You make a good point. Although CODI has had years to grow AC and it has performed well even during the depths of the downturn, there is a lot to be said for selling into what might be the peak as it applies to Liberty. Although I think CODI has quite a ways to go with Liberty growth initiatives, the political timing might be as good as it will get in terms of monetizing Liberty.
John: As someone else commented, so far not fully recognized by the market. I have always felt that Fox was the crown jewel at CODI and from a monetization standpoint, it is starting to look like it. Makes me wonder if AC is next on the monetization side as it has been performing almost as well as Fox.
John: It's always good to see that someone on these boards actually has a modicum of understanding about the underlying stock. Check the recent SEC filing re entry into material agreement. I believe it eliminates the supplemental put.
I agree as to moving on from AFM and Anodyne (although I think Anodyne has been rebranded and I don't recall the new name). They have been dragging down earnings long enough. I'm guessing mgmt is quietly working on those sales, considering that they sold Halo which actually generated positive, albeit lackluster returns.
And I agree that CA is a ridiculous state in which to do business but my guess is the thinking is "If it ain't broke, don't fix it." Fox, with the factory and Watsonville and the new corporate headquarters in Scott's Valley, is predominantly a CA business, but Watsonville offers a large pool of moderately priced workers from Watsonville, Salinas and surrounding areas, and relatively low rent. I'm guessing the cost to move the operation to a business friendly state would cost much more than the differential of doing business in CA's anti-business environment.(One could wonder why Fox located its new corporate HQ in a neighborhood as pricey as Scott's Valley, but ....) ACC factories are in AZ and CO (with the recent dramatic expansion of the CO factory). As you note, Liberty is in a relatively low cost business-friendly state with abundant labor resources and no meaningful organized labor.Ergo, originally based in HI, only has a handful of employees with manufacturing almost exclusively in Asia. I'm not sure how much of Camelbak's manufacturing is done in CA, notwithstanding the HQ being in the Chicken Capitol of the World (does Petaluma's Chamber of Commerce still use that slogan?) And I frankly don't know that much about Arnold Magnetics. If I had my druthers, I would spin off everything except Fox and ACC, but we know that isn't going to happen. Although Camelbak and Ergo may work out well because they both have pricing power in their market, I still think that their acquisitions (and that of Arnold Magnetics), were at the top of the their respective market prices with way too much money paid for goodwill.
For those who periodically ask about UBTI, etc., from the 2012 K1 (full year ownership):
Line 1, -0- (if a specific line is not listed, the quantity is -0-)
Line 5, .90/share
Line 6a, 1.12/share
Line 6b, 1.12/share
Line 9a, .85/share
Line 13H, .55/share
Line 13K, .50/share
Line 19A, 1.44/share
Line 20V, .65/share
Jack: As you know, NAV is shareholder equity/shares outstanding. The calculation for the post-secondary NAV is:
Equity from 10k; $878m
Plus new equity from secondary (net; as reported in 10k) $147m
Equals total equity (after secondary) of: $1,025m.
Divided by total shares (after secondary; 38.7m plus 6.3m equals 45m):
$1,025m total equity after secondary divided by 45m shares after secondary equals $22.7777777 NAV.
As to the $18m blue sky we paid for, in fairness to mgmt, SLRC was recently trading at $25/share and but for the Rug Doctor issues that have recently surfaced, might well still be over $25/share. This was a premium over book value of about 10%. Shareholder equity in Crystal is the value of the portfolio ($400m) less Crystal liabilities ($143m), or $257m, for which we paid $275m, a premium of about $18m or only about 7% over book value. So mgmt apparently paid a 7% premium for Crystal.
And if you really want to be cynical, paying a premium to close a deal before 12/31 (which you report IR told you), when the deal will not generate any shareholder revenue (aka "economic benefit") in the 12/31 quarter, but will generate a hefty mgmt fee based on $275m of new "total assets" as of 12/31, well ...
Just a couple of comments:
Gross benefits by increasing the total assets upon which the management fee is calculated (now $275m greater with Crystal), plus the increase via the 1/13 secondary.
