Chronicle Journal: Finance

Compass Diversified Holdings Reports First Quarter 2009 Financial Results

WESTPORT, Conn., May 8 /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 months ended March 31, 2009.

First Quarter 2009 Highlights

  • Generated a Cash Flow Available for Distribution and Reinvestment ("Cash Flow" or "CAD") loss of $0.4 million for the first quarter of 2009. Cash Flow was a positive $40.3 million for the trailing twelve months ended March 31, 2009;

  • Repaid $75 million of debt, reducing outstanding debt at quarter end to $77.5 million, with no significant maturity until December of 2013;

  • Paid first quarter 2009 cash distribution of $0.34 per share; and

  • Reported a net loss of $27.3 million for the first quarter of 2009, including a $16.4 million negative impact of one-time non-cash items.

CODI reported Cash Flow (see note regarding use of Non-GAAP Financial Measures below) of negative $0.4 million for the quarter ended March 31, 2009, as compared to $9.9 million for the prior year period, a period during which CODI owned two additional businesses, both of which were sold in June 2008, for a cumulative gain of over $73 million. On a trailing twelve month basis, CODI generated Cash Flow of $40.3 million.

CODI's Cash Flow decline for the first quarter as compared to the prior year quarter was largely attributable to the impact of the economy on the Company's Staffmark subsidiary, as well as to the absence of the two business segments referenced above, which were sold after the first quarter of 2008. CODI's weighted average number of shares for the quarter ending March 31, 2009 and for the trailing twelve months was approximately 31.5 million.

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 of 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.

As of March 31, 2009, CODI had $77.5 million outstanding on its long-term debt facility, $32.4 million in cash and cash equivalents and a $340 million revolving acquisition and working capital credit facility that had no borrowing outstanding on the facility. The Company has no significant debt maturities until 2013.

On April 8, 2009, CODI's Board of Directors declared a distribution of $0.34 per share. The distribution was paid on April 30, 2009 to all holders of record as of April 23, 2009.

Commenting on the quarter, Joe Massoud, CEO of Compass Diversified Holdings, said, "Overall, CODI's diverse family of businesses performed in line with our expectations in this challenging economic environment, during a quarter that has historically been our weakest in terms of cash flow generation due to seasonality issues. Each of our management teams has responded to the economic environment in a proactive manner that combines both an effort to manage materials and operating costs and a view on the long-term health and growth of their individual companies. We remain committed to utilizing our substantial financial liquidity to improve the competitive position of each of our subsidiaries in their markets, and are seeing evidence of such market share gains in a number of our businesses. During the quarter, we paid a $0.34 per share distribution, reflecting our continuing commitment to paying our shareholders a distribution based on the normalized cash flow generation capacity of our businesses. Due to the substantial excess of CAD over distributions paid since our initial public offering, as well as the over $109 million in realized gains we have achieved since that time, we currently remain in a position to continue paying distributions at the current rate to our shareholders."

Mr. Massoud continued, "Furthermore, due to the strength of our subsidiaries' operations, as well as the highly profitable and timely monetization of our interests in certain subsidiaries, we continue to maintain significant liquidity. As a result, CODI is well positioned to acquire new platform subsidiaries or add-on businesses for our existing subsidiaries. We are beginning to see an increase in opportunities for such acquisitions, and as valuations come down and cash flow levels begin to stabilize, we expect to be acquisitive."

The Company recorded a net loss for the quarter ended March 31, 2009 of $27.3 million, as compared to a net loss of $0.8 million for the quarter ended March 31, 2008. The increase in the net loss largely resulted from the recording of a $59.8 million non-cash impairment expense for the Company's Staffmark subsidiary, partially offset by the associated tax benefit of $22.5 million, $12.7 million for the minority shareholders portion of this impairment expense and an $8.2 million supplemental put reversal.

Commenting on the significant non-cash charges for the past quarter, Jim Bottiglieri, CFO of Compass Diversified Holdings, said, "In the first quarter of 2009, the Company conducted its annual impairment test of goodwill and other intangible assets, which is required under GAAP. As a result, we took an impairment charge on our ownership of Staffmark, reflecting a GAAP based decrease in our holding value for that entity. However, in spite of the impairment charge, our favorable opinion of Staffmark's long-term outlook and value as well as the subsidiary's ability to strengthen its competitive position remains intact and unchanged. Additionally, our periodic supplemental put accrual expense or reversal is driven by the current cash flow generation levels of our subsidiaries, as well as anticipated market multiples for those business were they to be sold in the current environment. The estimated total liability as of March 31, 2009 was less than as of December 31, 2008, resulting in a non-cash reduction in supplemental put expense."

