United Components Reports Results of Operations for Fourth Quarter 2003
ALBION, Ill.--March 10, 2004--United Components, Inc. today announced revenue of $228.7 million for the quarter ended December 31, 2003. Revenue increased 3.5 percent over the year-ago quarter. Net income for the quarter was $1.8 million. For the fourth quarter of 2002, net income was $23.3 million.Earnings before interest, taxes, depreciation and amortization, or EBITDA, as adjusted pursuant to the company's credit agreement for its senior credit facilities, was $30.9 million for the fourth quarter, compared with $30.8 million for the year-ago quarter.
For the full year 2003, revenue was $959.3 million, an increase of 3.9 percent over the prior year period. Net income was $13 million and $103.6 million, respectively, for the full year 2003 and 2002. EBITDA, as adjusted pursuant to the company's credit agreement for its senior credit facilities, was $125.4 million and $130.3 million for full year 2003 and 2002, respectively.
The company used cash flow generated from operations to reduce borrowings under its senior credit facilities by $40 million. This voluntary pre-payment of debt occurred on March 1, 2004. Since UCI's acquisition of the company on June 20, 2003, debt repayments have totaled $98 million.
Conference Call
The company will host a conference call to discuss its results and performance on Thursday, March 11, at 12:00 noon Eastern Standard Time (EST). Interested parties are invited to listen to the call by telephone. Domestic callers can dial (800) 936-4602. International callers can dial (507) 726-3331.
A replay of the call will be available from March 12, 2004, for a thirty day period, at www.champlabs.com. Click on the UCINC 4th Quarter Results button.
About United Components, Inc
United Components, Inc. is among North America's largest and most diversified companies servicing the vehicle replacement parts market. We supply a broad range of products to the automotive, trucking, marine, mining, construction, agricultural and industrial vehicle markets. Our customer base includes leading aftermarket companies as well as a diverse group of original equipment manufacturers.
Forward Looking Statements
All statements other than statements of historical facts included in this press release and the attached report that address activities, events or developments that United Components, Inc. ("UCI") expects, believes or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements give UCI's current expectations and projections relating to the financial condition, results of operations, plans, objectives, future performance and business of UCI and its subsidiaries. These statements can be identified by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.
These forward-looking statements are based on UCI's expectations and beliefs concerning future events affecting UCI. They are subject to uncertainties and factors relating to UCI's operations and business environment, all of which are difficult to predict and many of which are beyond UCI's control. Although UCI believes that the expectations reflected in its forward-looking statements are reasonable, it does not know whether the expectations will prove correct. They can be affected by inaccurate assumptions UCI might make or by known or unknown risks and uncertainties. Many factors mentioned in UCI's discussion in this report will be important in determining future results.
Because of these factors, UCI cautions that investors should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, UCI undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
United Components, Inc. ("UCI")
Condensed Balance Sheets
(in thousands)
UCI Predecessor
Consolidated Combined
December 31, December 31,
2003 2002
--------- ---------
Assets
Current assets
Cash and cash equivalents $ 46,130 $ 28,354
Accounts receivable, net 230,345 211,551
Inventories 168,797 213,950
Deferred tax 17,756 1,052
Other current assets 10,877 10,208
--------- ---------
Total current assets 473,905 465,115
Property, plant and equipment, net 219,973 152,529
Due from parent -- 37,379
Goodwill 163,823 14,913
Other intangible assets, net 77,124 600
Deferred financing costs 10,146 --
Deferred tax 13,609 --
Pension and other assets 11,359 13,934
--------- ---------
Total assets $ 969,939 $ 684,470
========= =========
Liabilities and shareholder's equity
Current liabilities
Accounts payable $ 74,652 $ 44,817
Notes payable 752 962
Current maturities of long-term debt 1,034 1,398
Accrued expenses and other current
liabilities 66,729 44,382
--------- ---------
Total current liabilities 143,167 91,559
Long-term debt, less current maturities 520,472 549
Pension and other post retirement liabilities 50,038 20,326
Deferred tax -- 3,761
Other liabilities 2,172 240
Shareholder's equity 254,090 568,035
--------- ---------
Total liabilities and shareholder's equity $ 969,939 $ 684,470
========= =========
United Components, Inc.
