The Compass Group
Compass Diversified Holdings (Form: 8-K, Received: 11/08/2017 16:30:10)


 
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): November 8, 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 November 8, 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 nine months ended September 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 November 8, 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: November 8, 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: November 8, 2017
COMPASS GROUP DIVERSIFIED HOLDINGS LLC
 
 
 
 
By:
 
/s/ Ryan J. Faulkingham
 
 
 
 
 
 
Ryan J. Faulkingham
 
 
 
Chief Financial Officer





Exhibit 99.1

CODILOGOF2A02.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
Third Quarter 2017 Financial Results

Completes Two Accretive Add-on Acquisitions for Crosman Corporation and
Sterno Products During the Quarter

Westport, Conn., November 8, 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 September 30, 2017.

Third Quarter 2017 Highlights

Generated Cash Provided by Operating Activities of $23.4 million, and Cash Flow Available for Distribution and Reinvestment (“CAD” or “Cash Flow”) of $26.2 million for the third quarter of 2017;
Reported net income of $8.4 million for the third quarter of 2017;
Paid a third quarter 2017 cash distribution of $0.36 per share on CODI’s common shares in October 2017, bringing cumulative distributions paid to $15.7152 per common share since CODI’s IPO in May of 2006;
Paid a quarterly cash distribution of $0.61423611 per share on the Company’s 7.250% Series A Preferred Shares in October 2017;
Consummated the accretive add-on acquisition of the Commercial business of LaserMax, Inc. (“LaserMax”) by CODI's subsidiary Crosman Corporation (“Crosman”); and
Completed the accretive add-on acquisition of sevenOKs, Inc. (“sevenOKs”) by CODI's subsidiary Sterno Products, LLC (“Sterno Products”).

“During the third quarter, our middle market businesses generated stable cash flow levels that were consistent with management’s expectations,” stated Alan Offenberg, CEO of Compass Diversified Holdings. “This included year-over-year EBITDA growth at our Advanced Circuits, Arnold Magnetic and Clean Earth subsidiaries.”

Mr. Offenberg added, “CODI also continued to reinvest in our subsidiaries’ continued growth with two accretive add-on acquisitions. This included Crosman’s acquisition of LaserMax’s Commercial business, which extends Crosman’s reach into new retail categories and creates new cross-selling opportunities with current big box retail and international customers. Additionally, our Sterno Products subsidiary completed the acquisition of sevenOKs, strengthening the company’s product offering for the foodservice market. With our strong balance sheet, CODI is well positioned to continue pursuing future acquisitions that build long-term shareholder value and support our ability to provide stable cash distributions.”





Operating Results
For the quarter ended September 30, 2017, CODI generated Cash Provided by Operating Activities of $23.4 million, as compared to Cash Provided by Operating Activities of $15.1 million for the quarter ended September 30, 2016. CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $26.2 million for the quarter ended September 30, 2017, as compared to $22.6 million for the prior year’s comparable quarter. CODI’s weighted average number of shares outstanding for the quarters ended September 30, 2017 and September 30, 2016 were 59.9 million and 54.3 million, respectively.

Cash Flow for the third quarter of 2017 reflects year-over-year earnings growth in the Company’s Advanced Circuits, Arnold Magnetic and Clean Earth businesses, offset by declines at the Company’s other businesses.

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 income for the quarter ended September 30, 2017 was $8.4 million, as compared to net income of $50.2 million for the quarter ended September 30, 2016. During the third quarter of 2016, CODI realized a net gain of $50.4 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 September 30, 2017, CODI had approximately $41.5 million in cash and cash equivalents, $561.4 million outstanding on its term loan facility and $25.5 million in outstanding borrowings under its revolving credit facility. The Company has no significant debt maturities until 2019 and had net borrowing availability of $523.2 million at September 30, 2017 under its revolving credit facility.

Third Quarter 2017 Distributions
On October 5, 2017, CODI’s Board of Directors (the “Board”) declared a third quarter distribution of $0.36 per share on the Company’s common shares (the “Common Shares”). The cash distribution was paid on October 26, 2017 to all holders of record of Common Shares as of October 19, 2017. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $15.7152 per common share.