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) 795-3647 and the dial-in number for international callers is (719) 325-4816. The access code for all callers is 8750714. 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 May 15, 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 8750714.

Note Regarding Use of Non-GAAP Financial Measures

CAD, or Cash Flow, is a non-GAAP measure 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. CBS Personnel 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 Compass Diversified Holdings' website located at www.compassdiversifiedholdings.com.

                           Compass Diversified Holdings
                       Condensed Consolidated Balance Sheets

    (in thousands)                                     March 31,  December 31,
                                                         2009          2008
                                                         ----          ----
                                                      (unaudited)
    Assets
    Current assets:
      Cash and cash equivalents                         $32,420       $97,473
      Accounts receivable, less allowance of
       $4,958 and $4,824                                119,917       164,035
      Inventories                                        47,639        50,909
      Prepaid expenses and other current assets          25,536        22,784
                                                         ------        ------

          Total current assets                          225,512       335,201

      Property, plant and equipment, net                 29,316        30,763
      Goodwill                                          288,669       339,095
      Intangible assets, net                            234,684       249,489
      Deferred debt issuance costs, net                   6,653         8,251
      Other non-current assets                           21,254        21,537
                                                         ------        ------
    Total assets                                       $806,088      $984,336
                                                       ========      ========
    Liabilities and stockholders' equity
    Current liabilities:
      Accounts payable and accrued expenses             $86,316      $105,808
      Due to related party                                  462           604
      Current portion of long-term debt                   2,000         2,000
      Current portion of workers'
       compensation liability                            27,386        26,916
      Other liabilities                                   3,303         4,042
                                                          -----         -----

          Total current liabilities                     119,467       139,370

    Long-term debt                                       75,500       151,000
    Supplemental put obligation                           5,252        13,411
    Deferred income taxes                                61,048        86,138
    Workers' compensation liability                      42,350        40,852
    Other non-current liabilities                         8,317         9,687
                                                          -----         -----

    Total liabilities                                   311,934       440,458

    Stockholders' equity
    Trust shares, no par value, 500,000 authorized;
     31,525 shares issued and outstanding at
     3/31/09 and 12/31/08                               443,705       443,705
    Accumulated other comprehensive loss                 (2,596)       (5,242)
    Noncontrolling interests                             65,098        79,431
    Accumulated earnings (deficit)                      (12,053)       25,984
                                                        -------        ------
          Total stockholders' equity                    494,154       543,878
                                                        -------       -------
    Total liabilities and stockholders' equity         $806,088      $984,336
                                                       ========      ========



                         Compass Diversified Holdings
                Condensed Consolidated Statements of Operations
                                  (unaudited)

                                             Three Months    Three Months
                                                 Ended           Ended
    (in thousands, except per share data)   March 31, 2009  March 31, 2008
                                            --------------  --------------

    Net sales                                    $274,914        $351,134
    Cost of sales                                 217,305         276,326
                                                  -------         -------
            Gross profit                           57,609          74,808
    Operating expenses:
       Staffing expense                            20,940          25,070
       Selling, general and
        administrative expense                     37,755          36,683
       Supplemental put expense                    (8,159)          2,318
       Management fees                              3,072           3,651
       Amortization expense                         6,196           6,130
       Impairment expense                          59,800               -
                                                   ------               -
            Operating income (loss)               (61,995)            956

    Other income (expense):
       Interest income                                 61             315
       Interest expense                            (3,542)         (4,672)
       Amortization of debt issuance costs           (470)           (485)
       Loss on debt repayment                      (3,652)              -
       Other income (expense), net                    (79)            255
                                                      ---             ---

