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RegistrationNos. 333-173626-01 to333-173626-13
• | The terms of the new notes offered in the exchange offer are substantially identical to the terms of the old notes, except that the new notes are registered under the Securities Act of 1933 (the “Securities Act”) and will not contain restrictions on transfer or provisions relating to additional interest, will bear a different CUSIP or ISIN number from the old notes and will not entitle their holders to registration rights. |
• | The offer to exchange old notes of UCI International, Inc. for new notes will be open until 12:00 a.m., New York City time, on June 11, 2011, unless extended. |
• | No public market currently exists for the old notes or the new notes. |
• | The new notes will be fully and unconditionally guaranteed on an unsecured senior basis by UCI Holdings Limited and certain of its subsidiaries, which include certain of UCI International, Inc.’s subsidiaries that are borrowers under, or that guarantee, the Senior Secured Credit Facilities (as defined herein). |
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14601 Highway 41 North
Evansville, Indiana 47725
Attention: Keith A. Zar
(812) 867-4156
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• | “2006 Credit Facility” refers to UCI’s (as defined herein) senior secured term loan facility and senior secured revolving credit facility, which were repaid in full on September 23, 2010 with proceeds from the 2010 Credit Facility (as defined herein). | |
• | “2010 Credit Facility” refers to UCI International’s term loan facility in an aggregate principal amount of $425.0 million, which was fully funded on September 23, 2010, and a revolving credit facility in an aggregate principal amount of $75.0 million, none of which was drawn. The 2010 Credit Facility was repaid and terminated as part of the Transactions (as defined herein). | |
• | “Acquisition Co.” refers to Uncle Acquisition 2010 Corp, which was the initial issuer of the old notes, and which was merged with and into UCI International, with UCI International as the surviving company in the Rank Acquisition (as defined herein). | |
• | “aftermarket” refers to the North American light and heavy-duty vehicle replacement products market. | |
• | “ASC” refers to ASC Industries Inc., which was acquired by UCI International, Inc. in 2006. | |
• | “CAGR” refers to compounded annual growth rate. | |
• | “Carlyle” refers to The Carlyle Group; prior to the Rank Acquisition, affiliates of Carlyle owned approximately 90% of the common stock of UCI International, Inc. with the remainder owned by former members of our board of directors and certain current and former employees. | |
• | “C$” refers to the lawful currency of Canada. | |
• | “DIFM,”an acronym for “do-it-for-me,” refers to consumers who use professionals to perform the maintenance and repair work needed on their own vehicles. | |
• | “DIY,”an acronym for “do-it-yourself,” refers to consumers who themselves perform the maintenance and repair work needed on their vehicles. |
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• | “dollars” or“$” refers to the lawful currency of the United States. | |
• | “Equity Contribution” means cash in the amount of $320.0 million contributed to Acquisition Co. in connection with the Rank Acquisition. | |
• | “Exchange Act” refers to the U.S. Securities Exchange Act of 1934, as amended. | |
• | “exchange dealer” refers to a broker-dealer which elects to exchange the old notes, acquired for its own account as a result of market making activities or other trading activities, for new notes. | |
• | “fill rate” refers to the percentage of orders received which we fill in their entirety in the time agreed upon. | |
• | “Former UCI International External Borrowings” refers to the Senior PIK Notes (as defined herein) and the 2010 Credit Facility. | |
• | “GAAP” refers to generally accepted accounting principles in the United States. | |
• | “Holdings” refers to UCI Holdings Limited, a New Zealand limited liability company and the indirect parent of UCI International. | |
• | “initial purchasers” refers to Credit Suisse Securities (USA) LLC, HSBC Securities (USA) Inc. and Nomura Securities North America, LLC, as initial purchasers of the old notes. | |
• | “Issue Date” refers to January 26, 2011. | |
• | “Issuer” refers to UCI International, Inc., as successor by merger to Uncle Acquisition 2010 Corp. | |
• | “Merger Agreement” refers to the Agreement and Plan of Merger dated November 29, 2010, by and among UCI International, Inc., Rank Group (as defined herein), and Acquisition Co. pursuant to which Acquisition Co. merged with and into UCI International, Inc. with UCI International, Inc. continuing as the surviving corporation and an affiliate of Rank Group. | |
