Compass Diversified Holdings Reports Second Quarter 2012 Financial Results
Cash Flow Available for Distribution and Reinvestment Increases 26.6% to $23.3 Million
WESTPORT, Conn., Aug. 7, 2012 /PRNewswire/ -- Compass Diversified Holdings (NYSE: CODI) ("CODI" or the "Company"), an owner of leading middle market businesses, announced today its consolidated operating results for the three and six months ended June 30, 2012.
Second Quarter 2012 Highlights
- Generated Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $23.3 million for the second quarter of 2012;
- Reported net income of $2.2 million for the second quarter of 2012;
- Paid a second quarter 2012 cash distribution of $0.36 per share in July 2012, bringing cumulative distributions paid to $8.1552 per share since CODI's IPO in May of 2006;
- Exercised option to expand term loan facility and amended pricing terms; and
- Completed the sale of our majority-owned subsidiary, HALO Holding Corporation ("HALO").
Alan Offenberg, CEO of Compass Group Diversified Holdings LLC, commented, "During the second quarter, CODI delivered strong financial results that exceeded management's expectations with an increase in Cash Flow of 26.6% compared to the year-earlier period. We continue to leverage the leadership position and comparative financial strength of our subsidiaries to expand their relative market share with particularly strong results at Fox and Liberty where we posted double-digit revenue growth. Our results for the quarter also reflect notable contributions from our newest platform businesses, Arnold Magnetic and CamelBak, both of which were acquired less than a year ago."
Mr. Offenberg added, "As we maintain our focus on taking advantage of organic and acquisition-related growth opportunities, we further enhanced our financial flexibility in the quarter. Specifically, we expanded the size of our term loan facility by $30 million and reduced the interest rate by 1.25%. In addition, we consummated the sale of our HALO subsidiary. With a strong balance sheet including approximately $285 million in total liquidity at the end of the second quarter, CODI is in a strong position to capitalize on additional acquisitions under favorable valuations and terms as we have in the past. We also intend to continue to reinvest in our current subsidiaries to drive future performance while providing attractive cash distributions on behalf of our owners."
Operating Results
CODI reported Cash Flow (see note regarding use of Non-GAAP Financial Measures below) of $23.3 million for the quarter ended June 30, 2012, as compared to $18.4 million for the prior year comparable quarter. CODI's weighted average number of shares outstanding for the quarter ended June 30, 2012 and June 30, 2011 was approximately 48.3 million and 46.7 million, respectively.
The improvement in Cash Flow for the second quarter 2012 as compared to the year-earlier period was largely due to the inclusion of operating results from CamelBak and Arnold Magnetic, two platform businesses acquired by CODI on August 24, 2011 and March 5, 2012, respectively. Partially offsetting these factors, Cash Flow for the second quarter 2012 excluded results from the Company's Staffmark subsidiary, which was sold on October 17, 2011. In addition, results from the Company's HALO subsidiary were only partially reflected in the second quarter 2012 due to the sale of this platform business on May 1, 2012.
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 approximately $198 million since 2007.
Net income for the quarter ended June 30, 2012 was $2.2 million, as compared to net income of $8.3 million for the quarter ended June 30, 2011. During the quarter ended June 30, 2012, CODI recorded a loss from discontinued operations of $1.7 million, consisting primarily of transaction-related costs from the sale of HALO. The Company also recorded higher interest expense for the second quarter of 2012 as compared to the prior year period due in large part to higher average debt balances, amortization of original issue discount and changes in the fair value of interest rate swaps.
Liquidity and Capital Resources
As of June 30, 2012, CODI had $16.0 million in cash and cash equivalents, $253.8 million outstanding on its term loan facility and $19.5 million outstanding under its $290 million revolving credit facility. The Company has no significant debt maturities until October 2016 and had borrowing availability of approximately $270 million at June 30, 2012 under its revolving credit facility.
On April 2, 2012, CODI exercised an option under its credit agreement, dated as of October 27, 2011, to increase its term loan facility by $30 million. The Company's aggregate outstanding borrowings under its term loan facility increased to approximately $254.4 million after this borrowing. The net proceeds of the borrowing were used to repay existing borrowings under the Company's revolving credit facility. Concurrent with this increased term loan borrowing, CODI amended the pricing terms of its term loan facility. Under the terms of the amendment, amounts borrowed bear interest at LIBOR plus a margin of 5.00%, as compared to the previous margin of 6.00%, and the LIBOR floor was reduced to 1.25% from 1.50%. All other terms of the credit agreement remain unchanged.
