Consolidated Results
of Operations Compass Diversified Holdings and Compass Group Diversified Holdings LLC
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(in thousands)
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Three months
ended
September 30,
2012
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Three months
ended
September 30,
2011
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Nine months
ended
September 30,
2012
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Nine months
ended
September 30,
2011
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Net sales
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$
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241,228
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$
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168,667
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$
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666,571
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$
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446,451
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Cost of sales
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164,281
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117,837
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455,036
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311,168
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Gross profit
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76,947
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50,830
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211,535
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135,283
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Staffing, selling, general and administrative expense
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39,422
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30,395
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119,756
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77,347
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Fees to manager
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4,429
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4,792
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13,294
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11,707
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Supplemental put expense
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5,029
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1,200
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6,391
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6,095
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Amortization of intangibles
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7,699
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5,509
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22,639
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14,943
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Impairment expense
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7,700
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Income (loss) from operations
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$
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20,368
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$
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8,934
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$
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49,455
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$
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17,491
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30
Net sales
On a consolidated basis, net sales increased $72.6 million and $220.1 million during the three and nine month periods ended September 30, 2012, respectively, compared to the same periods in 2011.
These increases for both the three and nine month periods are due principally to increased revenues (and in the case of Arnold Magnetics and CamelBak, incremental revenues) at each of our operating segments with the exception of American Furniture
and Tridien and for the quarter only, CamelBak. We realized revenues totaling approximately $68.6 million and $196.9 million in the three and nine months ended September 30, 2012 at Arnold Magnetics and CamelBak, which we acquired in March 2012
and August 2011, respectively. Refer to Results of Operations Our Businesses for a more detailed analysis of net sales for each business segment.
We do not generate any revenues apart from those generated by the businesses we own. We may generate interest income on the investment of available funds, but expect such earnings to be minimal. Our
investment in our businesses is typically in the form of loans from the Company to such businesses, as well as equity interests in those businesses. Cash flows coming to the Trust and the Company are the result of interest payments on those loans,
amortization of those loans and, in some cases, dividends on our equity ownership. However, on a consolidated basis these items will be eliminated.
Cost of sales
On a consolidated basis, cost of sales increased approximately $46.4
million and $143.9 million during the three and nine month periods ended September 30, 2012, respectively, compared to the same periods in 2011. These increases are due almost entirely to the corresponding increase in net sales. Gross profit as
a percentage of net sales totaled approximately 31.9% and 30.1% of net sales for the three month periods ended September 30, 2012 and 2011, respectively. Gross profit as a percentage of net sales totaled approximately 31.7% and 30.3% of net
sales for the nine month periods ended September 30, 2012 and 2011, respectively. The increase in gross profit percentage for both the three and nine months ended September 30, 2012 compared to the same periods in 2011 is principally
attributable to the inclusion of CamelBak results of operations in both periods of 2012, compared to just thirty-six days in 2011. CamelBaks profit margin during the nine months ended September 30, 2012 was approximately 46.0%. Refer to
Results of Operations Our Businesses for a more detailed analysis of cost of sales for each business segment.
Selling, general and administrative expense
On a consolidated basis, selling, general and administrative expense increased approximately $9.1 million and $42.4 million in the three and nine month periods ended September 30, 2012, respectively,
compared to the same periods in 2011. The majority of these increases are due principally to increases in costs directly tied to sales, such as commissions and direct customer support services, and selling, general and administrative costs at Arnold
Magnetics and CamelBak during 2012. Refer to Results of Operations Our Businesses, for a more detailed analysis of selling, general and administrative expense by segment.
Fees to manager
Pursuant to the Management Services Agreement, we pay CGM a
quarterly management fee equal to 0.5% (2.0% annually) of our consolidated adjusted net assets. We accrue for the management fee on a quarterly basis. For the three months ended September 30, 2012 and 2011, we incurred approximately $4.4
million and $4.8 million, respectively, in expense for these fees. For the nine months ended September 30, 2012 and 2011 we incurred approximately $13.3 million and $11.7 million, respectively, in expense for these fees. The increase in
management fees for the nine months ended September 30, 2012 compared to the same period in 2011 is due to management fees recast as a component of discontinued operations in the 2011 periods resulting from the sale of Staffmark and HALO. The
remaining change is due to the increase in consolidated adjusted net assets as of September 30, 2012 in connection with the CamelBak acquisition in August 2011 and the Arnold Magnetics acquisition in March 2012, offset in part by the decrease
in consolidated adjusted net assets in connection with the sales of Staffmark and HALO.
Supplemental put expense
Concurrent with the IPO, we entered into a Supplemental Put Agreement with our Manager pursuant to which our Manager has the right to cause us to purchase
the Allocation Interests then owned by it upon termination of the Management Services Agreement. We accrue for the supplemental put expense on a quarterly basis. For the three and nine months ended September 30, 2012, we incurred approximately
$5.0 million and $6.4 million, respectively, in expense compared to $1.2 million and $6.1 million for the corresponding periods in 2011. The change in supplemental put expense in all periods presented is attributable to the increase or decrease in
the estimated fair value of our businesses during each of those periods.
31
Impairment expense
We incurred an impairment charge in the first quarter of 2011 totaling $7.7 million, which is reflected in the operating results for the nine months ended September 30, 2011, at our American
Furniture business segment, based on our annual goodwill impairment analysis. The portion of the impairment charge that was attributable to impaired goodwill at American Furniture was $5.9 million. The remaining $1.8 million charge reflected a write
down of the unamortized balance of American Furnitures intangible asset, its trade name. The write downs were necessary based on the further deterioration of the promotional furniture market. As of September 30, 2012, the balance of
goodwill carried at American Furniture is zero.
We completed our annual impairment analysis of goodwill as of March 31, 2012 and there
was no indication of goodwill impairment at any of our reporting units.
Results of Operations Our Businesses
The following discussion reflects a comparison of the historical, and where appropriate, pro-forma results of operations for each of our businesses for
the three and nine month periods ending September 30, 2012 and September 30, 2011, which we believe is the most meaningful comparison in explaining the comparative financial performance of each of our businesses. The following results of
operations are not necessarily indicative of the results to be expected for the full year going forward.
Advanced Circuits
Overview
Advanced Circuits is a
provider of prototype, quick-turn and volume production printed circuit boards (PCBs) to customers throughout the United States. Collectively, prototype and quick-turn PCBs represent approximately 60% of Advanced Circuits gross
revenues. Prototype and quick-turn PCBs typically command higher margins than volume production PCBs given that customers require high levels of responsiveness, technical support and timely delivery of prototype and quick-turn PCBs and are willing
to pay a premium for them. Advanced Circuits is able to meet its customers demands by manufacturing custom PCBs in as little as 24 hours, while maintaining over 98.0% error-free production rates and real-time customer service and product
tracking 24 hours per day.
While global demand for PCBs has remained strong in recent years, industry wide domestic production has declined
over 50% since 2000. In contrast, Advanced Circuits revenues increased steadily through 2008 (2009 saw a slight reduction) and increased again in 2011 and into the first and second quarter of 2012 as its customers prototype and
quick-turn PCB requirements, such as small quantity orders and rapid turnaround, are less able to be met by low cost volume manufacturers in Asia and elsewhere. Advanced Circuits management anticipates that demand for its prototype and
quick-turn printed circuit boards will remain strong and anticipates that demand will be impacted less by current economic conditions than by its longer lead time production business, which is driven more by consumer purchasing patterns and capital
investments by businesses.
We purchased a controlling interest in Advanced Circuits on May 16, 2006.
On March 11, 2010, Advanced Circuits acquired Circuit Express based in Tempe, Arizona for approximately $16.1 million. Circuit Express focuses on
quick-turn manufacturing of prototype and low-volume quantities of rigid PCBs primarily for aerospace and defense related customers. On May 23, 2012 Advanced Circuits acquired the assets of Universal Circuits (UCI) for approximately
$2.8 million. Universal Circuits supplies PCBs to major military, aerospace, and medical original equipment manufacturers and contract manufacturers. UCIs Minnesota facility meets certain Department of Defense clearance requirements and is
noted for custom and advanced technologies. Universal Circuits sales are primarily in the long-lead sector. For the three and nine-months ended September 30, 2012 the consolidated results of operations of Advanced Circuits includes net
sales of Universal Circuits aggregating $3.5 million and $4.9 million, respectively, and gross profit of Universal Circuits aggregating $.08 million and $1.1 million, respectively. The following Results of Operations does not include any
operating results from these two acquisitions prior to their respective date of acquisition.
32
Results of Operations
The table below summarizes the income from operations data for Advanced Circuits for the three and nine month periods ended September 30, 2012 and September 30, 2011.
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Three months ended
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Nine months ended
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(in thousands)
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September 30,
2012
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September 30,
2011
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September 30,
2012
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September 30,
2011
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Net sales
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$
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22,229
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$
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19,592
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$
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62,878
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$
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59,905
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Cost of sales
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11,540
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8,934
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31,272
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26,776
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Gross profit
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10,689
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10,658
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31,606
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33,129
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Selling, general and administrative expense
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3,522
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3,167
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10,595
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9,988
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Fees to manager
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125
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125
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375
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375
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Amortization of intangibles
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769
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757
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2,287
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2,270
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Income from operations
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$
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6,273
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$
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6,609
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$
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18,349
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$
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20,496
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Three months ended September 30, 2012 compared to the three months ended September 30,
2011.
Net sales
Net sales for the three months ended September 30, 2012 increased approximately $2.6 million or 13.5%, over the corresponding three month period ended September 30, 2011. The increase in net
sales is the result of an increase in gross sales of prototype PCBs ($0.2 million), long-lead PCBs ($2.6 million) and assembly revenue ($0.4 million) during the three months ended September 30, 2012 compared to the same period of 2011, offset
in part by a decrease in sales of quick-turn production PCBs ($0.2 million) and an increase in promotion and discount charges ($0.3 million). The increase in sales of long-lead PCBs is largely due to sales during the third quarter of 2012
attributable to Universal Circuits.
Sales from quick-turn and prototype PCBs represented approximately 56% of net sales during the three
months ended September 30, 2012 compared to approximately 64% during 2011. The decrease in proportion of quick-turn and prototype PCB sales to total sales is a function of the addition of Universal Circuits 2012 long-lead sales.
Cost of sales
Cost
of sales for the three months ended September 30, 2012 increased approximately $2.6 million from the comparable period in 2011 principally resulting from the increase in sales. Gross profit as a percentage of sales decreased during the three
months ended September 30, 2012 (48.1% at September 30, 2012, compared to 54.4% at September 30, 2011). This decrease in margin is the result of: (i) the increase in promotional pricing, principally related to long-lead PCB sales
during the three months ended September 30, 2012 and (ii) sales attributable to Universal Circuits, and a larger proportion of assembly sales during the three months ended September 30, 2012, each of which carry lower margins.
Selling, general and administrative expense
Selling, general and administrative expense increased approximately $0.4 million during the three months ended September 30, 2012 compared to the same period in 2011 due to acquisition related costs
in connection with the acquisition of Universal Circuits totaling approximately $0.4 million.
Income from operations
Operating income for the three months ended September 30, 2012 was approximately $6.3 million compared to $6.6 million earned in
the same period in 2011, a decrease of approximately $0.3 million, principally as a result of those factors described above.
Nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.
Net sales
Net sales for the nine
months ended September 30, 2012 increased approximately $3.0 million or 5.0%, over the corresponding nine month period ended September 30, 2011. The increase in net sales is a result of an increase in gross sales of prototype and
quick-turn production PCBs ($2.0 million), long-lead PCBs ($1.2 million) and assembly revenue ($1.9 million) during the nine months ended September 30, 2012 compared to the same period of 2011, offset in part by an increase in promotion and
discount charges ($1.9 million). The increase in sales in the quick turn sector during 2012 compared to 2011 is due in part to quick-turn sales attributable to Universal Circuits. The increase in promotion and discount charges in 2012
33
compared to the same period of 2011 are principally the result of discounting and price promotions incurred during 2012 in response to competitors pricing in the long-lead sector. The
increase in sales of long-lead PCBs are largely due to sales during the second and third quarters of 2012 attributable to Universal Circuits.