The Board also declared a quarterly cash distribution of $0.61423611 per share on the Company’s 7.250% Series A Preferred Shares (the “Preferred Shares”). The distribution on the Preferred Shares covered the period from and including June 28, 2017, the original issue date of the Preferred Shares, up to, but excluding, October 30, 2017. The distribution for such period was paid on October 30, 2017 to all holders of record of Preferred Shares as of October 15, 2017.

Conference Call
Management will host a conference call on Thursday, November 9, 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 9897729. 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 November 16, 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 9897729.

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
 
 
 
 
 
September 30,
 
December 31,
 
2017
 
2016
(in thousands)
(unaudited)
 
 
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
41,487

 
$
39,772

Accounts receivable, net
198,111

 
181,191

Inventories
242,817

 
212,984

Prepaid expenses and other current assets
27,145

 
18,872

Total current assets
509,560

 
452,819

Property, plant and equipment, net
170,827

 
142,370

Investment in FOX

 
141,767

Goodwill and intangible assets, net
1,131,803

 
1,030,848

Other non-current assets
8,616

 
9,351

Total assets
$
1,820,806

 
$
1,777,155

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued expenses
$
182,475

 
$
152,553

Due to related party
7,553

 
20,848

Current portion, long-term debt
5,685

 
5,685

Other current liabilities
15,493

 
23,435

Total current liabilities
211,206

 
202,521

Deferred income taxes
122,033

 
110,838

Long-term debt
569,755

 
551,652

Other non-current liabilities
18,570

 
17,600

Total liabilities
921,564

 
882,611

Stockholders' equity
 
 
 
Total stockholders' equity attributable to Holdings
851,616

 
856,405

Noncontrolling interests
47,626

 
38,139

Total stockholders' equity
899,242

 
894,544

Total liabilities and stockholders’ equity
$
1,820,806

 
$
1,777,155

 
 
 
 






Compass Diversified Holdings
Condensed Consolidated Statements of Operations
(unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
(in thousands, except per share data)
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Net sales
$
323,957

 
$
252,285

 
$
921,330

 
$
659,748

Cost of sales
206,232

 
169,870

 
599,552

 
436,544

Gross profit
117,725

 
82,415

 
321,778

 
223,204

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative expense
80,804

 
53,648

 
239,102

 
140,702

Management fees
8,277

 
8,435

 
24,308

 
21,394

Amortization expense
14,167

 
8,423

 
39,256

 
23,966

Impairment expense/ Loss on disposal of assets

 
551

 
8,864

 
7,214

Operating income
14,477

 
11,358

 
10,248

 
29,928

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(6,945
)
 
(4,376
)
 
(22,499
)
 
(23,204
)
Gain (loss) on investment

 
50,414

 
(5,620
)
 
58,680

Amortization of debt issuance costs
(1,004
)
 
(687
)
 
(2,940
)
 
(1,827
)
Other income (expense), net
2,020

 
(3,271
)
 
2,950

 
(1,852
)
Income (loss) from continuing operations before income taxes
8,548

 
53,438

 
(17,861
)
 
61,725

Provision (benefit) for income taxes
192

 
4,894

 
(2,002
)
 
9,778

Net income (loss) from continuing operations
8,356

 
48,544

 
(15,859
)
 
51,947

Income (loss) from discontinued operations, net of income tax

 
(455
)
 

 
473

Gain on sale of discontinued operations, net of tax

 
2,134

 
340

 
2,134

Net income (loss)
8,356

 
50,223

 
(15,519
)
 
54,554

Less: Income from continuing operations attributable to noncontrolling interest
650

 
682

 
2,492

 
1,749

Less: Loss from discontinued operations attributable to noncontrolling interest

 
(164
)
 

 
(116
)
Net income (loss) attributable to Holdings
$
7,706

 
$
49,705

 
$
(18,011
)
 
$
52,921

 
 
 
 
 
 
 
 
Basic and fully diluted income (loss) per share
 
 
 
 
 
