Compass Diversified Holdings - Quarter Report: 2011 June (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

COMPASS DIVERSIFIED HOLDINGS

(Exact name of registrant as specified in its charter)

Delaware		0-51937		57-6218917
(State or other jurisdiction of		(Commission file number)		(I.R.S. employer
incorporation or organization)				identification number)

COMPASS GROUP DIVERSIFIED HOLDINGS LLC

(Exact name of registrant as specified in its charter)

Delaware		0-51938		20-3812051
(State or other jurisdiction of		(Commission file number)		(I.R.S. employer
incorporation or organization)				identification number)

Sixty One Wilton Road
Second Floor
Westport, CT 06880
(203) 221-1703

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

As of August 1, 2011, there were 46,725,000 shares of Compass Diversified Holdings outstanding.

 

 

COMPASS DIVERSIFIED HOLDINGS

QUARTERLY REPORT ON FORM 10-Q
For the period ended June 30, 2011

TABLE OF CONTENTS

		Page
		Number
Forward-looking Statements			4
Part I Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010			5
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (unaudited)			6
Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2011 (unaudited)			7
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited)			8
Notes to Condensed Consolidated Financial Statements (unaudited)			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			48
Item 4. Controls and Procedures			48
Part II Other Information
Item 1. Legal Proceedings			49
Item 1A. Risk Factors			49
Item 6. Exhibits			50
Signatures			51
Exhibit Index			53
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

NOTE TO READER

In reading this Quarterly Report on Form 10-Q, references to:

•

the “Trust” and “Holdings” refer to Compass Diversified Holdings;

•

“businesses”, “operating segments”, “subsidiaries” and “reporting units” refer to, collectively, the businesses controlled by the Company;

•

the “Company” refer to Compass Group Diversified Holdings LLC;

•

the “Manager” refer to Compass Group Management LLC (“CGM”);

•

the “initial businesses” refer to, collectively, Staffmark Holdings, Inc. (“Staffmark”), Crosman Acquisition Corporation, Compass AC Holdings, Inc. and Silvue Technologies Group, Inc.;

•

the “2010 acquisitions” refer to, collectively, the acquisitions of Liberty Safe and Security Products, LLC and ERGObaby Carrier, Inc.;

•

the “Trust Agreement” refer to the amended and restated Trust Agreement of the Trust dated as of November 1, 2010;

•

the “Credit Agreement” refer to the Credit Agreement with a group of lenders led by Madison Capital, LLC which provides for a Revolving Credit Facility and a Term Loan Facility;

•

the “Revolving Credit Facility” refer to the $340 million Revolving Credit Facility provided by the Credit Agreement that matures in December 2012;

•

the “Term Loan Facility” refer to the $73.0 million Term Loan Facility, as of June 30, 2011, provided by the Credit Agreement that matures in December 2013;

•

the “LLC Agreement” refer to the third amended and restated operating agreement of the Company dated as of November 1, 2010; and

•

“we”, “us” and “our” refer to the Trust, the Company and the businesses together.

FORWARD-LOOKING STATEMENTS

     This Quarterly Report on Form 10-Q, contains both historical and forward-looking statements. We may, in some cases, use words such as “project,” “predict,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” or “may,” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, some of which are beyond our control, including, among other things:

	•		our ability to successfully operate our businesses on a combined basis, and to effectively integrate and improve future acquisitions;
	•		our ability to remove CGM and CGM’s right to resign;
	•		our organizational structure, which may limit our ability to meet our dividend and distribution policy;
	•		our ability to service and comply with the terms of our indebtedness;
	•		our cash flow available for distribution and reinvestment and our ability to make distributions in the future to our shareholders;
	•		our ability to pay the management fee, profit allocation when due and supplemental put price if and when due;
	•		our ability to make and finance future acquisitions;
	•		our ability to implement our acquisition and management strategies;
	•		the regulatory environment in which our businesses operate;
	•		trends in the industries in which our businesses operate;
	•		changes in general economic or business conditions or economic or demographic trends in the United States and other countries in which we have a presence, including changes in interest rates and inflation;
	•		environmental risks affecting the business or operations of our businesses;
	•		our and CGM’s ability to retain or replace qualified employees of our businesses and CGM;
	•		costs and effects of legal and administrative proceedings, settlements, investigations and claims; and
	•		extraordinary or force majeure events affecting the business or operations of our businesses.

     Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ.

     In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. These forward-looking statements are made as of the date of this Quarterly Report. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, whether as a result of new information, future events or otherwise, except as required by law.

PART I
FINANCIAL INFORMATION

ITEM 1.		- FINANCIAL STATEMENTS

Compass Diversified Holdings

Condensed Consolidated Balance Sheets

		June 30,				December 31,
		2011				2010
(in thousands)		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	9,241			$	13,536
Accounts receivable, less allowances of $4,679 at June 30, 2011 and $5,481 at December 31, 2010			208,151				208,487
Inventories			88,235				77,412
Prepaid expenses and other current assets			28,840				33,904
Total current assets			334,467				333,339
Property, plant and equipment, net			39,633				33,484
Goodwill			319,766				325,851
Intangible assets, net			252,487				269,672
Deferred debt issuance costs, less accumulated amortization of $7,883 at June 30, 2011 and $6,882 at December 31, 2010			3,412				3,822
Other non-current assets			26,603				17,873
Total assets		$	976,368			$	984,041
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	58,581			$	53,197
Accrued expenses			92,264				74,302
Due to related party			3,500				2,692
Current portion of supplemental put obligation			6,891				—
Current portion, long-term debt			2,000				2,000
Current portion of workers’ compensation liability			18,366				18,170
Other current liabilities			869				1,043
Total current liabilities			182,471				151,404
Supplemental put obligation			42,602				44,598
Deferred income taxes			75,178				74,457
Long-term debt			86,000				94,000
Workers’ compensation liability			41,457				40,588
Other non-current liabilities			1,214				3,084
Total liabilities			428,922				408,131
Stockholders’ equity
Trust shares, no par value, 500,000 authorized; 46,725 shares issued and outstanding at June 30, 2011 and December 31, 2010			638,759				638,763
Accumulated other comprehensive loss			—				(143	)
Accumulated deficit			(183,854	)			(150,550	)
Total stockholders’ equity attributable to Holdings			454,905				488,070
Noncontrolling interest			92,541				87,840
Total stockholders’ equity			547,446				575,910
Total liabilities and stockholders’ equity		$	976,368			$	984,041

See notes to condensed consolidated financial statements.