Condensed Income Statements (Unaudited)
(in thousands)
UCI Predecessor
Consolidated Combined
Three Months Three Months
ended ended
Dec. 31, Dec. 31,
2003 2002
--------- ---------
Net sales $ 228,734 $ 221,027
Cost of sales 185,596 173,892
--------- ---------
Gross profit 43,138 47,135
--------- ---------
Operating expenses:
Selling and warehousing 14,747 14,324
General and administrative 9,873 7,846
Amortization of intangible assets 1,840 30
--------- ---------
Operating income 16,678 24,935
--------- ---------
Other income (expense):
Interest income 168 1,871
Interest expense (12,217) (559)
Management fee expense (439) (26)
Miscellaneous, net (203) (489)
--------- ---------
Income before income taxes 3,987 25,732
Income tax expense 2,184 2,446
--------- ---------
Net income $ 1,803 $ 23,286
========= =========
United Components, Inc.
Condensed Income Statements
(in thousands)
Predecessor UCI UCI Predecessor
Combined Consolidated Total Combined
January 1, June 21, January 1, Twelve
2003 2003 2003 Months
through through to ended
June 20, Dec. 31, Dec. 31, Dec. 31,
2003 2003 2003 2002
------------ ------------ ------------ ------------
Net sales $ 452,467 $ 506,831 $ 959,298 $ 923,038
Cost of sales 378,211 433,345 811,556 715,705
------------ ------------ ------------ ------------
Gross profit 74,256 73,486 147,742 207,333
------------ ------------ ------------ ------------
Operating expenses:
Selling and
warehousing 33,585 34,178 67,763 67,873
General and
administrative 18,928 21,815 40,743 34,478
Amortization of
intangible
assets 60 3,176 3,236 720
------------ ------------ ------------ ------------
Operating
income 21,683 14,317 36,000 104,262
------------ ------------ ------------ ------------
Other income
(expense):
Interest income 1,712 254 1,966 5,173
Interest expense (245) (26,602) (26,847) (927)
Management fee
expense (18) (1,000) (1,018) (79)
Miscellaneous, net (408) (12) (420) (387)
------------ ------------ ------------ ------------
Income (loss)
before income
taxes 22,724 (13,043) 9,681 108,042
Income tax expense
(benefit) 942 (4,288) (3,346) 4,434
------------ ------------ ------------ ------------
Net income
(loss) $ 21,782 $ (8,755) $ 13,027 $ 103,608
============ ============ ============ ============
United Components, Inc.
Condensed Statements of Cash Flows
(in thousands)
UCI Predecessor Predecessor
Consolidated Combined Combined
June 21, January 1, Twelve
2003 2003 Months
through through ended
Dec. 31, June 20, Dec. 31,
2003 2003 2002
------------ ------------ ------------
Cash flows from operating
activities:
Net income (loss) $ (8,755) $ 21,782 $ 103,608
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities
Depreciation 21,148 12,928 27,798
Amortization of other
intangibles 3,176 60 720
Amortization and write
off of deferred
financing fees and debt
issuance costs 5,444 -- --
(Gain) loss on sale of
assets, net 0 242 206
Changes in operating
assets and liabilities
Accounts receivable 314 (18,146) (28,399)
Inventories 55,461 18,806 (15,823)
Other current
assets (8,497) (3,035) (870)
Accounts payable 38,884 (9,425) 1,067
Accrued expenses
and other current
liabilities 6,202 (2,438) 6,332
Other assets 3,321 715 (1,657)
Other liabilities (3,205) 2,404 688
------------ ------------ ------------
Net cash provided
by operating
activities 113,493 23,893 93,670
------------ ------------ ------------
Cash flows from investing
activities:
Acquisition and related fees (818,162) -- (65)
Capital expenditures (21,998) (21,388) (45,709)
Proceeds from sale of assets 2,252 215 654
------------ ------------ ------------
Net cash (used) in
investing
activities (837,908) (21,173) (45,120)
------------ ------------ ------------
Cash flows from financing
activities:
Issuance of debt 585,000 -- 1,432
Financing fees and debt
issuance costs (21,582) -- --
Stockholder's equity
contribution 261,384 -- --
Dividends and transfers to
UIS, Inc., net -- (28,033) (42,444)
Payments of debt, net (58,756) (98) --
------------ ------------ ------------
Net cash (used in)
provided by
financing
activities 766,046 (28,131) (41,012)
------------ ------------ ------------
Effect of exchange rate changes
on cash 47 1,509 1,118
------------ ------------ ------------
Net increase
(decrease) in cash
and cash
equivalents 41,678 (23,902) 8,656
Cash and cash equivalents at
beginning of period 4,452 28,354 19,698
------------ ------------ ------------
Cash and cash equivalents at
end of period $ 46,130 $ 4,452 $ 28,354
============ ============ ============
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are presented because they are believed to be frequently used by parties interested in United Components, Inc. ("UCI"). Management believes that EBITDA and Adjusted EBITDA provide useful information to investors because they facilitate an investor's comparison of UCI's operating results to that of companies with different capital structures and with cost basis in assets that have not been revalued and written-up in an allocation of a recent acquisition's purchase price.
