                       86,138     59,478
    Workers' compensation liability             40,852     16,791
    Other non-current liabilities                9,687      4,628
    Non-current liabilities and
     minority interest of discontinued
     operations                                      -     15,799
                                                ------     ------

    Total liabilities                          440,458    373,285

    Minority interests                          79,431     21,867

    Stockholders' equity
    Trust shares, no par value, 500,000
     authorized; 31,525 shares issued and
     outstanding at 12/31/08 and 12/31/07      443,705    443,705

    Accumulated other comprehensive loss        (5,242)         -
    Accumulated earnings (deficit)              25,984    (10,855)
                                                ------    -------
          Total stockholders' equity           464,447    432,850
                                               -------    -------
    Total liabilities and
     stockholders' equity                     $984,336   $828,002
                                              ========   ========


                               Compass Diversified Holdings
                     Condensed Consolidated Statements of Operations

                                 Three        Three
                                 Months       Months       Year      Year
                                 Ended        Ended        Ended     Ended
    (in thousands, except       December     December    December   December
     except per share data)        31,          31,         31,        31,
                                  2008         2007        2008       2007
                                ----------------------------------------------
                              (unaudited)  (unaudited)

    Net sales                  $374,827     $263,387  $1,538,473   $841,791
    Cost of sales               286,224      195,231   1,196,206    636,008
                                -------      -------   ---------    -------
        Gross profit             88,603       68,156     342,267    205,783
    Operating expenses:
      Staffing expense           24,026       14,285     102,438     56,207
      Selling, general and
       administrative
       expenses                  44,647       32,784     165,768     94,426
      Supplemental put
       expense                      553        2,809       6,382      7,400
      Management fees             4,252        3,199      15,205     10,120
      Amortization
       expense                    6,173        3,767      24,605     12,679
                                  -----        -----      ------     ------
        Operating income          8,952       11,312      27,869     24,951

    Other income (expense):
      Interest income               237          625       1,377      2,520
      Interest expense           (4,283)      (2,779)    (17,828)    (6,994)
      Amortization of debt
       issuance costs              (496)        (374)     (1,969)    (1,232)
      Other income (expense),
       net                          489         (274)        894        (26)
                                    ---         ----         ---        ---

        Income from continuing
         operations before
         income taxes and
         minority interests       4,899        8,510      10,343     19,219

    Provision for income taxes    2,904        3,787       6,526      9,168
    Minority interest             1,198       10,558       3,493     10,997
                                  -----       ------       -----     ------

        Income (loss) from
         continuing operations      797       (5,835)        324       (946)

    Income from discontinued
     operations, net of
     income tax                      -        2,599       4,607      5,480
    Gain on sale of discontinued
     operations, net of income
     taxes                         431         (204)     73,363     35,834
                                   ---         ----      ------     ------

        Net income (loss)       $1,228      $(3,440)    $78,294    $40,368
                                ======      =======     =======    =======

    Basic and fully diluted
     income (loss) per share     $0.04       $(0.11)      $2.48      $1.46
                                 =====       ======       =====      =====

    Weighted average number of
     shares outstanding - basic
     and fully diluted          31,525       31,525      31,525     27,629
                                ======       ======      ======     ======

    Cash distributions paid
     per share                   $0.34       $0.325       $1.33      $1.25
                                 =====       ======       =====      =====



                         Compass Diversified Holdings
               Condensed Consolidated Statements of Cash Flows

                                                    Year          Year
                                                    Ended         Ended
                                                 December 31,  December 31,
    (in thousands)                                  2008           2007
                                                -------------  -------------

    Cash flows from operating activities:
    Net income                                    $78,294        $40,368
    Adjustments to reconcile net income to
     net cash provided by operating activities:
       Gain on sale of businesses                 (73,363)       (35,834)
       Depreciation and
        amortization expense                       36,990         25,331
       Supplemental put expense                     6,382          7,400
       Minority interests                           4,042         11,940
       Stockholder notes and other                  3,208          1,166
       Deferred taxes                              (8,911)        (1,295)

