UCI International, Inc. Q1 2014 Results | May 8, 2014 Confidential - - PowerPoint PPT Presentation

UCI International, Inc.

Q1 2014 Results | May 8, 2014 Confidential

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Disclaimer

This presentation may contain “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward- looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward- looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. UCI International, Inc. (“UCI” or the “Company”) undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to: our comments relating to growth of, or changes in, the light and heavy-duty vehicle aftermarket; maintaining existing sales levels with our current customers while attracting new ones; operating in international markets and expanding into adjacent markets while strengthening our market share in our existing markets; initiating effective cost cutting initiatives; and financial projections. The Company derives many of its forward-looking statements from its operating budgets and forecasts, which are based upon many detailed

• assumptions. While the Company believes that its assumptions are reasonable, you are cautioned that it is very difficult to predict the impact
• f known factors, and it is impossible for the Company to anticipate all factors that could affect its actual results. Important factors that could

cause actual results to differ materially from expectations are disclosed under the “Risk Factors” section in our Registration Statement on Form 6-K (File No. 333-173626). All written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in the Company’s public communications. You should evaluate all forward-looking statements made in this presentation in the context of these risks and uncertainties. Some financial information in this presentation has been rounded and, as a result, the figures shown as totals in this presentation may vary slightly from the exact arithmetic aggregation of the figures that precede them.

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Disclaimer

Explanatory Note on Non-GAAP Financial Measures In this presentation, we utilize certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA, that in each case are not recognized under U.S. GAAP or IFRS. These measures are presented as we believe that they and similar measures are widely used in the markets in which we operate as a means of evaluating a company’s operating performance and financing structure. They may not be comparable to other similarly titled measures of other companies and are not measurements under U.S. GAAP, IFRS or other generally accepted accounting principles, nor should they be considered as substitutes for the information contained in the financial statements included in this presentation. EBITDA, a measure used by our management to measure operating performance, is defined as profit (loss) from continuing operations plus income tax, net financial expenses, depreciation of property, plant and equipment and amortization of intangible assets. EBITDA is not a measure of our financial condition, liquidity or profitability and should not be considered as a substitute for profit (loss) for the year, operating profit or any other performance measures derived in accordance with U.S. GAAP or as a substitute for cash flow from operating activities as a measure of our liquidity in accordance with U.S. GAAP. Adjusted EBITDA is calculated as EBITDA adjusted for particular items relevant to explaining operating performance. These adjustments include significant items of an unusual nature that cannot be attributed to ordinary business operations, including items such as integration, restructuring, defense against class action litigation and business optimization costs. Covenant Adjusted EBITDA is defined as Adjusted EBITDA as adjusted to provide the full- period effect for businesses acquired after the beginning of a period and the full-period effect to implemented cost saving programs. Adjusted EBITDA is not a presentation made in accordance with U.S. GAAP, is not a measure of financial condition, liquidity or profitability and should not be considered as an alternative to profit (loss) for the period determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP. The determination of Adjusted EBITDA and Covenant Adjusted EBITDA contains a number of estimates and assumptions that may prove to be incorrect and differ materially from actual results. Additionally, EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not take into account certain items such as interest and principal payments on our indebtedness, depreciation and amortization expense, working capital needs, tax payments and capital expenditures. We believe that the inclusion of EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA in this presentation is appropriate to provide additional information to investors about our operating performance to provide measures of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Because not all companies calculate EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA identically, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures in other companies. See a reconciliation of these non- GAAP financial measures to net income (loss) in the Appendix.

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Presenters Overview

Bruce Zorich Chief Executive Officer Ricardo Alvergue Chief Financial Officer

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Q1 2014 Highlights

• Macroeconomic and industry environment

̶

Economic conditions remained mixed during the quarter

• Unemployment was flat at 6.7% during the quarter (as compared to December 2013)
• Consumer confidence increased to 82.3 during the quarter (vs. 78.1 in December 2013)

̶

Retail gas prices decreased 4.7% on average from Q1 2013, but remain near historically high levels

̶

Longer term trends continue:

• Miles driven were relatively flat, with an increase of 0.4% in Q1 2014 vs. Q1 2013
• Vehicle and product improvements driving oil change intervals to about 5,800 miles (up 7% from 2011)
• Improvement in OE parts in recent years, leading to lower aftermarket sales for fuel pumps
• Increased market participation by low-cost-country suppliers
• Consumer purchases shifting from Do-It-Yourself (DIY) to Do-It-For-Me (DIFM) outlets

̶

These metrics continue to signal increased service intervals and reduced part replacement demand

̶

Heavy duty market – diesel prices increased during the quarter and ended flat with last year; and other indices were either flat or showed a slight decline

• While market indicators continue to be mixed, revenue increased in the quarter ($252 million vs. $246 million in Q1

2013), but Adjusted EBITDA declined ($23.1 million vs. $25.5 million in Q1 2013)

̶

Higher revenue driven by continued new program sales to the OE channel

̶

Adjusted EBITDA declined due to lower customer pricing and higher operating costs, partially offset by the impact of our cost savings initiatives

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Q1 2014 revenue increased by 2.4% to $252 million,

mainly driven by

–

Increased OE channel sales volumes of $17.9 million, primarily related to continued new program sales in our cooling systems product line

–

Increased retail sales volumes of $10.9 million, primarily related to new product rollouts in our vehicle electronics and cooling systems product lines

–

Partially offset by

• Lower customer pricing in the retail channel, including

higher warranty costs, of $12.0 million

• Lower related party sales to FRAM (arm’s length) of $5.3

million

• Lower traditional channel sales of $4.1 million, mainly

due to increased competition and lower pricing in fuel delivery and timing of customer replenishment in vehicle electronics

LTM revenue increased by 3.4% to $1.0 billion in Q1 2014.

