United Components Reports Results of Operations for Second Quarter 2006
EVANSVILLE, Ind.--Aug. 15, 2006--United Components, Inc.:Second Quarter Highlights
-- Acquisition of ASC Industries Provides Global Low Cost Manufacturing and Procurement Platform
-- Sale of Neapco and Pioneer operations streamlines operations and reduces leverage
-- Continued progress on cost reduction through consolidation of manufacturing facilities
-- Core business continues to generate revenue and EBITDA growth
United Components, Inc. ("UCI") today announced results for the second quarter ended June 30, 2006. Revenue of $245.8 million increased $13.8 million compared to the year-ago quarter, with small increases in the original equipment sales, original equipment service and heavy duty channels, and declines in the retail and traditional channels. The quarter also included $10.3 million in sales by water pump manufacturer ASC Industries, which was acquired by UCI during the quarter. UCI's consolidated results include ASC from the May 25, 2006 acquisition date. Also, on June 30, the company completed the sales of its Neapco driveline components and Pioneer specialty distribution operations, for about $36 million in cash. Neapco and Pioneer are accounted for as discontinued operations for all periods presented.
Net loss for the quarter was $19.1 million, including a loss of $17.3 million related to the discontinued operations and their sale, as well as $14.1 million in one time charges, primarily costs related to the acquisition of ASC and facilities consolidation costs. Excluding these charges, net income would have been $12.3 million for the quarter. Net income for the second quarter of 2005 was $4.4 million.
Earnings before interest, taxes, depreciation and amortization, or EBITDA, for UCI's continuing operations, as adjusted consistent with the company's historical presentations, was $33.3 million for the second quarter, compared with $30.5 million for the year-ago quarter. The calculation of adjusted EBITDA is set forth in Schedule A.
"The acquisition of ASC Industries during the second quarter has dramatically expanded our global manufacturing and procurement platform," said Bruce Zorich, Chief Executive Officer of UCI. "ASC was a first mover within the aftermarket supplier community in establishing manufacturing and sourcing operations in China, having operated multiple manufacturing and procurement facilities in China for more than ten years. We believe that this base of operations and skilled management team will lead to improved product quality and lower costs across the company."
During the second quarter, UCI also continued to streamline its manufacturing footprint, with the closure of a Mexican filter manufacturing plant and a Canadian pump manufacturing facility. In both cases, operations were consolidated into larger, more efficient facilities to reduce future costs.
"We're also pleased to report that we continue to execute on our strategic plan to grow revenue and profitability for the company," said Bruce Zorich, Chief Executive Officer of UCI. "With the acquisition of ASC and the sale of Neapco and Pioneer complete, we have realigned UCI to focus on strategic initiatives in our core business. We have seen benefits from our initiatives in the areas of business development and operational improvement during the first half of 2006. We expect these benefits to continue in the quarters ahead, even as the industry continues to fight rising gas prices and increases in our freight and raw material costs."
In connection with the acquisition of ASC, UCI amended and restated the credit agreement for its senior credit facility and borrowed an additional $113 million. As of June 30, the company's debt stood at $567 million. The company ended the quarter with $57 million in cash. In addition, on July 6, following the sale of Neapco and Pioneer, the company repaid $35 million of its senior credit facility borrowings.
Conference Call
UCI will host a conference call to discuss its results and performance on Wednesday, August 16, at 11:00 a.m. Eastern Time (ET). Interested parties are invited to listen to the call by telephone. Domestic callers can dial (800) 637-1381. International callers can dial (641) 297-7667.
A replay of the call will be available from August 17, 2006, for a ninety-day period, at www.ucinc.com. Click on the UCINC 2006 2nd 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 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. 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. UCI cautions investors that these uncertainties and factors, including those discussed in Item 1A of UCI's 2005 Annual Report on Form 10-K and in its other SEC filings, could cause UCI's actual results to differ materially from those stated in the forward-looking statements. 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.