• | “new notes” refers to $400,000,000 aggregate principal amount of our registered 8.625% Senior Notes due 2019 and guarantees thereof. | |
• | “North America” and“North American” refer to the United States and Canada. | |
• | “notes” refers to the old notes and new notes collectively. | |
• | “OEM” refers to original equipment manufacturers. | |
• | “OES” refers to original equipment service providers (the service organizations connected with new car dealers). | |
• | “old notes” refers to $400,000,000 aggregate principal amount of our outstanding 8.625% Senior Notes due 2019 and guarantees thereof initially issued by Acquisition Co. in an unregistered transaction on January 26, 2011. | |
• | “Previously Outstanding Subordinated Notes” refers to UCI’s 93/8% Senior Subordinated Notes due 2013, which were discharged on October 25, 2010. | |
• | “Rank Acquisition” refers to the merger on January 26, 2011 of Acquisition Co., an indirect wholly owned subsidiary of Holdings and an affiliate of Rank Group, with and into UCI International, Inc. with UCI International, Inc. surviving the merger. See “The Transactions.” | |
• | “Rank Group” refers to Rank Group Limited, a private company based in New Zealand that is wholly owned by Graeme Hart. | |
• | “SEC” refers to the U.S. Securities and Exchange Commission. | |
• | “Senior PIK Notes” refers to the floating rate Senior PIK Notes due 2013 issued by UCI International, Inc. on December 20, 2006; of which $355.1 million aggregate principal amount was outstanding at both December 31, 2010 and January 26, 2011. In connection with the Transactions, we purchased $315.0 million aggregate principal amount of the Senior PIK Notes pursuant to a tender offer we commenced on January 5, |
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2011. Also, on January 26, 2011, we (i) called for redemption all of the Senior PIK Notes that were not purchased as of the time of the Rank Acquisition and (ii) deposited $41.2 million for the satisfaction and discharge of such remaining Senior PIK Notes with the trustee under the indenture for the Senior PIK Notes. |
• | “Senior Secured Credit Facilities” refers to the Senior Secured Term Loan Facility (as defined herein) and the Senior Secured Revolving Facility (as defined herein) entered into as part of the Transactions on January 26, 2011. | |
• | “Senior Secured Revolving Facility”refers to the $75.0 million senior secured revolving credit facility entered into as part of the Transactions on January 26, 2011. | |
• | “Senior Secured Term Loan Facility” refers to the $300.0 million senior secured term loan facility entered into as part of the Transactions on January 26, 2011. | |
• | “Transactions” refers to (i) the offering of $400.0 million of the old notes, (ii) the Equity Contribution, (iii) the borrowings under the Senior Secured Credit Facilities, (iv) the repayment of the 2010 Credit Facility, (v) the repurchase, call for redemption and satisfaction and discharge of the Senior PIK Notes, (vi) the Rank Acquisition, (vii) the merger of UCI Acquisition with and into UCI International, Inc., with the result that UCI is the direct, wholly owned subsidiary of UCI International, Inc., (viii) the transactions related to the foregoing and (ix) the payment of fees and expenses related to the foregoing, which occurred on January 26, 2011. | |
• | “UCI” refers to United Components, Inc., a wholly owned indirect subsidiary of UCI International, Inc. | |
• | “UCI Acquisition” refers to UCI Acquisition Holdings, Inc., a direct wholly owned subsidiary of UCI International, Inc. and, prior to the Transactions, the direct parent of UCI. | |
• | “UCI International” refers to UCI International, Inc., together with its subsidiaries. | |
• | “United States” and“U.S.” refer to the United States of America. | |
• | the“traditional” distribution channel refers to warehouse distributors, jobber stores and professional installers. | |
• | with respect to our customers,“Advance” refers to Advance Stores Company, Inc.;“AutoZone” refers to AutoZone, Inc.;“CARQUEST” refers to CARQUEST Auto Parts Inc.;“Chrysler” refers to Chrysler Group LLC;“Ford” refers to Ford Motor Company;“GM” refers to General Motors Company;“NAPA” refers to NAPA Autoparts Inc.; and“O’Reilly” refers to O’Reilly Automotive, Inc. |
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• | Non-Discretionary: Our fuel delivery systems, vehicle electronics and cooling systems products are critical for vehicle operation and must be replaced upon failure for the vehicle to successfully operate. | |
