The Compass Group
Compass Diversified Holdings (Form: 8-K, Received: 08/02/2017 16:19:08)


 
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): August 2, 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.)
301 Riverside Avenue
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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





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

On August 2, 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 six months ended June 30, 2017. 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 August 2, 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: August 2, 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: August 2, 2017
COMPASS GROUP DIVERSIFIED HOLDINGS LLC
 
 
 
 
By:
 
/s/ Ryan J. Faulkingham
 
 
 
 
 
 
Ryan J. Faulkingham
 
 
 
Chief Financial Officer





Exhibit 99.1

CODILOGOF2.JPG

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
Second Quarter 2017 Financial Results

Completes Accretive Platform Acquisition of Crosman Corporation During the Quarter

Westport, Conn., August 2, 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 months ended June 30, 2017.

Second Quarter 2017 Highlights

Generated Cash Provided by Operating Activities of $37.3 million, and Cash Flow Available for Distribution and Reinvestment (“CAD” or “Cash Flow”) of $25.5 million for the second quarter of 2017;
Reported net loss of $2.7 million for the second quarter of 2017;
Paid a second quarter 2017 cash distribution of $0.36 per share in July 2017, bringing cumulative distributions paid to $15.3552 per share since CODI’s IPO in May of 2006;
Consummated the accretive platform acquisition of Crosman Corporation (“Crosman”);
Completed an offering of 4,000,000 shares of its 7.250% Series A Preferred Shares; and
Subsequent to quarter end, completed the accretive add-on acquisition of the Commercial business of LaserMax, Inc. (“LaserMax”) by CODI's subsidiary Crosman.

“Our niche leading businesses continued to generate consistent free cash flow in the second quarter with strong EBITDA growth at our Advanced Circuits, Ergobaby, Manitoba Harvest and 5.11 subsidiaries,” stated Alan Offenberg, CEO of Compass Diversified Holdings. “Additionally, during the quarter CODI expanded its outdoor branded consumer presence with the accretive, platform acquisition of Crosman.”

Mr. Offenberg added, “Crosman’s leadership in airgun products and continued penetration into the archery market makes it a strong addition to our family of leading middle market businesses. Subsequent to quarter end, CODI completed the add-on acquisition of LaserMax's Commercial business for Crosman, supporting the company’s expansion into complementary markets while creating new cross-selling opportunities. During the second quarter, we also completed an offering of 4 million preferred shares, generating $100 million in gross proceeds. With an enhanced capital structure and over $500 million of available liquidity, CODI is well positioned to pursue attractive platform and add-on acquisitions that generate strong free cash flow and support our ability to provide attractive and consistent cash distributions.”






Operating Results
For the quarter ended June 30, 2017, CODI generated Cash Provided by Operating Activities of $37.3 million, as compared to Cash Provided by Operating Activities of $39.5 million for the quarter ended June 30, 2016. CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $25.5 million for the quarter ended June 30, 2017, as compared to $15.6 million for the prior year’s comparable quarter. CODI’s weighted average number of shares outstanding for the quarters ended June 30, 2017 and June 30, 2016 were 59.9 million and 54.3 million, respectively.

Cash Flow for the second quarter of 2017 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 Arnold Magnetic and Clean Earth businesses. The acquisition of Crosman also contributed to the second quarter earnings growth.

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 over $770 million since going public in 2006.

Net loss for the quarter ended June 30, 2017 was $2.7 million, as compared to net income of $19.4 million for the quarter ended June 30, 2016. During the second quarter of 2016, CODI realized a net gain of $18.9 million related to its equity investment in its former subsidiary Fox Factory Holding Corp. (“FOX”). During the first quarter of 2017, the Company sold its remaining shares in FOX in a secondary public offering.

Liquidity and Capital Resources
As of June 30, 2017, CODI had approximately $39.3 million in cash and cash equivalents, $562.8 million outstanding on its term loan facility and $3.7 million in outstanding borrowings under its revolving credit facility. The Company has no significant debt maturities until 2019 and had net borrowing availability of $544.6 million at June 30, 2017 under its revolving credit facility.

In June 2017, the Company completed a public offering of 4.0 million of its 7.250% Series A Preferred Shares with a liquidation preference of $25.00 per share. CODI raised $96.6 million of net proceeds from the offering, which was used to repay a portion of the outstanding balance of its revolving credit facility and for general corporate purposes.