In response to another question: I see no reason for the Crystal acquistion to do anything for NAV. SLRC bought certain assets (for an apparent premium over book value, which would have resulted in a decline in book value had Crystal been merged into SLRC instead of being treated as an independent subsidiary). The only way for this to change NAV in a postive way is if it was a merger and the assets were purchased below book value, instead of a premium, or if the assets appreciated.
As to a separate question about the impact of the January secondary at above NAV pricing, and its impact on NAV, my calculations (which are always subject to mistakes), show that NAV increased from the 12/31/12 NAV of $22.70 to a new NAV (after secondary) of $22.77.
Although I agree with Jan that dividends from Crystal do not come without a cost, it remains to be seen what those costs will be to SLRC shareholders. As everyone heard/read in the CC, mgmt said +/- 11% dividend from Crystal to SLRC. Mgmt did not say whether that was 11% of $275m or 11% of $400m, but apparently IR has said it is 11% of $275m (which makes sense and I don't dispute what Jackmaster has been told, only that I prefer to hear it myself from the original source and IR has thus far refused to answer that question for me). [Although, with Crystal earnings of $400m at 12% yield ($48m) and a dividend of only 11% of $275m ($30.25m) that leaves about $18m for Crystal interest and overhead, of which about $8m is interest ($135m at an estimated 6%), leaving $10m for Crystal overhead.]
The unanswered question is, how much additional overhead are we paying as those dividends are passed through SLRC (plus the 2% gross asset fee)? It would be shameful if SLRC shareholders had to pay two layers of overhead on the Crystal assets.
So, we are acquiring about $255m equity (23 loans worth $400m less $145m CF at closing, per PR), for $275m? I hope we are also acquiring some other meaningful assets.
A "surprise" liquidity event:
The biotechnology giant Amgen, seeking to bolster its drug discovery efforts, said on Monday that it would pay $415 million in cash to acquire DeCode Genetics, a gene-hunting firm based in Iceland and known for its headline-grabbing discoveries linking genetic variations to disease.
DeCode, which is privately held, has used the population of Iceland to identify genetic variations linked to schizophrenia, cancer and numerous other diseases.
Just this year, for instance, it published a study identifying a rare mutation that protects people from getting Alzheimer’s disease, a second on a mutation that significantly raises the risk of Alzheimer’s, and a third suggesting that older men are more likely to father children with autism.
Despite that, DeCode has had trouble building a sustainable business, and it filed for bankruptcy protection in 2009. It was bought out of bankruptcy in 2010 by Saga Investments, a group led by two venture capital companies, Polaris Venture Partners and Arch Venture Partners.
A big issue for DeCode was how to make money from its discoveries. Most of the genetic variations it discovered raised the risk of getting a disease by only a small amount. That meant there would be little demand for diagnostic tests to detect those variations.
But knowing that a gene is involved in a disease provides clues to the mechanism of the disease, which pharmaceutical companies might use. DeCode never really had the financial wherewithal to develop drugs and it dropped its fledgling efforts when it emerged from bankruptcy.
Amgen, the world’s largest independent biotechnology company, believes it can use DeCode’s findings and its technology to its advantage.
Dr. Sean Harper, Amgen’s executive vice president for research and development, said in an interview that drugs based on findings from animal models often do not work, but products based on human genetic discoveries have a better track record. Two of the most exciting experimental drugs in Amgen’s pipeline – one for osteoporosis and one for high cholesterol – come from human genetic studies.
“We’re looking for more of that confidence, more of that ability to pick the winners,’’ Dr. Harper said. He said Amgen had already dropped some targets based on published findings from DeCode.
Geoffrey Porges, an analyst at Sanford C. Bernstein & Company, said in a note Monday that while DeCode has good science, the payoff for Amgen in terms of bringing drugs to market would likely be five to ten years away.
The deal is expected to close this month.