The calculation of Adjusted EBITDA, presented below, is as defined in the credit agreement for UCI's senior credit facilities. This Adjusted EBITDA is used to measure compliance with covenants of that agreement such as interest coverage. (The amounts presented below are for all of UCI. The actual amounts used to measure compliance to the credit agreement covenants may differ in that under certain circumstances the results of certain foreign subsidiaries are excluded.)
EBITDA and Adjusted EBITDA are not measures of financial performance under United States generally accepted accounting principles ("US GAAP") and should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with US GAAP or as an alternative to cash flow from operating activities as a measure of liquidity.
Schedule A
Reconciliation of Net Income to EBITDA and Adjusted EBITDA for 2003
(dollars in millions)
Dec
Q1 Q2 Q3 Q4 YTD
------ ------ ------ --------------
Net income $22.3 $(3.5) $(7.6) $1.8 $13.0
Interest, net (0.8) 3.2 10.4 12.1 24.9
Income taxes expense ( benefit ) 1.0 (1.9) (4.6) 2.2 (3.3)
Depreciation 6.7 7.3 10.3 9.8 34.1
Amortization of intangibles 0.2 1.2 1.8 3.2
------ ------ ------ ------ -------
EBITDA 29.2 5.3 9.7 27.7 71.9
One-time or unusual items:
-- Sale of inventory that was
written-up to market from
historical cost per US GAAP
acquisition rules 2.6 22.6 2.3 27.5
-- Slow moving / obsolete
inventory reserve 0.3 12.3 12.6
-- Environmental accrual 4.6 4.6
-- Product line relocations,
facilities upgrades and
consolidations, patent
disputes, other 1.2 2.9 (0.3) 3.8
-- Costs re: transition to
a new, more strategically
focused, stand-alone company 1.5 1.5
Non-cash charges ( primarily
pension ) 0.8 0.4 0.5 0.8 2.5
Management fee 0.1 0.5 0.4 1.0
------ ------ ------ ------ -------
ADJUSTED EBITDA $31.5 $28.2 $34.8 $30.9 $125.4
====== ====== ====== ====== =======
Schedule B
Reconciliation of Net Income to EBITDA and Adjusted EBITDA for 2002
(dollars in millions)
Dec
Q1 Q2 Q3 Q4 YTD
------ ------ ------ ------ -------
Net income $21.6 $29.7 $29.0 $23.3 $103.6
Interest income, net (1.0) (1.0) (0.9) (1.3) (4.2)
Income taxes expense ( benefit ) 1.8 1.0 (0.8) 2.4 4.4
Depreciation 6.5 6.6 7.6 7.1 27.8
Amortization of intangibles 0.6 0.1 0.7
------ ------ ------ ------ -------
EBITDA 29.5 36.4 34.9 31.5 132.3
One-time or unusual items:
-- Profit from reversal of excess
product recall accrual (0.5) (0.5) (1.0)
Non-cash items ( primarily pension
payments exceeded expense ) 0.2 (0.5) (0.5) (0.2) (1.0)
------ ------ ------ ------ -------
ADJUSTED EBITDA $29.7 $35.9 $33.9 $30.8 $130.3
====== ====== ====== ====== =======
United Components, Inc. Notes to Condensed Financial Statements
(Unaudited) United Components, Inc. is a wholly owned subsidiary of UCI Acquisition Holdings, Inc. UCI Acquisition Holdings, Inc. and United Components, Inc. are corporations formed at the direction of The Carlyle Group ("Carlyle"). Affiliates of Carlyle own 99.3% of UCI Acquisition Holdings, Inc.'s common stock, and the remainder is owned by certain members of senior management
On June 20, 2003, United Components, Inc. ("UCI") purchased from UIS, Inc. and UIS Industries, Inc. (together "UIS"), the vehicle parts business of UIS.