Sales of quick-turn and prototype PCBs represented approximately 61.5% of net sales during the nine months ended September 30, 2012 compared to 63.2% in
2011.
Cost of sales
Cost of sales for the nine months ended September 30, 2012 increased approximately $4.5 million from the comparable period in 2011 due principally to
the increase in sales. Gross profit as a percentage of sales decreased during the nine months ended September 30, 2012 (50.3% at September 30, 2012 compared to 55.3% at September 30, 2011). This decrease in margin is the result of:
(i) the promotional pricing in long-lead PCB sales during the nine months ended September 30, 2012 noted above and (ii) sales attributable to Universal Circuits, and a larger proportion of assembly sales during the nine months ended
September 30, 2012, each which carry lower margins
Selling, general and administrative expense
Selling, general and administrative expense increased approximately $0.6 million during the nine months ended September 30, 2012 compared to the same
period in 2011 due principally to acquisition related costs in connection with the acquisition of Universal Circuits of approximately $0.4 million.
Income from operations
Operating income for the nine months ended
September 30, 2012 was approximately $18.3 million compared to $20.5 million earned in the same period in 2011, a decrease of approximately $2.1 million, principally as a result of those factors described above.
American Furniture
Overview
Founded in 1998 and headquartered in Ecru, Mississippi, American Furniture is a leading U.S. manufacturer of upholstered furniture,
focused exclusively on the promotional segment of the furniture industry. American Furniture offers a broad product line of stationary and motion furniture, including sofas, loveseats, sectionals, recliners and complementary products, sold primarily
at retail price points ranging between $199 and $1,399. American Furniture is a low-cost manufacturer and is able to ship most products in its line to its customers within 48 hours of receiving an order.
American Furniture implemented a revised standard costing system in the year 2011 which required American Furniture to reclassify certain costs between
cost of sales and selling, general and administrative expenses. The change in format consisted of reclassifying the trucking fleet expenses from selling, general and administrative expenses into cost of sales as well as re-classifying certain
manufacturing related expenses including rent, insurance, utilities and workers compensation from selling, general and administrative costs to cost of sales. Management believes that the format of reporting cost of sales going forward together
with the revised standard costing system and the revaluation of standard costs will allow management to timely react to changes in supply costs, product demand and overall price structure which in turn should eliminate the accumulation of lower
margin product, allow for more advantageous product procurement and allow for proper utilization of available assets. The reclassification from selling, general and administrative expense to cost of sales during the three and nine months ended
September 30, 2011 was $1.5 million and $4.6 million, respectively.
American Furnitures products are adapted from established
designs in the following categories: (i) motion and recliner; (ii) stationary; (iii) occasional chair; and, (iv) accent tables and rugs. American Furnitures products are manufactured from common components and offer proven
select fabric options, providing manufacturing efficiency and resulting in limited design risk or inventory obsolescence.
34
Results of Operations
The table below summarizes the loss from operations data for American Furniture for the three and nine month periods ended September 30, 2012 and September 30, 2011.
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Three months ended
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Nine months ended
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(in thousands)
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September 30,
2012
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September 30,
2011
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September 30,
2012
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September 30,
2011
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Net sales
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$
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20,728
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$
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23,695
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$
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72,359
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$
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83,112
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Cost of sales
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19,534
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23,463
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67,548
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78,210
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Gross profit
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1,194
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232
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4,811
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4,902
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Selling, general and administrative expense
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1,762
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2,196
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|
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5,804
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|
7,545
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Fees to manager
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125
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Amortization of intangibles
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13
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546
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39
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1,637
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Impairment expense
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7,700
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Loss from operations
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$
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(581
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)
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$
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(2,510
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)
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$
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(1,032
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)
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|
$
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(12,105
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)
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Three months ended September 30, 2012 compared to the three months ended September 30,
2011.
Net sales
Net sales for the three months ended September 30, 2012 decreased approximately $3.0 million, or 12.5% over the corresponding three months ended September 30, 2011. During the three month period
ending September 30, 2012, stationary product gross sales and motion product sales decreased approximately $3.1 million and $0.5 million, respectively, while recliner sales increased approximately $1.0 million. Sales of other products and a
reduction in fuel surcharges were responsible for the remaining decrease in net sales during the three months ended September 30, 2012 compared to 2011. The decrease in gross sales in the stationary and motion product categories and other
products is principally the result of a soft current retail environment and increased competition in pricing in our promotional furniture category during the three months ended September 30, 2012. The increase in recliner product sales is the
result of supplying product to one of our largest customers for their recliner promotion event. We expect that sales for the remainder of the fiscal year will continue to be challenged by the current retail environment.
Cost of sales
Cost of sales
decreased approximately $3.9 million in the three months ended September 30, 2012 compared to the same period of 2011 and is due primarily to the corresponding decrease in sales. Gross profit as a percentage of sales was 5.8% in the three
months ended September 30, 2012 compared to 1.0% in the same period of 2011. The increase in gross profit as a percentage of sales of approximately 4.8% during the three months ended September 30, 2012 is principally attributable to a $1.2
million write off taken in 2011 to adjust overhead absorption in inventory resulting from adjustments to its standard costs in July 2011.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2012 decreased approximately $0.4 million compared to the same period of 2011. This decrease is primarily due to
decreased costs of advertising and marketing ($0.2 million) and administrative salaries and benefits ($0.2 million) during the three months ended September 30, 2012 compared to the same period of 2011.
Loss from operations
Loss from
operations totaled approximately $0.6 million for the three months ended September 30, 2012 compared to a loss from operations of approximately $2.5 million in the three months ended September 30, 2011, principally due to those factors
described above.
35
Nine months ended September 30, 2012 compared to the nine months ended
September 30, 2011.
Net sales
Net sales for the nine months ended September 30, 2012 decreased approximately $10.8 million, or 12.9%, over the corresponding nine months ended September 30, 2011. During the nine month period
ending September 30, 2012, stationary product gross sales and motion product sales decreased approximately $10.0 million, and $1.2 million, respectively, while recliner sales increased approximately $1.1 million. Sales of other products and a
reduction in fuel surcharges were responsible for the remaining decrease in net sales during the nine months ended September 30, 2012 compared to 2011. The decrease in gross sales in the stationary and motion product categories and other
products is principally the result of a soft current retail environment and increased competition in pricing in our promotional furniture category during the nine months ended September 30, 2012 and to a lesser extent our inability to ship
certain products during the first quarter 2012 due to a delay in receiving fabric kits that we outsourced to China. The increase in recliner product sales is the result of supplying product to one of our largest customers for their recliner
promotion event. We expect that sales for the remainder of the fiscal year will continue to be challenged by the current retail environment.
Cost of sales
Cost of sales
decreased approximately $10.7 million in the nine months ended September 30, 2012 compared to the same period of 2011 and is due primarily to the corresponding decrease in sales. Gross profit as a percentage of sales was 6.6% in the nine months
ended September 30, 2012 compared to 5.9% in 2011. The increase in gross profit as a percentage of sales of approximately 0.7% during the nine months ended September 30, 2012 is principally attributable to a $1.2 million write off taken in
2011 to adjust overhead absorption in inventory resulting from adjustments to its standard costs in July 2011.
Selling, general and
administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2012, decreased
approximately $1.7 million compared to the same period of 2011. This decrease is primarily due to decreased costs of advertising and marketing ($0.4 million) and administrative salaries and benefits ($1.1 million) during the nine months ended
September 30, 2012 compared to the same period of 2011.
Impairment expense
American Furniture incurred an impairment charge to its goodwill ($5.9 million) and unamortized trade name ($1.8 million), aggregating $7.7 million,
during the nine months ended September 30, 2011. This impairment charge eliminated the remaining balance of goodwill. The $1.8 million impairment charge to American Furnitures trade name is in addition to $3.3 million in impairment
charges to its trade name expensed in 2010. The impairment charges resulted from the annual analysis of goodwill and were necessary based on the deterioration of the promotional furniture market in 2011. There were no impairment charges for American
Furniture during the comparable 2012 period and only $0.5 million in intangible assets are currently on its balance sheet.
Loss from
operations
Loss from operations totaled approximately $1.0 million for the nine months ended September 30, 2012 compared to a
loss from operations of approximately $12.1 million in the nine months ended September 30, 2011, principally due the factors described above, particularly the impairment charge in 2011.
Arnold Magnetics
Overview
Founded in 1895 and headquartered in Rochester, New York, Arnold Magnetics is a manufacturer of engineered, application specific permanent magnets. Arnold
Magnetics products are used in applications such as general industrial, reprographic systems, aerospace and defense, advertising and promotional, consumer and appliance, energy, automotive and medical technology. Arnold Magnetics is the largest U.S.
manufacturer of engineered magnets as well as only one of two domestic producers to design, engineer and manufacture rare earth magnetic solutions. Arnold operates a 70,000 sq. ft. manufacturing assembly and distribution facility in Rochester, New
York with nine additional facilities worldwide, in countries including the United Kingdom, Switzerland and China. Arnold serves customers via three primary product sectors:
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Permanent Magnet and Assemblies and Reprographics (PMAG) (approximately 70% of sales) High performance magnets for precision
motor/generator sensors as well as beam focusing applications and reprographic applications;
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Flexmag (approximately 20% of net sales) Flexible bonded magnets for advertising, consumer and industrial applications; and
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Rolled Products (approximately 10% of net sales) Ultra thin metal foil products utilizing magnetic and non- magnetic alloys.
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36
Arnold Magnetics is also a 50% partner in a China rare earth mine-to-magnet joint venture. Arnold Magnetics
accounts for its activity in the joint venture utilizing the equity method of accounting. Gains and losses from the joint venture are not material during the three and nine months ended September 30, 2012.
On March 5, 2012, we made loans to and purchased a controlling interest in Arnold Magnetics for approximately $131 million, representing
approximately 96.6% of the equity in Arnold Magnetics.
Pro-forma Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
(in thousands)
|
|
September 30,
2012
(Pro-forma)
|
|
|
September 30,
2011
(Pro-forma)
|
|
|
September 30,
2012
(Pro-forma)
|
|
|
September 30,
2011
(Pro-forma)
|
|
Net sales
|
|
$
|
31,951
|
|
|
$
|
35,873
|
|
|
$
|
99,036
|
|
|
$
|
102,750
|
|
Cost of sales (a)
|
|
|
25,060
|
|
|
|
28,624
|
|
|
|
76,463
|
|
|
|
80,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,891
|
|
|
|
7,249
|
|
|
|
22,573
|
|
|
|
21,997
|
|
Selling, general and administrative expense (b)
|
|
|
3,740
|
|
|
|
3,925
|
|
|
|
12,070
|
|
|
|
11,869
|
|
Fees to manager (c)
|
|
|
125
|
|
|
|
125
|
|
|
|
375
|
|
|
|
375
|
|
Amortization of intangibles (d)
|
|
|
874
|
|
|
|
875
|
|
|
|
2,642
|
|
|
|
2,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
2,152
|
|
|
$
|
2,324
|
|
|
$
|
7,486
|
|
|
$
|
7,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-forma results of operations of Arnold Magnetics for the three and nine months ended September 30, 2012 and
2011 include the following pro-forma adjustments, applied to historical results as if we acquired Arnold Magnetics on January 1, 2011
:
(a)
|
Cost of sales for the nine months ended September 30, 2011 does not include $1.6 million of amortization expense associated with the inventory fair value step-up
as a result of and derived from the purchase price allocation in connection with our purchase.
|
(b)
|
Selling, general and administrative costs were reduced by approximately $0.1 million and $12.4 million in the three and nine-months ended September 30, 2012,
respectively, representing adjustments for one-time transaction costs incurred as a result of our purchase.
|
(c)
|
Represents management fees that would have been payable to the Manager in each period presented.
|
(d)
|
Represents an increase in amortization of intangible assets totaling $0.7 million in the three month period ended September 30, 2011 and $0.6 million and $2.0
million in the nine months ended September 30, 2012 and 2011, respectively. These adjustments are the result of and were derived from the purchase price allocation in connection with our acquisition.
|
Pro forma three months ended September 30, 2012 compared to the pro forma three months ended September 30,
2011.