Compass Diversified Holdings

Condensed Consolidated Statements of Operations
(unaudited)

		Three months ended June 30,								Six months ended June 30,
(in thousands, except per share data)		2011				2010				2011				2010
Net sales		$	172,440			$	152,969			$	349,766			$	289,187
Service revenues			255,644				251,353				502,443				468,754
Total revenues			428,084				404,322				852,209				757,941
Cost of sales			114,163				103,456				233,850				197,523
Cost of services			219,656				215,174				434,506				403,700
Gross profit			94,265				85,692				183,853				156,718
Operating expenses:
Staffing expense			21,605				20,300				43,720				39,907
Selling, general and administrative expense			44,767				42,555				91,164				84,936
Supplemental put expense			1,667				2,565				4,895				16,991
Management fees			3,935				3,709				7,778				7,373
Amortization expense			7,689				7,477				15,391				13,600
Impairment expense			—				—				7,700				—
Operating income (loss)			14,602				9,086				13,205				(6,089	)
Other income (expense):
Interest income			—				2				2				17
Interest expense			(2,340	)			(2,860	)			(4,879	)			(5,561	)
Amortization of debt issuance costs			(542	)			(418	)			(1,001	)			(836	)
Other income, net			345				211				591				391
Income (loss) before income taxes			12,065				6,021				7,918				(12,078	)
Provision for income taxes			3,799				6,764				6,219				3,952
Net income (loss)			8,266				(743	)			1,699				(16,030	)
Net income attributable to noncontrolling interest			1,888				717				2,295				1,399
Net income (loss) attributable to Holdings		$	6,378			$	(1,460	)		$	(596	)		$	(17,429	)
Basic and fully diluted income (loss) per share attributable to Holdings		$	0.14			$	(0.04	)		$	(0.01	)		$	(0.45	)
Weighted average number of shares of trust stock outstanding — basic and fully diluted			46,725				40,998				46,725				38,824
Cash distributions declared per share (refer to Note K)		$	0.36			$	0.34			$	0.72			$	0.68

See notes to condensed consolidated financial statements.

Compass Diversified Holdings

Condensed Consolidated Statement of Stockholders’ Equity
(unaudited)

																		Total
														Accumulated				Stockholders’
														Other				Equity				Non-				Total
		Number of								Accumulated				Comprehensive				Attributable				Controlling				Stockholders’
(in thousands)		Shares				Amount				Deficit				Loss				to Holdings				Interest				Equity
Balance — January 1, 2011			46,725			$	638,763			$	(150,550	)		$	(143	)		$	488,070			$	87,840			$	575,910
Net income (loss)			—				—				(596	)			—				(596	)			2,295				1,699
Other comprehensive income — cash flow hedge gain			—				—				—				143				143				—				143
Comprehensive income (loss)			—				—				(596	)			143				(453	)			2,295				1,842
Offering costs from the issuance of Trust shares in 2010			—				(4	)			—				—				(4	)			—				(4	)
Option activity attributable to noncontrolling interest holders			—				—				—				—				—				2,406				2,406
Distributions paid			—				—				(32,708	)			—				(32,708	)			—				(32,708	)
Balance — June 30, 2011			46,725			$	638,759			$	(183,854	)		$	—			$	454,905			$	92,541			$	547,446

See notes to condensed consolidated financial statements.

Compass Diversified Holdings

Condensed Consolidated Statements of Cash Flows
(unaudited)

		Six months ended June 30,
(in thousands)		2011				2010
Cash flows from operating activities:
Net income (loss)		$	1,699			$	(16,030	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation expense			4,791				4,130
Amortization expense			16,009				13,600
Impairment expense			7,700				—
Amortization of debt issuance costs			1,001				836
Supplemental put expense			4,895				16,991
Noncontrolling stockholder charges and other			1,215				7,441
Deferred taxes			(1,926	)			(2,062	)
Other			87				(160	)
Changes in operating assets and liabilities, net of acquisition:
Decrease (increase) in accounts receivable			1,627				(18,184	)
Increase in inventories			(11,282	)			(19,307	)
Increase in prepaid expenses and other current assets			(3,305	)			(3,812	)
Increase in accounts payable and accrued expenses			25,973				24,126
Net cash provided by operating activities			48,484				7,569
Cash flows from investing activities:
Acquisitions, net of cash acquired			—				(83,721	)
Purchases of property and equipment			(11,367	)			(2,218	)
Other investing activities			150				37
Net cash used in investing activities			(11,217	)			(85,902	)
Cash flows from financing activities:
Proceeds from the issuance of Trust shares, net			—				75,029
Borrowings under Credit Agreement			43,000				89,200
Repayments under Credit Agreement			(51,000	)			(77,500	)
Distributions paid			(32,708	)			(26,690	)
Net proceeds provided by noncontrolling interest			—				2,085
Debt issuance costs			(593	)			(155	)
Other			(261	)			(19	)
Net cash provided by (used in) financing activities			(41,562	)			61,950
Net decrease in cash and cash equivalents			(4,295	)			(16,383	)
Cash and cash equivalents — beginning of period			13,536				31,495
Cash and cash equivalents — end of period		$	9,241			$	15,112

See notes to condensed consolidated financial statements.

