UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation)		0-51937 (Commission File Number)		57-6218917 (I.R.S. Employer Identification No.)

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation)		0-51938 (Commission File Number)		20-3812051 (I.R.S. Employer Identification No.)

Sixty One Wilton Road
Second Floor
Westport, CT 06880
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (203) 221-1703

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     On November 9, 2007 Compass Diversified Holdings and Compass Group Diversified Holdings LLC (collectively “CODI”) issued a press release announcing its financial results for the three and nine-month period ended September 30, 2007. A copy of the press release is furnished within this report as Exhibit 99.1

Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS

Exhibit 99.1 — A copy of the CODI Press Release dated November 9, 2007.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

EXHIBIT 99.1

Compass Diversified Holdings		Investor Relations Contact:
James J. Bottiglieri		KCSA Worldwide
Chief Financial Officer		Jeffrey Goldberger / Garth Russell
203.221.1703		212.896.1249 / 212.896.1250
jbottiglieri@compassequity.com		jgoldberger@kcsa.com / grussell@kcsa.com

Compass Diversified Holdings Reports 2007 Third Quarter
Financial Results

Cash Flow Available for Distribution Increased 62% to $12.8 million

Quarterly Cash Distribution Increased to $0.325 per Share

WESTPORT, CT, November 9, 2007 — Compass Diversified Holdings (Nasdaq GS: CODI) and Compass Group Diversified Holdings LLC (collectively, “CODI” or the “Company”) announced today the consolidated results of operations for the three and nine months ended September 30, 2007.

CODI reported cash flow available for distribution (“CAD”) of $12.8 million for the quarter ended September 30, 2007, compared to $7.9 million in the prior year quarter. For the nine-months ended September 30, 2007, CAD was $28.6 million. Cumulatively, from its initial public offering on May 16, 2006 through September 30, 2007, CODI has reported CAD of $52.3 million and a coverage ratio of approximately 1.3x on all distributions paid though October 26, 2007. The CAD for the quarter ended and nine months ended September 30, 2007 only reflects the cash flows of American Furniture Manufacturing, Inc. (“American Furniture”) since its date of acquisition on August 31, 2007 and the cash flows of Halo Branded Solutions, Inc. and Aeroglide Corporation from the date of their acquisition on February 28, 2007.

On October 9, 2007, CODI’s Board of Directors declared a distribution of $0.325 per share, which was paid on October 26, 2007 to all CODI shareholders of record as of October 23, 2007. The Company intends to continue to declare and pay regular quarterly cash distributions on all outstanding shares.

Commenting on the Company’s performance, Joe Massoud, CEO of Compass Diversified Holdings, stated, “We are pleased with the performance of each of our seven subsidiary businesses, including the three acquired platform subsidiaries added in 2007. Their contributions have allowed us to increase our quarterly cash distribution by approximately 24% since our initial public offering in May of 2006. While there is evidence that the economy appears to be softening, we believe that our diversified mix of subsidiaries will continue to perform well and anticipate the combined operating results for our seven subsidiary businesses will continue to be

in line with our expectations for the remainder of 2007. On the whole, our businesses serve numerous domestic and international geographic markets, participate in a wide variety of industries and have limited exposure to individual customers. Even the most cyclical of our businesses, our staffing company, has substantially outperformed its industry and its competitors in revenue maintenance and growth over the course of 2007.

“We are excited about the opportunity presented by the current economic environment and financing conditions in our markets. Our business model allows us to finance add-on or new platform acquisitions efficiently without specific transaction financing, giving us a significant advantage as compared to other potential acquirors. We are confident in our ability to capitalize on this advantage over the coming twelve to eighteen months.

Mr. Massoud added, “In preparing for what we consider to be a potentially attractive acquisition environment, we are considering the potential issuance of up to $200 million of term debt to raise additional capital. If raised, this term debt would supplement our current revolver, increasing our capacity to pursue interesting add-on and platform subsidiary opportunities. Accordingly, we have asked S&P and Moody’s to rate the company as well as the potential term debt issuance. We received a corporate credit rating and a term debt rating of BB- from S&P and a Ba3 corporate credit rating and a term loan rating of B1 from Moody’s.