Condensed Consolidated Income Statements (unaudited) (1)
(in thousands)
Three Months ended Six Months ended
June 30, June 30,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Net sales $245,795 $232,018 $476,575 $443,719
Cost of sales 196,787 184,141 378,930 354,364
--------- --------- --------- ---------
Gross profit 49,008 47,877 97,645 89,355
Operating expenses
Selling and warehousing 15,724 15,361 31,969 30,598
General and administrative 10,795 10,970 23,704 22,029
Amortization of acquired
intangible assets 1,690 1,532 2,929 3,064
Costs of integration of water
pump operations and resulting
asset impairment losses (2) 4,600 -- 4,600 --
Costs of closing facilities
and consolidating
operations (3) 4,069 -- 5,462 --
Loss on abandonment of an
operation (4) -- 2,182 -- 2,182
--------- --------- --------- ---------
Operating income 12,130 17,832 28,981 31,482
Other income (expense)
Interest expense, net (10,629) (8,740) (19,864) (17,411)
Write-off of deferred
financing costs (5) (2,625) -- (2,625) --
Management fee expense (500) (500) (1,000) (1,000)
Miscellaneous, net 14 (81) (63) (144)
--------- --------- --------- ---------
Income (loss) before income
taxes (1,610) 8,511 5,429 12,927
Income tax expense 185 4,557 3,034 6,325
--------- --------- --------- ---------
Net income (loss) from
continuing operations (1,795) 3,954 2,395 6,602
--------- --------- --------- ---------
Discontinued operations
Net income from discontinued
operations, net of tax 946 420 1,509 501
Loss on sale of discontinued
operations, net of tax (18,272) -- (18,272) --
--------- --------- --------- ---------
(17,326) 420 (16,763) 501
--------- --------- --------- ---------
Net (loss) income $(19,121) $4,374 $(14,368) $7,103
========= ========= ========= =========
(1) Includes the results of operations of ASC Industries, Inc. ("ASC")
beginning on May 25, 2006, the date of the acquisition of ASC by
the Company. The operating results of the Company's driveline
components and specialty distribution operations, which were sold
on June 30, 2006, are presented as discontinued operations for all
periods presented.
(2) Includes land, building and equipment impairment losses and
severance costs related to the consolidation of several facilities
in connection with the integration of the Company's pre-ASC
acquisition water pump operations with the operations of ASC.
(3) Includes asset write-downs and severance and other costs in
connection with the closures of the Company's Canadian fuel pump
facility and Mexican filter manufacturing facility.
(4) Write-down of assets related to the abandonment of a foreign
subsidiary.
(5) Write-off of unamortized deferred financing costs related to the
Company's previously outstanding debt, which was replaced in
connection with the establishment of the Company's new credit
facility on May 25, 2006.
United Components, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
June 30, December 31,
2006 2005
------------ ------------
Assets
------
Current assets
Cash and cash equivalents $56,966 $26,182
Accounts receivable, net 266,274 233,007
Inventories, net 190,928 150,190
Deferred tax assets 24,173 22,529
Other current assets 32,569 21,634
Assets of discontinued operations -- 63,863
------------ ------------
Total current assets 570,910 517,405
Property, plant and equipment, net 192,631 180,647
Goodwill 233,912 166,559
Other intangible assets, net 101,657 87,197
Deferred financing costs, net 6,542 6,177
Pension and other assets 15,344 12,904
Assets held for sale 4,477 --
Assets of discontinued operations -- 13,953
------------ ------------
Total assets $1,125,473 $984,842
============ ============
Liabilities and shareholder's equity
---------------------------------------------
Current liabilities
Accounts payable $110,292 $94,613
Short-term borrowings 10,049 261
Current maturities of long-term debt 8,407 12
Accrued expenses and other current
liabilities 103,041 93,585
Liabilities of discontinued operations -- 17,778
------------ ------------
Total current liabilities 231,789 206,249
Long-term debt, less current maturities 548,401 442,274
Pension and other postretirement liabilities 50,145 49,623
Deferred tax liabilities 9,992 3,554
Other long-term liabilities 7,171 1,936
Liabilities of discontinued operations -- 860
------------ ------------
Total liabilities 847,498 704,496
Shareholder's equity 277,975 280,346
------------ ------------
Total liabilities and shareholder's
equity $1,125,473 $984,842
============ ============
United Components, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Six Months ended June 30,
-------------------------
2006 2005
------------ ------------
Net cash provided by operating activities of
continuing operations $10,738 $29,419
------------ ------------
Cash flows from investing activities of
continuing operations
Acquisition of ASC Industries, Inc. (123,477) --
Proceeds from sale of discontinued
operations 36,300 --
Capital expenditures (11,685) (18,060)
Proceeds from sale of property, plant and
equipment 1,480 211
------------ ------------
Net cash used in investing activities
of continuing operations (97,382) (17,849)
------------ ------------
Cash flows from financing activities of
continuing operations
Issuances of debt 113,000 10,500
Financing fees (3,636) --
Debt repayments (277) (23,663)
Shareholder's equity contributions 8,600 600
------------ ------------
Net cash provided by (used in)
financing activities of continuing
operations 117,687 (12,563)
------------ ------------
Discontinued operations:
Net cash provided by (used in) operating
activities of discontinued operations 369 (462)
Net cash used in investing activities of
discontinued operations (806) (831)
Effect of exchange rate changes on cash 178 (234)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 30,784 (2,520)
Cash and cash equivalents at beginning of
year 26,182 11,291
------------ ------------
Cash and cash equivalents at end of period $56,966 $8,771
============ ============
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.