Net sales
Net sales for the three months ended September 30, 2012 were approximately $32.0 million, a decrease of $3.9 million, or 10.9%, compared to the same period in 2011. The decrease in net sales is a
result of decreased sales in the PMAG ($3.3 million), Flexmag ($0.1 million) and Rolled product ($0.5 million) sectors. PMAG sales represented approximately 72.7% of net sales for the three months ended September 30, 2012 compared to 74.1% for
the same period in 2011. The decrease in sales is principally attributable to a decrease in reprographic application sales, a component of PMAG, during the three-months ended September 30, 2012 compared to the same period in 2011.
International sales were $13.9 million during the three months ended September 30, 2012 compared to $17.1 million during the same period in 2011, a
decrease of $3.3 million or 19%.
Cost of sales
Cost of sales for the three months ended September 30, 2012 were approximately $25.1 million compared to approximately $28.6 million in the same period of 2011. The decrease of $3.6 million is due
principally to the corresponding decrease in sales. Gross profit as a percentage of sales increased from 20.2% for the quarter ended September 30, 2011 to 21.6% in the quarter ended September 30, 2012. The increase is attributable to
increased margins in the PMAG sector due to a more favorable customer/product sales mix, due in part to the decrease in reprographic application sales during the three months ended September 30, 2012 compared to the same period in 2011.
37
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2012 was approximately $3.7 million or 11.7% of net sales
compared to $3.9 million or 10.9% of net sales during the same period in 2011.
Income from operations
Income from operations was approximately $2.2 million during the three months ended September 30, 2012 compared to $2.3 million in the three months
ended September 30, 2011.
Pro forma nine months ended September 30, 2012 compared to the pro forma nine months
ended September 30, 2011.
Net sales
Net sales for the nine months ended September 30, 2012 were approximately $99.0 million, a decrease of $3.7 million, or 3.6%, compared to the same period in 2011. The decrease in net sales is a
result of decreased sales in the PMAG product sector ($2.5 million) and decreases in sales in the Flexmag ($0.2 million) and Rolled Products ($1.0 million) sectors. PMAG sales represented approximately 73.0% of net sales for the nine months ended
September 30, 2012 compared to 72.8% for the same period in 2011. The decrease in PMAG sales during the nine months ended September 30, 2012 compared to the same period in 2011 is principally attributable to lower reprographic application
sales, a component of PMAG.
International sales were $44.0 million during the nine months ended September 30, 2012 compared to $47.0
million during the same period in 2011, a decrease of $3.0 million or 6%.
Cost of sales
Cost of sales for the nine months ended September 30, 2012 were approximately $76.5 million compared to approximately $80.8 million in the same
period of 2011. The decrease of $4.3 million is due principally to the corresponding decrease in sales. Gross profit as a percentage of sales increased from 21.4% for the nine months ended September 30, 2011 to 22.8% in the nine months ended
September 30, 2012. The increase is attributable to increased margins in the PMAG sector due to a more favorable customer/product sales mix, due in part to a decrease in reprographic application sales during the nine months ended
September 30, 2012 compared to the same period in 2011, offset in part by a decrease in margins at its Rolled Product sector due to an unfavorable customer/product sales mix.
Selling, general and administrative expense
Selling, general and administrative
expense for the nine months ended September 30, 2012 increased to approximately $12.1 million or 12.2% of net sales compared to $11.9 million or 11.6% of net sales for the same period in 2011. The $0.2 million increase in selling, general and
administrative expenses incurred during the nine months ended September 30, 2012 compared to the same period in 2011 is attributable to initial increases in personnel costs and benefits and third party services to support growth initiatives.
Income from operations
Income from operations for the nine months ended September 30, 2012 was approximately $7.5 million, an increase of $0.3 million when compared to the
same period in 2011, based on the factors described above.
CamelBak
Overview
CamelBak, headquartered in Petaluma, California, is a premier designer and
manufacturer of personal hydration products for outdoor, recreation and military applications. CamelBak offers a broad range of recreational and military personal hydration systems (Hydration Systems), reusable water bottles
(Bottles), specialty military gloves (Gloves) and performance accessories (Accessories).
As the leading
supplier of hydration products to specialty outdoor, cycling and military retailers, CamelBak maintains the leading market share position in recreational markets for hands-free hydration packs and the leading market share position for reusable water
bottles in specialty channels. CamelBak is also the dominant supplier of hydration systems to the military, with a leading market share in post-issue hydration systems. Over its more than 20-year history, CamelBak has developed a reputation as the
preferred supplier for the hydration needs of the most demanding athletes and soldiers. Across its markets, CamelBak is respected for its innovation, leadership and authenticity.
On August 24, 2011, we made loans to and purchased a controlling interest in CamelBak for approximately $258.6 million, representing 90% of the equity in CamelBak.
38
Results of Operations and Pro forma Results of Operations
The table below summarizes the pro-forma income from operations data for CamelBak for the three and nine month periods ended September 30, 2012 and
September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
(in thousands)
|
|
September 30,
2012
|
|
|
September 30,
2011
(Pro-forma)
|
|
|
September 30,
2012
|
|
|
September 30,
2011
(Pro-forma)
|
|
Net sales
|
|
$
|
36,672
|
|
|
$
|
38,319
|
|
|
$
|
121,140
|
|
|
$
|
114,695
|
|
Cost of sales (a)
|
|
|
20,050
|
|
|
|
22,771
|
|
|
|
65,400
|
|
|
|
68,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
16,622
|
|
|
|
15,548
|
|
|
|
55,740
|
|
|
|
46,670
|
|
Selling, general and administrative expense (b)
|
|
|
9,067
|
|
|
|
7,303
|
|
|
|
27,160
|
|
|
|
22,676
|
|
Fees to manager (c)
|
|
|
125
|
|
|
|
125
|
|
|
|
375
|
|
|
|
375
|
|
Amortization of intangibles (d)
|
|
|
2,345
|
|
|
|
2,180
|
|
|
|
7,100
|
|
|
|
6,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
5,085
|
|
|
$
|
5,940
|
|
|
$
|
21,105
|
|
|
$
|
16,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-forma results of operations of CamelBak for the three and nine month periods ended September 30, 2012 and 2011 include the following pro-forma
adjustments, applied to historical results as if we acquired CamelBak on January 1, 2011
:
(a)
|
Cost of sales for the nine months ended September 30, 2011 does not include $6.0 million of amortization expense associated with the inventory fair value step-up
as a result of and derived from the purchase price allocation in connection with our purchase.
|
(b)
|
Selling, general and administrative costs were reduced by approximately $7.0 million in the three and nine-months ended September 30, 2011 representing an
adjustment for one-time transaction costs incurred as a result of our purchase.
|
(c)
|
Represents management fees that would have been payable to the Manager in each period presented.
|
(d)
|
An increase in amortization of intangible assets totaling $1.8 million and $5.4 million, respectively, in the three and nine month periods ended September 30, 2012
and $1.3 million and $5.6 million, respectively in the three and nine months ended September 30, 2011. These adjustments are the result of and were derived from the purchase price allocation in connection with our acquisition.
|
Three months ended September 30, 2012 compared to the pro forma three months ended September 30,
2011.
Net sales
Net sales for the three months ended September 30, 2012 were approximately $36.7 million, a decrease of $1.6 million, or 4.3%, compared to the same period in 2011. The decrease in gross sales is a
result of decreased sales in Hydration Systems ($0.1 million), Accessories ($1.1 million) and Gloves ($3.9 million) offset in part by an increase in Bottle sales ($3.3 million). The decrease in Glove sales during the three months ended
September 30, 2012 compared to the same period in 2011 is due to decreased demand from the U.S. military, resulting principally from a drawdown of U.S. combat troops during the period and the absence of sales from a direct contract with the
U.S. Military that was not in effect in 2012. The increase in Bottle sales is principally due to the expansion of offerings in Bottles, such as the introduction of eddyTM and the continued expansion in its customer base, including new and existing
customers.
Hydration Systems and Bottles represented approximately 86% of gross sales for the three months ended September 30, 2012
compared to 74% for the same period in 2011. This increase is due in large part to the significant decrease in Glove sales. Military sales represented approximately 38% of gross sales for the three months ended September 30, 2012 compared to
45% for the same period in 2011. International sales represented approximately 14% of gross sales for the three months ended September 30, 2012 compared to 16% for the same period in 2011.
Cost of sales
Cost of sales for
the three months ended September 30, 2012 were approximately $20.1 million compared to approximately $22.8 million in the same period of 2011. The decrease of $2.7 million is due principally to the corresponding decrease in net sales and the
significant decrease in Glove sales. Gross profit as a percentage of sales increased to 45.3% for the quarter ended September 30, 2012 compared to 40.6% in the quarter ended September 30, 2011. The increase is attributable to a favorable
sales mix during the quarter ended September 30, 2012 compared to last years quarter, and the decrease in Glove sales as a percentage of total sales. Gloves carry a lower gross profit margin than CamelBaks other product lines.
39
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2012 increased to approximately $9.1 million or 24.7% of net
sales compared to $7.3 million or 19.1% of net sales for the same period of 2011. The $1.8 million increase in selling, general and administrative expense incurred during the three months ended September 30, 2012 compared to the same period in
2011 is attributable to: (i) increases in compensation expense ($0.8 million), (ii) increases in marketing costs ($0.4 million) and (iii) an increase in bad debt expense totaling $0.2 million, with the balance of the increase due
principally to increased infrastructure costs and general overhead, which together with the increases noted above were necessary to support expansion in connection with growth initiatives.
Income from operations
Income from operations for the three months ended
September 30, 2012 was $5.1 million, a decrease of $0.9 million when compared to the same period in 2011, principally based on the factors described above.
Nine months ended September 30, 2012 compared to the pro forma nine months ended September 30, 2011.
Net sales
Net sales for the nine months ended September 30, 2012 were
approximately $121.1 million, an increase of $6.4 million, or 5.6%, compared to the same period in 2011. The increase in gross sales is a result of increased sales in Hydration Systems ($10.1 million) and Bottles ($8.2 million) offset in part by a
decrease in sales of Gloves ($9.2 million) and Accessories ($1.2 million). The increased Bottle and Hydration Systems sales during the nine months ended September 30, 2012 compared to the same period in 2011 is attributable to the continued
success of Antidote, CamelBaks new reservoir for the recreational Hydration Systems line, introduced in 2011, the expansion of offerings in Bottles, such as the introduction of eddyTM, and the continued expansion in its customer
base, including new and existing customers, for all product lines. CamelBak began providing Hydration Systems as a subcontractor as part of the United States Marine Corps pack program beginning at the end of 2011, which contributed to the increase
in Hydration Systems sales in the first nine months of 2012 compared to 2011. CamelBak anticipates fulfillment of this contract during the first quarter of 2013. The decrease in Glove sales during the nine months ended September 30, 2012
compared to the same period in 2011 is due to decreased demand from the U.S. military, resulting principally from a drawdown of U.S. combat troops during the period and the absence of sales from a direct contract with the U.S. Military that was not
in effect in 2012.