Compass Diversified Holdings

Notes to Condensed Consolidated Financial Statements (unaudited)
June 30, 2011

Note A — Organization and business operations

Compass Diversified Holdings, a Delaware statutory trust (“Holdings”), was organized in Delaware on November 18, 2005. Compass Group Diversified Holdings, LLC, a Delaware limited liability company (the “Company”), was also formed on November 18, 2005. Compass Group Management LLC, a Delaware limited liability company (“CGM” or the “Manager”), was the sole owner of 100% of the Interests of the Company as defined in the Company’s operating agreement, dated as of November 18, 2005, which were subsequently reclassified as the “Allocation Interests” pursuant to the Company’s amended and restated operating agreement, dated as of April 25, 2006 (as amended and restated, the “LLC Agreement”).

The Company is a controlling owner of eight businesses, or operating segments, at June 30, 2011. The operating segments are as follows: Compass AC Holdings, Inc. (“ACI” or “Advanced Circuits”), AFM Holdings Corporation (“AFM” or “American Furniture”), The ERGO Baby Carrier, Inc. (“ERGObaby”), Fox Factory, Inc. (“Fox”), HALO Lee Wayne LLC (“HALO”), Liberty Safe and Security Products, LLC (“Liberty Safe” or “Liberty”), Staffmark Holdings, Inc. (“Staffmark”), and Tridien Medical (“Tridien”). Refer to Note D for further discussion of the operating segments.

Note B — Presentation and principles of consolidation

The condensed consolidated financial statements for the three month and six month periods ended June 30, 2011 and June 30, 2010, are unaudited, and in the opinion of management, contain all adjustments necessary for a fair presentation of the condensed consolidated financial statements. Such adjustments consist solely of normal recurring items. Interim results are not necessarily indicative of results for a full year or any subsequent interim period. The condensed consolidated financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and presented as permitted by Form 10-Q and do not contain certain information included in the annual consolidated financial statements and accompanying notes of the Company. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Seasonality

Earnings of certain of the Company’s operating segments are seasonal in nature. Earnings from AFM are typically highest in the months of January through April of each year, coinciding with homeowners’ tax refunds. Earnings from Staffmark are typically lower in the first quarter of each year than in other quarters due to reduced seasonal demand for temporary staffing services and to lower gross margins during that period associated with the front-end loading of certain payroll taxes associated with payroll paid to its employees. Earnings from HALO are typically highest in the months of September through December of each year primarily as the result of calendar sales and holiday promotions. HALO generates approximately two-thirds of its operating income in the months of September through December. 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.

Consolidation

The condensed consolidated financial statements include the accounts of Holdings and all majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

Certain prior period amounts have been reclassified to conform to current year presentation.

Note C —Recent accounting pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued amended guidance for presenting comprehensive income, which will be effective for the Company beginning January 1, 2012. The amended guidance eliminates the option to present other comprehensive income and its components in the statement of stockholders’ equity. The Company may elect to present the items of net income and other comprehensive income in a single continuous statement of comprehensive income or in two separate, but consecutive, statements. Under either method the statement would need to be presented with equal prominence as the other primary financial statements. The Company does not expect the adoption of the amended guidance to have a significant impact on the condensed consolidated financial statements.

In May 2011, the FASB issued amended guidance for measuring fair value and required disclosure information about such measures, which will be effective for the Company beginning January 1, 2012, and applied prospectively. The amended guidance requires an entity to disclose all transfers between Level 1 and Level 2 of the fair value hierarchy as well as provide quantitative and qualitative disclosures related to Level 3 fair value measurements. Additionally, the amended guidance requires an entity to disclose the fair value hierarchy level which was used to determine the fair value of financial instruments that are not measured at fair value, but for which fair value information must be disclosed. The Company does not expect the adoption of the amended guidance to have a significant impact on the condensed consolidated financial statements.

In January 2010, the FASB issued amended guidance to enhance disclosure requirements related to fair value measurements. The amended guidance for Level 1 and Level 2 fair value measurements was effective for the Company January 1, 2010. The amended guidance for Level 3 fair value measurements was effective for the Company January 1, 2011. The guidance requires disclosures of amounts and reasons for transfers in and out of Level 1 and Level 2 recurring fair value measurements as well as additional information related to activities in the reconciliation of Level 3 fair value measurements. The guidance expanded the disclosures related to the level of disaggregation of assets and liabilities and information about inputs and valuation techniques. The adoption of this amended guidance did not have a significant impact on the condensed consolidated financial statements.

In December 2010, the FASB issued amended guidance for performing goodwill impairment tests, which was effective for the Company January 1, 2011. The amended guidance requires reporting units with zero or negative carrying amounts to be assessed to determine if it is more likely than not that goodwill impairment exists. As part of this assessment, entities should consider all qualitative factors that could impact the carrying value. The adoption of this amended guidance did not have a significant impact on the condensed consolidated financial statements.

Note D — Operating segment data

At June 30, 2011, the Company had eight reportable operating segments. Each operating segment represents an acquisition. The Company’s operating segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. A description of each of the reportable segments and the types of products and services from which each segment derives its revenues is as follows:

•

Advanced Circuits, an electronic components manufacturing company, is a provider of prototype, quick-turn and production rigid printed circuit boards. ACI manufactures and delivers custom printed circuit boards to customers mainly in North America. ACI is headquartered in Aurora, Colorado.

•

American Furniture is a leading domestic manufacturer of upholstered furniture for the promotional segment of the marketplace. AFM 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. AFM is a low-cost manufacturer and is able to ship any product in its line within 48 hours of receiving an order. AFM is headquartered in Ecru, Mississippi and its products are sold in the United States.

