United Components Reports Results of Operations for Fourth Quarter 2004
EVANSVILLE, Ind.--March 14, 2005--United Components, Inc. ("UCI") today announced revenue of $238.3 million for the quarter ended December 31, 2004. Revenue increased 4.2 percent over the year-ago quarter, with increases in all market channels except the original equipment service channel (OES). Net income for the quarter was $2.8 million. For the fourth quarter of 2003, net income was $1.8 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 $30.2 million for the fourth quarter, compared with $30.9 million for the year-ago quarter.
"We saw another solid year of revenue growth in 2004 and continued to generate cash and reduce our debt," said Bruce Zorich, Chief Executive Officer of UCI. "However, in the fourth quarter, our cost reduction initiatives did not generate sufficient savings to offset higher steel and other costs. We remain focused on these initiatives, which are expected to increase our profitability as we move through 2005."
For the full year 2004, revenue was $1,026.7 million, an increase of 7.0 percent over the prior year. Net income was $30.8 million and $13.0 million, for the year 2004 and 2003, respectively. EBITDA, as adjusted pursuant to the company's credit agreement for its senior credit facilities, was $138.5 million for 2004 and $125.4 million for 2003.
UCI ended the quarter with $11.3 million in cash. In December, the company voluntarily prepaid $25 million of its senior credit facility borrowings. From the June 20, 2003 acquisition date to the end of 2004, UCI has used cash flow from operations to reduce debt, net of cash, from $569 to $447 million. The cash flow has come from reductions in working capital, as well as operating profits.
Conference Call
The company will host a conference call to discuss its results and performance on Tuesday March 15, at 11:00 a.m. 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) 726-3418.
A replay of the call will be available from March 16, 2005, 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.
United Components, Inc. ("UCI")
Condensed Balance Sheets
December 31,
(in thousands)
2004 2003
---------- ----------
Assets
------
Current assets
Cash and cash equivalents $ 11,291 $ 46,130
Accounts receivable, net 238,581 230,345
Inventories, net 188,212 168,797
Deferred tax assets 18,578 17,756
Other current assets 12,188 10,877
---------- ----------
Total current assets 468,850 473,905
Property, plant and equipment, net 216,849 219,973
Goodwill 166,559 163,823
Other intangible assets, net 94,229 77,124
Deferred financing costs, net 7,686 10,146
Deferred tax assets -- 13,609
Pension and other assets 12,772 11,359
---------- ----------
Total assets $ 966,945 $ 969,939
========== ==========
Liabilities and shareholder's equity
------------------------------------
Current liabilities
Accounts payable $ 91,505 $ 74,652
Short-term borrowings 1,267 752
Current maturities of long-term debt 228 1,034
Accrued expenses and other current liabilities 67,808 66,729
---------- ----------
Total current liabilities 160,808 143,167
Long-term debt, less current maturities 456,674 520,472
Pension and other postretirement liabilities 53,141 50,038
Deferred tax liabilities 6,430 --
Other liabilities 1,972 2,172
---------- ----------
Total liabilities 679,025 715,849
Shareholder's equity 287,920 254,090
---------- ----------
Total liabilities and shareholder's equity $ 966,945 $ 969,939
========== ==========
United Components, Inc.
Condensed Income Statements
(in thousands)
UCI Consolidated
------------------------------
Three Months Three Months
ended ended
Dec. 31, 2004 Dec. 31, 2003
-------------- --------------
Net sales $ 238,336 $ 228,734
Cost of sales 195,610 185,596
-------------- --------------
Gross profit 42,726 43,138
-------------- --------------
Operating expenses
Selling and warehousing 16,902 14,747
General and administrative 9,610 9,924
Amortization of intangible assets 1,566 1,790
-------------- --------------
Operating income 14,648 16,677
-------------- --------------
Other income (expense)
Interest income 93 168
Interest expense (9,453) (12,217)
Management fee expense (500) (439)
Miscellaneous, net 429 (203)
-------------- --------------
Income before income taxes 5,217 3,986
Income tax expense 2,420 2,183
-------------- --------------
Net income $ 2,797 $ 1,803
============== ==============
United Components, Inc.
Condensed Income Statements
(in thousands)
Predecessor
UCI Combined
UCI Full Year Consolidated Jan. 1, 2003
Consolidated ended June 21, 2003 through
Year ended Dec. 31, through June 20,
Dec. 31, 2004 2003 Dec. 31, 2003 2003
------------- --------- ------------- -------------
Net sales $ 1,026,665 $959,298 $ 506,831 $ 452,467
Cost of sales 813,864 811,556 433,345 378,211
------------- --------- ------------- -------------
Gross profit 212,801 147,742 73,486 74,256
------------- --------- ------------- -------------
Operating expenses
Selling and
warehousing 72,725 67,763 34,178 33,585
General and
administrative 44,010 40,743 21,815 18,928
Amortization of
intangible
assets 6,834 3,236 3,176 60
------------- --------- ------------- -------------
Operating
income 89,232 36,000 14,317 21,683
------------- --------- ------------- -------------
Other income
(expense)
Interest income 241 1,966 254 1,712
Interest expense (36,288) (26,847) (26,602) (245)
Management fee
expense (2,000) (1,018) (1,000) (18)
Miscellaneous,
net 723 (420) (12) (408)
------------- --------- ------------- -------------
Income (loss)
before income
taxes 51,908 9,681 (13,043) 22,724
Income tax expense
(benefit) 21,079 (3,346) (4,288) 942
------------- --------- ------------- -------------
Net income
(loss) $ 30,829 $ 13,027 $ (8,755) $ 21,782
============= ========= ============= =============
United Components, Inc.
