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

 

 

Compass Diversified Holdings

Condensed Consolidated Statements of Cash Flows

(unaudited)

Nine Months Ended

(in thousands)

September 30,
2014

September 30,
2013

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,
2014

September 30,
2013

September 30,
2014

September 30,
2013

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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