Sales of Hydration Systems and Bottles represented approximately 85% of gross sales for the nine months ended
September 30, 2012 compared to 74% for the same period in 2011. Military sales represented approximately 38% of gross sales for the nine months ended September 30, 2012 compared to 42% for the same period in 2011. International sales
represented approximately 17% of gross sales for the nine months ended September 30, 2012 compared to 18% for the same period in 2011.
Cost of sales
Cost of sales for
the nine months ended September 30, 2012 were approximately $65.4 million compared to approximately $68.0 million in the same period of 2011. The decrease of $2.6 million is due principally to the decrease in Glove sales. Gross profit as a
percentage of sales increased to 46.0% for the nine months ended September 30, 2012 compared to 40.7% for the same period in 2011. The increase is attributable to a favorable sales mix during the nine months ended September 30, 2012
compared to last year, and the decrease in Glove sales as a percentage of total sales. Gloves carry a lower gross profit margin than CamelBaks other product lines.
Selling, general and administrative expense
Selling, general and administrative
expense for the nine months ended September 30, 2012 increased to approximately $27.2 million or 22.4% of net sales compared to $22.7 million or 19.8% of net sales for the same period of 2011. The $4.5 million increase in selling, general and
administrative expense incurred during the nine months ended September 30, 2012 compared to the same period in 2011 is attributable to: (i) increases in sales commissions ($0.7 million), (ii) increases in marketing costs ($0.5
million), (iii) increases in rent and professional fees ($0.5 million) and (iv) increases in compensation expense ($2.1 million). The balance of the increase is due principally to increased infrastructure costs and general overhead, which
together with the increases noted above were necessary to support expansion in connection with growth initiatives.
Income from
operations
Income from operations for the nine months ended September 30, 2012 was approximately $21.1 million, an increase of
$4.4 million when compared to the same period in 2011, based on the factors described above.
40
ERGObaby
Overview
ERGObaby, with headquarters in Los Angeles, California, is a premier
designer, marketer and distributor of baby wearing products and accessories. ERGObaby offers a broad range of wearable baby carriers and related products that are sold through more than 900 retailers and web shops in the United States and
internationally in approximately 50 countries. ERGObabys product lines include baby carriers (organic and standard), accessories and Orbit Babys travel systems.
On September 16, 2010 we made loans to and purchased a controlling interest in ERGObaby for approximately $85.2 million, representing approximately 84% of the equity in ERGObaby. ERGObabys
reputation for product innovation, reliability and safety has led to numerous awards and accolades from consumer surveys and publications, including Parenting Magazine, Pregnancy Magazine and Wired Magazine.
On November 18, 2011 ERGObaby acquired Orbit Baby. Orbit Baby produces and markets a premium line of stroller travel systems. Orbit Babys
high-quality products include car seats, strollers and bassinets that are interchangeable using a patented hub ring. The results of operations for ERGObaby for the three and nine months ended September 30, 2011 do not include Orbit Baby
operating results.
Results of Operations
The table below summarizes the income from operations for the three months and nine months ended September 30, 2012 and September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
(in thousands)
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
|
|
|
Net sales
|
|
$
|
18,540
|
|
|
$
|
10,726
|
|
|
$
|
45,565
|
|
|
$
|
33,383
|
|
Cost of sales (a)
|
|
|
7,149
|
|
|
|
3,602
|
|
|
|
17,690
|
|
|
|
11,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
11,391
|
|
|
|
7,124
|
|
|
|
27,875
|
|
|
|
21,756
|
|
Selling, general and administrative expense
|
|
|
6,283
|
|
|
|
4,023
|
|
|
|
17,301
|
|
|
|
12,504
|
|
Fees to manager
|
|
|
125
|
|
|
|
125
|
|
|
|
375
|
|
|
|
375
|
|
Amortization of intangibles
|
|
|
743
|
|
|
|
429
|
|
|
|
2,294
|
|
|
|
1,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
4,240
|
|
|
$
|
2,547
|
|
|
$
|
7,905
|
|
|
$
|
7,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2012 compared to the three months ended
September 30, 2011.
Net sales
Net sales for the three months ended September 30, 2012 were $18.5 million, an increase of $7.8 million or 72.9% compared to the same period in 2011. Domestic sales were approximately $7.4 million in
the three months ended September 30, 2012 compared to approximately $4.4 million in the same period for 2011. The increase is primarily attributable to Orbit Baby sales of $2.4 million in the 2012 period. International sales were approximately
$11.2 million in the three months ended September 30, 2012 compared to $6.4 million in 2011, an increase of $4.8 million or 75%. Orbit Babys international sales were $1.4 million during the three months ended September 30, 2012. The
remaining increase in international sales is due to an increase in sales in Asia and South America.
Excluding Orbit Baby sales of
approximately $3.8 million in the three months ended September 30, 2012, baby carriers represented 89.4% of net sales in the quarter ended September 30, 2012 compared to 86.5% during the same period of 2011.
41
Cost of sales
Cost of sales for the three months ended September 30, 2012 were approximately $7.1 million compared to $3.6 million in the same period of 2011. The increase of $3.5 million is due principally to the
increase in sales in the same period. Gross profit as a percentage of sales decreased from 66.4% for the quarter ended September 30, 2011 to 61.4% for the quarter ended September 30, 2012. The 5.0% decrease is primarily attributable to
lower margin Orbit Baby product sales in the September 30, 2012 period and a larger proportion of international baby carriers in the third quarter of 2012 compared to 2011. International baby carrier sales generate a lower gross profit margin
than domestic baby carrier sales.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2012 increased to approximately $6.3 million and represented
33.9% of net sales compared to $4.0 million or 37.5% of net sales for the same period of 2011. The increase of $2.3 million is primarily attributable to the selling, general and administrative expenses of Orbit Baby ($1.6 million), offset in part by
a decrease in professional fees in the third quarter of 2012 ($0.3 million), each as compared to the 2011 third quarter, and the impact of an earn-out provision that was reversed in the third quarter of 2011 ($1.0 million).
Amortization of intangibles
Amortization expense increased $0.3 million in the three months ended September 30, 2012 compared to the same period in 2011 as a result of
amortizing those intangible assets acquired as part of the purchase of Orbit Baby.
Income from operations
Income from operations for the three months ended September 30, 2012 was $4.2 million compared to $2.5 million in the same period of 2011. The $1.7
million increase is due principally to those factors described above.
Nine months ended September 30, 2012 compared
to the nine months ended September 30, 2011.
Net sales
Net sales for the nine months ended September 30, 2012 were $45.6 million, an increase of $12.2 million or 36.5% compared to the same period in 2011. The increase is primarily attributable to Orbit
Baby sales of $9.4 million during the nine months ended September 30, 2012 with the remaining 2012 increase attributable to baby carrier and accessory sales. Domestic sales were approximately $18.9 million in the nine months ended
September 30, 2012 compared to approximately $11.9 million in the same period for 2011. The increase of $7.0 million or 58.7% is primarily attributable to Orbit Baby sales of $6.3 million in the 2012 period. International sales were
approximately $26.7 million in the nine months ended September 30, 2012 compared to $21.5 million in 2011, an increase of $5.2 million or 24.2%. Orbit Babys international sales were $3.1 million in the nine months ended September 30,
2012.
Excluding Orbit Baby sales of $9.4 million, baby carriers represented 88.9% of sales in the nine months ended September 30, 2012
compared to 87.8 % during the same period of 2011.
Cost of sales
Cost of sales for the nine months ended September 30, 2012 were approximately $17.7 million compared to $11.6 million in the same period of 2011. The increase of $6.1 million is due principally to
the increase in sales in the same period. Gross profit as a percentage of sales decreased from 65.2% for the nine months ended September 30, 2011 to 61.2% in 2012. The 4.0% decrease is primarily attributable to lower margin Orbit Baby product
sales in the September 30, 2012 period and a larger proportion of international baby carriers during the nine months ended September 30, 2012 compared to the same period in 2011. International baby carrier sales generate a lower gross
profit margin than domestic baby carrier sales.
Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2012 increased to approximately $17.3 million or 38.0% of net
sales compared to $12.5 million or 37.5% of net sales for the same period of 2011. The increase of $4.8 million is primarily attributable to the selling, general and administrative expenses of Orbit Baby ($4.1 million) and to a lesser extent the
impact of an earn-out provision that was reversed in the third quarter of 2011 ($0.2 million) and an increase in marketing and personnel costs ($1.1 million) to support growth initiatives, offset in part by a decrease in bad debt expense ($0.4
million) at the baby carrier level during the nine-months ended September 30, 2012 compared to the same period in 2011.
42
Amortization of intangibles
Amortization expense increased $1.0 million in the nine months ended September 30, 2012 compared to the same period in 2011 as a result of amortizing those intangible assets acquired as part of the
purchase of Orbit Baby.
Income from operations
Income from operations for the nine months ended September 30, 2012 increased approximately $0.3 million to $7.9 million compared to the same period in 2011, due principally to those factors
described above.
Fox Factory
Overview
Fox, headquartered in
Scotts Valley, California, is a branded action sports company that designs, manufactures and markets high-performance suspension products for mountain bikes and power sports, which include: snowmobiles, motorcycles, all-terrain vehicles ATVs, and
other off-road vehicles.
Foxs products are recognized by manufacturers and consumers as being among the most technically advanced
suspension products currently available in the marketplace. Foxs technical success is demonstrated by its dominance of award winning performances by professional athletes across its suspension products. As a result, Foxs suspension
components are incorporated by original equipment manufacturers (OEM) on their high-performance models at the top of their product lines in the mountain bike and powered vehicle sector. OEMs capitalize on the strength of Foxs brand
to maintain and expand their own sales and margins. In the Aftermarket segment, customers seeking higher performance select Foxs suspension components to enhance their existing equipment.
Fox sells to more than 160 OEM and 7,600 Aftermarket customers across its market segments. In each of the years 2011, 2010 and 2009, approximately 80%,
78% and 76% of net sales were to OEM customers. The remaining net sales were to Aftermarket customers.
Results of Operations
The table below summarizes the income from operations data for Fox Factory for the three and nine month periods ended
September 30, 2012 and September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
(in thousands)
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
|
|
|
|
Net sales
|
|
$
|
72,865
|
|
|
$
|
61,689
|
|
|
$
|
179,256
|
|
|
$
|
150,464
|
|
Cost of sales
|
|
|
52,746
|
|
|
|
42,816
|
|
|
|
129,593
|
|
|
|
105,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20,119
|
|
|
|
18,873
|
|
|
|
49,663
|
|
|
|
44,677
|
|
Selling, general and administrative expense
|
|
|
7,662
|
|
|
|
7,427
|
|
|
|
23,177
|
|
|
|
20,746
|
|
Fees to manager
|
|
|
125
|
|
|
|
125
|
|
|
|
375
|
|
|
|
375
|
|
Amortization of intangibles
|
|
|
1,341
|
|
|
|
1,304
|
|
|
|
3,974
|
|
|
|
3,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
10,991
|
|
|
$
|
10,017
|
|
|
$
|
22,137
|
|
|
$
|
19,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2012 compared to the three months ended
September 30, 2011
.
Net sales
Net sales for the three months ended September 30, 2012 increased approximately $11.2 million, or 18.1%, compared to the corresponding period in 2011. Sales growth was driven by sales to OEM which
increased $9.6 million to $60.2 million during the three months ended September 30, 2012 compared to $50.6 million for the same period in 2011. The increase in net sales is largely driven by increased spec with our customers. The remaining
increase in net sales totaling $1.6 million reflects increased sales to Aftermarket customers in the third fiscal quarter of 2012 compared to the same period in 2011.
43
Cost of sales
Cost of sales for the three months ended September 30, 2012 increased approximately $9.9 million compared to the corresponding period in 2011. The increase in cost of sales is primarily due to
increased net sales during the three months ended September 30, 2012 compared to the same period of 2011. Gross profit as a percentage of sales was approximately 27.6% for the three months ended September 30, 2012 compared to 30.6% for the
same period in 2011. The 3.0% decrease in gross profit as a percentage of sales during 2012 is largely attributable to the increased overhead costs associated with consolidating our Watsonville operations, increased costs associated with expanding
our Taiwanese operations and increased warranty costs and expedited freight costs incurred during the third quarter of 2012 compared to the same period of 2011.