•

ERGObaby is a premier designer, marketer and distributor of babywearing products and accessories. ERGObaby’s reputation for product innovation, reliability and safety has led to numerous awards and accolades from consumer surveys and publications. 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. ERGObaby is headquartered in Pukalani, Hawaii.

•

Fox is a designer, manufacturer and marketer of high end suspension products for mountain bikes, all-terrain vehicles, snowmobiles and other off-road vehicles. Fox acts as both a tier one supplier to leading action sport original equipment manufacturers and provides after-market products to retailers and distributors. Fox is headquartered in Watsonville, California and its products are sold worldwide.

•

HALO serves as a one-stop shop for approximately 40,000 customers providing design, sourcing, and management and fulfillment services across all categories of its customer promotional product needs. HALO has established itself as a leader in the promotional products and marketing industry through its focus on service through its approximately 870 account executives. HALO is headquartered in Sterling, Illinois.

•

Liberty Safe is a designer, manufacturer and marketer of premium home and gun safes in North America. From its over 200,000 square foot manufacturing facility, Liberty produces a wide range of home and gun safe models in a broad assortment of sizes, features and styles. Liberty is headquartered in Payson, Utah.

•

Staffmark, a national provider of contingent workforce solutions that serves the temporary staffing needs of employers throughout the United States, provides a full spectrum of light industrial and clerical staffing solutions. Staffmark is headquartered in Cincinnati, Ohio.

•

Tridien is a leading designer and manufacturer of powered and non-powered medical therapeutic support surfaces and patient positioning devices serving the acute care, long-term care and home health care markets. Tridien is headquartered in Coral Springs, Florida and its products are sold primarily in North America.

The tabular information that follows shows data of each of the operating segments reconciled to amounts reflected in the condensed consolidated financial statements. The operations of each of the operating segments are included in consolidated operating results as of their date of acquisition. Revenues from geographic locations outside the United States were not material for any operating segment, except Fox and ERGObaby, in each of the periods presented below. Fox recorded net sales to locations outside the United States, principally Europe and Asia, of $30.4 million and $21.0 million for the three months ended June 30, 2011 and 2010, respectively and $58.3 million and $42.4 million for the six months ended June 30, 2011 and 2010, respectively. Of the Asian sales, sales to Taiwan totaled $15.0 million and $11.6 million for the three months ended June 30, 2011 and 2010, respectively, and $23.6 million and $19.7 million for the six months ended June 30, 2011 and 2010, respectively. ERGObaby recorded net sales to locations outside the United States of $7.2 million for the three months ended June 30, 2011 and $15.1 million for the six months ended June 30, 2011. There were no significant inter-segment transactions.

Segment profit is determined based on internal performance measures used by the Chief Executive Officer to assess the performance of each business. Segment profit excludes certain charges from the acquisitions of the Company’s initial businesses not pushed down to the segments which are reflected in Corporate and other. A disaggregation of the Company’s consolidated revenue and other financial data for the three and six months ended June 30, 2011 and 2010 is presented below (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
Net sales of operating segments		2011				2010				2011				2010
ACI		$	20,020			$	19,382			$	40,313			$	33,866
American Furniture			23,477				33,308				59,417				77,288
ERGObaby			11,186				—				22,657				—
Fox			45,895				34,658				88,775				67,390
HALO			39,296				35,277				71,982				64,981
Liberty			18,622				13,579				38,825				13,579
Staffmark			255,644				251,354				502,443				468,756
Tridien			13,944				16,764				27,797				32,081
Total			428,084				404,322				852,209				757,941
Reconciliation of segment revenues to consolidated revenues:
Corporate and other			—				—				—				—
Total consolidated revenues		$	428,084			$	404,322			$	852,209			$	757,941

		Three Months Ended June 30,								Six Months Ended June 30,
Profit (loss) of operating segments (1)		2011				2010				2011				2010
ACI		$	6,805			$	6,258			$	13,887			$	7,202
American Furniture (2)			(1,597	)			1,185				(9,595	)			3,898
ERGObaby			2,201				—				4,585				—
Fox			4,602				3,014				9,626				5,876
HALO			2,881				238				2,430				(537	)
Liberty			1,017				(169	)			1,913				(1,619	)
Staffmark			5,037				6,243				4,701				5,411
Tridien			1,099				3,402				2,342				5,636
Total			22,045				20,171				29,889				25,867
Reconciliation of segment profit to consolidated income (loss) before income taxes:
Interest expense, net			(2,340	)			(2,858	)			(4,877	)			(5,544	)
Other income, net			345				211				591				391
Corporate and other (3)			(7,985	)			(11,503	)			(17,685	)			(32,792	)
Total consolidated income (loss) before income taxes		$	12,065			$	6,021			$	7,918			$	(12,078	)

		Accounts				Accounts
		Receivable				Receivable
Accounts receivable		June 30, 2011				December 31, 2010
ACI		$	5,265			$	5,694
American Furniture			11,296				13,543
ERGObaby			2,593				3,273
Fox			25,218				17,482
HALO			24,501				29,761
Liberty			10,655				9,720
Staffmark			128,273				128,491
Tridien			5,029				6,004
Total			212,830				213,968
Reconciliation of segment to consolidated totals:
Corporate and other			—				—
Total			212,830				213,968
Allowance for doubtful accounts			(4,679	)			(5,481	)
Total consolidated net accounts receivable		$	208,151			$	208,487

