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Compass Diversified Holdings Reports Second Quarter 2014 Financial Results

Generates Cash Flow Available for Distribution and Reinvestment of $12.5 Million

WESTPORT, Conn., Aug. 6, 2014 /PRNewswire/ -- Compass Diversified Holdings (NYSE: CODI) ("CODI," "we," "our" or the "Company"), an owner of leading middle market businesses, announced today its consolidated operating results for the three months ended June 30, 2014.

Second Quarter 2014 Highlights

  • Generated Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $12.5 million for the second quarter of 2014;

  • Reported net income of $12.3 million for the second quarter of 2014;

  • Paid a second quarter 2014 cash distribution of $0.36 per share in July 2014, bringing cumulative distributions paid to $11.0352 per share since CODI's IPO in May of 2006; and

  • Executed a credit agreement for $725 million in new debt financing.

"During the second quarter, we continued to generate predictable and strong free cash flow across both our niche industrial businesses and our branded consumer businesses," stated Alan Offenberg, CEO of Compass Diversified Holdings. "In particular, Ergobaby and CamelBak each reported double-digit revenue and operating income growth in the second quarter. Additionally, American Furniture maintained its positive sales momentum, having now posted double-digit revenue growth in each of the past four quarters."

Mr. Offenberg added, "As we leveraged the leadership position and comparative financial strength of our subsidiaries to increase their relative market share, we further enhanced our financing flexibility. Specifically, we secured $725 million in new debt financing in the quarter, expanding our overall debt capacity under favorable terms and pricing. We also partially divested our interest in FOX last month through a public share offering that generated net proceeds for CODI of approximately $65.5 million. Importantly, we have maintained the potential for additional upside due to our continuing ownership in FOX. Going forward, we remain focused on utilizing our substantial liquidity to reinvest in our current subsidiaries and enhance their future performance while aggressively pursuing select platform and add-on acquisition opportunities that are accretive to Cash Flow."

Operating Results
CODI reported Cash Flow (see note regarding use of Non-GAAP Financial Measures below) of $12.5 million for the quarter ended June 30, 2014, as compared to $23.5 million for the prior year comparable quarter. CODI's weighted average number of shares outstanding for both the quarter ended June 30, 2014 and June 30, 2013 was approximately 48.3 million.  

Cash Flow for the second quarter of 2014 reflects year-over-year growth in the Company's Ergobaby and CamelBak businesses as well as positive contributions from the Company's American Furniture Manufacturing business, offset by the Company's Liberty Safe business. Cash Flow for the second quarter of 2014 excluded results from the Company's FOX subsidiary, which completed its initial public offering ("IPO") on August 13, 2013.

For the six month period ended June 30, 2014, CODI reported Cash Flow of $27.1 million, as compared to $44.3 million for the six months ended June 30, 2013. CODI's weighted average number of shares outstanding for the six month periods ended June 30, 2014 and June 30, 2013 was approximately 48.3 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 of our businesses for the periods during which CODI owned them. However, Cash Flow excludes the gains from monetizing interests in CODI's subsidiaries, which have totaled more than $270 million since going public in 2006.

Net income for the quarter ended June 30, 2014 was $12.3 million, as compared to net income of $2.0 million for the quarter ended June 30, 2013. During the second quarter of 2013, CODI recorded a non-cash expense of $8.9 million related to the Company's Supplemental Put Agreement, which was terminated in July 2013.

For the six month period ended June 30, 2014, CODI reported net income of $19.7 million, as compared to net income of $5.6 million for the six months ended June 30, 2013.

Liquidity and Capital Resources
As of June 30, 2014, CODI had approximately $115.3 million in cash and cash equivalents, $325 million outstanding on its term loan facility and no outstanding borrowings under its revolving credit facility. The Company's FOX subsidiary had $45.4 million outstanding on its term loan facility and no outstanding borrowings on its $60 million revolving credit facility.  The Company has no significant debt maturities until 2019 and had borrowing availability of approximately $388 million at June 30, 2014 under its revolving credit facility.