Selling, general and administrative expense
Selling, general and administrative
expense increased approximately $0.2 million during the three months ended September 30, 2012 compared to the same period in 2011. This increase is primarily the result of increases in employee related costs to support company growth during the
three months ended September 30, 2012.
Income from operations
Income from operations for the three months ended September 30, 2012 increased approximately $1.0 million to $11.0 million compared to the corresponding period in 2011, based principally on the
increase in net sales, offset in part by the increases in selling, general and administrative costs, all as described above.
Nine months ended September 30, 2012 compared to the nine months ended September 30, 2011
.
Net sales
Net
sales for the nine months ended September 30, 2012 increased approximately $28.8 million, or 19.1%, compared to the corresponding period in 2011. Sales growth was driven by sales to OEM which increased $23.9 million to $143.5 million during the
nine months ended September 30, 2012 compared to $119.6 million for the same period in 2011. The increase in net sales is largely driven by increased spec with our customers and to a lesser degree by increased demand for carryover product. The
remaining increase in net sales totaling $4.9 million reflects increased sales to Aftermarket customers in the nine months ended September 30, 2012 compared to the same period in 2011.
Cost of sales
Cost of sales for the nine months ended September 30, 2012
increased approximately $23.8 million compared to the corresponding period in 2011. The increase in cost of sales is primarily due to increased net sales during 2012. Gross profit as a percentage of sales was approximately 27.7% for the nine months
ended September 30, 2012 compared to 29.7% for the same period in 2011. The 2.0% decrease in gross profit as a percentage of sales during 2012 is largely attributable to the increased overhead costs associated with consolidating our Watsonville
operations; increased costs associated with expanding our Taiwanese operations and increased expedited freight costs and warranty costs. WHY?
Selling, general and administrative expense
Selling, general and administrative expense increased approximately $2.4 million during the nine months ended September 30, 2012 compared to the same period in 2011. This increase is primarily the
result of increases in employee costs necessary to support company growth during the nine months ended September 30, 2012 compared to the same period in 2011, and costs incurred in connection with a debt recapitalization ($0.8 million) which
occurred during June 2012 (see Related Party Transactions and Certain Transactions Involving our Businesses).
Income
from operations
Income from operations for the nine months ended September 30, 2012 increased approximately $2.5 million to $22.1
million compared to the corresponding period in 2011, based principally on the increase in net sales, offset in part by the increases in selling, general and administrative costs, all as described above.
Liberty Safe
Overview
Based in Payson, Utah and founded in 1988, Liberty Safe is the premier designer, manufacturer and marketer of home and gun safes in
North America. From its over 200,000 square foot manufacturing facility, Liberty Safe produces a wide range of home and gun safe models in a broad assortment of sizes, features and styles ranging from an entry level product to good, better and best
products. Products are marketed under the Liberty brand, as well as a portfolio of licensed and private label
44
brands, including Remington, Cabelas and John Deere. Liberty Safes products are the market share leader and are sold through an independent dealer network (Dealer) in
addition to various sporting goods and home improvement retail outlets (Non-Dealer or National account). Liberty has the largest independent dealer network in the industry.
Historically, approximately 60% of Liberty Safes net sales are Non-Dealer sales and 40% are Dealer sales.
On March 31, 2010 we made loans to and purchased a controlling interest in Liberty Safe for approximately $70.2 million, representing 96.2% of the
equity in Liberty Safe.
Results of Operations
The table below summarizes the results of operations for Liberty Safe for the three months ended September 30, 2012 and the three months ended September 30, 2011. It also summarizes the results
of operations for the nine month period ended September 30, 2012 and the results of operations for the nine months ended September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
(in thousands)
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
|
|
|
|
Net sales
|
|
$
|
23,385
|
|
|
$
|
21,786
|
|
|
$
|
67,000
|
|
|
$
|
60,611
|
|
Cost of sales
|
|
|
17,109
|
|
|
|
16,365
|
|
|
|
49,921
|
|
|
|
45,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,276
|
|
|
|
5,421
|
|
|
|
17,079
|
|
|
|
15,314
|
|
Selling, general and administrative expense
|
|
|
2,870
|
|
|
|
2,545
|
|
|
|
8,682
|
|
|
|
7,686
|
|
Fees to manager
|
|
|
125
|
|
|
|
125
|
|
|
|
375
|
|
|
|
375
|
|
Amortization of intangibles
|
|
|
1,230
|
|
|
|
1,294
|
|
|
|
3,754
|
|
|
|
3,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
2,051
|
|
|
$
|
1,457
|
|
|
$
|
4,268
|
|
|
$
|
3,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2012 compared to the three months ended September 30,
2011.
Net sales
Net sales for the three months ended September 30, 2012 increased approximately $1.6 million, or 7.3%, over the corresponding three months ended September 30, 2011. Non-Dealer sales were
approximately $12.6 million in the three months ended September 30, 2012 compared to $13.9 million in the same period in 2011 representing a decrease of $1.3 million or 9.4%. Dealer sales totaled approximately $10.8 million in the three months
ended September 30, 2012 compared to $7.9 million in the same period in 2011 representing an increase of $2.9 million or 37.6%. The decrease in Non-Dealer sales in 2012 is due in large part to the absence of sales in the third quarter of 2012
in connection with a large National retail accounts holiday program which generated approximately $3.0 million in sales during the third quarter of 2011. The significant increase in net sales at the Dealer level is the result of strong demand
for Liberty branded product. Management believes that the increased sales at the Dealer level continues to be bolstered by its national advertising campaign in conjunction with those accounts that maintain consistent Liberty Safe product advertising
at the local level.
Cost of sales
Cost of sales for the three months ended September 30, 2012 increased approximately $0.7 million. The increase in cost of sales is primarily attributable to the increase in net sales for the
same period. Gross profit as a percentage of net sales totaled approximately 26.8% and 24.9% of net sales for the three month periods ended September 30, 2012 and September 30, 2011, respectively. The increase in gross profit as a
percentage of sales for the three months ended September 30, 2012 compared to 2011 is principally attributable to Dealer and Non-Dealer price increases enacted during the second and third quarter of 2012, and a favorable sales mix.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2012, increased approximately $0.3 million compared to the same period in 2011. This increase is
largely the result of increased direct commission expense and co-op advertising costs, both related to growth initiatives and the increase in sales.
Income from operations
Income from operations was approximately $2.1 million for
the three months ended September 30, 2012, representing an increase of $0.6 million compared to the same period in 2011. The improved operating results are principally due to the factors described above, particularly the increase in net sales.
45
Nine months ended September 30, 2012 compared to the nine months ended
September 30, 2011.
Net sales
Net sales for the nine months ended September 30, 2012 increased approximately $6.4 million, or 10.5%, over the corresponding nine months ended September 30, 2011. Non-Dealer sales were
approximately $38.3 million in the nine months ended September 30, 2012 compared to $37.0 million in the same period in 2011, representing an increase of $1.3 million or 3.5%. Dealer sales totaled approximately $28.7 million in the nine months
ended September 30, 2012 compared to $23.6 million in the same period in 2011, representing an increase of $5.1 million or 21.6%. The increase in Non-Dealer sales in 2012 is due in large part to increased sales in the sporting goods channel.
These increases were offset in part by the absence of sales in the third quarter of 2012, in connection with a large National retail accounts holiday program which generated approximately $3.0 million in sales during the third quarter of 2011.
The increase in net sales at the Dealer level is the result of strong demand for Liberty branded product. Management believes that the increased sales at the Dealer level continue to be bolstered by its national advertising campaign in conjunction
with those accounts that maintain consistent Liberty Safe product advertising at the local level.
Cost of sales
Cost of sales for the nine months ended September 30, 2012 increased approximately $4.6 million. The increase in cost of sales is primarily
attributable to the increase in net sales for the same period. Gross profit as a percentage of net sales totaled approximately 25.5% and 25.3% of net sales for the nine month periods ended September 30, 2012 and September 30, 2011,
respectively. The increase in gross profit as a percentage of sales for the nine months ended September 30, 2012 compared to 2011 is principally attributable to Dealer and Non-Dealer price increases enacted during the second and third quarter
of 2012, and a favorable sales mix.
Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2012, increased approximately $1.0 million compared to the
same period in 2011. This increase is principally the result of increases in the following costs to support the significant increase in sales, particularly commission expense and co-op advertising ($0.3 million), and personnel costs ($0.3 million)
all to support growth initiatives and the resultant increase in net sales.
Income from operations
Income from operations was approximately $4.3 million for the nine months ended September 30, 2012 representing an increase of $0.9 million compared
to the same period in 2011, which reflected operating income of $3.4 million. The improved operating results are principally due to the factors described above, particularly the increase in net sales.
Tridien
Overview
Tridien Medical, headquartered in Coral Springs, Florida, is a leading designer and manufacturer of powered and non-powered medical
therapeutic support services and patient positioning devices serving the acute care, long-term care and home health care markets. Tridien is one of the nations leading designers and manufacturers of specialty therapeutic support surfaces with
manufacturing operations in multiple locations to better serve a national customer base.
Tridien provides customers the opportunity to source
leading surface technologies from the designer and manufacturer.
Tridien develops products both independently and in partnership with large
distribution intermediaries. Medical distribution companies then sell or rent the therapeutic support surfaces, sometimes in conjunction with bed frames and accessories to one of three end markets: (i) acute care, (ii) long term care and
(iii) home health care. The level of sophistication largely varies for each product, as some patients require simple foam mattress beds (non-powered support surfaces) while others may require electronically controlled, low air loss,
lateral rotation, pulmonary therapy or alternating pressure surfaces (powered support surfaces). The design, engineering and manufacturing of most products are completed in-house (with a portion of our products manufactured in Taiwan)
and are FDA compliant.
46
Results of Operations
The table below summarizes the income from operations data for Tridien for the three and nine month periods ended September 30, 2012 and September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
(in thousands)
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
|
|
|
|
Net sales
|
|
$
|
14,858
|
|
|
$
|
15,120
|
|
|
$
|
42,586
|
|
|
$
|
42,917
|
|
Cost of sales
|
|
|
11,092
|
|
|
|
11,064
|
|
|
|
31,793
|
|
|
|
31,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,766
|
|
|
|
4,056
|
|
|
|
10,793
|
|
|
|
11,488
|
|
Selling, general and administrative expense
|
|
|
2,222
|
|
|
|
1,969
|
|
|
|
6,497
|
|
|
|
6,225
|
|
Fees to manager
|
|
|
88
|
|
|
|
88
|
|
|
|
263
|
|
|
|
263
|
|
Amortization of intangibles
|
|
|
326
|
|
|
|
330
|
|
|
|
979
|
|
|
|
989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
1,130
|
|
|
$
|
1,669
|
|
|
$
|
3,054
|
|
|
$
|
4,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2012 compared to the three months ended September 30,
2011.
Net sales
Net sales for the three months ended September 30, 2012 decreased approximately $0.3 million or 1.7% over the corresponding three months ended September 30, 2011. Net sales of non-powered
support surfaces and patient positioning devices totaled $11.9 million in each of the three-month periods ended September 30, 2012 and 2011. Net sales of powered products totaled $2.9 million during the three months ended September 30,
2012 compared to $3.2 million in 2011, a decrease of $0.3 million or 7.1%, largely due to a periodic fleet upgrade from a large customer.
Cost of sales
Cost of sales were
flat in the quarter ended September 30, 2012 compared to the same period in 2011, despite the decrease in sales. Gross profit as a percentage of sales was 25.3% in the three months ended September 30, 2012 compared to 26.8% in the
corresponding period in 2011. The decrease in gross profit as a percentage of sales of 1.5% in the three months ended September 30, 2012 compared to the same period of 2011 is due to an unfavorable product sales mix.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2012 increased approximately $0.3 million compared to the same period of 2011. This increase is attributable
to an increased spending on new product development.