“One other recent item on which I would like to comment is our recent filing of two registration statements. One of these enables our board to implement a distribution reinvestment plan for our shareholders, and the other registers CODI shares held by Compass Group Investments, Ltd., Concorde Equity, Inc. and Pharos Inc. This was done under a contractual commitment that we made at the time of the issuance of the shares and not in response to any specific demand made by any of these shareholders. To our knowledge, there are currently no plans by any of these parties to sell any of their owned shares,” concluded Massoud.

As of September 30, 2007, CODI had approximately $6.4 million in cash and cash equivalents. The Company had $24.0 million in revolving loans outstanding and approximately $228 million in availability under its revolving credit facility with Madison Capital Funding LLC.

On August 31, 2007, CODI acquired American Furniture for approximately $95.6 million, representing under five and a half times American Furniture’s current earnings before interest, taxes, depreciation and amortization (“EBITDA”).

Conference Call
Management will host a conference call this morning at 9:00 a.m. ET to discuss the latest corporate developments and financial results. The dial-in number for callers in the U.S. is (888) 677-8769 and the dial-in number for international callers is (913) 312-0394. The access code for all callers is 6435957. A live webcast will also be available on the Company’s website at www.compassdiversifiedholdings.com.

A replay of the call will be available through November 22, 2007. To access the replay, please dial (888) 203-1112 in the U.S. and (719) 457-0820 outside the U.S., and then enter the access code 6435957.

About Compass Diversified Holdings (“CODI”)

CODI was formed to acquire and manage a group of middle market businesses that are headquartered in North America. CODI provides public investors with an opportunity to

To find out more about Compass Diversified Holdings, please visit www.compassdiversifiedholdings.com.

Cautionary and Forward-Looking Statements

The overview of Compass Diversified Holdings’ results in this press release may not be adequate for making an informed investment judgment. Investors are urged to read CODI’s 10-Q, which will be posted at www.compassdiversifiedholdings.com, as well as to take into consideration the seasonal nature of certain of the Company’s subsidiary businesses and their results.

This press release may contain certain forward-looking statements, including statements with regard to the future performance of CODI. Words such as “believes,” “expects,” “projects,” and “future” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements, and some of these factors are enumerated in the risk factor discussion in the Form 10K filed by CODI with the Securities and Exchange Commission for the year ended December 31, 2006 and the Form 10Qs filed by CODI for the quarters ended March 31, 2006, June 30, 2006, September 30, 2006, March 31, 2007 and June 30, 2007 and other filings with the Securities and Exchange Commission. CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Tables Below

Compass Diversified Holdings
Condensed Consolidated Balance Sheet
(unaudited)

		September 30,
(in thousands)		2007
Assets
Current assets:
Cash and cash equivalents		$	6,397
Accounts receivable, less allowance of $3,649			126,398
Inventories			33,238
Prepaid expenses and other current assets			17,123
Total current assets			183,156
Property, plant and equipment, net			27,017
Goodwill			265,025
Intangible assets, net			209,017
Deferred debt issuance costs, net			5,249
Other non-current assets			18,753
Total assets		$	708,217
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses		$	97,972
Due to related party			524
Current portion of long-term debt			26,864
Total current liabilities			125,360
Supplemental put obligation			19,167
Deferred income taxes			67,339
Other non-current liabilities			19,494
Total liabilities			231,360
Minority interests			30,393
Stockholders’ equity
Trust shares, no par value, 500,000 authorized; 31,525 shares issued and outstanding			443,634
Accumulated earnings			2,830
Total stockholders’ equity			446,464
Total liabilities and stockholders’ equity		$	708,217

Compass Diversified Holdings
Condensed Consolidated Statement of Operation
(Unaudited)