As a result of the acquisition of ASC Industries and the amendment and restatement of the credit agreement for UCI's senior credit facilities, on a transition basis the calculation of Adjusted EBITDA, presented below, reflects the calculation of EBITDA in two ways: (i) with adjustments consistent with the presentation in earnings announcements from previous quarters; and (ii) with additional adjustments required to measure compliance with the interest coverage covenant in the amended and restated credit agreement for UCI's senior credit facilities.
EBITDA and Adjusted EBITDA are not measures of financial performance under United States generally accepted accounting principles ("US GAAP") and should not be considered 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)
2006 2005
-------------------- --------------------
Q1 Q2 June Q1 Q2 June
YTD YTD
------ ------ ------ ------ ------ ------
Results of continuing
operations
Net (loss) income $4.2 $(1.8) $2.4 $2.6 $4.0 $6.6
Interest expense, net 9.2 10.7 19.9 8.7 8.7 17.4
Income tax expense 2.9 0.1 3.0 1.8 4.5 6.3
Depreciation 7.1 7.1 14.2 7.8 7.6 15.4
Amortization of intangibles 1.9 2.2 4.1 1.5 1.6 3.1
------ ------ ------ ------ ------ ------
EBITDA of continuing
operations 25.3 18.3 43.6 22.4 26.4 48.8
One-time or unusual items:
Sale of inventory that was
written-up to market from
historical cost per US
GAAP acquisition rules,
net of minority interest -- 2.0 2.0 -- -- --
Cost of integration of
water pump operations and
the resulting asset
impairment losses -- 4.6 4.6 -- -- --
Costs of closing facilities
& consolidating operations 1.4 4.1 5.5 -- -- --
Loss on abandonment of
operation -- -- -- -- 2.2 2.2
Facilities consolidations &
severance 0.3 -- 0.3 0.8 1.2 2.0
Write-off of deferred
financing costs resulting
from refinancing -- 2.6 2.6 -- -- --
New business changeover
cost -- 0.8 0.8 -- -- --
Non-cash charges (primarily
stock options in 2006 and
pension in 2005) 0.4 0.4 0.8 0.1 0.2 0.3
Management fee 0.5 0.5 1.0 0.5 0.5 1.0
------ ------ ------ ------ ------ ------
Adjusted EBITDA of
continuing operations (a) 27.9 33.3 61.2 23.8 30.5 54.3
Adjustment to include
Adjusted EBITDA of
discontinued operations 1.6 2.3 3.9 0.8 1.5 2.3
Additional adjustments
required for interest
coverage compliance in the
amended and restated credit
agreement for transition
periods 4.7 -- 4.7 -- -- --
------ ------ ------ ------ ------ ------
Adjusted EBITDA under
credit agreement $34.2 $35.6 $69.8 $24.6 $32.0 $56.6
====== ====== ====== ====== ====== ======
(a) The second quarter 2006 amount includes $1.9 million of ASC
Adjusted EBITDA after the May 25, 2006 acquisition date.