DeCode was founded in 1996 by Kari Stefansson, a neurologist who had taught at the University of Chicago and Harvard. Dr. Stefansson realized that Iceland, his native country, would be an ideal place to perform studies trying to detect genetic variants that raise or lower the risk of various diseases. Iceland has good medical and genealogical records and a population that is not very diverse genetically.
Dr. Stefansson, who remained chief executive of DeCode amid the bankruptcy, said in an interview Monday that he would continue to run business as a subsidiary of Amgen. He said that DeCode would continue to publish its genetic findings in medical journals, rather than keeping them as secrets for Amgen. Sales of its DeCode’s diagnostic tests are to be shelved, he said.
Dr. Stefansson said Amgen would help turn DeCode’s discoveries into products. “From the point of view of proving to the world that this kind of genetics can lead to tangible benefits, this is extraordinarily good news,’’ he said.
The deal seems to be lucrative for Saga Investments, which bought DeCode out of bankruptcy. Saga paid $13.9 million, according to Mr. Porges of Bernstein, who attributed that information to Capital IQ. DeCode then raised $5.1 million in Sept. 2011 from Hercules Technology Growth Capital, a publicly traded venture firm, Mr. Porges wrote in his note.
Terry McGuire, a co-founder and general partner of Polaris, said he did not have the exact figures but said Saga spent about $50 million, including the purchase price and the money needed to run DeCode. He said Polaris and Arch each owned a little less than a third of DeCode.
IMO, unless and until they can meaningfully increase the dividend and NAV, share price won't appreciate much more and faces the possibility of decline if interest rates spike or economic measures continue to decline. I just don't see any short term, significant price appreciation in HTGC share price (excepting that, the longer interest rates stay at zero, the higher the share price will go over time, as dividend chasers go after anything that will pay a yield over 0%). So long as HTGC is on a hiring binge, I suspect that any short term gains in NII will be offset by increased employee compensation overhead. So long as secondaries are below NAV, NAV won't increase much unless asset valuations improve meaningfully, we have meaningful retained earnings (which is hard for a BDC to accomplish while still maintaining its status as a BDC), or HTGC hits some home runs with several consecutive liquidity events ... all of course, offset by our losses on FB. If you aren't in ARCC (my favorite BDC), consider it as another option, while maintaining your diversity. I have been very impressed with management in the 5 years I have been following it, although ARCC is currently, almost priced to perfection. Also consider SLRC for the dividend (11% or so). Although I think SLRC management engages in a little financial sleight-of-hand (duly reported in the 10Q), for the benefit of a higher management fee, NII in Q3 covered the dividend (for the first time since IPO), and it appears they are pretty conservative with the portfolio. I also think among the established BDCs that I watch, it has the best chance for share price appreciation (with some price targets as high as $27, if I recall correctly). Although I echo your feelings about the HTGC share price languishing in this price range, in a flat or declining stock market with 0% interest rates, the dividend is attractive and relatively safe.
Thank you for the kind remarks.
I have stopped posting on Yahoo (this being an exception). It seems to me that 90% of the posters are unwilling or too lazy to do even a modest amount of their own DD, and I decided that Yahoo was a forum that I could pass on. I would welcome the opportunity to participate in a meaningful forum (even if only email) of investors with a like mind, but haven't found it yet.
In response to your question, recent earnings have been okay, but I'm not inspired. I still have my HTGC holdings, but at a higher price I would trim it back, and a lower price I would add more. I've been a little disappointed with management in the past year, so it is not currently my favorite BDC. First, you will recall this year's secondary offering. The offering went out when the share price was substantially off the 52 week highs. The price was at the prior quarter's NAV, and management touted that the secondary was at NAV and thus not dilutive, when in fact, the secondary was after the close of the subsequent quarter's close (with a higher NAV), and therefore, actually dilutive. And the subsequent CC didn't leave me clear on any compelling need for the secondary in the first place ... So instead of selling at a 52 week high and having it be accretive to NAV, we sold as a lower price point and actually sustained a dilutive NAV, for reasons that management did not make clear to me. (In constrast, you will recall that ARCC's secondary this year was priced meaningfully above the current NAV and added nicely to our NAV as a result. If I wanted to own a stock with serial secondaries below NAV, I would buy PSEC again.)
