WESTPORT, CT - 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 and nine months ended September 30, 2014.
Third Quarter 2014 Highlights
•Generated Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $13.4 million for the third quarter of 2014;
•Reported net income of $262.5 million for the third quarter of 2014, which includes a $264.3 million gain on deconsolidation of the Fox Factory Holding Corp. ("FOX") subsidiary;
•Paid a third quarter 2014 cash distribution of $0.36 per share in October 2014, bringing cumulative distributions paid to $11.3952 per share since CODI's IPO in May of 2006;
•Completed the partial divestiture of FOX;
•Consummated the platform acquisition of Clean Earth Holdings, Inc. ("Clean Earth"); and
•Consummated the platform acquisition of Candle Lamp Company, LLC ("SternoCandleLamp") subsequent to the quarter end.
"During the third quarter, we generated operating results consistent with management's expectations, highlighting the financial strength and considerable potential of our leading family of middle-market businesses," stated Alan Offenberg, CEO of Compass Diversified Holdings. "In our branded consumer business, Ergobaby delivered double-digit revenue and operating income growth for the fourth consecutive quarter, reflecting increased international market share and strong acceptance of new product introductions. Our niche industrial businesses recorded improved results, driven primarily by revenue and operating income growth from American Furniture Manufacturing and Advanced Circuits."
Mr. Offenberg added, "We are pleased to have recently acquired two platform companies that meet our criteria of owning businesses with a strong market position, experienced management team, solid and stable cash flow and attractive growth potential. With the additions of Clean Earth and SternoCandleLamp, we have strengthened the Company's earnings power and expect the two companies to contribute a total of approximately forty-eight to fifty-two cents per share of Cash Flow accretion on a full year basis. Going forward, we remain focused on leveraging our industry leading positions to expand market share across our niche industrial and branded consumer businesses, while pursuing both platform and add-on acquisitions to further drive future Cash Flow growth."
Operating Results
CODI reported Cash Flow (see note regarding use of Non-GAAP Financial Measures below) of $13.4 million for the quarter ended September 30, 2014, as compared to $19.4 million for the prior year comparable quarter. CODI's weighted average number of shares outstanding for both the quarter ended September 30, 2014 and September 30, 2013 was approximately 48.3 million.
Cash Flow for the third quarter of 2014 reflects year-over-year growth in the Company's Ergobaby and Advanced Circuits businesses as well as positive contributions from the Company's American Furniture Manufacturing business, offset by a decline at the Company's Liberty Safe business. Cash Flow for the third quarter of 2014 included contributions from Clean Earth from the date of acquisition and excluded results from FOX, which completed its initial public offering ("IPO") on August 13, 2013.
For the nine month period ended September 30, 2014, CODI reported Cash Flow of $40.5 million, as compared to $63.7 million for the nine months ended September 30, 2013. CODI's weighted average number of shares outstanding for the nine month periods ended September 30, 2014 and September 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 $340 million since going public in 2006.
Net income for the quarter ended September 30, 2014 was $262.5 million, as compared to net income of $78.3 million for the quarter ended September 30, 2013. During the third quarter of 2014, CODI recorded a one-time accounting gain of approximately $264.3 million as a result of the deconsolidation of FOX. During the third quarter of 2013, CODI reversed approximately $61.3 million of supplemental put expense in connection with the termination of the Supplemental Put Agreement on July 1, 2013.
For the nine month period ended September 30, 2014, CODI reported net income of $282.2 million, as compared to net income of $83.9 million for the nine months ended September 30, 2013.
Liquidity and Capital Resources
As of September 30, 2014, CODI had approximately $23.3 million in cash and cash equivalents, $324 million outstanding on its term loan facility and $88.0 million of borrowings under its revolving credit facility. The Company has no significant debt maturities until 2019 and had borrowing availability of approximately $309 million at September 30, 2014 under its revolving credit facility.
On July 16, 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 deconsolidated FOX from its consolidated financial reporting as of July 10, 2014.