																		Depreciation and								Depreciation and
										Identifiable				Identifiable				Amortization Expense								Amortization Expense
		Goodwill				Goodwill				Assets				Assets				for the Three Months								for the Six Months
Goodwill and identifiable assets		Jun. 30,				Dec. 31,				Jun. 30,				Dec. 31,				Ended Jun. 30,								Ended Jun. 30,
of operating segments		2011				2010				2011(1)				2010(1)				2011				2010				2011				2010
ACI		$	57,615			$	57,615			$	27,558			$	28,919			$	1,126			$	1,146			$	2,228			$	2,051
American Furniture (3)			—				5,900				54,351				60,067				765				788				1,536				1,564
ERGObaby			33,397				33,397				58,540				59,248				682				—				1,366				—
Fox			31,372				31,372				89,691				82,295				1,633				1,534				3,258				3,060
HALO			39,252				39,252				42,333				41,304				807				787				1,619				1,627
Liberty			32,685				32,870				42,767				40,917				1,619				1,605				3,231				1,605
Staffmark			89,715				89,715				74,738				77,830				1,909				1,871				3,792				3,766
Tridien			19,555				19,555				20,278				18,774				598				620				1,179				1,228
Total			303,591				309,676				410,256				409,354				9,139				8,351				18,209				14,901
Reconciliation of segment to consolidated total:
Corporate and other identifiable assets			—				—				38,195				40,349				1,347				1,374				2,591				2,829
Amortization of debt issuance costs			—				—				—				—				542				418				1,001				836
Goodwill carried at corporate level (2)			16,175				16,175				—				—				—				—				—				—
Total		$	319,766			$	325,851			$	448,451			$	449,703			$	11,028			$	10,143			$	21,801			$	18,566

Other segment information

Staffmark

On April 12, 2011, Staffmark filed a registration statement on Form S-1 with the Securities and Exchange Commission for a proposed initial public offering of Staffmark’s common stock. The Company currently owns approximately 68.3% of Staffmark’s common stock, on a fully diluted basis.

ERGObaby

In connection with the acquisition of ERGObaby in September 2010, the Company recorded contingent consideration of $0.2 million during 2010, its then fair value. The contingent consideration relates to the $2.0 million additional cash payment the sellers would be entitled to in the event ERGObaby’s net sales, as determined on a consolidated basis in accordance with U.S. GAAP, for the fiscal year ending December 31, 2011 are equal to or greater than a contractually agreed upon fixed amount. If the sellers do not reach this sales goal for the fiscal year ended December 31, 2011, the sellers would not be entitled to any payment. During the three and six months ended June 30, 2011, the Company recorded an increase in the fair value of the contingent consideration of $0.4 million and $0.9 million, respectively, associated with the increased probability of obtaining the contractually agreed upon sales goal for 2011. Refer to Note H for valuation techniques applied to the contingent consideration liability.

Note E — Property, plant and equipment and inventory

Property, plant and equipment is comprised of the following at June 30, 2011 and December 31, 2010 (in thousands):

		June 30,				December 31,
		2011				2010
Machinery and equipment		$	31,440			$	27,610
Office furniture, computers and software			18,754				17,623
Leasehold improvements			15,236				9,551
			65,430				54,784
Less: accumulated depreciation			(25,797	)			(21,300	)
Total		$	39,633			$	33,484

Depreciation expense was $2.4 million and $4.8 million for the three and six months ended June 30, 2011, respectively, and $2.2 million and $4.1 million for the three and six months ended June 30, 2010, respectively.

Inventory is comprised of the following at June 30, 2011 and December 31, 2010 (in thousands):

		June 30,				December 31,
		2011				2010
Raw materials and supplies		$	60,459			$	47,444
Finished goods			30,157				31,830
Less: obsolescence reserve			(2,381	)			(1,862	)
Total		$	88,235			$	77,412

Note F — Goodwill and other intangible assets

Goodwill represents the difference between purchase cost and the fair value of net assets acquired in business acquisitions. Indefinite lived intangible assets, representing trademarks and trade names, are not amortized until their useful life is determined to no longer be indefinite. Goodwill and indefinite lived intangible assets are tested for impairment at least annually as of March 31, unless a triggering event occurs, by comparing the fair value of each reporting unit to its carrying value.

2011 Annual goodwill impairment testing

The Company conducted its annual goodwill impairment testing as of March 31, 2011. At each of the reporting units tested, the units’ fair value exceeded carrying value with the exception of American Furniture. The carrying amount of American Furniture exceeded its fair value due to the significant decrease in revenue and operating profit at American Furniture resulting from the negative impact on the promotional furniture market due to the significant decline in the U.S. housing market, high unemployment rates and aggressive pricing employed by its competitors. As a result of the carrying amount of goodwill exceeding its fair value, the Company recorded a $5.9 million impairment charge during the six months ended June 30, 2011 which represented the remaining balance of goodwill on American Furniture’s balance sheet. The Company previously recorded a goodwill impairment charge totaling $35.5 million at American Furniture in the third quarter of 2010.

The carrying amount of American Furniture exceeded its fair value at March 31, 2011 by a significant amount due primarily to the significant decrease in revenue and operating profit together with management’s revised outlook on near term operating results. Further, the results of this analysis indicated that the carrying value of American Furniture’s trade name exceeded its fair value by approximately $1.8 million. The fair value of the American Furniture trade name was determined by applying the relief from royalty technique to forecasted revenues at the American Furniture reporting unit.

Of the remaining seven reporting units as of March 31, 2011, the fair value of one of the reporting units was not substantially in excess of its carrying value. Information from step-one of the impairment test for this reporting unit is as follows:

Reporting Unit		Percentage fair value of goodwill exceeds carrying value		Carrying value of goodwill @ March 31, 2011
HALO		9.7%		$39.2 million

A one percent increase in the discount rate, from 13% to 14%, would have impacted the fair value of HALO by approximately $5.0 million and would have required the Company to perform a step-two analysis that may have resulted in an impairment charge for HALO as of March 31, 2011. Factors that could potentially trigger a subsequent interim impairment review in the future and possible impairment loss at the HALO reporting unit include significant underperformance relative to future operating results or significant negative industry or economic trends.