Second, is HTGC's foray into "speculation." IE., buying Facebook purely as a speculative play. It is one thing to acquire warrants, etc., as part of a financing package for a borrower. It is another to simply go out and spend $9m of our money to wage a bet that FB would skyrocket with the IPO. If I recall correctly, the 3rd (and final?) FB lockup period ends today or tomorrow, and we are out about $3m to date. I didn't invest in HTGC because I wanted them to invest my money in speculative stocks .... I bought based on the BDC business model. HTGC management has a dismal track record when they diverge from their bread and butter business (recall Spa Chakra?). In this same vein, I'm a little worried about the divergence into the biosciences ... but I hope I'm proven wrong.
Good luck to all.
Presumably, the OP is referring to the huge disposition by Harvey Scott, who disposed of 31 shares on July 24th, which "Represents shares of common stock withheld to pay taxes applicable to the vesting of restricted stock on July 30, 2012." Or maybe it was the 19 shares disposed of by Jessica Baron, for the same reason. [In total, 15,139 of shares have been "disposed" of by insiders since July 24th, all for the sole purpose of paying taxes applicable to vesting. (See footnotes 1 & 2 of the 7 different form 4s.)]
1. CODI is not an MLP and has nothing in common with MLPs excepting that CODI (organized as a Delaware trust) has elected to be taxed as a partnership, therefore you will receive a K-1 each year. "Compass Diversified Holdings, a Delaware statutory trust (“Holdings”), was organized in Delaware on November 18, 2005." (From the most recent 10-Q.) "Accordingly, our shareholders are treated as beneficial owners of Trust Interests in the Company and, as such, are subject to tax under partnership income tax provisions." (From the most recent 10-K.)
2. Although CODI may be technically required to pass on "earnings" to shareholders via K-1s, it has no obligation to make distributions to shareholders, and distributions are paid solely at the discretion of the Board.
3. The quarterly payments by CODI to shareholders are distributions, not dividends. With the annual K-1, each shareholder is allocated his/her/its share of interest earned, qualified dividends, capital gains, income, losses, deprecation or other income/losses.
4. Through a relatively complex tax calculation (which I will not go into), distributions reduce a shareholder's basis because they are generally treated as a return of capital. However, the distributions are not necessarily all taxed as capital gains on sale because upon sale, the difference between the reduced basis and the original cost basis, may be taxed as recaptured income(depending upon the allocation of the K-1s during ownership). ("Ain't no such thing as a free lunch." Milton Friedman, the economist, not Richard Nixon's speech writer.)
5. Generally, the difference between the initial purchase price of shares, and the selling price of the shares, will be treated as a capital gain/loss.
The Editorial: Keeping Up with the Joneses
July 2, 2012
In May, Liberty Safe began running a new $10 million, fully computerized assembly plant in Payson, UT. The factory will double the company’s output to more than 700 gun storage safes per day.
Steve Allred, Liberty’s senior vice president and chief operating officer, says the automated line has created jobs. “The new facility will add more than 100 new employees at Liberty,” he says. “It shows that America can compete with anybody—and with better products made in the USA.”
The 12-stage line handles the most critical production processes for the safe. “It does all the heavy lifting and time-consuming bending and welding,” says Buddy O’Neal, Liberty’s director of engineering. “It automatically cuts lengths of heavy-gauge steel for the specific model we’re building. Lasers and CNC machines take over to do the notching and cutting of each door and body, while robotic arms hold and weld the joints. The automated powder-coating process finishes each gun safe in preparation for final assembly, producing a new safe every 90 seconds. Detroit couldn’t do it any better.”
That’s music to our ears, and we hope Liberty’s investment provides a lesson to assemblers across the country. Even as U.S. manufacturers lead our economy out of recession, they cannot afford to rest on their laurels. The rest of the world is rapidly catching up.
Can't answer your question, but TurboTax walks you through K1s, line by line. Last time I used TaxCut (tw0 years ago?), TaxCut left you on your own with K1s. Otherwise, there are IRS publications that are almost as clear as a Microsoft User Manual.