For periods after June 20, 2003, the accompanying consolidated condensed financial statements include the accounts of UCI and its subsidiaries. For periods prior to June 21, 2003, the accompanying combined condensed financial statements include the accounts of the vehicle parts businesses of UIS, which are collectively referred to in these financial statements as the "Predecessor Company" or "Predecessor."
Acquisition Purchase Price and Funding--The acquisition purchase price was $808 million. In addition UCI assumed $2 million of debt and capital lease obligations. Fees and expenses associated with the acquisition (excluding financing fees) were approximately $18 million and are accounted for as additional purchase price. Financing for the acquisition was comprised of a $260 million equity contribution by Carlyle, proceeds from $585 million of debt, and an $8 million accrued liability, which was paid in January 2004. In addition to funding the purchase price, proceeds from the borrowings were also used to pay for approximately $40 million of acquisition-related transaction and financing fees.
Preliminary Allocation of Acquisition Purchase Price--The acquisition is accounted for under the purchase method of accounting, and accordingly, the results of operations of the acquired companies are included in the results of UCI beginning on June 21, 2003. The information included herein has been prepared based on a preliminary allocation of the acquisition purchase price, which was based on preliminary estimates of the fair value of the assets acquired and liabilities assumed. The purchase price allocations are subject to change until all pertinent information regarding the acquisition and the assets and liabilities of the company are obtained and fully evaluated. Additional pertinent information that the company is in the process of obtaining includes, but is not limited to (i) the tax basis of certain assets and (ii) independent third-party appraisals of property, plant and equipment and intangible assets other than goodwill. Finalization of the allocation of the Acquisition purchase price could result in material changes to the balance sheet presented herein.
Change in Tax Filing Status--Prior to June 21, 2003 the subsidiaries comprising the Predecessor Company were treated as disregarded entities for U.S. tax purposes (Qualified Subchapter S subsidiaries, or Q subs). As Q subs of UIS, the subsidiaries were included in the U.S. Federal and certain state S corporation income tax returns of UIS. As such, the income taxes on the earnings of the Predecessor Company were paid by the sole shareholder of UIS pursuant to an election for Federal income tax purposes not to be taxed as a corporation. No tax sharing arrangement existed for the subsidiaries comprising the Company. Accordingly, no provision has been made in the accompanying combined condensed financial statements for Federal income taxes on the net earnings of these companies for the periods prior to June 21, 2003. A provision for certain state franchise and income taxes has been made.
The Q sub status and the S corporation status terminated immediately prior to the acquisition. UCI became a C corporation and is subject to both Federal and state income taxes and will begin to file a consolidated Federal income tax return. UCI's effective tax rate increased accordingly.
If the Predecessor Company were a C corporation, pro forma income tax expense would have been $9.6 million for the fourth quarter of 2002, $8.5 million for the January 1 through June 20, 2003 period, and $40.3 million for the full year of 2002.
Reclassifications--Income statements have been reclassified to conform to the December 2003 presentation. The reclassifications primarily move sales driven allowances from selling expense to a reduction of sales and move certain costs previously included in general expenses to cost of sales. The net effect is a reduction of gross profit of approximately $3.4 million per quarter, with an equal and offsetting reduction in operating expenses. There is no effect on operating income, net income, or EBITDA.