The estimates employed and judgment used in determining critical accounting estimates have not changed significantly from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC.

2010 Annual goodwill impairment testing

The Company completed its 2010 annual goodwill impairment testing as of March 31, 2010. For each reporting unit, the analysis indicated that the fair value of the reporting unit exceeded its carrying value and as a result the carrying value of goodwill was not impaired as of the March 31, 2010 testing.

A reconciliation of the change in the carrying value of goodwill for the six months ended June 30, 2011 and the year ended December 31, 2010, is as follows (in thousands):

		Six months				Year ended
		ended June 30,				December 31,
		2011				2010
Beginning balance:
Goodwill		$	411,386			$	338,028
Accumulated impairment losses			(85,535	)			(50,000	)
			325,851				288,028
Impairment losses			(5,900	)			(35,535	)
Acquisition of businesses (1)			—				73,492
Adjustment to purchase accounting			(185	)			(134	)
Total adjustments			(6,085	)			37,823
Ending balance:
Goodwill			411,201				411,386
Accumulated impairment losses			(91,435	)			(85,535	)
		$	319,766			$	325,851

Other intangible assets

Other intangible assets are comprised of the following at June 30, 2011 and December 31, 2010 (in thousands):

										Weighted
		June 30,				December 31,				Average Useful
		2011				2010				Lives
Customer relationships		$	231,623			$	231,783				12
Technology			44,879				44,879				8
Trade names, subject to amortization			25,364				26,080				12
Licensing and non-compete agreements			10,764				10,048				4
Distributor relations and other			1,063				896				4
			313,693				313,686
Accumulated amortization customer relationships			(79,001	)			(68,304	)
Accumulated amortization technology			(19,314	)			(16,663	)
Accumulated amortization trade names, subject to amortization			(5,248	)			(4,963	)
Accumulated amortization licensing and non-compete agreements			(7,244	)			(5,640	)
Accumulated amortization distributor relations and other			(729	)			(574	)
Total accumulated amortization			(111,536	)			(96,144	)
Trade names, not subject to amortization			50,330				52,130
Total intangibles, net		$	252,487			$	269,672

Amortization expense related to intangible assets was $8.1 million and $16.0 million for the three and six months ended June 30, 2011, respectively, and $7.5 million and $13.6 million for the three and six months ended June 30, 2010, respectively.

Note G — Debt

The Credit Agreement at June 30, 2011 provides for a Revolving Credit Facility totaling $340 million, subject to borrowing base restrictions, which matures in December 2012, and a Term Loan Facility with a balance of $73.0 million at June 30, 2011, which matures in December 2013. The Term Loan Facility requires quarterly payments of $0.5 million with a final payment of the outstanding principal balance due on December 7, 2013. The carrying value of the Term Loan Facility as of June 30, 2011 approximated fair value and was calculated based on interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities.

The Company had $15.0 million in outstanding borrowings under its Revolving Credit Facility at June 30, 2011. The Company had approximately $234.3 million in borrowing base availability under its Revolving Credit Facility at June 30, 2011. Letters of credit outstanding at June 30, 2011 totaled approximately $69.9 million. At June 30, 2011, the Company was in compliance with all covenants.

The following table provides the Company’s debt holdings at June 30, 2011 and December 31, 2010 (in thousands):

		June 30,				December 31,
		2011				2010
Revolving credit facility		$	15,000			$	22,000
Term loan facility			73,000				74,000
Total debt		$	88,000			$	96,000
Less: Current portion, term loan facility			(2,000	)			(2,000	)
Less: Current portion, revolving credit facility			—				—
Long term debt		$	86,000			$	94,000

Note H — Fair value measurement

The following table provides the assets and liabilities carried at fair value measured on a recurring basis at June 30, 2011 and December 31, 2010 (in thousands):

		Fair Value Measurements at June 30, 2011
		Carrying
		Value				Level 1				Level 2				Level 3
Liabilities:
Supplemental put obligation (including current portion)		$	49,493			$	—			$	—			$	49,493
Call option of noncontrolling shareholder (1)			25				—				—				25
Put option of noncontrolling shareholders (2)			50				—				—				50
Contingent consideration related to ERGObaby acquisition (3)			1,027				—				—				1,027

		Fair Value Measurements at December 31, 2010
		Carrying
		Value				Level 1				Level 2				Level 3
Liabilities:
Derivative liability — interest rate swap		$	143			$	—			$	143			$	—
Supplemental put obligation			44,598				—				—				44,598
Call option of noncontrolling shareholder			1,200				—				—				1,200
Put option of noncontrolling shareholders			50				—				—				50
Contingent consideration related to ERGObaby acquisition			177				—				—				177

A reconciliation of the change in the carrying value of our level 3 supplemental put liability (including current portion) from January 1, 2011 through June 30, 2011 and from January 1, 2010 through June 30, 2010 is as follows (in thousands):

		2011				2010
Balance at January 1		$	44,598			$	12,082
Supplemental put expense			3,228				14,426
Balance at March 31		$	47,826			$	26,508
Supplemental put expense			1,667				2,565
Balance at June 30		$	49,493			$	29,073

A reconciliation of the change in the carrying value of our level 3 call option of a noncontrolling shareholder from January 1, 2011 through June 30, 2011 is as follows (in thousands):

		2011
Balance at January 1		$	1,200
Fair value adjustment to call option			(600	)
Balance at March 31		$	600
Fair value adjustment to call option			(575	)
Balance at June 30		$	25

A reconciliation of the change in the carrying value of our level 3 contingent consideration liability at ERGObaby from January 1, 2011 through June 30, 2011 is as follows (in thousands):