• | Recurring Maintenance: Our filtration products are replaced at regular maintenance intervals, generating a predictable, recurring revenue stream. |
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(1) | Based on 2010 net sales. | |
(2) | Numbers reflected are approximate. | |
(3) | Includes our brands, licensed brands and private label brands. |
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• | Increasing global vehicle population: According to J.D. Power, the global vehicle population is expected to experience growth at a CAGR of 3.3% from 2009 to 2015, and light vehicles in operation in the United States are expected to grow at a projected CAGR of 1.3% between 2009 and 2015. | |
• | Aging of vehicle population: The average age of light vehicles in use in the United States grew from 8.8 years in 1999 to 10.2 years in 2009. | |
• | Increasing vehicle miles driven: Miles driven in the United States has increased steadily over the last several decades. For example, between 1981 and 2010, miles driven in the United States increased at a CAGR of 2.3%, according to the U.S. Department of Transportation, and declined in only one year, 2008, mainly due to sharp increases in fuel prices. This amount increased 0.2% in 2009 from 2008 and 0.7% in 2010 from 2009. | |
• | Growing heavy-duty aftermarket: According to FTR Associates, historical total truckton-miles increased in each year over the past 17 years, except for 2008 and 2009, when fuel price increases and the economic downturn affected this trend. MacKay & Company had estimated that the heavy-duty vehicle aftermarket would grow by approximately 8% in 2010, however final growth rates for 2010 are not yet available. |
• | Retail: National chains that primarily serve the DIY group and are strategically pursuing the DIFM group by targeting independent repair shops and professional installers or “commercial” sales. Leading retail providers include Advance, AutoZone and O’Reilly. | |
• | Traditional: Independent repair shops and professional installers supplied through companies such as CARQUEST and NAPA, as well as buying groups such as The Aftermarket Auto Parts Alliance (“The Alliance”) and the Automotive Distribution Network (“The Network”). | |
• | OES: Dealership service bays associated with OEMs such as GM, Ford and Chrysler. |
• | Non-Discretionary: Our fuel delivery systems, vehicle electronics and cooling systems products are critical for vehicle operation and must be replaced upon failure for the vehicle to successfully operate. | |
• | Recurring Maintenance: Our filtration products are replaced at regular maintenance intervals, generating a predictable, recurring revenue stream. |
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• | Highly Engineered: Our product lines require significant engineering, product development, product support, sourcing and manufacturing capabilities. |
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• | increasing average fill rates from the low 90s to approximately 98%; | |
• | increasing annual net sales per employee from approximately $140,000 to $245,000; | |
• | expanding our global footprint, while reducing total facilities from 47 to 29; and | |
• | increasing our Adjusted EBITDA as a percentage of net sales from 13.1% in the year ended December 31, 2003 to 17.9% for the year ended December 31, 2010. |
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• | Reynolds Group Holdings Limited (“RGHL”), a leading global manufacturer and supplier of consumer food and beverage packaging and storage products, comprising the SIG, Evergreen, Reynolds Consumer Products, Closures and Pactiv Foodservice businesses; and | |
• | Carter Holt Harvey (“Carter Holt”), which operates building supplies, pulp and paper, carton packaging and wood products businesses, primarily in Australia and New Zealand. |
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* | Guarantor of the notes. | |
† | May be subsidiaries of U.S. Operating Subsidiaries. |
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Notes Offered | $400,000,000 aggregate principal amount of new 8.625% senior notes due 2019, which have been registered under the Securities Act. | |
The terms of the new notes offered in the exchange offer are identical in all material respects to those of the old notes, except that the new notes: | ||
• will be registered under the Securities Act and therefore will not contain restrictions on transfer; | ||
• will not be subject to provisions relating to additional interest; | ||
• will bear a different CUSIP or ISIN number from the old notes; | ||