            Loss from continuing operations
             before income taxes and
             noncontrolling interest              (69,677)         (3,631)
    Income tax benefit                            (27,444)           (293)
                                                  -------            ----
            Loss from continuing operations
             before noncontrolling interest       (42,233)         (3,338)
    Income from discontinued operations,
     net of income tax                                  -           2,030
                                                      ---           -----
            Net loss before
             noncontrolling interest              (42,233)         (1,308)
    Net loss attributable to
     noncontrolling interest                      (14,915)           (513)
                                                  -------            ----
            Net loss attributable to Holdings    $(27,318)          $(795)
                                                 ========           =====

    Basic and fully diluted loss per share         $(0.87)         $(0.03)
                                                   ======          ======
    Weighted average number of shares
     outstanding - basic and fully diluted         31,525          31,525
                                                   ======          ======

    Cash distributions declared per share           $0.34          $0.325
                                                    =====          ======



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

                                                 Three Months    Three Months
                                                     Ended           Ended
    (in thousands)                              March 31, 2009  March 31, 2008
                                                --------------  --------------
    Cash flows from operating activities:
    Net loss attributable to Holdings               $(27,318)          $(795)
    Adjustments to reconcile net loss to net
     cash provided by operating activities:
       Depreciation and amortization expense           8,870           9,676
       Impairment expense                             59,800               -
       Supplemental put expense                       (8,159)          2,318
       Loss on debt repayment                          3,652               -
       Noncontrolling interests                      (14,915)           (290)
       Noncontrolling stockholder notes and other        901             527
       Deferred taxes                                (24,780)         (1,445)
       Other                                             (61)              -

    Changes in operating assets and liabilities,
     net of acquisition:
       Decrease in accounts receivable                45,651          19,623
       Decrease in inventories                         3,292             812
       Increase in prepaid expenses and other
        current assets                                (2,290)        (18,296)
       Increase (decrease) in accounts payable
        and accrued expenses                         (18,819)         18,032
                                                     -------          ------
           Net cash provided by operating
            activities                                25,824          30,162
                                                      ------          ------

    Cash flows from investing activities:
         Acquisition of businesses, net of
          cash acquired                               (1,327)       (164,221)
         Purchases of property and equipment          (1,114)         (4,764)
         Other investing activities                       72               -
                                                          --             ---
              Net cash used in investing
               activities                             (2,369)       (168,985)
                                                      ------        --------

    Cash flows from financing activities:
         Net borrowing (repayment) of debt           (75,500)         44,307
         Swap termination payment                     (2,517)              -
         Debt issuance costs                               -            (327)
         Other                                           228             (66)
         Distributions paid                          (10,719)        (10,246)
                                                     -------         -------
              Net cash (used in) provided by
               financing activities                  (88,508)         33,668
                                                     -------          ------

    Net decrease in cash and cash equivalents        (65,053)       (105,155)
    Foreign currency adjustment                            -            (170)
    Cash and cash equivalents - beginning of period   97,473         119,358
                                                      ------         -------
    Cash and cash equivalents - end of period        $32,420         $14,033
                                                     =======         =======



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

                                               Three Months      Three Months
                                                   Ended             Ended
    (in thousands)                            March 31, 2009    March 31, 2008
                                              --------------    --------------

    Net loss                                       $(27,318)           $(795)
      Adjustment to reconcile net loss to cash
       provided by operating activities:
         Depreciation and amortization                8,400            9,191
         Amortization of debt issuance costs            470              486
         Impairment expense                          59,800                -
         Supplemental put expense                    (8,159)           2,318
         Loss on debt repayment                       3,652                -
         Noncontrolling stockholder notes and other     840              525
         Noncontrolling interest                    (14,915)            (290)
         Deferred taxes                             (24,780)          (1,445)
         Changes in operating assets and
         liabilities                                 27,834           20,170
                                                     ------           ------
    Net cash provided by operating activities        25,824           30,160
    Plus:
         Unused fee on revolving credit
          facilities (1)                                855              729
         Staffmark integration and restructuring
          expenses                                    1,891            1,575
         Changes in operating assets and
          liabilities                               (27,834)         (20,170)
    Less:
         Maintenance capital expenditures (2)         1,114            2,416
                                                      -----            -----
    Estimated  cash flow available for
     distribution                                     $(378)          $9,878
                                                      =====           ======

    Distribution paid in April 2009/2008            $10,719          $10,246
                                                    =======          =======

    (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 $2.3 million of growth
    capital expenditures for the quarter ended Mar. 31, 2008.

SOURCE Compass Diversified Holdings

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