On May 1, 2012, CODI completed the sale of its majority owned subsidiary, HALO, whereby the Company received approximately $66.4 million of total proceeds from the sale at closing. The proceeds were used to repay borrowings under the Company's revolving credit facility.
Second Quarter 2012 Distribution
On July 10, 2012, CODI's Board of Directors declared a second quarter distribution of $0.36 per share. The cash distribution was paid on July 31, 2012 to all holders of record as of July 24, 2012. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $8.1552 per share.
Conference Call
Management will host a conference call on Wednesday, August 8, 2012 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 (800) 259-2693 and the dial-in number for international callers is (913) 312-1269. The access code for all callers is 4321346. 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 15, 2012. 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 4321346.
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 eight current subsidiaries is a leader in their 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 owners.
Our 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.ergobabycarriers.com);
- The design, manufacture and marketing of premium suspension products for mountain bikes and powered off-road vehicles (FOX, www.ridefox.com);
- The design and manufacture of premium home and gun safes (Liberty Safe, www.libertysafe.com).
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, 2011 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 |
||||
| (in thousands) |
June 30, |
December 31, |
||
| 2012 |
2011 |
|||
| (unaudited) |
||||
| Assets |
||||
| Current assets: |
||||
| Cash and cash equivalents |
$ 16,017 |
$ 131,973 |
||
| Accounts receivable, less allowance of $3,587 and $2,420 |
118,449 |
69,114 |
||
| Inventories |
139,162 |
96,312 |
||
| Prepaid expenses and other current assets |
27,898 |
22,758 |
||
| Current assets of discontinued operations |
- |
40,064 |
||
| Total current assets |
301,526 |
360,221 |
||
| Property, plant and equipment, net |
64,612 |
43,579 |
||
| Goodwill |
259,248 |
205,567 |
||
| Intangible assets, net |
355,787 |
328,070 |
||
| Deferred debt issuance costs, net |
9,241 |
6,942 |
||
| Other non-current assets |
13,810 |
13,889 |
||
| Non-current assets of discontinued operations |
- |
71,638 |
||
| Total assets |
$ 1,004,224 |
$ 1,029,906 |
||
| Liabilities and stockholders' equity |
||||
| Current liabilities: |
||||
| Accounts payable and accrued expenses |
$120,511 |
$ 72,998 |
||
| Due to related party |
4,000 |
4,239 |
||
| Current portion of supplemental put obligation |
4,500 |
13,675 |
||
| Current portion, long-term debt |
2,550 |
2,250 |
||
| Other current liabilities |
1,571 |
1,694 |
||
| Current liabilities of discontinued operations |
- |
23,306 |
||
| Total current liabilities |
133,132 |
118,162 |
||
| Long-term debt |
263,062 |
214,000 |
||
| Supplemental put obligation |
32,676 |
35,814 |
||
| Deferred income taxes |
66,239 |
49,088 |
||
| Other non-current liabilities |
6,464 |
2,875 |
||
| Non-current liabilities of discontinued operations |
- |
13,489 |
||
| Total liabilities |
501,573 |
433,428 |
||
| Stockholders' equity |
||||
| Trust shares, no par value, 500,000 authorized; 48,300 shares issued and |
648,036 |
658,361 |
||
| outstanding at 6/30/12 and 12/31/11 |
||||
| Accumulated other comprehensive loss |
(787) |
- |
||
| Accumulated deficit |
(197,275) |
(160,852) |
||
| Total stockholders' equity attributable to Holdings |
449,974 |
497,509 |
||
| Noncontrolling interests |
52,677 |
95,257 |
||
| Noncontrolling interests of discontinued operations |
- |
3,712 |
||
| Total stockholders' equity |
502,651 |
596,478 |
||
| Total liabilities and stockholders' equity |
$ 1,004,224 |