• will not entitle their holders to registration rights; and | ||
• will be subject to terms relating to book-entry procedures and administrative terms relating to transfers that differ from those of the old notes. | ||
The Exchange Offer | You may exchange old notes for a like principal amount of new notes. | |
Resale of New Notes | We believe the new notes that will be issued in the exchange offer may be resold by most investors without compliance with the registration and prospectus delivery provisions of the Securities Act, subject to certain conditions. You should read the discussion under the heading “The Exchange Offer” for further information regarding the exchange offer and resale of the new notes. | |
Registration Rights Agreement | We have undertaken the exchange offer pursuant to the terms of the registration rights agreement entered into with the initial purchasers of the old notes. See “The Exchange Offer.” | |
Consequences of Failure to Exchange the Old Notes | You will continue to hold old notes that remain subject to their existing transfer restrictions if: | |
• you do not tender your old notes; or | ||
• you tender your old notes and they are not accepted for exchange. | ||
With some limited exceptions, we will have no obligation to register the old notes after we consummate the exchange offer. See “The Exchange Offer — Terms of the Exchange Offer” and “The Exchange Offer — Consequences of Failure to Exchange.” | ||
Upon completion of the exchange offer, there may be no market for the old notes that remain outstanding and you may have difficulty selling them. |
Expiration Date | The exchange offer will expire at 12:00 a.m., New York City time, on June 11, 2011 (the “expiration date”), unless we extend it, in which case expiration date means the latest date and time to which the exchange offer is extended. |
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Interest on the New Notes | The new notes will accrue interest from the last interest payment date on which interest was paid on the old notes or, if no interest has been paid on the old notes, from the date of original issue of the old notes. | |
Conditions to the Exchange Offer | The exchange offer is subject to several customary conditions. We will not be required to accept for exchange, or to issue new notes in exchange for, any old notes, and we may terminate or amend the exchange offer if we determine in our reasonable judgment that the exchange offer violates applicable law, any applicable interpretation of the SEC or its staff or any order of any governmental agency or court of competent jurisdiction. The foregoing conditions are for our sole benefit and may be waived by us at any time. In addition, we will not accept for exchange any old notes tendered, and no new notes will be issued in exchange for any such old notes, if: | |
• at any time any stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part; or | ||
• at any time any stop order is threatened or in effect with respect to the qualification of the indenture governing the relevant notes under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”). | ||
See “The Exchange Offer — Conditions.” We reserve the right to terminate or amend the exchange offer at any time prior to the expiration date upon the occurrence of any of the foregoing events. | ||
If we amend the exchange offer in a manner that we determine to constitute a material change, including the waiver of a material condition, we will promptly disclose the amendment in a manner reasonably calculated to inform the holders of outstanding notes of that amendment and we will extend the exchange offer if necessary so that at least five business days remain in the offer following notice of the material change. The notice of extension to noteholders will disclose the aggregate principal amount of the outstanding notes that have been tendered as of the date of such notices and may state that we are extending the exchange offer for a specified period of time. | ||
Procedures for Tendering Old Notes | If you wish to accept the exchange offer, you must submit the required documentation and effect a tender of old notes pursuant to the procedures for book-entry transfer (or other applicable procedures), all in accordance with the instructions described in this prospectus and in the relevant letter of transmittal. See “The Exchange Offer — Procedures for Tendering” and “The Exchange Offer — Book-Entry Transfer.” | |
Guaranteed Delivery Procedures | None. |
Withdrawal Rights | Tenders of old notes may be withdrawn at any time prior to 12:00 a.m., New York City time, on June 11, 2011. To withdraw a tender of old notes, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth in “The Exchange Offer — Exchange Agent” prior to the expiration date. See “The Exchange Offer — Withdrawal of Tenders.” |