Income from operations
Income from operations decreased approximately $0.5 million to $1.1 million for the three months ended September 30, 2012 compared to $1.6
million in the three months ended September 30, 2011 and is attributable to those factors described above. The Medical Device Tax, a 2.3% excise tax included as part of the Affordable Care act signed into law in 2010, will be levied on Tridien
revenues beginning in 2013. If we are not able to pass these charges through to our customers it will have a negative impact on our results of operation in 2013.
Nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.
Net sales
Net sales for the nine months ended September 30, 2012 decreased
approximately $0.3 million or 1.0% compared to the corresponding nine months ended September 30, 2011. Net sales of non-powered support surfaces and patient positioning devices totaled $34.7 million in 2012 compared to $34.5 million during
the same period in 2011, an increase of $0.3 million or 1.0%. Net sales of powered products totaled $7.8 million during the nine months ended September 30, 2012 compared to $8.5 million in 2011, a decrease of $0.6 million or 7.2%, largely due
to a periodic fleet upgrade from a large customer.
Cost of sales
Cost of sales increased approximately $0.4 million in the nine months ended September 30, 2012 compared to the same period of 2011 primarily as a result of incremental costs incurred related to
a new Midwest manufacturing facility. Gross
47
profit as a percentage of sales was 25.3% in the nine months ended September 30, 2012 compared to 26.8% in the corresponding period in 2011. In addition to the costs associated with our new
manufacturing and distribution facility, the decrease in gross profit as a percentage of sales in the nine months ended September 30, 2012 compared to the same period of 2011 is due to an unfavorable product sales mix.
Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2012 increased 0.3 million compared to the same period in 2011. The increase is due to an increase in spending
on new product development and spending on growth initiatives.
Income from operations
Income from operations decreased approximately $1.0 million to $3.1 million for the nine months ended September 30, 2012 compared to $4.0
million in the nine months ended September 30, 2011, due principally to those factors described above.
48
Liquidity and Capital Resources
For the nine months ended September 30, 2012, on a consolidated basis, cash flows provided by operating activities totaled approximately $21.4 million, which represents a $36.4 million decrease in
cash provided by operations compared to the nine months ended September 30, 2011. This decrease is the result of (i) capital investment associated with the build-up of inventories in 2012 ($22.4 million), (ii) the additional pay down
of the supplemental put liability to our Manager in 2012 compared to 2011 ($6.8 million), and: (iii) the decrease in net income during the nine months ended September 30, 2012 compared to 2011 ($4.6 million).
For the nine months ended September 30, 2012, on a consolidated basis, cash flows used in investing activities totaled approximately
$77.8 million, which reflects the acquisition of Arnold Magnetics ($124.1 million), further investment in existing portfolio companies ($16.3 million) and capital expenditures ($9.7 million) offset in part by proceeds from the sale of Halo
($66.5 million) and Staffmark ($5.0 million).
For the nine months ended September 30, 2012, on a consolidated basis, cash flows used in
financing activities totaled approximately $55.8 million, principally reflecting distributions paid to shareholders of CODI during the year ($52.2 million) and non-controlling shareholders ($16.3 million), the cost of redemption of preferred
stock and accumulated interest at Camelback ($48.0 million) offset in part by net borrowings on our Credit Facility ($46.6 million) and the sale of stock to non-controlling shareholders ($11.8 million).
At September 30, 2012, we had approximately $20.0 million of cash and cash equivalents on hand. The majority of our cash is invested in short-term
money market accounts and is maintained in accordance with the Companys investment policy, which identifies allowable investments and specifies credit quality standards.
As of September 30, 2012, we had the following outstanding loans due from each of our businesses:
|
|
Advanced Circuits $57.4 million;
|
|
|
American Furniture $16.4 million;
|
|
|
Arnold Magnetics $81.6 million;
|
|
|
CamelBak $138.2 million;
|
|
|
ERGObaby $55.6 million;
|
|
|
Liberty $40.9 million; and
|
Each loan to our businesses has a scheduled maturity date and each business is entitled to repay all or a portion of the principal amount of the outstanding loans, without penalty, prior to maturity. We
are required to fund, in the form of an additional equity investment, any shortfall in the difference between Adjusted EBITDA and Fixed Charges as defined in American Furnitures credit agreement with us. Per the Maintenance Agreement the
shortfall that we are required to fund, AFM is in turn required to pay down on its term debt with us. The amount of the shortfall at September 30, 2012 is approximately $0.8 million.
Our primary source of cash is from the receipt of interest and principal on the outstanding loans to our businesses. Accordingly, we are dependent upon the earnings of and cash flow from these businesses,
which are available for (i) operating expenses; (ii) payment of principal and interest under our Credit Facility; (iii) payments to CGM due pursuant to the Management Services Agreement, the LLC Agreement, and the Supplemental Put
Agreement; (iv) cash distributions to our shareholders; and (v) investments in future acquisitions. Payments made under (iii) above are required to be paid before distributions to shareholders and may be significant and exceed the
funds held by us, which may require us to dispose of assets or incur debt to fund such expenditures.
We recognized a non-cash charge to
earnings of approximately $6.4 million during the nine months ended September 30, 2012 in order to reflect an increase in our estimated liability in connection with the Supplemental Put Agreement between us and CGM. A liability of
approximately $42.2 million is reflected in our condensed consolidated balance sheet, which represents our estimated liability for this obligation at September 30, 2012. During the nine months ended September 30, 2012, we paid CGM $13.7
million in connection with the profit allocation earned on the sale of Staffmark.
49
The current portion of the supplemental put liability of $5.2 million represents an accrual for the
contribution-based profit allocation that will be paid to our Manager during the second quarter of 2013. This accrual primarily represents the contribution-based profit for the fifth anniversary date of Fox and reduces the overall supplemental put
liability when paid.
The following table provides the contribution-based profit for each of the businesses we control at September 30,
2012 and the respective quarter end in which each five year anniversary occurs, reconciled to the total supplemental put liability:
|
|
|
|
|
|
|
(in thousands)
|
|
Contribution-based
profit allocation
accrual at September 30,
2012
|
|
|
Quarter End of Fifth
Anniversary Date of
Acquisition
|
|
|
|
Advanced Circuits
|
|
$
|
2,246
|
|
|
June 30, 2016
|
American Furniture
|
|
|
(13,791
|
)
|
|
September 30, 2017
|
Arnold Magnetics
|
|
|
(1,097
|
)
|
|
March 31, 2017
|
CamelBak
|
|
|
(744
|
)
|
|
September 30, 2016
|
ERGObaby
|
|
|
539
|
|
|
September 30, 2015
|
FOX
|
|
|
5,007
|
|
|
March 31, 2013
|
Liberty
|
|
|
(13
|
)
|
|
March 31, 2015
|
Tridien
|
|
|
(338
|
)
|
|
September 30, 2016
|
|
|
|
|
|
|
|
Total contribution-based profit portion
|
|
$
|
(8,191
|
)
|
|
|
Profit allocation due for HALO sale
|
|
|
211
|
|
|
|
Estimated gain on sale portion
|
|
|
50,185
|
|
|
|
|
|
|
|
|
|
|
Total supplemental put liability
|
|
$
|
42,205
|
|
|
|
|
|
|
|
|
|
|
We believe that we currently have sufficient liquidity and resources to meet our existing obligations, including
quarterly distributions to our shareholders, as approved by our Board of Directors, over the next twelve months. The quarterly distribution for the three months ended September 30, 2012 was paid on October 31, 2012 and was $17.4 million.
Our Credit Facility provides for the Revolving Credit Facility totaling $290 million which matures in October 2016 and a Term Loan
Facility totaling approximately $253 million, which matures in October 2017.
On April 2, 2012, we exercised an option with our Lender to
increase the Term Loan Facility by $30 million. In connection with the increase, we amended the pricing of the Term Loan Facility wherein borrowings under the facility now bear interest at LIBOR plus 5% with a floor of 1.25%. We incurred an
amendment fee of approximately $2.2 million.
The Term Loan Facility requires quarterly payments of $0.6 million which commenced
March 31, 2012, with a final payment of the outstanding principal balance due in October 2017.
At September 30, 2012, we had $19.0
million in outstanding borrowings under the Revolving Credit Facility.
We had approximately $269 million in borrowing base availability under
this facility at September 30, 2012. Letters of credit totaling $1.7 million were outstanding at September 30, 2012. We currently have no exposure to failed financial institutions.
The following table reflects required and actual financial ratios as of September 30, 2012 included as part of the affirmative covenants in our Credit Facility:
|
|
|
|
|
Description of Required Covenant Ratio
|
|
Covenant Ratio Requirement
|
|
Actual Ratio
|
Fixed Charge Coverage Ratio
|
|
greater than or equal to 1.5:1.0
|
|
2.50:1.0
|
Total Debt to EBITDA Ratio
|
|
less than or equal to 3.5:1.0
|
|
1.86:1.0
|
We intend to use the availability under our Credit Facility and cash on hand to pursue acquisitions of additional
businesses to the extent permitted under our Credit Facility, to fund distributions and to provide for other working capital needs. We have considered the impact of recent market instability and credit availability in assessing the adequacy of our
liquidity and capital resources.
50
Interest Expense
We incurred interest expense totaling $19.7 million for the nine months ended September 30, 2012 compared to $6.1 million for the same period in 2011. The components of interest expense are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
Interest on credit facilities
|
|
$
|
13,375
|
|
|
$
|
3,847
|
|
Unused fee on revolving credit facility
|
|
|
1,984
|
|
|
|
2,041
|
|
Amortization of original issue discount
|
|
|
1,951
|
|
|
|
|
|
Realized losses on interest rate hedges
|
|
|
|
|
|
|
143
|
|
Unrealized losses on interest rate derivatives
|
|
|
2,108
|
|
|
|
|
|
Amortization of interest rate cap
|
|
|
165
|
|
|
|
|
|
Letter of credit fees
|
|
|
54
|
|
|
|
43
|
|
Other
|
|
|
23
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
19,660
|
|
|
$
|
6,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily balance of debt outstanding
|
|
$
|
270,886
|
|
|
$
|
128,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate
|
|
|
9.7
|
%
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
Income Taxes
We incurred income tax expense of $17.1 million with an annual effective tax rate of 60.5% in the first nine months of 2012 compared to $9.4 million with an effective tax rate of 96.0% during the same
period in 2011. A portion of the acquisition costs expensed in the nine months ended September 30, 2012 in connection with the Arnold and Universal Circuits acquisitions are not tax deductible and losses incurred at the Company, which is an
LLC, are not tax deductible at the corporate level as those costs are passed through to the shareholders. For the first nine months of 2012, these two items accounted for 3.1% and 16.2%, respectively, of the increased effective tax rate compared to
the Federal statutory rate at September 30, 2012. Goodwill impairment charges expensed in the nine months ended September 30, 2011 in connection with the American Furniture write-offs are not tax deductible and losses incurred at the
Company, which is an LLC, are not tax deductible at the corporate level as those costs are passed through to the shareholders. For the first nine months of 2011, these two items accounted for 21.1% and 39.3%, respectively, of the increased effective
tax rate compared to the Federal statutory rate at September 30, 2011. The components of income tax expense as a percentage of income from continuing operations before income taxes for the nine months ended September 30, 2012 and 2011 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
United States Federal Statutory Rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Foreign and State income taxes (net of Federal benefits)
|
|
|
9.0
|
|
|
|
10.3
|
|
Expenses of Compass Group Diversified Holdings, LLC representing a pass through to shareholders (1)
|
|
|
16.2
|
|
|
|
39.3
|
|
Impact of subsidiary employee stock options
|
|
|
(2.0
|
)
|
|
|
2.7
|
|
Domestic production activities deduction
|
|
|
(2.9
|
)
|
|
|
(11.8
|
)
|
Non-deductible acquisition costs
|
|
|
3.1
|
|
|
|
|
|
Impairment expense
|
|
|
|
|
|
|
21.1
|
|
Non-recognition of NOL carryforwards at AFM
|
|
|
3.5
|
|
|
|
|
|
Other
|
|
|
(1.4
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
60.5
|
%
|
|
|
96.0
|
%
|
|
|
|
|
|
|
|
|
|
(1)
|
The effective income tax rate for all periods includes a significant loss at the companys parent, which is taxed as a partnership.
|
51
Reconciliation of Non-GAAP Financial Measures
From time to time we may publicly disclose certain non-GAAP financial measures in the course of our investor presentations, earnings releases,
earnings conference calls or other venues. A non-GAAP financial measure is a numerical measure of historical or future performance, financial position or cash flow that excludes amounts, or is subject to adjustments that effectively exclude amounts,
included in the most directly comparable measure calculated and presented in accordance with GAAP in our financial statements, and vice versa for measures that include amounts, or are subject to adjustments that effectively include amounts, that are
excluded from the most directly comparable measure as calculated and presented. GAAP refers to generally accepted accounting principles in the United States.
