The Compass Group
Compass Diversified Holdings (Form: 8-K, Received: 03/01/2017 17:05:24)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 8-K
 
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 1, 2017
 
 
 
COMPASS DIVERSIFIED HOLDINGS
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
001-34927
 
57-6218917
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
 
 
 
COMPASS GROUP DIVERSIFIED
HOLDINGS LLC
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
001-34926
 
20-3812051
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
Sixty One Wilton Road
Second Floor
Westport, CT 06880
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (203) 221-1703
 
 
 
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Section 2     Financial Information
Item 2.02    Results of Operations and Financial Condition

On March 1, 2017, Compass Diversified Holdings and Compass Group Diversified Holdings LLC (NYSE: CODI) (collectively “CODI”) issued a press release announcing its consolidated operating results for the three and twelve months ended December 31, 2016. A copy of the press release is furnished within this report as Exhibit 99.1.


Section 9     Financial Statements and Exhibits
Item 9.01    Financial Statements and Exhibits
(d)    Exhibits.
99.1    Press Release of CODI dated March 1, 2017






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: March 1, 2017
COMPASS DIVERSIFIED HOLDINGS
 
 
 
 
By:
 
/s/ Ryan J. Faulkingham
 
 
 
 
 
 
Ryan J. Faulkingham
 
 
 
Regular Trustee
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: March 1, 2017
COMPASS GROUP DIVERSIFIED HOLDINGS LLC
 
 
 
 
By:
 
/s/ Ryan J. Faulkingham
 
 
 
 
 
 
Ryan J. Faulkingham
 
 
 
Chief Financial Officer





Exhibit 99.1

VIEWA28.GIF



Compass Diversified Holdings
Ryan J. Faulkingham
Chief Financial Officer
203.221.1703
ryan@compassequity.com  


Investor Relations and Media Contact:
The IGB Group
Leon Berman / Scott Eckstein
212.477.8438 / 212.477.8261
lberman@igbir.com / seckstein@igbir.com

Compass Diversified Holdings Reports
Fourth Quarter and Full Year 2016 Financial Results

Completes Accretive Platform Acquisition of 5.11 Tactical® and
Four Accretive Add-On Acquisitions During 2016

Westport, Conn., March 1, 2017 - 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 twelve months ended December 31, 2016.

Fourth Quarter 2016 Highlights

Generated Cash Provided by Operating Activities of $50.8 million for the fourth quarter of 2016 and $111.4 million for the full year 2016, and Cash Flow Available for Distribution and Reinvestment (“CAD” or “Cash Flow”) of $24.6 million for the fourth quarter of 2016 and $76.4 million for the full year 2016;
Reported net income of $2.0 million for the fourth quarter of 2016 and $56.5 million for the full year 2016;
Paid a fourth quarter 2016 cash distribution of $0.36 per share in January 2017, bringing cumulative distributions paid to $14.6352 per share since CODI’s IPO in May of 2006;
Sold a total of 3,500,000 shares of Fox Factory Holding Corp. (“FOX”) common stock, with total net proceeds of $71.8 million while retaining approximately 14% ownership of FOX;
Completed a 5,600,000 share offering in December 2016; and
Subsequent to year end, appointed Sally McCoy to the Company’s Board of Directors.

“Our niche industrial and branded consumer businesses generated solid levels of cash flow for the fourth quarter and full year 2016,” stated Alan Offenberg, CEO of Compass Diversified Holdings. “Results at our





Sterno Products, ERGObaby, Manitoba Harvest and 5.11 subsidiaries were especially strong during the fourth quarter, with each reporting year-over-year, double-digit revenue and EBITDA growth.”

Mr. Offenberg added, “In 2016, we capitalized on market opportunities with the accretive, platform acquisition of 5.11, whose industry leadership, broad customer base and product line make it a welcome addition to the CODI family. We are excited about the company’s strong growth prospects and look forward to working with 5.11 as it expands its consumer penetration worldwide. During 2016, we also continued to reinvest in our current subsidiaries by completing two add-on acquisitions for Clean Earth and acquisitions at Sterno Products and ERGObaby. Additionally, we continued to strengthen our balance sheet, realizing $182.5 million in proceeds from partially monetizing our interest in FOX, increasing the gains we have achieved for shareholders to approximately $650 million. We also completed a 5.6 million share offering, generating $99.7 million in net proceeds. Moving ahead, CODI is well positioned to build value and support distributions for our shareholders and to pursue compelling acquisition opportunities.”