$ 1,029,906 |
||
| Compass Diversified Holdings |
||||||||
| Condensed Consolidated Statements of Operations |
||||||||
| (unaudited) |
||||||||
| Three Months |
Three Months |
Six Months |
Six Months |
|||||
| Ended |
Ended |
Ended |
Ended |
|||||
| (in thousands, except per share data) |
June 30, 2012 |
June 30, 2011 |
June 30, 2012 |
June 30, 2011 |
||||
| Net sales |
$ 230,016 |
$ 133,144 |
$ 425,343 |
$ 277,784 |
||||
| Cost of sales |
157,115 |
92,045 |
290,755 |
193,331 |
||||
| Gross profit |
72,901 |
41,099 |
134,588 |
84,453 |
||||
| Operating expenses: |
||||||||
| Selling, general and administrative expense |
39,901 |
23,294 |
80,334 |
46,952 |
||||
| Supplemental put expense |
2,902 |
1,667 |
1,362 |
4,895 |
||||
| Management fees |
4,333 |
3,496 |
8,865 |
6,915 |
||||
| Amortization expense |
7,764 |
4,719 |
14,940 |
9,434 |
||||
| Impairment expense |
- |
- |
- |
7,700 |
||||
| Operating income |
18,001 |
7,923 |
29,087 |
8,557 |
||||
| Other income (expense): |
||||||||
| Interest income |
10 |
- |
43 |
2 |
||||
| Interest expense |
(7,707) |
(1,869) |
(13,736) |
(3,949) |
||||
| Amortization of debt issuance costs |
(485) |
(542) |
(841) |
(1,001) |
||||
| Other income, net |
(128) |
13 |
(396) |
- |
||||
| Income from continuing operations before income taxes |
9,691 |
5,525 |
14,157 |
3,609 |
||||
| Provision for income taxes |
5,659 |
2,923 |
9,758 |
6,290 |
||||
| Income (loss) from continuing operations |
4,032 |
2,602 |
4,399 |
(2,681) |
||||
| Income (loss) from discontinued operations, net of income tax |
(1,690) |
5,664 |
(1,168) |
4,380 |
||||
| Loss on sale of discontinued operations, net of income tax |
(130) |
- |
(130) |
- |
||||
| Net income |
2,212 |
8,266 |
3,101 |
1,699 |
||||
| Net income from continuing operations attributable to |
||||||||
| noncontrolling interest |
2,361 |
1,096 |
4,037 |
2,056 |
||||
| Net income (loss) from discontinued operations attributable to |
||||||||
| noncontrolling interest |
(225) |
792 |
(226) |
239 |
||||
| Net income (loss) attributable to Holdings |
$ 76 |
$ 6,378 |
$ (710) |
$ (596) |
||||
| Basic and fully diluted net income (loss) per share |
$ 0.00 |
$ 0.14 |
$ (0.01) |
$ (0.01) |
||||
| Basic and fully diluted weighted average number of |
||||||||
| shares outstanding |
48,300 |
46,725 |
48,300 |
46,725 |
||||
| 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 |
Six Months |
|||
| Ended |
Ended |
|||
| (in thousands) |
June 30, 2012 |
June 30, 2011 |
||
| Cash flows from operating activities: |
||||
| Net income |
$ 3,101 |
$ 1,699 |
||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||
| Depreciation and amortization expense |
27,284 |
21,801 |
||
| Unrealized loss on interest rate swap |
1,593 |
- |
||
| Amortization of original issue discount |
1,591 |
- |
||
| Impairment expense |
- |
7,700 |
||
| Supplemental put expense |
1,362 |
4,895 |
||
| Noncontrolling interests and noncontrolling stockholders charges |
2,332 |
1,215 |
||
| Deferred taxes |
(489) |
(1,926) |
||
| Other |
845 |
87 |
||
| Changes in operating assets and liabilities, net of acquisition: |
||||
| (Increase) decrease in accounts receivable |
(21,560) |
1,627 |
||
| Increase in inventories |
(26,423) |
(11,282) |
||
| Increase in prepaid expenses and other current assets |
(3,441) |
(3,305) |
||
| Payment of profit allocation |
(13,675) |
- |
||
| Increase in accounts payable and accrued expenses |
22,509 |
25,973 |
||
| Net cash provided by (used in) operating activities |
(4,971) |
48,484 |
||
| Cash flows from investing activities: |
||||
| Acquisition of businesses, net of cash acquired |
(125,390) |
- |
||
| Purchases of property and equipment |
(6,944) |
(11,367) |
||
| Proceeds from dispositions |
66,142 |
- |
||
| Purchase of Fox common stock |
(13,234) |
- |
||