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Acceptance of Old Notes and Delivery of New Notes | Except in some circumstances, any and all old notes that are validly tendered in the exchange offer will be accepted for exchange promptly after the expiration date. The new notes issued pursuant to the exchange offer will be delivered promptly following the expiration date. We may reject any and all old notes that we determine have not been properly tendered or any old notes the acceptance of which would, in the opinion of our counsel, be unlawful. With some limited exceptions, we will have no obligation to register the old notes after we consummate the applicable exchange offer. See “The Exchange Offer — Terms of the Exchange Offer.” | |
Material U.S. Federal Tax Considerations | We believe that the exchange of the old notes for the new notes will not result in a taxable exchange for U.S. federal income tax purposes. See “Material United States Federal Income Tax Considerations.” | |
Exchange Agent | D.F. King & Co., Inc. is serving as the exchange agent. |
• | will be registered under the Securities Act and therefore will not be subject to restrictions on transfer; | |
• | will not be subject to provisions relating to additional interest; | |
• | will bear a different CUSIP or ISIN number from the old notes; | |
• | will not entitle their holders to registration rights; and | |
• | will be subject to terms relating to book-entry procedures and administrative terms relating to transfers that differ from those of the old notes. |
Issuer | The new notes will be the obligation of UCI International, Inc., as successor by merger to Acquisition Co. | |
New Notes | $400.0 million aggregate principal amount of registered 8.625% Senior Notes due 2019. | |
Maturity Date | The new notes will mature on February 15, 2019. | |
Interest Rates and Payment Dates | The interest rate on the new notes will be 8.625%. We will pay interest on the notes semi-annually in arrears on February 15 and August 15 of each year, commencing August 15, 2011. | |
Guarantees | The old notes are, and the new notes will be, guaranteed on a senior basis by Holdings and certain of its subsidiaries which include certain of UCI International, Inc.’s subsidiaries that are borrowers under, or that guarantee, the Senior Secured Credit Facilities. See “Description of the Notes — Guarantees” and “Description of the Notes — Certain Covenants — Future Guarantors” with respect to the notes. | |
Ranking | The notes: | |
• are our general senior obligations; | ||
• rankpari passuin right of payment with all of our existing and future senior indebtedness; |
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• are effectively subordinated to all of our existing and future secured indebtedness (including indebtedness outstanding under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness; | ||
• are senior in right of payment to all of our existing or future subordinated indebtedness; | ||
• are unconditionally guaranteed on a senior basis by the guarantors; and | ||
• are effectively subordinated to all claims of creditors, including trade creditors, and claims of preferred stockholders (if any) of each of our subsidiaries that is not a guarantor. | ||
The guarantees of the notes: | ||
• are general senior obligations of each guarantor; | ||
• rankpari passuin right of payment with all existing and future senior indebtedness of such guarantor; | ||
• are effectively subordinated to all existing and future secured indebtedness of such guarantor (including indebtedness of such guarantor with respect to its guarantee of the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness; and | ||
• are senior in right of payment to all existing or future subordinated indebtedness of such guarantor. | ||
At December 31, 2010, on a pro forma basis after giving effect to the Transactions: | ||
• Holdings and its subsidiaries had an aggregate principal amount of $304.0 million of indebtedness outstanding secured by liens, and Holdings and its subsidiaries had $58.7 million of availability under the Senior Secured Revolving Facility (as letters of credit of UCI International previously collateralized by cash were replaced at closing of the Transactions by letters of credit issued under the Senior Secured Revolving Facility), which if borrowed would be similarly secured; and | ||