		2011
Balance at January 1		$	177
Fair value adjustment to contingent consideration liability			500
Balance at March 31		$	677
Fair value adjustment to contingent consideration liability			350
Balance at June 30		$	1,027

Valuation Techniques

Supplemental put:

The Company and CGM entered into a Supplemental Put Agreement, which requires the Company to acquire the Allocation Interests owned by CGM upon termination of the Management Services Agreement. Essentially, the put right granted to CGM requires the Company to acquire CGM’s Allocation Interests in the Company at a price based on 20% of the company’s profits upon clearance of a 7% annualized hurdle rate. Each fiscal quarter the Company estimates the fair value of this potential liability associated with the Supplemental Put Agreement. Any change in the potential liability is accrued currently as a non-cash adjustment to earnings. The increase in the supplemental put liability during the three and six months ended June 30, 2011, was primarily related to increases in the estimated values of the Advanced Circuits and Fox operating segments. The short term portion of the supplemental put liability primarily relates to the cash payment due to CGM in connection with its ability to elect to receive the positive contribution-based profit allocation payment for the ACI business during the 30-day period following the fifth anniversary of the date upon which we acquired a controlling interest in ACI.

Options of noncontrolling shareholders:

The call option of the noncontrolling shareholder was determined based on inputs that were not readily available in public markets or able to be derived from information available in publicly quoted markets. As such, the Company categorized the call option of the noncontrolling shareholder as Level 3.

The put options of noncontrolling shareholders were determined based on inputs that were not readily available in public markets or able to be derived from information available in publicly quoted markets. As such, the Company categorized the put options of the noncontrolling shareholders as Level 3.

Contingent consideration:

The fair value of this contingent consideration liability for ERGObaby was valued assuming a percentage probability of achieving the agreed upon sales goal, discounted to present value utilizing a discounted cash flow model.

Interest rate swap:

The Company’s derivative instrument consisted of an over-the-counter (OTC) interest rate swap contract which was not traded on a public exchange. The fair value of the Company’s interest rate swap contract was determined based on inputs

that were readily available in public markets or could be derived from information available in publicly quoted markets. The swap expired in January 2011. See Note I.

The following table provides the assets and liabilities carried at fair value measured on a non-recurring basis as of June 30, 2011 (in thousands):

																		Losses
		Fair Value Measurements at Jun. 30, 2011																Six months ended
		Carrying																Jun. 30,
		Value				Level 1				Level 2				Level 3				2011				2010
Assets:
Goodwill (1)		$	—			$	—			$	—			$	—			$	(5,900	)		$	—
Trade name (2)			1,200				—				—				1,200				(1,800	)		$	—

Note I — Derivative instruments and hedging activities

On January 22, 2008, the Company entered into a three-year interest rate swap (“Swap”) agreement with a bank, fixing the rate of its Term Loan Facility borrowings at 7.35%. The Company’s objective for entering into the Swap was to manage the interest rate exposure on a portion of its Term Loan Facility by fixing its interest rate at 7.35% and avoiding the potential variability of interest rate fluctuations. The Swap was designated as a cash flow hedge and expired in January 2011.

Note J — Comprehensive income (loss)

The following table sets forth the computation of comprehensive income (loss) for the three and six months ended June 30, 2011 and 2010 (in thousands):

		Three months ended								Six months ended
		June 30,								June 30,
		2011				2010				2011				2010
Net income (loss) attributable to Holdings		$	6,378			$	(1,460	)		$	(596	)		$	(17,429	)
Other comprehensive income:
Unrealized gain on cash flow hedge			—				578				143				897
Total other comprehensive income			—				578				143				897
Total comprehensive income (loss)		$	6,378			$	(882	)		$	(453	)		$	(16,532	)

Note K — Stockholder’s equity

The Trust is authorized to issue 500,000,000 Trust shares and the Company is authorized to issue a corresponding number of LLC interests. The Company will at all times have the identical number of LLC interests outstanding as Trust shares. Each Trust share represents an undivided beneficial interest in the Trust, and each Trust share is entitled to one vote per share on any matter with respect to which members of the Company are entitled to vote.

     Distributions:

	•		On January 28, 2011, the Company paid a distribution of $0.34 per share to holders of record as of January 21, 2011. This distribution was declared on January 5, 2011.
	•		On April 12, 2011, the Company paid a distribution of $0.36 per share to holders of record as of March 29, 2011. This distribution was declared on March 10, 2011.
	•		On July 28, 2011, the Company paid a distribution of $0.36 per share to holders of record as of July 21, 2011. This distribution was declared on July 6, 2011.

Note L — Warranties

The Company’s ERGObaby, Fox, Liberty and Tridien operating segments estimate their exposure to warranty claims based on both current and historical product sales data and warranty costs incurred. The Company assesses the adequacy of its recorded warranty liability quarterly and adjusts the amount as necessary.

A reconciliation of the change in the carrying value of the Company’s warranty liability for the six months ended June 30, 2011 and the year ended December 31, 2010 is as follows (in thousands):

		Six Months				Year Ended
		Ended June 30,				December 31,
		2011				2010
Beginning balance		$	3,237			$	1,529
Accrual			1,244				2,872
Warranty payments			(1,328	)			(1,726	)
Other (1)			—				562
Ending balance		$	3,153			$	3,237

Note M — Noncontrolling interest

Noncontrolling interest represents the portion of the Company’s majority-owned subsidiary’s net income (loss) and equity that is owned by noncontrolling shareholders.