On June 6, 2014, CODI signed a credit agreement for a revolving credit facility totaling $400 million and a term loan facility in the amount of $325 million. The two facilities combined for $725 million in new debt financing and replaced the Company's previous revolving credit facility and term loan facility.

Subsequent to the quarter ended June 30, 2014, CODI sold a total of 4,466,569 shares of FOX common stock in a public offering of shares held by CODI and certain other FOX shareholders at a price of $15.50 per share. Upon completion of the offering, CODI received total net proceeds of approximately $65.5 million and its ownership in FOX was lowered from approximately 53% to a non-controlling interest of 41%, or 15,108,718 shares of FOX's common stock. As a result of this offering, CODI expects to deconsolidate FOX from its consolidated financial reporting beginning in the quarter ending September 30, 2014.

Second Quarter 2014 Distribution
On July 10, 2014, CODI's Board of Directors declared a second quarter distribution of $0.36 per share. The cash distribution was paid on July 30, 2014 to all holders of record as of July 23, 2014. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $11.0352 per share.

Conference Call
Management will host a conference call on Thursday, August 7, 2014 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 (855) 212-2368 and the dial-in number for international callers is (315) 625-6886. The access code for all callers is 75588632. 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 14, 2014. To access the replay, please dial (855) 859-2056 in the U.S. and (404) 537-3406 outside the U.S., and then enter the access code 75588632.

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. 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 owns and manages a diverse family of established North American middle market businesses. Each of its current subsidiaries is a leader in its niche market. 

CODI maintains controlling ownership interests in each of its subsidiaries in order to maximize its ability to impact long term cash flow generation and value. The Company provides both debt and equity capital for its subsidiaries, contributing to their financial and operating flexibility. CODI utilizes the cash flows generated by its subsidiaries to invest in the long-term growth of the Company and to make cash distributions to its shareholders.

Our seven majority-owned subsidiaries are engaged in the following lines of business:

  • The manufacture of quick-turn, prototype and production rigid printed circuit boards (Advanced Circuits, www.advancedcircuits.com);

  • The design and manufacture of promotionally priced upholstered furniture (American Furniture Manufacturing, www.americanfurn.net);

  • The design and manufacture of medical therapeutic support surfaces and other wound treatment devices (Anodyne Medical Device, also doing business and known as Tridien Medical, www.tridien.com);

  • The manufacture of engineered magnetic solutions for a wide range of specialty applications and end-markets (Arnold Magnetic Technologies, www.arnoldmagnetics.com);

  • The design and manufacture of personal hydration products for outdoor, recreation and military use   (CamelBak Products, www.camelbak.com);

  • The design and marketing of wearable baby carriers, strollers and related products (Ergobaby, www.ergobaby.com); and

  • The design and manufacture of premium home and gun safes (Liberty Safe, www.libertysafe.com).

In addition, we own approximately 41% of the common stock of Fox Factory Holding Corp. ("FOX", Nasdaq: FOXF), a former subsidiary business that completed its initial public offering in August 2013. FOX, www.ridefox.com, designs and manufactures high-performance suspension products primarily for mountain bikes, side-by-side vehicles, on-road and off-road vehicles and trucks, all-terrain vehicles, snowmobiles, specialty vehicles and applications, and motorcycles.

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, 2013 and other filings with the Securities and Exchange Commission. CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


 

Compass Diversified Holdings

Condensed Consolidated Balance Sheets











June 30,


December 31,

(in thousands)


2014


2013




(unaudited)