    Changes in operating assets and
     liabilities, net of acquisition:
       Decrease (increase) in
        accounts receivable                        29,970        (13,233)
       Decrease (increase) in inventories             102         (5,772)
       (Increase) decrease in prepaid
        expenses and other current assets          (3,874)         2,003
       Increase (decrease) in accounts
        payable and accrued expenses              (17,344)        17,578
       Decrease in supplemental
        put obligation                            (14,947)        (7,880)
                                                  -------         ------
              Net cash provided by
               operating activities                40,549         41,772
                                                   ------         ------

    Cash flows from investing activities:
          Acquisition of businesses, net of
           cash acquired                         (167,546)      (225,112)
          Proceeds from dispositions              154,156        119,652
          Purchases of property
           and equipment                          (11,576)        (8,698)
         Changes in minority interest               2,251              -
          Other                                       173              -
                                                      ---              -
              Net cash used in investing
               activities                         (22,542)      (114,158)
                                                  -------       --------
    Cash flows from financing activities:
          Proceeds from issuance of
           trust shares, net                            -        168,744
          Net borrowing (repayment) of debt         2,468         65,177
          Debt issuance costs                        (552)        (5,776)
          Other                                      (273)         2,697
          Distributions paid - minority
           holders of Advanced Circuits                 -        (13,987)
          Distributions paid                      (41,455)       (31,973)
                                                  -------        -------
              Net cash provided by
               financing activities               (39,812)       184,882
                                                  -------        -------

    Net increase (decrease) in cash and
     cash equivalents                             (21,805)       112,496
    Foreign currency adjustment                       (80)          (144)
    Cash and cash equivalents -
     beginning of period                          119,358          7,006
                                                  -------          -----
    Cash and cash equivalents -
     end of period                                $97,473       $119,358
                                                  =======       ========
    Cash reflected in
     discontinued operations                           $-         $3,858
                                                       ==         ======



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


                                      Three      Three
                                      Months     Months     Year       Year
                                      Ended      Ended      Ended      Ended
                                     December   December   December   December
                                        31,        31,        31,        31,
    (in thousands)                     2008       2007       2008       2007
                                    ---------  ---------  ---------  ---------

    Net income (loss)                $1,228    $(3,440)   $78,294    $40,368
       Adjustment to reconcile
        net income (loss) to cash
        provided by operating
        activities:
          Gain on sale of
           businesses                  (431)       204    (73,363)   (35,834)
          Depreciation and
           amortization               8,441      6,119     35,021     24,107
          Amortization of debt
           issuance costs               524        367      1,969      1,224
          Supplemental put
           expense                      553      2,809      6,382      7,400
          Stockholder notes
           and other                    969        941      3,208      1,166
          Minority interest           1,198     11,071      4,042     11,940
          Deferred taxes             (1,901)     1,078     (8,911)    (1,295)
          Changes in
           operating assets
           and liabilities            4,112      1,055     (6,093)    (7,304)
                                      -----      -----     ------     ------
    Net cash provided by
     operating activities            14,693     20,204     40,549     41,772
    Plus:
          Unused fee on
           revolving credit
           facilities (1)               884        750      3,139      2,665
          Staffmark integration
           and restructuring
           expenses                   2,350          -      8,826          -
          Changes in
           operating assets
           and liabilities           (4,112)    (1,055)     6,093      7,304
    Less:
          Maintenance capital
           expenditures (2)           2,645      2,150      8,041      5,406
                                      -----      -----      -----      -----

    Estimated  cash flow
     available for
     distribution                   $11,170    $17,749    $50,566    $46,335
                                    =======    =======    =======    =======


    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
    Distribution paid in
     January 2009/2008              $10,719    $10,246     10,719     10,246
                                    -------    -------     ------     ------
                                    $10,719    $10,246    $41,930    $36,085
                                    =======    =======    =======    =======


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

    (2) Represents maintenance capital expenditures that were funded from
        operating cash flow and excludes approximately $3.5 million of growth
        capital expenditures for the year ended Dec. 31, 2008 and $3.3 million
        of growth capital expenditures for the year ended Dec. 31, 2007.

SOURCE Compass Diversified Holdings

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