Third Quarter 2014 Distribution
On October 7, 2014, CODI's Board of Directors declared a third quarter distribution of $0.36 per share. The cash distribution was paid on October 30, 2014 to all holders of record as of October 23, 2014. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $11.3952 per share.
|
Compass Diversified Holdings Condensed Consolidated Balance Sheets |
|||||||
|
September 30, |
December 31, |
||||||
|
(in thousands) |
2014 |
2013 |
|||||
|
(unaudited) |
|||||||
|
Assets |
|||||||
|
Current assets |
|||||||
|
Cash and cash equivalents |
$ |
23,269 |
$ |
113,229 |
|||
|
Accounts receivable, less allowance of $4,382 and $3,424 |
128,658 |
111,736 |
|||||
|
Inventories |
95,790 |
152,948 |
|||||
|
Prepaid expenses and other current assets |
21,181 |
21,220 |
|||||
|
Total current assets |
268,898 |
399,133 |
|||||
|
Property, plant and equipment, net |
93,019 |
68,059 |
|||||
|
Equity method investment |
234,185 |
— |
|||||
|
Goodwill |
324,165 |
246,611 |
|||||
|
Intangible assets, net |
399,959 |
310,359 |
|||||
|
Deferred debt issuance costs, net |
11,767 |
8,217 |
|||||
|
Other non-current assets |
12,869 |
12,534 |
|||||
|
Total assets |
$ |
1,344,862 |
$ |
1,044,913 |
|||
|
Liabilities and stockholders' equity |
|||||||
|
Current liabilities |
|||||||
|
Accounts payable and accrued expenses |
$ |
93,003 |
$ |
118,129 |
|||
|
Due to related party |
5,315 |
4,528 |
|||||
|
Current portion, long-term debt |
3,250 |
2,850 |
|||||
|
Other current liabilities |
6,269 |
4,623 |
|||||
|
Total current liabilities |
107,837 |
130,130 |
|||||
|
Deferred income taxes |
107,051 |
60,024 |
|||||
|
Long-term debt |
404,467 |
280,389 |
|||||
|
Other non-current liabilities |
7,350 |
5,435 |
|||||
|
Total liabilities |
626,705 |
475,978 |
|||||
|
Stockholders' equity |
|||||||
|
Trust shares, no par value, 500,000 authorized; 48,300 shares issued and outstanding at 9/30/14 and 12/31/13 |
725,453 |
725,453 |
|||||
|
Accumulated other comprehensive income |
(154) |
693 |
|||||
|
Accumulated deficit |
(45,319) |
(252,761) |
|||||
|
Total stockholders' equity attributable to Holdings |
679,980 |
473,385 |
|||||
|
Noncontrolling interests |
38,177 |
95,550 |
|||||
|
Total stockholders' equity |
718,157 |
568,935 |
|||||
|
Total liabilities and stockholders' equity |
$ |
1,344,862 |
$ |
1,044,913 |
|||
|
Compass Diversified Holdings Condensed Consolidated Statements of Operations (unaudited) |
|||||||||||||||
|
Three Months Ended |
Nine Months Ended |
||||||||||||||
|
(in thousands, except per share data) |
September 30, 2014 |
September 30, 2013 |
September 30, 2014 |
September 30, 2013 |
|||||||||||
|
Net sales |
$ |
203,140 |
$ |
265,512 |
$ |
718,272 |
$ |
752,854 |
|||||||
|
Cost of sales |
141,090 |
183,040 |
497,328 |
516,652 |
|||||||||||
|
Gross profit |
62,050 |
82,472 |
220,944 |
236,202 |
|||||||||||
|
Operating expenses: |
|||||||||||||||
|
Selling, general and administrative expense |
39,686 |
42,468 |
133,939 |
124,671 |
|||||||||||
|
Supplemental put expense |
— |
(61,303) |
— |
(45,995) |
|||||||||||
|
Management fees |
5,876 |
4,892 |
15,634 |
13,642 |
|||||||||||
|
Amortization expense |
6,768 |
7,310 |
21,795 |
22,384 |
|||||||||||
|
Impairment expense |
— |
— |
— |
900 |
|||||||||||
|
Operating income |
9,720 |
89,105 |
49,576 |
120,600 |
|||||||||||
|
Other income (expense): |
|||||||||||||||
|
Interest expense, net |
(7,060) |
(5,078) |
(16,442) |
(14,605) |
|||||||||||
|
Amortization of debt issuance costs |
(545) |
(542) |
(1,698) |
(1,553) |
|||||||||||
|
Loss on debt extinguishment |
— |
— |
(2,143) |
(1,785) |
|||||||||||
|
Gain on deconsolidation of subsidiary |
264,325 |
— |
264,325 |
— |
|||||||||||
|
Gain (loss) on equity method investment |
— |
— |
— |
— |
|||||||||||
|
Other income (expense), net |
18 |
(75) |
308 |
(91) |
|||||||||||
|