Operating Results
For the quarter ended December 31, 2016, CODI generated Cash Provided by Operating Activities of $50.8 million, as compared to Cash Provided by Operating Activities of $38.1 million for the quarter ended December 31, 2015. CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $24.6 million for the quarter ended December 31, 2016, as compared to $16.1 million for the prior year’s comparable quarter. CODI’s weighted average number of shares outstanding for the quarters ended December 31, 2016 and December 31, 2015 were 55.5 million and 54.3 million, respectively.

Cash Flow for the fourth quarter of 2016 reflects year-over-year earnings growth in the Company’s Advanced Circuits, Sterno Products, ERGObaby, Manitoba Harvest and 5.11 businesses, offset by declines at the Company’s other businesses.

For the year ended December 31, 2016, CODI generated Cash Provided by Operating Activities of $111.4 million, as compared to Cash Provided by Operating Activities of $84.5 million for the year ended December 31, 2015. CODI reported Cash Flow of $76.4 million for the year ended December 31, 2016, as compared to $82.4 million for the year ended December 31, 2015. CODI's weighted average number of shares outstanding for the twelve month period ended December 31, 2016 was approximately 54.6 million, as compared to approximately 54.3 million for the twelve month period ended December 31, 2015.

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 approximately $650 million since going public in 2006.

Net income for the quarter ended December 31, 2016 was $2.0 million, as compared to net loss of $1.5 million for the quarter ended December 31, 2015. During the fourth quarter of 2016 and 2015, CODI’s investment in FOX increased by$15.8 million and decreased by $5.0 million, respectively. In addition, during the fourth quarter, CODI recorded a $16.0 million impairment of goodwill at its Arnold subsidiary.

For the year ended December 31, 2016, CODI reported net income of $56.5 million, primarily as a result of a $74.5 million gain on CODI’s investment in FOX. This compared to net income of $165.8 million for the year ended December 31, 2015, primarily as a result of the gain on the sale of CamelBak.

Liquidity and Capital Resources
As of December 31, 2016, CODI had approximately $39.8 million in cash and cash equivalents, $565.7 million outstanding on its term loan facility and $4.4 million in borrowings under its revolving credit facility.





The Company has no significant debt maturities until 2019 and had net borrowing availability of $541.2 million at December 31, 2016 under its revolving credit facility. In addition, the Company’s investment in its former subsidiary FOX is valued at $141.8 million at December 31, 2016.

In December 2016, CODI completed a public offering of 5.6 million trust shares. CODI raised approximately $99.7 million of net proceeds from the offering, which was used to repay a portion of the outstanding balance of its revolving credit facility.

Fourth Quarter 2016 Distribution
On January 5, 2017, CODI’s Board of Directors declared a fourth quarter distribution of $0.36 per share. The cash distribution was paid on January 26, 2017 to all holders of record as of January 19, 2017. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $14.6352 per share.

Conference Call
Management will host a conference call on Thursday, March 2, 2017 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 60500138. 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 March 9, 2017. 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 60500138.

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

The design and marketing of purpose-built tactical apparel and gear serving a wide range of global customers ( 5.11 );

The manufacture of quick-turn, small-run and production rigid printed circuit boards ( Advanced Circuits );

The manufacture of engineered magnetic solutions for a wide range of specialty applications and end-markets ( Arnold Magnetic Technologies );






Environmental services for a variety of contaminated materials including soils, dredged material, hazardous waste and drill cuttings ( Clean Earth );

The design and marketing of wearable baby carriers, strollers and related products ( ERGObaby );

The design and manufacture of premium home and gun safes ( Liberty Safe );

The manufacture and marketing of branded, hemp-based food products ( Manitoba Harvest ); and

The manufacture and marketing of portable food warming fuels and creative ambience solutions for the hospitality and consumer markets ( Sterno Products ).

In addition, we own approximately 14% 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 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.