Revenue

Q1 2013 vs. Q1 2014

($ in millions)

LTM Q1 2013 vs. LTM Q1 2014

($ in millions)

$246 $252 Q1 2013 Q1 2014 $969 $1,002 LTM Q1 2013 LTM Q1 2014 + 3.4% + 2.4%

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Adjusted EBITDA decreased by 9.4% to $23.1 million in Q1

2014 (EBITDA margin rate decreased to 9.2%); results primarily driven by:

–

Lower customer pricing, including higher warranty costs, of $10.6 million

–

Unfavorable fixed overhead absorption, increased variable costs, and other operating items of $9.7 million

–

Partially offset by

• Cost savings in the areas of procurement, in-sourcing and
• perations improvements $14.4 million
• Lower overall SG&A costs of $3.0 million

LTM Adjusted EBITDA decreased by 19.4% to $112.3 million

in Q1 2014.

Adjusted EBITDA

Q1 2013 vs. Q1 2014

($ in millions)

LTM Q1 2013 vs. LTM Q1 2014

($ in millions)

16.7% 11.5% 16.2% 11.8% $25.5 $23.1 Q1 2013 Q1 2014

• 9.4%

10.4% 9.2% 14.4% 11.2% $139.3 $112.3 LTM Q1 2013 LTM Q1 2014

• 19.4%

14.4% 11.2%

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Capital Expenditures

For the quarter, capital expenditures increased by $4 million

and included

–

Investment for a new building facility in our vehicle electronics line ($2 million in Q1 2013), and

–

Investments related to restructuring and manufacturing footprint optimization in our fuel delivery and filtration product lines ($3 million in Q1 2014)

–

Excluding the impact of one-time spend, capital expenditures were up slightly for the quarter

LTM capital expenditures increased to $44 million in Q1 2014

and included

–

Investments related to restructuring and manufacturing footprint optimization in our fuel delivery and filtration product lines ($8 million LTM Q1 2014), and

–

Investments for new OEM business ($12 million in Q1 2013

• vs. $8 million in Q1 2014), and

–

Investment for a new building facility in our vehicle electronics line ($2 million in Q1 2013 vs. $4 million in Q1 2014), and

–

Increases in other cost reduction and maintenance projects across most product lines

Q1 2013 vs. Q1 2014

($ in millions)

LTM Q1 2013 vs. LTM Q1 2014

($ in millions)

$19 $24 $2 $4 $12 $8 $8 LTM Q1 2013 LTM Q1 2014 $33 $44 $5 $7 $2 $3 $7 $11 Q1 2013 Q1 2014 Restructuring OEM Business Building Facility

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Appendix

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Net Multiple March 31,

• f LTM Covenant

$ millions 2014 Adjusted EBITDA (4) Cash and cash equivalents $ 38.6 Revolver (1)

• Term Loan

290.3 Total Senior Debt $ 290.3 1.5x Senior Notes 400.0 Other Debt (2) 0.6 Total Debt $ 690.9 4.0x LTM Covenant Adjusted EBITDA (3) $ 162.6

(1) $75 million revolving credit facility with no borrowings at March 31, 2014. $7.3 million of the revolving credit facility capacity

was utilized to support outstanding letters of credit at March 31, 2014.

(2) Other Debt consists of capital lease obligations and an economic development loan related to the vehicle electronics product

line.

(3) LTM Covenant Adjusted EBITDA includes the impact of cost savings programs implemented but not yet achieved in LTM

results.

(4) Multiples are calculated using net debt amounts (debt less cash and cash equivalents).

Capitalization Summary

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LTM Covenant Adjusted EBITDA $ millions Q1 2014 Net income (loss) ($19.6) Income tax expense (benefit) (4.0) Net interest expense 56.9 Depreciation and amortization expense 53.4 EBITDA 86.7 Restructuring costs, net 10.4 Business optimization costs 4.6 Costs related to implementation of cost sharing and manufacturing arrangements with FRAM Group 4.4 New business changeover and sales commitment costs 2.8 Patent litigation costs 2.2 Trademark impairment loss 2.0 Environmental accrual adjustment 0.7 Costs of defending class action litigation 0.4 UCI International, Inc. non-operating expense 0.1 Gain on forgiveness of debt (0.1) Collection of tax refunds (1.9) Adjusted EBITDA $112.3 Annualization of cost savings programs 50.3 Covenant Adjusted EBITDA $162.6

Covenant Adjusted EBITDA

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$ millions Current Implemented Savings Achieved Implemented Annualized Savings to be Achieved Cost Savings and Synergies Procurement savings $28.5 $5.3 $23.2 In-sourcing 11.8 2.4 9.4 Operations improvements 27.8 10.1 17.7 Total $68.1 $17.8 $50.3 Active Projects at March 31, 2014

Cost Savings and Synergies Update

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