Income before income taxes |
266,458 |
83,410 |
293,926 |
102,566 |
|||||||||||
|
Provision for income taxes |
3,928 |
5,114 |
11,704 |
18,688 |
|||||||||||
|
Net income |
262,530 |
78,296 |
282,222 |
83,878 |
|||||||||||
|
Less: Net income attributable to noncontrolling interest |
1,432 |
4,909 |
10,746 |
9,466 |
|||||||||||
|
Net income attributable to Holdings |
$ |
261,098 |
$ |
73,387 |
$ |
271,476 |
$ |
74,412 |
|||||||
|
Basic and fully diluted income per share |
$ |
5.15 |
$ |
1.50 |
$ |
5.34 |
$ |
1.52 |
|||||||
|
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 |
$ |
1.08 |
$ |
1.08 |
|||||||
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Compass Diversified Holdings Condensed Consolidated Statements of Cash Flows (unaudited) |
|||||||||||||||||||||
|
Nine Months Ended |
|||||||||||||||||||||
|
(in thousands) |
September 30, |
September 30, |
|||||||||||||||||||
|
Cash flows from operating activities: |
|||||||||||||||||||||
|
Net income |
$ |
282,222 |
$ |
83,878 |
|||||||||||||||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||||||||||||||||
|
Depreciation and amortization expense |
35,884 |
34,670 |
|||||||||||||||||||
|
Impairment expense |
— |
900 |
|||||||||||||||||||
|
Unrealized (gain) loss on interest rate and foreign currency derivatives |
2,412 |
2,489 |
|||||||||||||||||||
|
Loss on debt extinguishment |
2,143 |
1,785 |
|||||||||||||||||||
|
Amortization of debt issuance costs and original issue discount |
— |
(45,995) |
|||||||||||||||||||
|
Supplemental put expense |
2,809 |
68 |
|||||||||||||||||||
|
Noncontrolling stockholders charges |
3,592 |
3,367 |
|||||||||||||||||||
|
Excess tax benefit on stock-based compensation |
(1,662) |
— |
|||||||||||||||||||
|
Deferred taxes |
(1,944) |
(2,121) |
|||||||||||||||||||
|
Net gain on deconsolidation of subsidiary |
(264,325) |
— |
|||||||||||||||||||
|
(Gain) loss on equity method investment |
— |
— |
|||||||||||||||||||
|
Other |
361 |
189 |
|||||||||||||||||||
|
Changes in operating assets and liabilities, net of acquisition: |
|||||||||||||||||||||
|
Increase in accounts receivable |
(13,685) |
(28,244) |
|||||||||||||||||||
|
Increase in inventories |
17,052 |
(16,720) |
|||||||||||||||||||
|
Increase in prepaid expenses and other current assets |
(6,008) |
(668) |
|||||||||||||||||||
|
Increase (decrease) in accounts payable and accrued expenses |
(12,691) |
26,044 |
|||||||||||||||||||
|
Payment of profit allocation |
— |
(5,603) |
|||||||||||||||||||
|
Net cash provided by operating activities |
46,160 |
54,039 |
|||||||||||||||||||
|
Cash flows from investing activities: |
|||||||||||||||||||||
|
Acquisition of businesses, net of cash acquired |
(292,223) |
— |
|||||||||||||||||||
|
Purchases of property and equipment |
(10,187) |
(14,673) |
|||||||||||||||||||
|
Proceeds from FOX stock offering |
65,528 |
80,913 |
|||||||||||||||||||
|
Proceeds from sale of businesses |
517 |
1,244 |
|||||||||||||||||||
|
Payment of interest rate swap |
(1,502) |
— |
|||||||||||||||||||
|
Proceeds from sale leaseback transaction |
— |
4,372 |
|||||||||||||||||||
|
Other investing activities |
(32) |
260 |
|||||||||||||||||||
|
Net cash (used in) provided by investing activities |
(237,899) |
72,116 |
|||||||||||||||||||
|
Cash flows from financing activities: |
|||||||||||||||||||||
|
Net borrowing of debt |
168,187 |
28,438 |
|||||||||||||||||||
|
Distributions paid |
(52,164) |
(52,164) |
|||||||||||||||||||
|
Net payments related to noncontrolling interest |
(7,845) |
33,032 |
|||||||||||||||||||
|
Debt issuance costs |
(7,370) |
(2,697) |
|||||||||||||||||||
|
Excess tax benefit on stock-based compensation |
1,662 |
— |
|||||||||||||||||||
|
Other |
(139) |
(103) |
|||||||||||||||||||
|
Net cash provided by (used in) financing activities |
102,331 |
6,506 |
|||||||||||||||||||
|
Foreign currency impact on cash |