Non-GAAP financial measures are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These
measures are not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.
The tables below reconcile the most directly comparable GAAP financial measures to EBITDA, Adjusted EBITDA and Cash Flow Available for Distribution and Reinvestment (CAD).
Reconciliation of Net income (loss) to EBITDA and Adjusted EBITDA
EBITDA
Earnings before Interest, Income Taxes, Depreciation and Amortization (EBITDA) is calculated as net income (loss) before interest expense, income tax expense (benefit),
depreciation expense and amortization expense. Amortization expenses consist of amortization of intangibles and debt charges, including debt issuance costs, discounts, etc.
Adjusted EBITDA
Is calculated utilizing the same calculation as described above in arriving at EBITDA further adjusted by: (i) non-controlling stockholder compensation, which generally
consists of non-cash stock option expense; (ii) successful acquisition costs, which consist of transaction costs (legal, accounting , due diligences, etc.) incurred in connection with the successful acquisition of a business expensed during the
period in compliance with ASC 805;(iii) increases or decreases in supplemental put charges, which reflect the estimated potential liability due to our manager that requires us to acquire their Allocation Interests in the Company at a price based on
a percentage of the fair value in our businesses over their original basis plus a hurdle rate. Essentially, when the fair value of our businesses increases we will incur additional supplemental put charges and vice versa when the fair value of our
businesses decreases; (iv) management fees, which reflect fees due quarterly to our manager in connection with our Management Services Agreement (MSA); (v) impairment charges, which reflect write downs to goodwill or other
intangible assets and (vi) gains or losses recorded in connection with the sale of fixed assets.
We believe that
EBITDA
and
Adjusted EBITDA
provide useful information to investors and reflect important financial measures as they exclude the effects of items which reflect the impact of long-term investment decisions, rather than the performance of near term
operations. When compared to net income (loss) these financial measures are limited in that they do not reflect the periodic costs of certain capital assets used in generating revenues of our businesses or the non-cash charges associated with
impairments. This presentation also allows investors to view the performance of our businesses in a manner similar to the methods used by us and the management of our businesses, provides additional insight into our operating results and provides a
measure for evaluating targeted businesses for acquisition.
We believe these measurements are also useful in measuring our ability to service
debt and other payment obligations.
EBITDA
and
Adjusted EBITDA
are not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.
52
The following table reconciles
EBITDA
and
Adj
u
sted EBITDA
to net income (loss), which
we consider to be the most comparable GAAP financial measure
(in thousands)
:
Adjusted EBITDA
Nine months ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
Corporate
|
|
|
Advanced
Circuits
|
|
|
American
Furniture
|
|
|
Arnold
Magnetics
|
|
|
CamelBak
|
|
|
ERGObaby
|
|
|
Fox
|
|
|
Liberty
|
|
|
Tridien
|
|
|
Consolidated
|
|
Income (loss) from continuing operations
|
|
$
|
11,178
|
|
|
$
|
(14,055
|
)
|
|
$
|
9,410
|
|
|
$
|
(2,413
|
)
|
|
$
|
(4,605
|
)
|
|
$
|
6,159
|
|
|
$
|
1,668
|
|
|
$
|
12,425
|
|
|
$
|
477
|
|
|
$
|
2,112
|
|
|
$
|
11,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
17,119
|
|
|
|
(65
|
)
|
|
|
4,869
|
|
|
|
|
|
|
|
(1,779
|
)
|
|
|
4,678
|
|
|
|
1,178
|
|
|
|
7,130
|
|
|
|
247
|
|
|
|
861
|
|
|
|
17,119
|
|
Interest expense, net
|
|
|
19,609
|
|
|
|
19,561
|
|
|
|
(1
|
)
|
|
|
6
|
|
|
|
(4
|
)
|
|
|
11
|
|
|
|
25
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
19,609
|
|
Intercompany interest
|
|
|
|
|
|
|
(29,289
|
)
|
|
|
3,778
|
|
|
|
1,219
|
|
|
|
4,389
|
|
|
|
9,932
|
|
|
|
4,765
|
|
|
|
1,815
|
|
|
|
3,336
|
|
|
|
55
|
|
|
|
|
|
Depreciation and amortization
|
|
|
38,108
|
|
|
|
(501
|
)
|
|
|
3,990
|
|
|
|
221
|
|
|
|
7,667
|
|
|
|
10,236
|
|
|
|
3,466
|
|
|
|
5,789
|
|
|
|
5,463
|
|
|
|
1,777
|
|
|
|
38,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
86,014
|
|
|
|
(24,349
|
)
|
|
|
22,046
|
|
|
|
(967
|
)
|
|
|
5,668
|
|
|
|
31,016
|
|
|
|
11,102
|
|
|
|
27,170
|
|
|
|
9,523
|
|
|
|
4,805
|
|
|
|
86,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of fixed assets
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
281
|
|
Non-controlling shareholder compensation
|
|
|
3,250
|
|
|
|
|
|
|
|
18
|
|
|
|
163
|
|
|
|
35
|
|
|
|
682
|
|
|
|
333
|
|
|
|
1,733
|
|
|
|
218
|
|
|
|
68
|
|
|
|
3,250
|
|
Acquisition expenses
|
|
|
5,211
|
|
|
|
368
|
|
|
|
366
|
|
|
|
|
|
|
|
4,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,211
|
|
Supplemental put expense
|
|
|
6,391
|
|
|
|
6,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,391
|
|
Management fees
|
|
|
13,294
|
|
|
|
10,906
|
|
|
|
375
|
|
|
|
|
|
|
|
250
|
|
|
|
375
|
|
|
|
375
|
|
|
|
375
|
|
|
|
375
|
|
|
|
263
|
|
|
|
13,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (a)
|
|
$
|
114,441
|
|
|
$
|
(6,684
|
)
|
|
$
|
22,805
|
|
|
$
|
(756
|
)
|
|
$
|
10,432
|
|
|
$
|
32,073
|
|
|
$
|
11,810
|
|
|
$
|
29,528
|
|
|
$
|
10,097
|
|
|
$
|
5,136
|
|
|
$
|
114,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
Nine months ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
Corporate
|
|
|
Advanced
Circuits
|
|
|
American
Furniture
|
|
|
Arnold
Magnetics
|
|
CamelBak
|
|
|
ERGObaby
|
|
|
Fox
|
|
|
Liberty
|
|
|
Tridien
|
|
|
Consolidated
|
|
Income (loss) from continuing operations
|
|
$
|
389
|
|
|
$
|
(11,487
|
)
|
|
$
|
10,280
|
|
|
$
|
(11,086
|
)
|
|
|
|
$
|
(3,330
|
)
|
|
$
|
2,109
|
|
|
$
|
11,772
|
|
|
$
|
(86
|
)
|
|
$
|
2,217
|
|
|
$
|
389
|
|
Adjusted
for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
9,380
|
|
|
|
(61
|
)
|
|
|
5,494
|
|
|
|
(3,174
|
)
|
|
|
|
(2,024
|
)
|
|
|
1,306
|
|
|
|
6,272
|
|
|
|
12
|
|
|
|
1,555
|
|
|
|
9,380
|
|
Interest expense, net
|
|
|
6,101
|
|
|
|
6,029
|
|
|
|
(2
|
)
|
|
|
18
|
|
|
|
|
2
|
|
|
|
43
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
6,101
|
|
Intercompany interest
|
|
|
|
|
|
|
(15,893
|
)
|
|
|
4,547
|
|
|
|
1,758
|
|
|
|
|
1,310
|
|
|
|
3,494
|
|
|
|
1,353
|
|
|
|
3,224
|
|
|
|
207
|
|
|
|
|
|
Depreciation and amortization
|
|
|
23,240
|
|
|
|
360
|
|
|
|
3,658
|
|
|
|
2,663
|
|
|
|
|
2,630
|
|
|
|
2,060
|
|
|
|
5,052
|
|
|
|
5,000
|
|
|
|
1,817
|
|
|
|
23,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
39,110
|
|
|
|
(21,052
|
)
|
|
|
23,977
|
|
|
|
(9,821
|
)
|
|
|
|
(1,412
|
)
|
|
|
9,012
|
|
|
|
24,460
|
|
|
|
8,150
|
|
|
|
5,796
|
|
|
|
39,110
|
|
(Gain) loss on sale of
fixed assets
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
15
|
|
|
|
61
|
|
|
|
8
|
|
|
|
|
|
|
|
72
|
|
Non-controlling shareholder compensation
|
|
|
351
|
|
|
|
(1,175
|
)
|
|
|
8
|
|
|
|
162
|
|
|
|
|
|
|
|
|
308
|
|
|
|
746
|
|
|
|
195
|
|
|
|
107
|
|
|
|
351
|
|
Impairment charges
|
|
|
7,700
|
|
|
|
|
|
|
|
|
|
|
|
7,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,700
|
|
Acquisition expenses
|
|
|
4,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,374
|
|
Decrease in earnout probability
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177
|
)
|
Supplemental put expense
|
|
|
6,095
|
|
|
|
6,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,095
|
|
Management fees
|
|
|
11,707
|
|
|
|
9,769
|
|
|
|
375
|
|
|
|
125
|
|
|
|
|
51
|
|
|
|
375
|
|
|
|
375
|
|
|
|
375
|
|
|
|
262
|
|
|
|
11,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (a)(b)
|
|
$
|
69,232
|
|
|
$
|
(6,363
|
)
|
|
$
|
24,360
|
|
|
$
|
(1,846
|
)
|
|
|
$
|
3,013
|
|
|
$
|
9,533
|
|
|
$
|
25,642
|
|
|
$
|
8,728
|
|
|
$
|
6,165
|
|
|
$
|
69,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
As a result of the sale of our HALO subsidiary in May 2012, Adjusted EBITDA does not include EBITDA from HALO from the period January 1, 2012 through
April 30, 2012 of $2.2 million and for the period of January 1, 2011 through September 30, 2011 of $7.8 million.
|
(b)
|
As a result of the sale of our Staffmark subsidiary in October 2011, Adjusted EBITDA does not include EBITDA from Staffmark from the period January 1, 2011 through
September 30, 2011 of $23.6 million.
|
53
The table below details cash receipts and payments that are not reflected on our income statement in order
to provide an additional measure of managements estimate of CAD. CAD is a non-GAAP measure that we believe provides additional information to evaluate our ability to make anticipated quarterly distributions. It is not necessarily comparable
with similar measures provided by other entities. We believe that CAD, together with future distributions and cash available from our businesses (net of reserves) will be sufficient to meet our anticipated distributions over the next twelve months.