Second Quarter 2017 Distribution
On July 6, 2017, CODI’s Board of Directors declared a second quarter distribution of $0.36 per share. The cash distribution was paid on July 27, 2017 to all holders of record as of July 20, 2017. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $15.3552 per share.

Conference Call
Management will host a conference call on Thursday, August 3, 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 52994183. 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 10, 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 52994183.

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 from Operating Activities on the attached schedules. We consider Net Income and Cash Flow from 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 nine 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, manufacture and marketing of airguns, archery products, optics and related accessories ( Crosman );

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 ).

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
 
 
 
 
 
June 30,
 
December 31,
 
2017
 
2016
(in thousands)
(unaudited)
 
 
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
39,287

 
$
39,772

Accounts receivable, net
194,823

 
181,191

Inventories
229,465

 
212,984

Prepaid expenses and other current assets
25,922

 
18,872

Total current assets
489,497

 
452,819

Property, plant and equipment, net
157,588

 
142,370

Investment in FOX

 
141,767

Goodwill and intangible assets, net
1,146,655

 
1,030,848

Other non-current assets
9,205

 
9,351

Total assets
$
1,802,945

 
$
1,777,155

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued expenses
$
175,993

 
$
152,553

Due to related party
7,598

 
20,848

Current portion, long-term debt
5,685

 
5,685

Other current liabilities
14,000

 
23,435

Total current liabilities
203,276

 
202,521

Deferred income taxes
126,538

 
110,838

Long-term debt
548,546

 
551,652

Other non-current liabilities
18,352

 
17,600

Total liabilities
896,712

 
882,611

Stockholders' equity
 
 
 
Total stockholders' equity attributable to Holdings
862,268

 
856,405

Noncontrolling interests
43,965

 
38,139

Total stockholders' equity
906,233

 
894,544

Total liabilities and stockholders’ equity
$
1,802,945

 
$
1,777,155







Compass Diversified Holdings
Condensed Consolidated Statements of Operations
(unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
(in thousands, except per share data)
June 30, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
 
 
 
 
 
 
 
Net sales
$
307,381

 
$
214,176

 
$
597,373

 
$
407,463

Cost of sales
197,661

 
137,506

 
393,320

 
266,674

Gross profit
109,720

 
76,670

 
204,053

 
140,789

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative expense
79,575

 
44,767

 
158,298

 
87,054

Management fees
8,183

 
6,588

 
16,031

 
12,959

Amortization expense
14,779

 
8,163

 
25,089

 
15,543

Impairment expense/ Loss on disposal of assets

 
6,663

 
8,864

 
6,663

Operating income (loss)
7,183

 
10,489

 
(4,229
)
 
18,570

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(8,418
)
 
(7,366
)
 
(15,554
)
 
(18,828
)
Gain (loss) on investment

 
18,889

 
(5,620
)
 
8,266

Amortization of debt issuance costs
(1,003
)
 
(570
)
 
(1,936
)
 
(1,140
)
Other income (expense), net
952

 
(1,837
)
 
930

 
1,419

Income (loss) from continuing operations before income taxes
(1,286
)
 
19,605

 
(26,409
)
 
8,287

Provision (benefit) for income taxes
1,454

 
1,588

 
(2,194
)
 
4,884

Net income (loss) from continuing operations
(2,740
)
 
18,017

 
(24,215
)
 
3,403

Income from discontinued operations, net of income tax

 
1,341

 

 
928

Gain on sale of discontinued operations, net of tax

 

 
340

 

Net income (loss)
(2,740
)
 
19,358

 
(23,875
)
 
4,331

Less: Income (loss) from continuing operations attributable to noncontrolling interest
1,372

 
(70
)
 
1,842

 
1,067

Less: Income from discontinued operations attributable to noncontrolling interest

 
189

 

 
48

Net income (loss) attributable to Holdings
$
(4,112
)
 
$
19,239

 
$
(25,717
)
 
$
3,216

 
 
 
 
 
 
 
 
Basic and fully diluted income (loss) per share
 
 
 
 
 
 
 
Continuing operations
$
(0.53
)
 
$
0.31

 
$
(1.14
)
 
