Compass Diversified Holdings, the parent of Fox Racing Shox and Liberty Safe, reported a net loss of $29.4 million for the third quarter of 2010, which includes a $42.4 million non-cash impairment charge. But cash flow improved to $23.8 million from $11.7 million for the prior year comparable quarter.
Compass Diversified Holdings also owns Advanced Circuits, American Furniture Manufacturing, Anodyne Medical Device (Tridien Medical), ERGObaby, Halo Lee Wayne, and Staffmark.
The improvement in Cash Flow for the third quarter of 2010 as compared to the year-earlier period was substantially due to higher revenue levels at our subsidiary companies, which also resulted in greater operating efficiency at a number of our businesses. In addition, the third quarter of 2010 was positively impacted by the inclusion of results from Circuit Express, which was acquired by our subsidiary, Advanced Circuits, on March 11, 2010, as well as from Liberty Safe and ERGObaby, two new CODI platform businesses which were acquired on March 31, 2010 and September 16, 2010, respectively.
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 subsidiary for the periods during which CODI owned them. However, Cash Flow excludes the gains from sales of businesses, which have totaled over $109 million since 2007.
As of September 30, 2010, CODI had $24.5 million in cash and cash equivalents on hand, $74.5 million outstanding on its term debt facility and $101.3 million outstanding under its $340 million revolving credit facility. The Company has no significant debt maturities until 2012.
On October 6, 2010, CODI's Board of Directors declared a distribution of $0.34 per share. The distribution was paid on October 29, 2010 to all holders of record as of October 22, 2010.
Commenting on the quarter, Joe Massoud, CEO of Compass Diversified Holdings, said, “During the third quarter, we generated Cash Flow well above our expectations. Specifically, the strong growth we achieved across our diverse family of niche businesses led to a 103% increase in CAD compared to the year-earlier period. We continue to benefit from strengthening revenue trends and greater operating leverage, particularly in our Staffmark, Fox Racing Shox and Advanced Circuits subsidiaries. We also realized notable contributions in the quarter from our 2010 acquisitions, including our newest subsidiary, ERGObaby. This business represents our second platform acquisition to date in 2010, along with Liberty Safe, and increases our number of current subsidiaries to eight. Going forward, we remain conservatively capitalized and well positioned to grow, both through organic measures at our existing subsidiaries and through potential acquisition of new platform businesses.”
The net loss for the quarter ended September 30, 2010 was $29.4 million, as compared to net income of $2.8 million for the quarter ended September 30, 2009. During the third quarter of 2010, CODI recorded a $42.4 million non-cash impairment charge for the company's American Furniture Manufacturing subsidiary.
Commenting on the non-cash charge for the quarter, Jim Bottiglieri, CFO of Compass Diversified Holdings, said, “In the third quarter of 2010, we recorded a non-cash impairment charge related to our ownership of American Furniture Manufacturing, reflecting a decline in our estimate of the current fair market value for that entity. This decline is primarily due to the soft retail environment in the overall furniture industry, which has had an adverse affect on AFM. The company continues to provide high value furniture backed by our strong parent-level financing structure. We remain confident in AFM's management team and will continue to work with them to leverage our leadership position in the promotional furniture niche to profitably expand our market share among both new and existing accounts. Importantly, this impairment charge does not have any impact on CODI's Cash Flow.”
Compass Diversified Holdings Condensed Consolidated Statements of Operations (unaudited) | ||||||||
Three Months | Three Months | Nine Months | Nine Months | |||||
Ended | Ended | Ended | Ended | |||||
(in thousands, except per share data) | September 30, 2010 | September 30, 2009 | September 30, 2010 | September 30, 2009 | ||||
Net sales | $ 460,767 | $ 324,239 | $ 1,218,708 | $ 886,681 | ||||
Cost of sales | 361,236 | 253,175 | 962,459 | 693,842 | ||||
Gross profit | 99,531 | 71,064 | 256,249 | 192,839 | ||||
Operating expenses: | ||||||||
Staffing expense | 21,089 | 17,665 | 60,996 | 56,144 | ||||
Selling, general and administrative expense | 44,101 | 36,099 | 129,037 | 108,093 | ||||
Supplemental put expense (reversal) | 1,639 | (101) | 18,630 | (8,518) | ||||
Management fees | 4,010 | 3,331 | 11,383 | 9,825 | ||||
Amortization expense | 7,469 | 6,168 | 21,069 | 18,614 | ||||
Impairment expense | 42,435 | – | 42,435 | 59,800 | ||||
Operating income (loss) | (21,212) | 7,902 | (27,301) | (51,119) | ||||
Other income (expense): | ||||||||
Interest income | 1 | 34 | 18 | 111 | ||||
Interest expense | (2,926) | (2,681) | (8,487) | (8,918) | ||||
Amortization of debt issuance costs | (493) | (433) | (1,329) | (1,343) | ||||
Loss on debt repayment | – | – | – | (3,652) | ||||
Other income (expense), net | 361 | 96 | 752 | (594) | ||||
Income (loss) before income taxes | (24,269) | 4,918 | (36,347) | (65,515) | ||||
Income tax expense (benefit) | 5,148 | 2,130 | 9,100 | (25,920) | ||||
Net income (loss) | (29,417) | 2,788 | (45,447) | (39,595) | ||||
Net income (loss) attributable to noncontrolling interest | 642 | 687 | 2,041 | (15,005) | ||||
Net income (loss) attributable to Holdings | $ (30,059) | $ 2,101 | $ (47,488) | $ (24,590) | ||||