Assets







Current assets








Cash and cash equivalents


$

115,349



$

113,229



Accounts receivable, less allowance of $4,236 and $3,424


137,215



111,736



Inventories


166,723



152,948



Prepaid expenses and other current assets


23,766



21,220



    Total current assets


443,053



399,133


Property, plant and equipment, net


70,470



68,059


Goodwill


258,717



246,611


Intangible assets, net


331,121



310,359


Deferred debt issuance costs, net


13,227



8,217


Other non-current assets


12,852



12,534


Total assets


$

1,129,440



$

1,044,913










Liabilities and stockholders' equity







Current liabilities








Accounts payable and accrued expenses


$

113,083



$

118,129



Due to related party


4,399



4,528



Current portion, long-term debt


5,750



2,850



Other current liabilities


4,760



4,623



    Total current liabilities


127,992



130,130


Long-term debt


359,986



280,389


Deferred income taxes


57,658



60,024


Other non-current liabilities


23,483



5,435



Total liabilities


569,119



475,978


Stockholders' equity








Trust shares, no par value, 500,000 authorized; 48,300 shares
issued and outstanding at 6/30/14 and 12/31/13


725,453



725,453



Accumulated other comprehensive income


788



693



Accumulated deficit


(276,800)



(252,761)



        Total stockholders' equity attributable to Holdings


449,441



473,385



Noncontrolling interests


110,880



95,550



    Total stockholders' equity


560,321



568,935



Total liabilities and stockholders' equity


$

1,129,440



$

1,044,913










 

Compass Diversified Holdings

Condensed Consolidated Statements of Operations

(unaudited)
















Three Months Ended


Six Months Ended

(in thousands, except per share data)


June 30, 2014


June 30, 2013


June 30, 2014


June 30, 2013














Net sales


$

269,084



$

245,775



$

515,132



$

487,342


Cost of sales


186,542



168,418



356,238



333,612


           Gross profit


82,542



77,357



158,894



153,730


Operating expenses:













   Selling, general and administrative expense


48,080



40,994



94,253



82,203


     Supplemental put expense




8,912





15,308


     Management fees


5,023



4,434



9,758



8,750


     Amortization expense


7,678



7,444



15,027



15,074


     Impairment expense




900





900


           Operating income


21,761



14,673



39,856



31,495















Other income (expense):













     Interest expense, net


(4,810)



(4,188)



(9,382)



(9,527)


     Amortization of debt issuance costs


(583)



(526)



(1,153)



(1,011)


     Loss on debt extinguishment


(2,143)



(1,785)



(2,143)



(1,785)


     Other income (expense), net


106



(343)



290



(16)


           Income before income taxes


14,331



7,831



27,468



19,156


Provision for income taxes


2,012



5,875



7,776



13,574


          Net income


12,319



1,956



19,692



5,582


Less: Net income attributable to noncontrolling interest


6,600



2,525



9,314



4,557


          Net income (loss) attributable to Holdings


$

5,719



$

(569)



$

10,378



$

1,025















Basic and fully diluted income (loss) per share


$

0.11



$

(0.01)



$

0.19



$

0.02















Basic and fully diluted weighted average number of shares outstanding


48,300



48,300



48,300



48,300















Cash distributions declared per share


$

0.36



$

0.36



$

0.72



$

0.72


 

Compass Diversified Holdings

Condensed Consolidated Statements of Cash Flows

(unaudited)



Six Months Ended

(in thousands)


June 30, 2014


June 30, 2013

Cash flows from operating activities:







Net income


$

19,692



$

5,582


Adjustments to reconcile net income to net cash provided by operating activities:




   Depreciation and amortization expense


24,534



23,124


   Impairment expense




900


   Unrealized (gain) loss on interest rate and foreign currency derivatives


273



(481)


   Loss on debt extinguishment


2,143



1,785


   Amortization of debt issuance costs and original issue discount


1,699



1,666


   Supplemental put expense




15,308


   Noncontrolling stockholders charges


2,969



2,312


   Excess tax benefit on stock-based compensation


(1,662)




   Deferred taxes


(2,935)



(1,573)


   Other


228



46


Changes in operating assets and liabilities, net of acquisition:







   Increase in accounts receivable


(24,105)



(26,148)


   Increase in inventories


(5,056)



(15,843)


   Increase in prepaid expenses and other current assets


(3,389)



(3,667)


