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Compass Diversified Trust Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 8, 2009 04:03PM

Compass Diversified Trust (CODI) filed Quarterly Report for the period ended 2009-03-31. COMPASS DIVERSIFIED 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 participate in the ownership and growth of companies which have historically been owned by private equity firms wealthy individuals or families. CODI's disciplined approach to its target market provides opportunities to methodically purchase attractive businesses at values that are accretive to its shareholders. For sellers of businesses CODI's unique structure allows CODI to acquire businesses efficiently with no financing contingencies and following acquisition to provide its companies with substantial access to growth capital. Compass Diversified Trust has a market cap of $289.1 million; its shares were traded at around $9.17 with a P/E ratio of 6.3 and P/S ratio of 0.2. The dividend yield of Compass Diversified Trust stocks is 14.8%.

Highlight of Business Operations:

Based on the results of our annual impairment tests performed as of March 31, 2009, an indication of impairment existed at the Staffmark reporting unit. In each of our other businesses (reporting units) the result of the annual goodwill impairment test indicated that the fair value of the business exceeded its carrying value. Based on the preliminary results of the second step of the impairment test, we estimated that the carrying value of Staffmark goodwill exceeded its fair value by approximately $50.0 million. As a result of this shortfall, we recorded a $50.0 million pretax goodwill impairment charge for the three months ended March 31, 2009. The results of the annual impairment tests performed as of April 30, 2008 and 2007 indicated that the fair values of the reporting units (businesses) exceeded their carrying values and, therefore, goodwill was not impaired. Accordingly, there were no charges for goodwill impairment in the three months ended March 31, 2008.

Net sales for the three months ended March 31, 2009 decreased approximately $2.3 million over the corresponding three month period ended March 31, 2008. The decrease in net sales is a result of decreased sales in long-lead time PCBs ($0.3 million), quick-turn production and prototype PCBs ($1.4 million) and subcontract PCBs ($1.1 million), offset in part by an increase in assembly revenue ($0.5 million). These decreases are the result of the overall economic slowdown in the U.S. economy and we expect that net sales for the remainder of fiscal 2009 will track lower than comparable periods in 2008. Sales from quick-turn and prototype PCB’s represented approximately 67% of net sales in 2009 compared to 66.3% in 2008.

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 $699. American Furniture is a low-cost manufacturer and is able to ship any product in its line within 48 hours of receiving an order.

Net sales for the three months ended March 31, 2009 increased approximately $4.3 million over the corresponding three months ended March 31, 2008. Stationary product sales increased approximately $4.8 million offset in part by a decrease in motion, recliner and other product sales totaling $0.5 million. The significant increase in stationary product sales is due primarily to the negative impact that the February 2008 fire had on first quarter 2008 shipments. The softer economy is responsible for the lower sales volume in the motion and recliner categories.

Selling, general and administrative expense for the three months ended March 31, 2009, increased approximately $1.2 million compared to the same period of 2008. This increase is primarily due to the business interruption insurance proceeds recorded during the first quarter of 2008 totaling $1.8 million. Also contributing to this difference was a decrease of $0.6 million in fuel expense due to the reduction in fuel prices, together with a reduction in our trucking fleet during the three months ended March 31, 2009, which was offset in part by an increase in commission expense of $0.1 million due to the increase in net sales during the quarter.

Net sales for the three months ended March 31, 2009 decreased $3.3 million or 14.2% compared to the corresponding three month period ended March 31, 2008. Sales decreases were due to a decrease in net sales to OEM’s, totaling $3.6 million, offset in part by increases in aftermarket and service revenues totaling $0.3 million. The OEMs sales decrease is principally the result of the weak economic conditions and credit tightening in 2009.

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