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
(in thousands, except per share data)		September 30, 2007				September 30, 2006				September 30, 2007				September 30, 2006
Net sales		$	235,282			$	159,073			$	629,820			$	239,267
Cost of sales			172,290				120,903				466,037				182,193
Gross profit			62,992				38,170				163,783				57,074
Operating expenses:
Staffing expense			13,440				13,468				41,922				20,439
Selling, general and administrative expenses			31,335				13,118				78,114				20,769
Supplemental put expense			2,174				8,016				4,591				8,016
Fees to manager			2,692				1,784				7,477				2,573
Amortization expense			4,969				2,738				14,382				3,966
Operating income (loss)			8,382				(954	)			17,297				1,311
Other income (expense):
Interest income			569				347				1,898				463
Interest expense			(1,202	)			(2,338	)			(4,271	)			(3,411	)
Amortization of debt issuance costs			(308	)			(321	)			(861	)			(479	)
Other income, net			245				320				275				612
Income (loss) from continuing operations before income taxes and minority interests			7,686				(2,946	)			14,338				(1,504	)
Provision for income taxes			2,711				2,603				5,699				3,400
Minority interest			620				780				869				1,095
Income (loss) from continuing operations			4,355				(6,329	)			7,770				(5,999	)
Income from discontinued operations, net of income tax			—				2,445				—				4,227
Gain on sale of discontinued operations, net of income taxes			—				—				36,038				—
Net income (loss)		$	4,355			$	(3,884	)		$	43,808			$	(1,772	)
Basic and fully diluted income (loss) per share		$	0.14			$	(0.19	)		$	1.67			$	(0.18	)
Weighted average number of shares outstanding — basic and fully diluted			31,525				20,120				26,316				10,031
Cash distributions declared per share		$	0.325			$	0.2625			$	0.925			$	0.3952

Compass Diversified Holdings
Condensed Consolidated Statement of Cash Flows
(unaudited)

		Nine Months				Nine Months
		Ended				Ended
(in thousands)		September 30, 2007				September 30, 2006
Cash flows from operating activities:
Net income (loss)		$	43,808			$	(1,772	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on sale of Crosman			(36,038	)			—
Depreciation and amortization expense			17,988				5,682
Amortization of debt issuance costs			857				479
Supplemental put expense			4,591				8,016
Minority interests			869				1,896
Stockholder notes and other			226				1,543
Deferred taxes			(2,373	)			(624	)
Changes in operating assets and liabilities, net of acquisition:
Increase in accounts receivable			(14,511	)			(4,357	)
Increase in inventories			(787	)			(8,323	)
Decrease in prepaid expenses and other current assets			2,433				408
Increase in accounts payable and accrued expenses			12,386				7,349
Decrease in supplemental put obligation			(7,880	)			—
Net cash provided by operating activities			21,569				10,297
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired			(224,799	)			(341,809	)
Crosman disposition			119,856				—
Purchases of property and equipment			(4,969	)			(4,031	)
Net cash used in investing activities			(109,912	)			(345,840	)
Cash flows from financing activities:
Proceeds from issuance of trust shares, net			168,673				284,962
Net borrowing (repayment) of debt			(60,733	)			71,574
Debt issuance costs			(1,079	)			(6,307	)
Other			2,655				756
Distributions paid			(21,728	)			(2,587	)
Net cash provided by financing activities			87,788				348,398
Net increase (decrease) in cash and cash equivalents			(555	)			12,855
Foreign currency adjustment			(54	)			94
Cash and cash equivalents — beginning of period			7,006				100
Cash and cash equivalents — end of period		$	6,397			$	13,049

Compass Diversified Holdings
Condensed Consolidated Table of Cash Flows Available for Distribution (“CAD”)
(unaudited)

		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
(in thousands)		September 30, 2007				September 30, 2006				September 30, 2007				September 30, 2006
Net income (loss)		$	4,355			$	(3,884	)		$	43,808			$	(1,772	)
Adjustment to reconcile net income (loss) to cash provided by operating activities:
Gain on sale of Crosman			—				—				(36,038	)			—
Depreciation and amortization			7,001				3,813				17,988				5,682
Amortization of debt issuance costs			304				321				857				479
Supplemental put expense			2,174				8,016				4,591				8,016
Stockholder notes and other			(207	)			331				225				1,881
Minority interest			620				1,187				869				1,896
Deferred taxes			(1,217	)			(652	)			(2,373	)			(624	)
Changes in operating assets and liabilities			2,838				(7,444	)			8,359	)			(5,261	)
Net cash provided by operating activities			15,868				1,688				21,568				10,297
Plus:
Unused fee on revolving credit facility (1)			864				554				1,915				842
Changes in operating assets and liabilities			(2,838	)			7,444				8,359				5,261
Less:
Maintenance capital expenditures (2)			1,109				1,804				3,256				2,517
Estimated cash flow available for distribution		$	12,785			$	7,882			$	28,586			$	13,883
Distribution paid in April 2007										$	6,135
Distribution paid in July 2006/2007											9,458			$	2,547
Distribution paid in October 2006/2007		$	10,246			$	5,368				10,246				5,368
		$	10,246			$	5,368			$	25,839			$	7,915

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