The table below reconciles CAD to net income and to cash flow provided by operating activities, which we consider to be the most directly comparable financial measure calculated and presented in accordance with GAAP.
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Nine Months Ended
September 30, 2012
|
|
|
Nine Months Ended
September 30, 2011
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Net income
|
|
$
|
9,546
|
|
|
$
|
14,169
|
|
Adjustment to reconcile net income to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
37,873
|
|
|
|
33,353
|
|
Impairment expense
|
|
|
|
|
|
|
7,700
|
|
Supplemental put expense
|
|
|
6,391
|
|
|
|
6,095
|
|
Amortization of original issue discount
|
|
|
1,951
|
|
|
|
|
|
Noncontrolling interests and noncontrolling stockholders charges
|
|
|
3,250
|
|
|
|
2,210
|
|
Amortization of debt issuance costs
|
|
|
1,326
|
|
|
|
1,543
|
|
Unrealized loss on interest rate swap
|
|
|
2,108
|
|
|
|
|
|
Deferred taxes
|
|
|
(2,315
|
)
|
|
|
(5,687
|
)
|
Other
|
|
|
1,399
|
|
|
|
1,036
|
|
Changes in operating assets and liabilities
|
|
|
(40,149
|
)
|
|
|
(2,622
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
21,380
|
|
|
|
57,797
|
|
Plus:
|
|
|
|
|
|
|
|
|
Unused fee on revolving credit facility (1)
|
|
|
1,984
|
|
|
|
2,041
|
|
Successful acquisition expense (2)
|
|
|
5,211
|
|
|
|
4,197
|
|
HALO sale related expenses (3)
|
|
|
1,976
|
|
|
|
|
|
Changes in operating assets and liabilities
|
|
|
40,149
|
|
|
|
2,622
|
|
Less:
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Other
|
|
|
597
|
|
|
|
930
|
|
Maintenance capital expenditures: (4)
|
|
|
|
|
|
|
|
|
Compass Group Diversified Holdings LLC
|
|
|
|
|
|
|
|
|
Advanced Circuits
|
|
|
470
|
|
|
|
1,570
|
|
American Furniture
|
|
|
(157
|
)
|
|
|
(35
|
)
|
Arnold
|
|
|
1,368
|
|
|
|
|
|
CamelBak
|
|
|
654
|
|
|
|
418
|
|
ERGObaby
|
|
|
463
|
|
|
|
736
|
|
Fox
|
|
|
3,252
|
|
|
|
443
|
|
Halo (divested May 2012)
|
|
|
320
|
|
|
|
888
|
|
Liberty
|
|
|
286
|
|
|
|
253
|
|
Staffmark (divested October 2011)
|
|
|
|
|
|
|
1,877
|
|
Tridien
|
|
|
620
|
|
|
|
1,317
|
|
|
|
|
|
|
|
|
|
|
Estimated cash flow available for distribution and reinvestment
|
|
$
|
62,827
|
|
|
$
|
58,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution paid in April 2012/2011
|
|
$
|
(17,388
|
)
|
|
$
|
(16,821
|
)
|
Distribution paid in July 2012/2011
|
|
|
(17,388
|
)
|
|
|
(16,821
|
)
|
Distribution paid in October 2012/2011
|
|
|
(17,388
|
)
|
|
|
(17,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(52,164
|
)
|
|
$
|
(51,030
|
)
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the commitment fee on the unused portion of our Prior Revolving Credit Facility and Revolving Credit Facility.
|
(2)
|
Represents successful acquisition transaction costs.
|
(3)
|
Represents transaction costs incurred related to the sale of HALO, net of the related income tax benefit.
|
(4)
|
Represents maintenance capital expenditures that were funded from operating cash flow, net of proceeds from sales of property, plant and equipment, and excludes growth
capital expenditures of approximately $2.1 million and $7.6 million incurred during the nine months ended September 30, 2012 and 2011, respectively.
|
54
Cash flows of certain of our businesses are seasonal in nature. Cash flows from American Furniture are
typically highest in the months of January through April coinciding with income tax refunds. Revenue and earnings from Fox are typically highest in the third quarter, coinciding with the delivery of product for the new bike year. Earnings from
Liberty are typically lowest in the second quarter due to lower demand for safes at the onset of summer. Earnings from CamelBak are typically higher in the spring and summer months as this corresponds with warmer weather in the Northern Hemisphere
and an increase in hydration related activities.
Related Party Transactions and Certain Transactions Involving our Businesses
Fox Debt Recapitalization
On June 18, 2012, we entered into an amendment to our inter-company loan agreement (the Amendment) with Fox (the Loan Agreement). The Loan Agreement was amended to
(i) provide for term loan borrowings of $60 million and an increase to the revolving loan commitment of $2.0 million and to permit the proceeds thereof to fund cash distributions totaling $67.0 million by Fox to us and to its non-controlling
shareholders, (ii) extend the maturity dates of the term loans under the Loan Agreement, and (iii) modify borrowing rates under the Loan Agreement. Our share of the cash distribution was approximately $50.7 million with approximately $16.3
million being distributed to Foxs non-controlling shareholders. All other material terms and conditions of the Loan Agreement were unchanged. 44,028 stock options were exercised at the time of the distribution. We purchased 33,142 shares of
Fox at fair value from non-controlling shareholders at the exercise date.
Purchase of Tridien Stock
On August 28, 2012 we purchased shares on stock of Anodyne from a group of Tridiens non-controlling shareholders for an aggregate purchase
price of approximately $1.9 million. As a result of this transaction our ownership interest in Tridien increased to 83.2% on a primary basis and 68.8% on a fully diluted basis.
Contractual Obligations and Off-Balance Sheet Arrangements
We have no special
purpose entities or off-balance sheet arrangements, other than operating leases entered into in the ordinary course of business.
Long-term
contractual obligations, except for our long-term debt obligations, are generally not recognized in our consolidated balance sheet. Non-cancelable purchase obligations are obligations we incur during the normal course of business, based on projected
needs.
The table below summarizes the payment schedule of our contractual obligations at September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less than 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More than
5 Years
|
|
Long-term debt obligations (a)
|
|
$
|
370,686
|
|
|
$
|
21,523
|
|
|
$
|
42,625
|
|
|
$
|
42,124
|
|
|
$
|
264,414
|
|
Capital lease obligations
|
|
|
339
|
|
|
|
192
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
Operating lease obligations (b)
|
|
|
68,377
|
|
|
|
11,806
|
|
|
|
21,914
|
|
|
|
15,452
|
|
|
|
19,205
|
|
Purchase obligations (c)
|
|
|
229,768
|
|
|
|
153,101
|
|
|
|
38,509
|
|
|
|
38,158
|
|
|
|
|
|
Supplemental put obligation (d)
|
|
|
37,005
|
|
|
|
5,007
|
|
|
|
539
|
|
|
|
2,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
706,172
|
|
|
$
|
191,629
|
|
|
$
|
103,734
|
|
|
$
|
97,980
|
|
|
$
|
283,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Reflects commitment fees and letter of credit fees under our Revolving Credit Facility and amounts due, together with interest on our Term Loan Facility.
|
(b)
|
Reflects various operating leases for office space, manufacturing facilities and equipment from third parties with various lease terms running from one to fourteen
years.
|
(c)
|
Reflects non-cancelable commitments as of September 30, 2012, including: (i) shareholder distributions of $69.6 million; (ii) management fees of $17.6
million per year over the next five years, and (iii) other obligations including amounts due under employment agreements. Distributions to our shareholders are approved by our Board of Directors each quarter. The amount ultimately approved as
future quarterly distributions may differ from the amount included in this schedule.
|
(d)
|
The supplemental put obligation represents the estimated long term liability, accrued as if our management services agreement with CGM had been terminated. This
agreement has not been terminated and there is no basis upon which to determine a date in the future, if any, that the estimated gain on sale portion will be paid. The Manager can elect to receive the positive contribution-based profit allocation
payment for each of our business acquisitions during the 30-day period following the fifth anniversary of the date upon which we acquired a controlling interest in that business. See Liquidity and Capital Resources.
|
55
Critical Accounting Estimates
The preparation of our financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and judgments that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these estimates under different assumptions and judgments and uncertainties, and potentially could result in materially different results under different conditions. These critical
accounting estimates are reviewed periodically by our independent auditors and the audit committee of our board of directors.
2012
Annual goodwill impairment testing
Goodwill represents the excess amount of the purchase price over the fair value of the assets
acquired. We are required to perform impairment reviews of goodwill balances at each of our Reporting Units (RU) at least annually and more frequently in certain circumstances. Each of our businesses represents a RU, except at Arnold,
which comprises three reporting units. Each of our RU are subject to impairment review at March 31, 2012, which represents our annual date for impairment testing, with the exception of American Furniture. The balance of American
Furnitures goodwill was completely written off in 2011.
The Financial Accounting Standards Board (FASB) issued an
accounting Standards Update 2011-08 (ASU) in September 2011 that permits companies to make a qualitative assessment of whether it is more likely than not that a RU fair value is less than it carrying amount before applying the two-step
goodwill impairment test. If a company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount it is not required to perform the two-step impairment test for that reporting unit. This
ASU is effective for fiscal years beginning after December 15, 2011. At March 31, 2012 we elected to use the qualitative assessment alternative to test goodwill for impairment for each of our RU that maintain a goodwill carrying value.
As prescribed by the ASU, factors to consider when making the qualitative assessment prior to performing Step 1 of the goodwill impairment
test are as follows:
|
|
|
Macroeconomic conditions such as deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange
rates, or other developments in equity and credit markets;
|
|
|
|
Industry and market considerations such as deterioration in the environment in which an entity operates, an increased competitive environment, a
decline (both absolute and relative to its peers) in market-dependent multiples or metrics, a change in the market for an entitys products or services, or a regulatory or political development;
|
|
|
|
Cost factors, such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows;
|
|
|
|
Overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual or
planned revenue or earnings compared with actual and projected results of relevant prior periods;
|
|
|
|
Other relevant entity-specific events such as litigation, contemplation of bankruptcy, or changes in management, key personnel, strategy, or customers;
|
|
|
|
Events affecting a RU such as change in the composition or carrying amount of its net assets, a more-likely-than-not expectation of selling or
disposing of all or a portion, of a RU, the testing for recoverability of a significant asset group within a reporting unit, or a recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a
reporting unit; and
|
|
|
|
Sustained decrease (both absolute and relative to its peers) in share price, if applicable.
|
In addition to considering the above factors we performed the following procedures as of March 31, 2012 for each of our RU;
|
|
|
Compared and assessed trailing twelve month (TTM) net sales as of March 31, 2012 to TTM nets sales as of March 31, 2012:
|
|
|
|
Compared and assessed TTM operating income as of March 31, 2012 to TTM operating income as of March 31, 2011;
|
|
|
|
Compared and assessed TTM Adjusted EBITDA as of March 31, 2012 to Adjusted EBITDA as of March 31, 2011;
|
|
|
|
Compared and assessed Adjusted EBITDA for the year-ended December 31, 2011 to budget;
|
|
|
|
Compared and assessed Adjusted EBITDA for the three-months ended March 31, 2012 to budget;
|
|
|
|
Compared the fair value of each of our RU to its carrying amount using the same metrics as those used in determining the value of the supplemental put
as of March, 31 2012 and concluded that in each case the fair value of the RU was in excess of its carrying amount; and
|
|
|
|
Performed market capitalization reconciliation for CODI and determined that CODIs public market cap was significantly in excess of the fair value
of its consolidated equity (derived from the supplemental put analysis prepared as of March 31, 2012).
|
56
Based on our qualitative assessment as outlined above we believe that it is not more likely than not that
the fair value of each of our RU is less than its carrying amount at March 31, 2012.
Recent Accounting Pronouncements
Refer to footnote C to our condensed consolidated financial statements.
57