AURORA, Colo., May 23, 2012 (BUSINESS WIRE) -- Advanced Circuits ("ACI") today announced the acquisition of Universal Circuits ("UCI") based in Maple Grove, MN. With this acquisition and previous acquisitions, Advanced Circuits, an industry innovator for many years in the commercial PCB arena, continues to strengthen its position as a leader in the high-reliability, military/aerospace/defense, and high technology marketplace. The acquisition will enable Advanced Circuits and Universal Circuits to further refine their core competencies and immediately begin offering expanded services to their customer bases.
Universal Circuits brings to Advanced Circuits a successful track record of over 40 years supplying PCBs to all major military, aerospace, and medical original equipment manufacturers and contract manufacturers. UCI's Minnesota facility meets certain Department of Defense clearance requirements and is noted for custom and advanced technologies that include a wide range of copper thicknesses and the capability to deal with conformal shapes and unique materials as well as large formats.
Advanced Circuits has experienced record growth and is reporting a strong start for 2012. This acquisition follows recent acquisitions of Circuit Board Express in May of 2009 and Circuit Express in March of 2010. By offering Universal Circuits customers access to Advanced Circuits' higher-volume production capabilities, its innovative online quoting and ordering procedures, plus exclusive FreeDFM and PCB Artist services, UCI achieves an immediate opportunity for revenue growth potential.
We brought you a teaser story back on March about a prototype electric something or other that Geoff Kabush was riding.
So far, so simple - but wait... what's that?
It was merely a picture of a bike with what looked like a Shimano Di2 battery bolted to it. What it was actually for was a new development that Fox has been working on with Shimano to allow a push-button lockout for forks or for front and rear shocks simultaneously.
Electrics now control fork lockout
To quote the release “Intelligent Ride Dynamics (iRD) is FOX’s categorization for electronic products employing non-traditional solutions to help customers improve their ride experience. Items under the iRD umbrella will directly address a rider’s individual needs, be very intuitive and provide features beyond what has traditionally been offered.”
What it means by this is that Fox has got boffins working on non-traditional ways of making you go faster. And here, Fox has worked with Shimano to offer electric front and rear shock lockout at a virtual press of a button (or twist of a lever). The new iRD (which is nothing to do with the IRD bike company by the way) uses battery power from a Shimano Di2 battery unit to move your fork (and shock if you have both set up) from ‘Descend’ to ‘Climb’ modes.
Rather randomly, last month, Fox previewed its 2013 range with a new three way ‘Climb, Trail, Descend’ mode. Quite why the new system goes back to a two state setup, we’re not sure, though it could just be that its been working on the electric system since before the three position setup was thought of.
Anyway, using reasonably neat and unobtrusive Di2 cabling, there’s a single ambidextrous hand lever, with a single wire heading to the fork for lockout control. If you’re running both front and rear iRD shocks, then a further cable leaves the fork and heads to the rear shock and then to the battery. If it’s a fork only, then the cable goes to the fork, then to the battery. This greatly simplifies the previously-complex task of running both shocks off one controller.
Details from Fox:
The fork features: Internal actuator unit, Factory series with FIT damper and Kashima-coated upper tubes, 100mm or 120mm, 26in or 29in wheel, and 9mm or 15QR axle options.
Shock features: External actuator unit, Factory series with Kashima-coated body and air sleeve, 6.5×1.5in to 7.875×2.0in sizes, and standard or large eyelet air volume options.
Remote Switch: Right or left mounting option, two or three position rotary switch, non-contact operation and integrated battery low feature.
Full Suspension System: System includes fork, shock, battery, battery bracket and remote switch with three cables linking the system together, left or right remote mounting options, three mode positions – Climb, Climb (Rear Only) and Descend.
Front Suspension System: System includes fork, battery, battery bracket and remote switch with two cables linking the system together, left or right remote mounting options, two mode positions – Climb and Descend.
