Proliance International, Inc. Reports Net Profit for 2006 Second Quarter
NEW HAVEN, Conn.--Aug. 9, 2006--Proliance International, Inc. (AMEX: PLI) today announced results for the second quarter ended June 30, 2006.The Company reported net income for the second quarter of 2006 of $1.0 million, or $0.07 per basic and diluted share, compared to a net loss of $2.1 million, or $0.30 per basic and diluted share in the second quarter of 2005. Net sales in the second quarter of 2006 were $112.1 million, compared to $59.0 million in the second quarter of 2005, up 90.1% from last year, largely driven by the Company's recent merger with the aftermarket business of Modine Manufacturing Company, as well as organic growth in some product lines. For the first six months of 2006, the Company reported a loss from continuing operations of $4.0 million, or $0.27 per basic and diluted share, compared to a net loss from continuing operations of $4.4 million, or $0.62 per basic and diluted share in the first six months of 2005. The net income of $0.4 million or $0.05 per basic and diluted share in 2005 also included income from a discontinued operation of $0.8 million or $0.12 per basic and diluted share and gain on sale of discontinued operation of $3.9 million or $0.55 per basic and diluted share, associated with the sale of the Company's Heavy Duty OEM business in March 2005.
Charles E. Johnson, President and CEO of Proliance stated, "Our results for the 2006 second quarter reflect improved performance against the challenging operating backdrop that we have described in previous periods. We have begun to see the impact of our merger-related cost improvement programs which are expected to produce savings, versus the pre-merger baseline, of a cumulative $37 million in 2006 and a cumulative $45-$48 million in 2007. These programs helped us achieve improved margins for the second quarter. In this context, we have completed most of the programs related to the merger synergies, and we have initiated additional activities related to rolling-out our product enhancement program, improving our 'go-to-market' costs and to re-tooling many of our copper/brass construction heat exchange products in plastic/aluminum construction. On balance, we are encouraged by our improvement, although our progress to date has been impacted significantly by the record increases in raw materials costs we have seen over the last 18 months, continued price pressure on heat exchange products and the impact of high fuel costs as they affect consumer behavior and driving habits.
Mr. Johnson continued, "The second quarter also saw us benefit from the business diversification resulting from our merger with Modine Aftermarket Holdings, as strong results within both our International businesses in Europe and Latin America, as well as improved performance within the Domestic Heavy Duty product line, helped offset the challenging conditions seen in the Domestic automotive and light truck heat exchange marketplace. More specifically, our European business benefited from the roll-out of new product introductions in its automotive heat exchange product line as well as growth in demand for its heavy duty and Marine related products. The Domestic Heavy Duty product line showed sales improvement driven by new product introductions over the last 18 months and continued strong demand for heavy truck and industrial heat exchange products. Our improved results were further supported by market actions to recover raw materials costs in every case possible. As we have said, we anticipate that all these favorable actions will come into play in our third quarter results; however, as we have said in the past, we continue to expect that raw materials costs will increase further as we move through the year."
Consolidated gross margin for the second quarter of 2006 was $29.0 million, or 25.9% of sales, versus a consolidated gross margin of $11.4 million, or 19.4% of sales, in the same period in 2005. The improvement in gross margin reflects purchasing and manufacturing cost savings initiatives executed in conjunction with the integration of the Company's recent merger and cost reduction activities. Gross margin also benefited from an increase in branch sales added as result of the merger, which are at higher margins, but are somewhat offset by higher operating expenses. These factors were partially offset by the impact of rising raw material costs and continuing competitive pricing pressure on the Company's domestic heat exchange product line.
Selling, general and administrative expenses totaled $24.4 million, or 21.7% of net sales, in the 2006 second quarter, compared to $10.9 million, or 18.4% of net sales, in the same period in 2005. The increase in expenses primarily reflects the addition of the Modine aftermarket branch outlets, which represent a higher percentage of branch expenses in this expense category than in the Company's pre-merger history. Higher freight costs caused by the rising price of fuel also contributed to the year-over-year increase.