 
 
Continuing operations
$
0.10

 
$
0.72

 
$
(1.03
)
 
$
0.59

Discontinued operations

 
0.03

 
0.01

 
0.05

 
$
0.10

 
$
0.75

 
$
(1.02
)
 
$
0.64

 
 
 
 
 
 
 
 
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

 
$
1.08

 
$
1.08

 
 
 
 
 
 
 
 





Compass Diversified Holdings
Summarized Statement of Cash Flows
(unaudited)

 
 
 
 
 
Nine Months Ended
(in thousands)
September 30, 2017
 
September 30, 2016
Net cash provided by operating activities
$
59,236

 
$
60,594

Net cash used in investing activities
(62,956
)
 
(417,284
)
Net cash provided by financing activities
7,862

 
300,407

Effect of foreign currency on cash
(2,427
)
 
(3,197
)
Net increase (decrease) in cash and cash equivalents
1,715

 
(59,480
)
Cash and cash equivalents — beginning of period
39,772

 
85,869

Cash and cash equivalents — end of period
$
41,487

 
$
26,389

 
 
 
 





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, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Net income (loss)
$
8,356

 
$
50,223

 
$
(15,519
)
 
$
54,554

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
26,077

 
24,052

 
88,659

 
53,972

Impairment expense/ loss on disposal of assets

 
551

 
8,864

 
7,214

Gain on sale of businesses, net

 
(2,134
)
 
(340
)
 
(2,134
)
Amortization of debt issuance costs and original issue discount
1,261

 
888

 
3,721

 
2,363

Unrealized loss on derivatives
(90
)
 
(1,661
)
 
1,178

 
8,322

(Gain) loss on investment in FOX

 
(50,414
)
 
5,620

 
(58,680
)
Noncontrolling stockholders charges
1,702

 
964

 
4,952

 
3,012

Excess tax benefit on stock compensation
(417
)
 

 
(417
)
 
(366
)
Provision for loss on receivables
983

 
(144
)
 
4,310

 
59

Other
(209
)
 
271

 
494

 
349

Deferred taxes
(5,997
)
 
1,712

 
(17,937
)
 
(4,280
)
Changes in operating assets and liabilities
(8,298
)
 
(9,246
)
 
(24,349
)
 
(3,791
)
Net cash provided by operating activities
23,368

 
15,062

 
59,236

 
60,594

Plus:
 
 
 
 
 
 
 
Unused fee on revolving credit facility
670

 
418

 
2,143

 
1,355

Successful acquisition costs
363

 
2,161

 
1,836

 
3,888

Integration services fee (1)
958

 
292

 
2,708

 
792

Realized loss from foreign currency effect (2)

 
662

 

 

Excess tax benefit on stock compensation
417

 

 
417

 
366

Changes in operating assets and liabilities
8,298

 
9,246

 
24,349

 
3,791

Other

 
117

 

 
245

Less:
 
 
 
 
 
 
 
Maintenance capital expenditures (3)
4,346

 
4,079

 
13,415

 
13,744

Payment on swap
935

 
1,320

 
3,050

 
3,114

Realized gain from foreign currency effect (2)
1,933

 

 
3,583

 
2,396

Other (4)
616

 

 
3,980

 

Estimated cash flow available for distribution and reinvestment
$
26,244

 
$
22,559

 
$
66,661

 
$
51,777

 
 
 
 
 
 
 
 
Distribution paid in April 2017/2016
$

 
$

 
$
21,564

 
$
19,548

Distribution paid in July 2017/ 2016

 

 
21,564

 
19,548

Distribution paid in October 2017/ 2016
21,564

 
19,548

 
21,564

 
19,548

 
$
21,564

 
$
19,548

 
$
64,692

 
$
58,644


(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 $7.1 million and $0.1 million for the three months ended September 30, 2017 and 2016, and $17.5 million and $1.6 million for the nine months ended September 30, 2017 and 2016, respectively.
(4)  
Includes amounts for the establishment of accounts receivable reserves related to two retail customers who filed bankruptcy during the first and third quarter of 2017.