Battery Life: In excess of 2.5 months (results may vary)
Actuation Time: 0.25 seconds for fork, 0.45 seconds for shock
Full Suspension Weight: Starting at 1860g / 4.10lbs
Front Suspension Weight: Starting at 1555g / 3.43lbs
Availability: September, 2012
Thank you for the kind remarks.
As to how I find these things, they find me. I use an RSS aggregator to search news and SEC feeds every 15 minutes for all of my holdings and their sub-holdings. (Snarfer, free.) Of course that includes each of the CODI companies.
As to CODI's future, I certainly don't know any more than anyone else. I've been in/out since 2007. I consider CODI an investment, not a trade, but will sometimes trade it in my retirement account (to avoid the hassle of calculating adjusted basis on sales). I consider Fox to be the crown jewel, with expanding revenue/earnings every quarter. Second in my favorites it Advanced Circuits. Not glamorous, but it keeps growing and I expect that someone will overpay to buy it from CODI sometime in the future.
I'm disappointed with AFM (as everyone is) and the re-named Anodyne (calling a goose a duck will not make it quack). I'm a little worried about the amount of goodwill we paid for with Ergo Baby, Arnold and Camelbak, and slightly more concerned with the impact of the Iraq/Afganistan drawdown on Camelbak revenues and whether we bought Camelbak at the top of the market. But I'm still long ...
As to Joe coming back, I'm would only be guessing. Keep in mind, even after Joe's departure, CODI was as high as +$16, and I'm not sure that Joe actually went anywhere, other than in form and filings.
Liberty Safe Announces New $10 Million Automated Gun Safe Production Facility
—Robotic Assembly Line Creates Gun Safe Every 90 Seconds
PAYSON, UT (PRWEB) May 19, 2012
Liberty Safe, the world’s leading manufacturer of high quality home-and-office gun storage safes, completed testing its new $10 million fully-computerized production facility in May 2012, doubling its gun safe output to more than 700 safes a day.
"We’re investing in the future to meet customer’s highest expectations," said Kim Waddoups, the newly appointed President of Liberty Safe Inc. "Leading the industry in technology and innovation, and offering a gun safe of the highest quality, is why more than 1.5 million customers have been choosing Liberty since 1988," Waddoups said.
Steve Allred, Liberty’s Senior VP, Chief Operating Officer, said the automated line has created new jobs. "The new facility will add more than 100 new employees at Liberty," Allred said, "It shows that America can compete with anybody—and with better products made in the USA."
The new production line was in the planning and design stage for more than 2 years, and was built and tested in Michigan in 2011. It was relocated to Payson and reassembled this past spring.
Buddy O’Neal, Director of Engineering, says the 12-stage line handles the most critical production parts of the gun safe. "It does all the heavy lifting and time-consuming bending and welding to produce the most accurate, high quality safes on the market," O’Neal said. "It automatically cuts lengths of heavy gauge steel for the specific model we’re building. Lasers and CNC machines take over to do the notching and cutting of each door and body while robotic arms hold and weld the joints. The automated powder-coating paint process finishes each gun safe in preparation for final assembly, producing a new safe every 90 seconds. Detroit couldn’t do it any better," he said.
Jamey Skousen, Director of Marketing, says Liberty's leadership, sales, and market forces have created a surge in popularity in home and gun safes over the past five years, and the new production line will meet that demand even better.
"Safes are a phenomenon of current national and world trends," Skousen said. "We’re investing to meet those market demands. Add a shaky economy, falling dollar, potential inflation, and increasing crime and you get homeowners wanting to protect their valuables closer to home and not at the bank. It’s resonated across the country. To satisfy that demand, we made an investment in modern technology—coupled with American ingenuity and a skilled workforce and dealer network—to make it all work. That’s why we remain the leading manufacturer of home, office and gun safes in the world."
Liberty Safe produces 24 different models of safes in a dozen different colors, with a capacity of up to 64 long guns, and 2-1/2 hour fire protection. The company is supported by America’s largest chain of 350 independent dealers nationwide and 4,000 other retail outlets worldwide.