   Payment of profit allocation




(5,603)


   Increase (decrease) in accounts payable and accrued expenses


(3,071)



24,991


          Net cash provided by operating activities


11,320



22,399


Cash flows from investing activities:







      Acquisition of businesses, net of cash acquired


(43,014)




      Purchases of property and equipment


(7,601)



(9,008)


      Payment of interest rate swap


(996)




      Proceeds from sale leaseback transaction




4,372


      Other investing activities


29



272


          Net cash used in investing activities


(51,582)



(4,364)


Cash flows from financing activities:







      Net borrowing of debt


81,000



21,650


      Distributions paid


(34,776)



(34,776)


      Net payments related to noncontrolling interest


1,750



(3,090)


      Debt issuance costs


(7,370)



(1,843)


      Excess tax benefit on stock-based compensation


1,662




      Other


(35)



(69)


          Net cash provided by (used in) financing activities


42,231



(18,128)


Foreign currency impact on cash


151



(300)


Net increase (decrease) in cash and cash equivalents


2,120



(393)


Cash and cash equivalents — beginning of period


113,229



18,241


Cash and cash equivalents — end of period


$

115,349



$

17,848


 

Compass Diversified Holdings

Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment

(unaudited)



Three Months Ended


Six Months Ended

(in thousands)


June 30,
2014


June 30,
2013


June 30,
2014


June 30,
2013

Net income


$

12,319



$

1,956



$

19,692



$

5,582


Adjustments to reconcile net income to net cash provided by
operating activities:













      Depreciation and amortization


12,549



11,513



24,534



23,124


      Impairment expense




900





900


      Amortization of debt issuance costs and original issue discount


835



821



1,699



1,666


      Unrealized loss on derivatives


181



(96)



273



(481)


      Loss on debt extinguishment


2,143



1,785



2,143



1,785


      Excess tax benefit from subsidiary stock options (1)


(601)





(1,662)




      Supplemental put expense




8,912





15,308


      Noncontrolling stockholders charges


1,604



1,011



2,969



2,312


      Other


281



117



228



46


      Deferred taxes


(2,341)



(716)



(2,935)



(1,573)


      Changes in operating assets and liabilities


(9,610)



(23,930)



(35,621)



(26,270)


Net cash provided by operating activities


17,360



2,273



11,320



22,399


Plus:













      Unused fee on revolving credit facility (2)


574



529



1,174



1,174


      Excess tax benefit from subsidiary stock options (1)


601





1,662




      Other


43





96




      Changes in operating assets and liabilities


9,610



23,930



35,621



26,270


Less:













      Maintenance capital expenditures (3)


3,539



3,190



6,643



5,536


      FOX CAD (4)


11,545





15,039




      Payment on swap


501





996




      Other


70



71



70




Estimated cash flow available for distribution and
reinvestment


$

12,533



$

23,471



$

27,125



$

44,307















Distribution paid in April 2014/2013








$

17,388



$

17,388


Distribution paid in July 2014/2013


$

17,388



$

17,388



17,388



17,388




$

17,388



$

17,388



$

34,776



$

34,776



(1) Represents the non-cash excess tax benefit at FOX related to the exercise of stock options.

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

(3) Excludes growth capital expenditures of approximately $0.5 million and $1.0 million for the three months ended June 30, 2014 and 2013, and
$1.0 million and $3.5 million for the six months ended June 30, 2014 and 2013.

(4) Represents FOX CAD subsequent to the IPO date. For the six months ended June 30, 2014, the amount includes approximately $23.1 million
of EBITDA, less: $3.6 million of cash taxes, $1.9 million of management fees, $2.2 million of maintenance capital expenditures and $0.3 million
of interest expense. For the quarter ended June 30, 2014, the amount includes approximately $15.5 million of EBITDA, less: $1.4 million of
cash taxes, $1.0 million of management fees, $1.3 million of maintenance capital expenditures and $0.3 million of interest expense.


 

SOURCE Compass Diversified Holdings

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