$
0.02

Discontinued operations

 
0.02

 
0.01

 
0.01

 
$
(0.53
)
 
$
0.33

 
$
(1.13
)
 
$
0.03

 
 
 
 
 
 
 
 
Basic and fully diluted weighted average number of shares outstanding
59,900

 
54,300

 
59,900

 
54,300

 
 
 
 
 
 
 
 
Cash distributions declared per share
$
0.36

 
$
0.36

 
$
0.72

 
$
0.72






Compass Diversified Holdings
Summarized Statement of Cash Flows
(unaudited)

 
 
 
 
 
Six Months Ended
(in thousands)
June 30, 2017
 
June 30, 2016
Net cash provided by operating activities
$
35,868

 
$
45,534

Net cash used in investing activities
(44,386
)
 
(99,589
)
Net cash provided by (used in) financing activities
8,532

 
(6,831
)
Effect of foreign currency on cash
(499
)
 
(3,823
)
Net decrease in cash and cash equivalents
(485
)
 
(64,709
)
Cash and cash equivalents — beginning of period
39,772

 
85,869

Cash and cash equivalents — end of period
$
39,287

 
$
21,160






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, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
Net income (loss)
$
(2,740
)
 
$
19,358

 
$
(23,875
)
 
$
4,331

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
31,187

 
15,012

 
62,582

 
29,920

Impairment expense/ loss on disposal of assets

 
6,663

 
8,864

 
6,663

Gain on sale of businesses, net

 

 
(340
)
 

Amortization of debt issuance costs and original issue discount
1,261

 
737

 
2,460

 
1,475

Unrealized loss on derivatives
1,497

 
2,755

 
1,268

 
9,983

(Gain) loss on investment in FOX

 
(18,889
)
 
5,620

 
(8,266
)
Noncontrolling stockholders charges
1,798

 
859

 
3,250

 
2,048

Excess tax benefit on stock compensation

 
(366
)
 

 
(366
)
Provision for loss on receivables
9

 
73

 
3,327

 
203

Other
384

 
270

 
704

 
79

Deferred taxes
(4,305
)
 
(6,205
)
 
(11,940
)
 
(5,991
)
Changes in operating assets and liabilities
8,191

 
19,242

 
(16,052
)
 
5,455

Net cash provided by operating activities
37,282

 
39,509

 
35,868

 
45,534

Plus:
 
 
 
 
 
 
 
Unused fee on revolving credit facility
696

 
437

 
1,473

 
937

Successful acquisition costs
1,473

 
1,238

 
1,473

 
1,727

Integration services fee (1)
875

 
250

 
1,750

 
500

Realized loss from foreign currency effect (2)

 
20

 

 

Excess tax benefit on stock compensation

 
366

 

 
366

Changes in operating assets and liabilities

 

 
16,052

 

Other

 
315

 

 
128

Less:
 
 
 
 
 
 
 
Maintenance capital expenditures (3)
4,338

 
5,982

 
9,068

 
9,666

Payment on swap
1,026

 
1,294

 
2,115

 
1,794

Changes in operating assets and liabilities
8,191

 
19,242

 

 
5,455

Realized gain from foreign currency effect (2)
1,260

 

 
1,650

 
3,059

Other (4)
8

 

 
3,366

 

Estimated cash flow available for distribution and reinvestment
$
25,503

 
$
15,617

 
$
40,417

 
$
29,218

 
 
 
 
 
 
 
 
Distribution paid in April 2017/2016
$

 
$

 
$
21,564

 
$
19,548

Distribution paid in July 2017/ 2016
21,564

 
19,548

 
21,564

 
19,548

 
$
21,564

 
$
19,548

 
$
43,128

 
$
39,096


(1)
Represents fees paid by newly acquired companies to the Manager for integration services performed during the first year of ownership, payable quarterly.
(2)
Reflects the foreign currency transaction gain/ loss resulting from the Canadian dollar intercompany loans issued to Manitoba Harvest.
(3)  
Excludes growth capital expenditures of approximately $6.5 million and $0.2 million for the three months ended June 30, 2017 and 2016, and $10.4 million and $0.9 million for the six months ended June 30, 2017 and 2016, respectively.
(4)  
Includes amounts for the establishment of accounts receivable reserves related to a retail customer who filed bankruptcy during the first quarter of 2017.