| Proceeds released from escrow related to Staffmark sale |
5,045 |
- |
||
| Other |
1,082 |
150 |
||
| Net cash used in investing activities |
(73,299) |
(11,217) |
||
| Cash flows from financing activities: |
||||
| Net borrowing (repayment) of debt |
47,771 |
(8,000) |
||
| Redemption of CamelBak preferred stock |
(48,022) |
- |
||
| Debt issuance costs |
(3,154) |
(593) |
||
| Distributions paid |
(34,776) |
(32,708) |
||
| Net payments related to noncontrolling interest |
(4,456) |
- |
||
| Excess tax benefit on stock based compensation and other |
5,147 |
(261) |
||
| Net cash used in financing activities |
(37,490) |
(41,562) |
||
| Foreign currency impact on cash |
(593) |
- |
||
| Net decrease in cash and cash equivalents |
(116,353) |
(4,295) |
||
| Cash and cash equivalents — beginning of period |
132,370 |
13,536 |
||
| Cash and cash equivalents — end of period |
$ 16,017 |
$ 9,241 |
||
| Compass Diversified Holdings |
|||||||||
| Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment ("CAD") |
|||||||||
| (unaudited) |
|||||||||
| Three Months Ended |
Three Months ended |
Six Months Ended |
Six Months Ended |
||||||
| (in thousands) |
June 30, 2012 |
June 30, 2011 |
June 30, 2012 |
June 30, 2011 |
|||||
| Net income |
$ 2,212 |
$ 8,266 |
$ 3,101 |
$ 1,699 |
|||||
| Adjustment to reconcile net income to cash provided by |
|||||||||
| (used in) operating activities: |
|||||||||
| Depreciation and amortization |
13,353 |
10,486 |
26,443 |
20,800 |
|||||
| Impairment expense |
- |
- |
- |
7,700 |
|||||
| Amortization of debt issuance costs |
485 |
542 |
841 |
1,001 |
|||||
| Unrealized loss on interest rate swap |
1,248 |
- |
1,593 |
- |
|||||
| Amortization of original issue discount |
1,216 |
- |
1,591 |
- |
|||||
| Supplemental put expense |
2,902 |
1,667 |
1,362 |
4,895 |
|||||
| Noncontrolling stockholders charges |
1,541 |
363 |
2,332 |
1,215 |
|||||
| Other |
15 |
(205) |
845 |
87 |
|||||
| Deferred taxes |
(440) |
(933) |
(489) |
(1,926) |
|||||
| Changes in operating assets and liabilities |
(22,697) |
(11,460) |
(42,590) |
13,013 |
|||||
| Net cash provided by (used in) operating activities |
(165) |
8,726 |
(4,971) |
48,484 |
|||||
| Plus: |
|||||||||
| Unused fee on revolving credit facility (1) |
660 |
766 |
1,320 |
1,542 |
|||||
| Successful acquisition expense (2) |
495 |
350 |
4,820 |
850 |
|||||
| HALO sale related expenses (3) |
1,976 |
- |
1,976 |
- |
|||||
| Changes in operating assets and liabilities |
22,697 |
11,460 |
42,590 |
- |
|||||
| Less: |
|||||||||
| Maintenance capital expenditures (4) |
2,721 |
2,857 |
5,315 |
5,124 |
|||||
| Other |
(391) |
- |
439 |
- |
|||||
| Changes in operating assets and liabilities |
- |
- |
- |
13,013 |
|||||
| Estimated cash flow available for distribution and reinvestment |
$23,333 |
$18,445 |
$39,981 |
$32,739 |
|||||
| Distribution paid in April 2012 and March 2011 |
$ 17,388 |
$ 16,821 |
|||||||
| Distribution paid in July 2012/2011 |
$ 17,388 |
$ 16,821 |
17,388 |
16,821 |
|||||
| $ 17,388 |
$ 16,821 |
$ 34,776 |
$ 33,642 |
||||||
| (1) Represents the commitment fee on the unused portion of the Revolving Credit Facility and the Prior Revolving Credit Facility. |
|||||||||
| (2) Represents transaction costs for successful acquisitions that were expensed during the period. |
|||||||||
| (3) Represents transaction costs incurred related to the sale of HALO. |
|||||||||
| (4) Excludes growth capital expenditures of approximately $0.6 million and $4.0 million for the three months ended June 30, 2012 and June 30, 2011, respectively and $1.4 million and $6.2 million for the six months ended June 30, 2012 and June 30, 2011, respectively. |
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SOURCE Compass Diversified Holdings
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