This press release may contain certain forward-looking statements, including statements with regard to the future performance of CODI. 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 SEC for the year ended December 31, 2016 and other filings with the SEC. Except as required by law, 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
 
 
 
 
 
December 31,
 
December 31,
 
2016
 
2015
(in thousands)
 
 
 
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
39,772

 
$
85,240

Accounts receivable, net
181,191

 
105,910

Inventories
212,984

 
59,905

Prepaid expenses and other current assets
18,872

 
21,536

Current assets of discontinued operations

 
18,772

Total current assets
452,819

 
291,363

Property, plant and equipment, net
142,370

 
115,948

Investment
141,767

 
249,747

Goodwill and intangible assets, net
1,030,848

 
741,342

Other non-current assets
9,351

 
9,819

Non-current assets of discontinued operations

 
12,823

Total assets
$
1,777,155

 
$
1,421,042

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued expenses
$
152,553

 
$
89,907

Due to related parties
20,848

 
5,863

Current portion, long-term debt
5,685

 
3,250

Other current liabilities
23,435

 
9,004

Current liabilities off discontinued operations

 
8,455

Total current liabilities
202,521

 
116,479

Deferred income taxes
110,838

 
103,635

Long-term debt
551,652

 
308,639

Other non-current liabilities
17,600

 
18,960

Non-current liabilities of discontinued operations

 
110

Total liabilities
882,611

 
547,823

Stockholders' equity
 
 
 
Total stockholders' equity attributable to Holdings
856,405

 
826,084

Noncontrolling interests
38,139

 
46,219

Noncontrolling interests of discontinued operations

 
916

Total stockholders' equity
894,544

 
873,219

Total liabilities and stockholders’ equity
$
1,777,155

 
$
1,421,042







Compass Diversified Holdings
Condensed Consolidated Statements of Operations

 
 
 
 
 
 
 
 
 
Three Months Ended
 
Year Ended
(in thousands, except per share data)
December 31, 2016
 
December 31, 2015
 
December 31, 2016
 
December 31, 2015
 
 
 
 
 
 
 
 
Net sales
$
318,561

 
$
199,531

 
$
978,309

 
$
727,978

Cost of sales
215,195

 
131,753

 
651,739

 
487,242

Gross profit
103,366

 
67,778

 
326,570

 
240,736

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative expense
77,128

 
38,014

 
217,830

 
136,399

Management fees
8,012

 
6,061

 
29,406

 
25,658

Amortization expense
11,103

 
7,306

 
35,069

 
28,761

Loss on disposal/ impairment expense
17,990

 

 
25,204

 

Operating income (loss)
(10,867
)
 
16,397

 
19,061

 
49,918

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(1,447
)
 
(1,877
)
 
(24,651
)
 
(25,924
)
Gain (loss) on equity method investment
15,810

 
(4,985
)
 
74,490

 
4,533

Amortization of debt issuance costs
(936
)
 
(561
)
 
(2,763
)
 
(2,212
)
Other income (expense), net
(1,067
)
 
(1,340
)
 
(2,919
)
 
(2,323
)
Income from continuing operations before income taxes
1,493

 
7,634

 
63,218

 
23,992

Provision (benefit) for income taxes
(309
)
 
5,795

 
9,469

 
15,001

Net income from continuing operations
1,802

 
1,839

 
53,749

 
8,991

Income (loss) from discontinued operations, net of tax

 
(2,098
)
 
473

 
6,981

Gain (loss) on sale of discontinued operations, net of tax
174

 
(1,277
)
 
2,308

 
149,798

Net income (loss)
1,976

 
(1,536
)
 
56,530

 
165,770

Less: Income from continuing operations attributable to noncontrolling interest
212

 
1,127

 
1,961

 
5,133

Less: Loss from discontinued operations attributable to noncontrolling interest

 
(446
)
 
(116
)
 
(1,201
)
Net income (loss) attributable to Holdings
$
1,764

 
$
(2,217
)
 
$
54,685

 
$
161,838

 
 
 
 
 
 
 
 
Basic and fully diluted income (loss) per share
 
 
 
 
 
 
 
Continuing operations
$
(0.14
)
 
$
(0.34
)
 
$
0.46

 
$
(0.30
)
Discontinued operations

 
(0.05
)
 
0.05

 
2.91

 
$
(0.14
)
 
$
(0.39
)
 
$
0.51

 
$
2.61

 
 
 
 
 
 
 
 
Basic and fully diluted weighted average number of shares outstanding
55,457

 
54,300

 
54,591

 
54,300

 
 