• Holdings and its subsidiaries had an aggregate principal amount of $704.0 million of unsubordinated indebtedness outstanding (whether secured or unsecured) consisting of amounts represented by the old notes (including the guarantees with respect thereto) and the Senior Secured Credit Facilities. | ||
Optional Redemption | We may redeem some or all of the notes at any time and from time to time on or after February 15, 2015, at the redemption prices described in this prospectus. Prior to February 15, 2015, we may redeem some or all of the notes at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest, if any, to the applicable redemption date plus the applicable “make whole” premium described in this prospectus. See “Description of the Notes — Optional Redemption.” In addition, at any time prior to February 15, 2014, we may redeem up to 35% of the aggregate principal amount of the notes with the net proceeds of certain equity offerings at a |
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redemption price of 108.625%, plus accrued and unpaid interest, if any, to the applicable redemption date. See “Description of the Notes — Optional Redemption.” | ||
Change of Control | If a change of control occurs, each holder of the notes may require us to repurchase all or a portion of such holder’s notes at a purchase price of 101% of the principal amount of such notes, plus accrued and unpaid interest, if any, to the date of repurchase. The term “Change of Control” is defined under “Description of the Notes — Change of Control.” | |
Certain Covenants | The indenture governing the notes contains covenants that, among other things, limit the ability of Holdings and its restricted subsidiaries to: | |
• incur additional indebtedness and issue disqualified and preferred stock; | ||
• make restricted payments, including dividends or other distributions; | ||
• create certain liens; | ||
• sell assets; | ||
• enter into arrangements that limit any restricted subsidiary’s ability to pay dividends or make other payments or transfer assets to Holdings or any other restricted subsidiary; | ||
• engage in transactions with affiliates; and | ||
• consolidate, merge or transfer all or substantially all of our assets. | ||
These covenants are subject to a number of important limitations and exceptions as described under “Description of the Notes — Certain Covenants.” | ||
No Public Market | The new notes will be new securities for which there is currently no public market. | |
Governing Law of the Indenture, the Notes and the Guarantees | The indenture governing the notes, the notes and the guarantees are governed by the laws of the State of New York. |
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Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
(Audited) | ||||||||||||
($ in millions) | ||||||||||||
Income Statement Data: | ||||||||||||
Net sales(1) | $ | 880.4 | $ | 885.0 | $ | 945.0 | ||||||
Cost of sales | 705.2 | 688.2 | 708.6 | |||||||||
Gross profit | 175.2 | 196.8 | 236.4 | |||||||||
Operating expenses | ||||||||||||
Selling and warehousing | (62.9 | ) | (56.6 | ) | (60.5 | ) | ||||||
General and administrative(2) | (48.9 | ) | (44.9 | ) | (50.6 | ) | ||||||
Amortization of acquired intangible assets | (6.3 | ) | (5.8 | ) | (5.2 | ) | ||||||
Restructuring gains (costs), net(3) | (2.4 | ) | (0.9 | ) | (1.7 | ) | ||||||
Trademark impairment loss(4) | (0.5 | ) | — | — | ||||||||
Patent litigation costs(5) | — | (7.0 | ) | (5.9 | ) | |||||||
Operating income | 54.2 | 81.6 | 112.5 | |||||||||
Other expense | ||||||||||||
Interest expense, net | (65.4 | ) | (60.5 | ) | (60.8 | ) | ||||||
Management fee expense | (2.0 | ) | (2.0 | ) | (2.0 | ) | ||||||
Loss on early extinguishment of debt(6) | — | — | (8.7 | ) | ||||||||
Miscellaneous, net | (3.5 | ) | (5.5 | ) | (3.5 | ) | ||||||
Income (loss) before income taxes | (16.7 | ) | 13.6 | 37.5 | ||||||||
Income tax (expense) benefit | 4.3 | (5.1 | ) | (14.5 | ) | |||||||
Net income (loss) | (12.4 | ) | 8.5 | 23.0 | ||||||||
Less: Loss attributable to noncontrolling interest | (0.8 | ) | (0.7 | ) | (0.0 | ) | ||||||
Net income (loss) attributable to UCI International, Inc. | $ | (11.6 | ) | $ | 9.2 | $ | 23.0 | |||||
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As of | ||||
December 31, 2010 | ||||
(Audited) | ||||
($ in millions) | ||||
Balance Sheet Data: | ||||
Cash and cash equivalents | $ | 200.3 | ||
Accounts receivable, net | 271.8 | |||
Inventories, net | 144.2 | |||
Property, plant and equipment, net | 135.1 | |||
Goodwill and other intangible assets, net | 304.5 | |||
Other current and non-current assets | 89.4 | |||
Total assets | 1,145.3 | |||
Accounts payable | 115.2 | |||
Short-term borrowings | 3.3 | |||
Current maturities of long-term debt | 4.5 | |||
Other current liabilities | 131.3 | |||