(552) |
261 |
|||||||||||||||||||
|
Net increase (decrease) in cash and cash equivalents |
(89,960) |
132,922 |
|||||||||||||||||||
|
Cash and cash equivalents — beginning of period |
113,229 |
18,241 |
|||||||||||||||||||
|
Cash and cash equivalents — end of period |
$ |
23,269 |
$ |
151,163 |
|||||||||||||||||
|
Compass Diversified Holdings Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment (unaudited) |
|||||||||||||||||||||||
|
Three Months Ended |
Nine Months Ended |
||||||||||||||||||||||
|
(in thousands) |
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||||||||
|
Net income |
$ |
262,530 |
$ |
78,296 |
$ |
282,222 |
$ |
83,878 |
|||||||||||||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||||||||||||||||||
|
Depreciation and amortization |
11,350 |
11,546 |
35,884 |
34,670 |
|||||||||||||||||||
|
Impairment expense |
— |
— |
— |
900 |
|||||||||||||||||||
|
Amortization of debt issuance costs and original issue discount |
713 |
823 |
2,412 |
2,489 |
|||||||||||||||||||
|
Unrealized loss on derivatives |
2,536 |
549 |
2,809 |
68 |
|||||||||||||||||||
|
Loss on debt extinguishment |
— |
— |
2,143 |
1,785 |
|||||||||||||||||||
|
Excess tax benefit from subsidiary stock options (1) |
— |
— |
(1,662) |
— |
|||||||||||||||||||
|
Supplemental put expense |
— |
(61,303) |
— |
(45,995) |
|||||||||||||||||||
|
Gain on deconsolidation of subsidiary |
(264,325) |
— |
(264,325) |
— |
|||||||||||||||||||
|
Noncontrolling stockholders charges |
623 |
1,055 |
3,592 |
3,367 |
|||||||||||||||||||
|
Other |
133 |
143 |
361 |
189 |
|||||||||||||||||||
|
Deferred taxes |
991 |
(548) |
(1,944) |
(2,121) |
|||||||||||||||||||
|
Changes in operating assets and liabilities |
20,289 |
1,079 |
(15,332) |
(25,191) |
|||||||||||||||||||
|
Net cash provided by operating activities |
34,840 |
31,640 |
46,160 |
54,039 |
|||||||||||||||||||
|
Plus: |
|||||||||||||||||||||||
|
Unused fee on revolving credit facility (2) |
461 |
564 |
1,635 |
1,738 |
|||||||||||||||||||
|
Excess tax benefit from subsidiary stock options (1) |
— |
— |
1,662 |
— |
|||||||||||||||||||
|
Successful acquisition costs |
1,935 |
— |
2,030 |
— |
|||||||||||||||||||
|
Changes in operating assets and liabilities |
— |
— |
15,332 |
25,191 |
|||||||||||||||||||
|
Other |
122 |
— |
123 |
— |
|||||||||||||||||||
|
Less: |
|||||||||||||||||||||||
|
Maintenance capital expenditures (3) |
2,358 |
4,421 |
9,001 |
9,957 |
|||||||||||||||||||
|
FOX CAD (4) |
677 |
7,344 |
15,716 |
7,344 |
|||||||||||||||||||
|
Payment on swap |
506 |
— |
1,502 |
— |
|||||||||||||||||||
|
Changes in operating assets and liabilities |
20,289 |
1,079 |
— |
— |
|||||||||||||||||||
|
Other |
131 |
— |
201 |
— |
|||||||||||||||||||
|
Estimated cash flow available for distribution and reinvestment |
$ |
13,397 |
$ |
19,360 |
$ |
40,522 |
$ |
63,667 |
|||||||||||||||
|
Distribution paid in April 2014/2013 |
$ |
17,388 |
$ |
17,388 |
|||||||||||||||||||
|
Distribution paid in July 2014/2013 |
17,388 |
17,388 |
|||||||||||||||||||||
|
Distribution paid in October 2014/2013 |
$ |
17,388 |
$ |
17,388 |
17,388 |
17,388 |
|||||||||||||||||
|
$ |
17,388 |
$ |
17,388 |
$ |
52,164 |
$ |
52,164 |
||||||||||||||||
|
(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 $0.2 million and $1.2 million for the three months ended September 30, 2014 and 2013, and $1.2 million and $4.7 million for the nine months ended September 30, 2014 and 2013. |
|
(4) |
Represents FOX CAD subsequent to the IPO date. For the nine months ended September 30, 2014, the amount includes approximately $24.2 million of EBITDA, less: $3.8 million of cash taxes, $1.9 million of management fees, $2.4 million of maintenance capital expenditures and $0.4 million of interest expense. |
Source: Compass Diversified Holdings
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