 
 
 
 
 
 
Cash distributions declared per share
$
0.36

 
$
0.36

 
$
1.44

 
$
1.44






Compass Diversified Holdings
Summarized Statement of Cash Flows


 
 
 
 
 
Year Ended
(in thousands)
December 31, 2016
 
December 31, 2015
Net cash provided by operating activities
$
111,372

 
$
84,548

Net cash (used in) provided by investing activities
(363,021
)
 
233,880

Net cash provided by (used in) financing activities
208,726

 
(254,357
)
Effect of foreign currency on cash
(3,174
)
 
(1,905
)
Net (decrease) increase in cash and cash equivalents
(46,097
)
 
62,166

Cash and cash equivalents — beginning of period
85,869

 
23,703

Cash and cash equivalents — end of period
$
39,772

 
$
85,869






Compass Diversified Holdings
Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment
(unaudited)
 
Three Months Ended
 
Year Ended
(in thousands)
December 31, 2016
 
December 31, 2015
 
December 31, 2016
 
December 31, 2015
Net income (loss)
$
1,976

 
$
(1,536
)
 
$
56,530

 
$
165,770

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
33,433

 
13,329

 
87,405

 
63,072

Loss on disposal/ impairment expense
17,990

 

 
25,204

 
9,165

(Gain) loss on sale of businesses, net
(173
)
 
1,277

 
(2,308
)
 
(149,798
)
Amortization of debt issuance costs and original issue discount
1,202

 
729

 
3,565

 
2,883

Unrealized (gain) loss on derivatives
(6,783
)
 
(2,382
)
 
1,539

 
5,662

(Gain) loss on equity method investment
(15,810
)
 
4,985

 
(74,490
)
 
(4,533
)
Noncontrolling stockholders charges
1,370

 
1,110

 
4,382

 
3,737

Excess tax benefit on stock compensation
(797
)
 

 
(1,163
)
 

Other
1,485

 
(290
)
 
1,893

 
34

Deferred taxes
(5,390
)
 
732

 
(9,669
)
 
(3,131
)
Changes in operating assets and liabilities
22,275

 
20,123

 
18,484

 
(8,313
)
Net cash provided by operating activities
50,778

 
38,077

 
111,372

 
84,548

Plus:
 
 
 
 
 
 
 
Unused fee on revolving credit facility (1)
591

 
550

 
1,947

 
1,612

Successful acquisition costs

 
700

 
3,888

 
1,826

Integration services fee (2)
875

 
250

 
1,667

 
3,500

Realized loss from foreign currency effect (3)
1,069

 
1,264

 

 
2,561

Excess tax benefit on stock compensation
797

 

 
1,163

 

Earnout provision adjustment
394

 

 
394

 

Changes in operating assets and liabilities

 

 

 
8,313

Other
177

 
409

 
421

 
200

Less:
 
 
 
 
 
 
 
Maintenance capital expenditures (4)
6,619

 
4,509

 
20,363

 
18,194

Payment on swap
1,189

 
505

 
4,303

 
2,007

Changes in operating assets and liabilities
22,275

 
20,123

 
18,484

 

Realized gain from foreign currency effect (3)

 

 
1,327

 

Estimated cash flow available for distribution and reinvestment
$
24,598

 
$
16,113

 
$
76,375

 
$
82,359

 
 
 
 
 
 
 
 
Distribution paid in April 2016/2015
$

 
$

 
$
19,548

 
$
19,548

Distribution paid in July 2016/ 2015

 

 
19,548

 
19,548

Distribution paid in October 2016/ 2015

 

 
19,548

 
19,548

Distribution paid in January 2017/ 2016
21,564

 
19,548

 
21,564

 
19,548

 
$
21,564

 
$
19,548

 
$
80,208

 
$
78,192


(1)
Represents the commitment fee on the unused portion of the Revolving Credit Facility.
(2)
Represents fees paid by newly acquired companies to the Manager for integration services performed during the first year of ownership, payable quarterly.
(3)
Reflects the foreign currency transaction gain/ loss resulting from the Canadian dollar intercompany loans issued to Manitoba Harvest.
(4)  
Excludes growth capital expenditures of approximately $2.1 million for the three months ended December 31, 2016, and $3.4 million and $1.0 million for the years ended December 31, 2016 and 2015, respectively.