Condensed Statements of Cash Flows
(in thousands)
UCI Predecessor
UCI Consolidated Combined
Consolidated June 21, 2003 Jan. 1, 2003
Year ended through through
Dec. 31, 2004 Dec. 31, 2003 June 20, 2003
------------- ------------- -------------
Net cash provided by
operating activities $ 78,365 $ 113,493 $ 23,893
------------- ------------- -------------
Cash flow from investing
activities:
Acquisition and related
fees (8,000) (818,162) --
Capital expenditures (44,815) (21,998) (21,388)
Proceeds from sale of
assets 2,011 2,252 215
------------- ------------- -------------
Net cash used in
investing activities (50,804) (837,908) (21,173)
------------- ------------- -------------
Cash flows from financing
activities:
Issuances of debt 967 585,000 --
Financing fees and debt
issuance costs -- (21,582) --
Debt repayments (65,688) (58,756) (98)
Stockholder's equity
contribution 1,735 261,384 --
Dividends and transfers to
UIS, Inc., net -- -- (28,033)
------------- ------------- -------------
Net cash provided by
(used in) financing
activities (62,986) 766,046 (28,131)
------------- ------------- -------------
Effect of exchange rate
changes on cash 586 47 1,509
------------- ------------- -------------
Net increase (decrease) in
cash and cash equivalents (34,839) 41,678 (23,902)
Cash and cash equivalents at
beginning of period 46,130 4,452 28,354
------------- ------------- -------------
Cash and cash equivalents at
end of period $ 11,291 $ 46,130 $ 4,452
============= ============= =============
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, reflects the calculation of EBITDA as used 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
(dollars in millions)
2004 2003
----------------------------------- -------
Full Full
Q1 Q2 Q3 Q4 Year Year
------ ------ ------ ------ ------- -------
Net income $ 7.5 $10.2 $10.3 $ 2.8 $ 30.8 $ 13.0
Interest, net 9.6 9.0 8.1 9.3 36.0 24.9
Income tax expense
(benefit) 5.1 6.8 6.8 2.4 21.1 (3.3)
Depreciation 9.0 8.7 8.9 8.7 35.3 34.1
Amortization of intangibles 1.9 1.8 1.6 1.6 6.9 3.2
------ ------ ------ ------ ------- -------
EBITDA 33.1 36.5 35.7 24.8 130.1 71.9
One-time or unusual items:
Sale of inventory that was
written-up to market from
historical cost per US
GAAP acquisition rules 0.5 0.5 27.5
-- Slow moving/obsolete
inventory reserve 2.8 2.8 12.6
-- Environmental accrual 4.6
-- Product line relocations
and facilities
consolidations 1.7 1.7 3.8
-- Costs re: transition to
a new, more
strategically
focused, stand-alone
company 1.5
Non-cash charges
(primarily pension) 0.7 0.3 0.4 1.4 2.5
Management fee 0.5 0.5 0.5 0.5 2.0 1.0
------ ------ ------ ------ ------- -------
ADJUSTED EBITDA $34.1 $37.7 $36.5 $30.2 $138.5 $125.4
====== ====== ====== ====== ======= =======
Schedule B
----------
Reconciliation of Net Income to EBITDA and Adjusted EBITDA for 2003
(dollars in millions)
2003
-----------------------------------
Full
Q1 Q2 Q3 Q4 Year
------ ------ ------ ------ -------
Net income (loss) $22.3 $(3.5) $(7.6) $ 1.8 $ 13.0
Interest, net (0.8) 3.2 10.4 12.1 24.9
Income tax 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
====== ====== ====== ====== =======
United Components, Inc.
Notes to Condensed Financial Statements
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 98.6% of UCI Acquisition Holdings, Inc.'s common stock, and the remainder is owned by certain members of senior management and of the company's Board of Directors.
On June 20, 2003, United Components, Inc. ("UCI") purchased from UIS, Inc. and UIS Industries, Inc. (together "UIS"), the vehicle parts businesses 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." December 31, 2003 balance sheet amounts reflect the preliminary allocation of the June 20, 2003 acquisition purchase price. December 31, 2004 balance sheet amounts have been reclassified to reflect the impact of the final allocation of the June 20, 2003 acquisition purchase price. Such changes had no effect on previously reported results of operations.
Acquisition Purchase Price, Funding and Accounting--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 $18.2 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 used to pay for the $18.2 million of acquisition-related fees and $21.6 million of financing fees.
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 acquisition purchase price was allocated to the balance sheet based on the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. December 31, 2003 balance sheet amounts reflect the preliminary allocation of the June 20, 2003 acquisition purchase price. December 31, 2004 balance sheet amounts have been reclassified to reflect the impact of the final allocation of the June 20, 2003 acquisition purchase price. Such changes had no effect on previously reported results of operations.
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 predecessor 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. UCI's effective tax rate increased accordingly.
If the Predecessor company were a C corporation from the beginning of 2003, pro forma income tax expense would have been $4.3 million for the full year 2003.