Cash Flow Available for Distribution and Reinvestment for Q1 2008 Increased to $9.9 million from $6.4 million for Q1 2007
WESTPORT, Conn., May 12 /PRNewswire-FirstCall/ -- Compass DiversifiedHoldings (Nasdaq: CODI or the 'Company'), a leading acquirer and manager ofmiddle market businesses, announced today its consolidated results ofoperations for the quarter ended March 31, 2008.
CODI increased cash flow available for distribution and reinvestment('CAD') to $9.9 million for the quarter ended March 31, 2008, compared to $6.4million in the prior year quarter. For the 12 month period from April 1, 2007through March 31, 2008, CODI reported CAD of $49.8 million, or approximately$1.64 per share, yielding a coverage ratio of approximately 1.3x on the fourquarterly distributions paid through April 25, 2008. During this 12 monthperiod, CAD exceeded shareholder distributions by $9.6 million. CAD and CADper share are measures used by the Company to assess its performance, as wellas its ability to sustain and increase quarterly distributions. A number ofCODI's businesses have seasonal cash flow patterns, with the first quartertypically being the lowest cash flow producing quarter of the year.Accordingly, the Company believes that the most appropriate measure of itsperformance is over a trailing or expected 12 month period.
CAD for 2008 included the operating results from Fox Factory since beingacquired by CODI on January 4, 2008 and from Staffmark Investment LLC sincebeing acquired by CODI's subsidiary, CBS Personnel Inc. on January 21, 2008.
Based on the strength of the Company's performance, on April 8, 2008,CODI's Board of Directors declared a distribution of $0.325 per share, whichwas paid on April 25, 2008 to all CODI shareholders of record as of April 22,2008. The Company intends to continue to declare and pay regular quarterlycash distributions on all outstanding shares.
Commenting on the quarter, Joe Massoud, CEO of Compass DiversifiedHoldings, said, 'We are off to a good start for 2008 with each of ourbusinesses performing well in the first quarter, particularly against anuncertain economic backdrop. This past quarter represents the third fullquarter for which we have had a prior year comparison since our initial publicoffering in May of 2006. We are proud to note that CODI has shown meaningfulgrowth in cash flow for each of those comparative periods.
Notwithstanding the economic environment, we expect our consolidatedbusiness to show growth in cash flow in 2008. One of the advantages ofacquiring and owning a diverse set of well managed, niche leading businessesis that we are able to enjoy the benefits of strong growth in certain of oursubsidiaries, even while others experience normal declines in cash flow due totheir economic cyclicality. We invite our shareholders to compare theperformance of each of our businesses to that of their industry competitors.We believe this sort of inspection will further reveal the strength of each ofour companies.
For the first quarter of 2008, the performance of our businesses inaggregate exceeded our expectations. In particular, Advanced Circuits,Aeroglide, Anodyne and Fox all delivered strong revenue and operating incomegrowth. We anticipate continued growth for each of these businesses in 2008,as well as for Halo, which recently completed the acquisition of GoldmanPromotions.
CBS Personnel, on the other hand, is our most economically cyclicalbusiness, and so we were not surprised to see a revenue decline on a pro formabasis in the first quarter. We are, however, very encouraged by CBSPersonnel's progress towards its goals with regard to its integration ofStaffmark, as well as a strong performance relative to its publicly tradedindustry peers. We believe that, just as in the 2000-2002 recession, thecurrent economic downturn will enable CBS Personnel to gain market share inits core geographic markets from smaller competitors and less committednational competitors, and that CBS Personnel will move into the next economiccycle as a stronger and more profitable company as a result.
American Furniture also declined in the first quarter, partially as aresult of economic softness, but mostly due to the fire it suffered at itsfacility in February. We are pleased and proud to report that AmericanFurniture quickly returned to production, and that while its cash flows willlikely be impacted somewhat by the economy in the short term, its long termfuture is unaffected. As we noted at the time, our thesis upon acquiring thebusiness in late 2007 was that American Furniture would thrive through theshake-out associated with any economic downturn, and as with CBS Personnel, weexpect the softness in the economic environment to impact American Furniture'ssmaller and weaker competitors disproportionately. We are optimistic aboutthe opportunities that this may bring for American Furniture.
On May 8, 2008, we entered into an agreement to sell our subsidiary,Silvue, to Mitsui Chemicals, Inc. This divestiture will produce a net gain ofbetween $37.5 million and $40.0 million for our shareholders, and is thesecond such sale for us. The first, the sale of Crosman AcquisitionCorporation in the first quarter of 2007, produced a net gain of approximately$36 million, which was the major component of the $36.9 million of net incomerecorded for the first quarter of fiscal 2007. We believe these twotransactions are evidence of the substantial level of embedded value existingwithin CODI's family of subsidiary companies. We will use the capitalreceived by CODI from the Silvue divestiture to repay existing debtoutstanding on our revolving credit facility and create additional capacityfor further accretive acquisitions.
Turning specifically to the current acquisition environment, we continueto see a number of attractive opportunities for accretive transactions,including both platform and add-on acquisitions. We believe that we are in anideal position, particularly as compared to private equity firms, given thecurrent conditions in the credit markets. Unlike the overwhelming majority offinancial buyers, who rely on the credit markets to fund individualacquisitions, our permanent capital and parent level financing structure givesus a decisive advantage in terms of our ability to quickly finance and closetransactions. We currently have over $200 million in availability under ourrevolving credit facility and have no maturities until the fourth quarter of2012.
In evaluating potential acquisition opportunities, we continue to focus onfive basic criteria: (1) targets must be profitable businesses that areleaders in their specific industry niches; (2) target businesses must have'reasons to exist,' or fundamental competitive advantages that are difficultto replicate and which are evidenced by selling prices, gross profit marginsor operating margins that are favorable in comparison to their industry; (3)we must understand the fundamentals of the target business, which must not besusceptible to technological change or obsolescence; (4) existing managementof the target business must be motivated and have a strong track record ofsuccess; and (5) the valuation and terms of the acquisition must be attractiveto our shareholders.