The following tables reflect the Company’s ownership percentage of its majority owned operating segments and related noncontrolling interest balances as of June 30, 2011 and December 31, 2010:

		% Ownership								% Ownership
		June 30, 2011								December 31, 2010
		Primary				Fully Diluted				Primary				Fully Diluted
ACI			69.6				69.4				69.6				69.4
American Furniture			99.9				99.9				99.9				91.4
ERGObaby			83.9				77.3				83.9				79.9
FOX			75.7				65.8				75.7				68.1
HALO			88.7				72.8				88.7				72.8
Liberty			96.2				87.7				96.2				87.7
Staffmark			76.2				68.3				76.2				68.5
Tridien			73.9				60.0				73.9				61.8

		Noncontrolling Interest Balances
		June 30,				December 31,
(in thousands)		2011				2010
ACI		$	2,550			$	2,326
American Furniture			(58	)			(163	)
ERGObaby			7,471				7,087
FOX			15,143				13,373
HALO			3,330				3,211
Liberty			1,278				1,156
Staffmark			52,562				50,962
Tridien			10,165				9,788
CGM			100				100
		$	92,541			$	87,840

Note N — Income taxes

Each fiscal quarter the Company estimates its annual effective tax rate and applies that rate to its interim earnings. In this regard, the Company reflects the tax impact of certain unusual or infrequently occurring items and the effects of changes in tax laws or rates in the interim period in which they occur.

The computation of the annual estimated effective tax rate in each interim period requires certain estimates and significant judgment, including the projected operating income for the year, projections of the proportion of income earned and taxed in other jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, as additional information is obtained or as the tax environment changes.

The reconciliation between the Federal Statutory Rate and the effective income tax rate for the three and six months ended June 30, 2011 and 2010 are as follows:

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
United States Federal Statutory Rate			35.0	%			35.0	%			35.0	%			(35.0	%)
Foreign and State income taxes (net of Federal benefits)			4.2				7.9				11.1				4.5
Expenses of Compass Group Diversified Holdings, LLC representing a pass through to shareholders (1)			5.3				34.2				22.6				65.5
Credit utilization			(9.8	)			(9.7	)			(28.3	)			(10.5	)
Non-deductible acquisition costs			—				—				—				4.2
Quarterly effective tax rate adjustment			1.9				46.4	(2)			14.9				3.4
Impairment expense			—				—				26.1				—
Other			(5.1	)			(1.5	)			(2.9	)			0.6
Effective income tax rate			31.5	%			112.3	%			78.5	%			32.7	%

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This item 2 contains forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, some of which are beyond our control. Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ, including those discussed in the sections entitled “Forward-Looking Statements” and “Risk Factors” included elsewhere in this Quarterly Report as well as those risk factors discussed in the section entitled “Risk Factors” in our Annual Report on Form 10-K.

Overview

Compass Diversified Holdings, a Delaware statutory trust, was incorporated in Delaware on November 18, 2005. Compass Group Diversified Holdings, LLC, a Delaware limited liability company, was also formed on November 18, 2005. In accordance with the Trust Agreement, the Trust is sole owner of 100% of the Trust Interests (as defined in the LLC Agreement) of the Company and, pursuant to the LLC Agreement, the Company has outstanding, the identical number of Trust Interests as the number of outstanding shares of the Trust. The Manager is the sole owner of the Allocation Interests of the Company. The Company is the operating entity with a board of directors and other corporate governance responsibilities, similar to that of a Delaware corporation.

The Trust and the Company were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. We characterize small to middle market businesses as those that generate annual cash flows of up to $60 million. We focus on companies of this size because of our belief that these companies are often more able to achieve growth rates above those of their relevant industries and are also frequently more susceptible to efforts to improve earnings and cash flow.

In pursuing new acquisitions, we seek businesses with the following characteristics:

•

North American base of operations;

•

stable and growing earnings and cash flow;

•

significant market share in defensible industry niche (i.e., has a “reason to exist”);

•

solid and proven management team with meaningful incentives;

•

low technological and/or product obsolescence risk; and

•

a diversified customer and supplier base.

Our management team’s strategy for our subsidiaries involves:

•

utilizing structured incentive compensation programs tailored to each business to attract, recruit and retain talented managers to operate our businesses;

•

regularly monitoring financial and operational performance, instilling consistent financial discipline and supporting management in the development and implementation of information systems to effectively achieve these goals;

•

assisting management in their analysis and pursuit of prudent organic cash flow growth strategies (both revenue and cost related);

•

identifying and working with management to execute attractive external growth and acquisition opportunities; and

•

forming strong subsidiary level boards of directors to supplement management in their development and implementation of strategic goals and objectives.

Based on the experience of our management team and its ability to identify and negotiate acquisitions, we believe we are positioned to acquire additional attractive businesses. Our management team has a large network of approximately 2,000 deal intermediaries to whom it actively markets and whom we expect to expose us to potential acquisitions. Through this network, as well as our management team’s active proprietary transaction sourcing efforts, we typically have a substantial

pipeline of potential acquisition targets. In consummating transactions, our management team has, in the past, been able to successfully navigate complex situations surrounding acquisitions, including corporate spin-offs, transitions of family-owned businesses, management buy-outs and reorganizations. We believe the flexibility, creativity, experience and expertise of our management team in structuring transactions provides us with a strategic advantage by allowing us to consider non-traditional and complex transactions tailored to fit a specific acquisition target.

In addition, because we intend to fund acquisitions through the utilization of our Revolving Credit Facility, we do not expect to be subject to delays in or conditions by closing acquisitions that would be typically associated with transaction specific financing, as is typically the case in such acquisitions. We believe this advantage is a powerful one, especially in the current tight credit environment, and is highly unusual in the marketplace for acquisitions in which we operate.

2011 Highlights

Increase in quarterly distributions

On March 29, 2011 and July 6, 2011 we declared quarterly distributions of $0.36 per share which represented an increase of $0.02 per share over each distribution made in the corresponding quarters of 2010.