The Company reported operating income for the second quarter of 2006 of $4.5 million, including $0.1 million in restructuring charges related to ongoing integration actions, which were part of the restructuring program announced by the Company at the time of the merger. In the second quarter of 2005, the Company reported an operating loss of $0.6 million, including $1.1 million in restructuring charges related to the relocation of inventory from Memphis, Tennessee to Southaven, Mississippi, associated with the Company's new distribution facility at that site, as well as charges related to the Company's closure of its aluminum heater manufacturing facility in Buffalo, New York and the relocation of production to its Nuevo Laredo, Mexico facility.
Mr. Johnson continued, "The late advent of summer weather conditions this year along with continued roll-through of higher raw materials costs, further restructuring activities and some concerns with underlying market strength, make us more cautious regarding the second half of 2006. As a result of these factors, as opposed to our prior expectation of break-even operation for the year, we expect to be profitable in the third quarter, followed by a loss in the fourth quarter as the highest impact of raw materials costs rolls through our results, prior to the favorable impact of the greater transition to aluminum heat exchanger construction taking hold in early 2007. Overall, we currently expect that our last three quarters will exhibit break-even operation or better, in total, on a net profit basis before restructuring costs. In the second half of 2006, we will continue to take additional cost reduction and integration actions to fully realize the opportunities available to us. In this context, we expect to spend at the high end of our previously discussed restructuring cost range, or around $14 million by the time all anticipated actions are completed. While these actions will have little favorable impact on 2006, they will accrue most favorably to 2007. Actions associated with these charges will be announced at the appropriate time."
Mr. Johnson concluded, "Given the difficult market conditions we have faced in late 2005 and 2006, we are genuinely excited about our prospects for the future. Our performance has begun to improve, and while the results of our efforts have not shown up as rapidly as we want, in the face of a tough market, the improvements are happening. This bodes well for 2007, and is a tribute to the great efforts of the Proliance Team."
Proliance International, Inc. is a leading global manufacturer and distributor of aftermarket heat exchange and temperature control products for automotive and heavy-duty applications serving North America, Central America and Europe.
Proliance International, Inc.'s Strategic Corporate Values Are:
-- Being An Exemplary Corporate Citizen
-- Employing Exceptional People
-- Dedication To World-Class Quality Standards
-- Market Leadership Through Superior Customer Service
-- Commitment to Exceptional Financial Performance
FORWARD-LOOKING STATEMENTS
Statements included in this news release, which are not historical in nature, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements relating to the future financial performance of the Company are subject to business conditions and growth in the general economy and automotive and truck business, the impact of competitive products and pricing, changes in customer product mix, failure to obtain new customers or retain old customers or changes in the financial stability of customers, changes in the cost of raw materials, components or finished products and changes in interest rates. Such statements are based upon the current beliefs and expectations of Proliance management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. When used in this press release the terms "anticipate," "believe," "estimate," "expect," "may," "objective," "plan," "possible," "potential," "project," "will" and similar expressions identify forward-looking statements.
In addition, the following factors relating to the merger with the Modine Manufacturing Company aftermarket business, among others, could cause actual results to differ from those set forth in the forward-looking statements: (1) the risk that the businesses will not be integrated successfully; (2) the risk that the cost savings and any revenue synergies from the transaction may not be fully realized or may take longer to realize than expected; (3) disruption from the transaction making it more difficult to maintain relationships with clients, employees or suppliers; (4) the transaction may involve unexpected costs; (5) increased competition and its effect on pricing, spending, third-party relationships and revenues; (6) the risk of new and changing regulation in the U.S. and internationally; (7) the possibility that Proliance's historical businesses may suffer as a result of the transaction and (8) other uncertainties and risks beyond the control of Proliance. Additional factors that could cause Proliance's results to differ materially from those described in the forward-looking statements can be found in the 2005 Annual Report on Form 10-K of Proliance, in the Quarterly Reports on Forms 10-Q of Proliance, and Proliance's other filings with the SEC. The forward-looking statements contained in this press release are made as of the date hereof, and we do not undertake any obligation to update any forward-looking statements, whether as a result of future events, new information or otherwise.
PROLIANCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
------------------ --------------------
2006 2005 2006 2005
--------- -------- --------- ----------
Net sales $112,110 $58,962 $203,446 $107,270
Cost of sales 83,074 47,537 153,462 86,878
--------- -------- --------- ---------
Gross margin 29,036 11,425 49,984 20,392
Selling, general and
administrative expenses 24,376 10,878 47,308 21,453
Restructuring charges 134 1,105 654 1,367
--------- -------- --------- ---------
Operating income (loss) from
continuing operations 4,526 (558 ) 2,022 (2,428 )
Interest expense 2,691 1,892 4,944 3,349
--------- -------- --------- ---------
Income (loss) from continuing
operations before taxes 1,835 (2,450 ) (2,922 ) (5,777 )
Income tax provision (benefit) 793 (359 ) 1,095 (1,414 )
--------- -------- --------- ---------
Income (loss) from continuing
operations 1,042 (2,091 ) (4,017 ) (4,363 )
Income from discontinued
operation, net of tax -- -- -- 848
Gain on sale of discontinued
operation, net of tax -- -- -- 3,899
--------- -------- --------- ---------
Net income (loss) $1,042 $(2,091 ) $(4,017 ) $384
========= ======== ========= =========
Basic income (loss) per common share:
From continuing operations $0.07 $(0.30 )$(0.27 )$(0.62 )
From discontinued operation -- -- -- 0.12
From gain on sale of discontinued
operation -- -- -- 0.55
------- ------- ------- -------
Net income (loss) $0.07 $(0.30 )$(0.27 ) $0.05
======= ======= ======= =======
Diluted income (loss) per common
share:
From continuing operations $0.07 $(0.30 )$(0.27 )$(0.62 )
From discontinued operation -- -- -- 0.12
From gain on sale of discontinued
operation -- -- -- 0.55
------- ------- ------- -------
Net income (loss) $0.07 $(0.30 )$(0.27 ) $0.05
======= ======= ======= =======
Weighted average common
shares Basic 15,256 7,107 15,256 7,107
======= ======= ======= =======
Diluted 15,838 7,107 15,256 7,107
======= ======= ======= =======
PROLIANCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December
2006 31, 2005
----------- ---------
(unaudited)
Cash and cash equivalents $4,812 $4,566
Accounts receivable, net 76,892 58,296
Inventories, net 133,730 121,050
Other current assets 5,328 4,955
Net property, plant and equipment 20,438 20,333
Other assets 9,140 8,139
----------- ---------
Total assets $250,340 $217,339
=========== =========
Accounts payable $68,600 $50,956
Accrued liabilities 30,208 29,702
Total debt 58,314 41,933
Other long-term liabilities 8,152 7,499
Stockholders' equity 85,066 87,249
----------- ---------
Total liabilities and stockholders' equity $250,340 $217,339
=========== =========
PROLIANCE INTERNATIONAL, INC.
SUPPLEMENTARY INFORMATION
(in thousands)
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
------------------ -------------------
2006 2005 2006 2005
--------- -------- --------- ---------
SEGMENT DATA:
-------------
Net sales:
Domestic $88,064 $58,962 $160,580 $107,270
International 24,046 -- 42,866 --
--------- -------- --------- ---------
Total net sales $112,110 $58,962 $203,446 $107,270
========= ======== ========= =========
Operating income (loss) from
continuing operations:
Domestic $5,808 $2,878 $6,088 $3,598
Restructuring charges (108 ) (1,105 ) (586 ) (1,367 )
--------- -------- --------- ---------
Domestic total 5,700 1,773 5,502 2,231
--------- -------- --------- ---------
International 1,615 -- 2,112 --
Restructuring charges (26 ) -- (68 ) --
--------- -------- --------- ---------
International total 1,589 -- 2,044 --
--------- -------- --------- ---------
Corporate expenses (2,763 ) (2,331 ) (5,524 ) (4,659 )
--------- -------- --------- ---------
Total operating income
(loss) from continuing
Operations $4,526 $(558 ) $2,022 $(2,428 )
========= ======== ========= =========
CAPITAL EXPENDITURES, NET $1,164 $1,219 $2,595 $3,754
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