Long-term debt, less current maturities | 766.7 | |||
Other liabilities | 100.7 | |||
Total liabilities | 1,121.7 | |||
Shareholders’ equity | $ | 23.6 | ||
Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
(Audited) | ||||||||||||
($ in millions except | ||||||||||||
percentages and ratios) | ||||||||||||
Other Financial Data: | ||||||||||||
Capital expenditures | $ | 31.9 | $ | 15.3 | $ | 21.3 | ||||||
Depreciation and amortization | 37.0 | 37.1 | 35.4 | |||||||||
EBITDA(7) | 85.7 | 111.2 | 133.8 | |||||||||
Adjusted EBITDA(8) | 113.4 | 133.8 | 169.5 | |||||||||
Adjusted EBITDA margin | 12.9 | % | 15.1 | % | 17.9 | % | ||||||
Ratio of earnings to fixed charges(9) | 0.8 | x | 1.2 | x | 1.6x |
(1) | Net sales in 2008 includes a special $6.7 million warranty provision related to unusually high warranty returns related to one category of parts. | |
(2) | During 2010, 2009 and 2008, we incurred $7.2 million, $1.3 million and $4.0 million, respectively, defending against claims, including class action litigation, alleging violations of antitrust and consumer protection laws by us and other parties in the North American automotive filter aftermarket. See Note 14 to the audited consolidated financial statements of UCI International included elsewhere in this prospectus. In addition, we incurred $6.5 million, $2.2 million and $2.3 million of costs in 2010, 2009 and 2008, respectively, related to evaluating strategic opportunities including potential merger and acquisition and capital structure activities that are non-operating in nature. Costs in 2010 include costs related to the proposed initial public offering of UCI International’s stock that was withdrawn in November 2010 and costs associated with the Rank Acquisition. | |
(3) | Restructuring costs in 2010, 2009 and 2008 result from our capacity consolidation and realignment actions. | |
(4) | The 2008 amount relates to a trademark impairment loss due to a customer’s decision to market a significant portion of our products under the customer’s own private label brand. | |
(5) | Includes trial costs and damages awarded in connection with an unfavorable jury verdict on a patent infringement matter. See Note 14 to the audited consolidated financial statements of UCI International included elsewhere in this prospectus. |
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(6) | The loss on early extinguishment of debt in 2010 relates to the termination of our 2006 Credit Facility and the discharge of UCI’s Previously Outstanding Subordinated Notes. The loss consists of the call premium on the Previously Outstanding Subordinated Notes ($3.6 million), interest during the Previously Outstanding Subordinated Notes redemption period ($1.9 million) and the write-off of unamortized deferred financing costs and original issue discount ($3.2 million). See further discussion in Note 11 to the audited consolidated financial statements of UCI International included elsewhere in this prospectus. | |
(7) | EBITDA, a measure used by our strategic owner to measure operating performance, is defined as net income (loss) from continuing operations for the period plus income tax expense, net interest expense, depreciation expense of property, plant and equipment and amortization expense of identifiable intangible assets. Net income (loss) from continuing operations, income tax expense (benefit), net interest expense and depreciation and amortization expense are not reduced by the amounts attributable to noncontrolling interests. EBITDA is not a measure of our financial condition, liquidity or profitability and should not be considered as a substitute for net income (loss) from continuing operations for the period, operating profit or any other performance measures derived in accordance with GAAP or as a substitute for cash flow from operating activities as a measure of our liquidity in accordance with GAAP. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not take into account certain items such as interest and principal payments on our indebtedness, working capital needs, tax payments and capital expenditures. We believe that the inclusion of EBITDA in this prospectus is appropriate to provide additional information to investors about our operating performance and to provide a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. We additionally believe that issuers of high yield debt securities also present EBITDA because investors, analysts and rating agencies consider these measures useful in measuring the ability of those issuers to meet debt service obligations. Because not all companies calculate EBITDA identically, this presentation of EBITDA may not be comparable to other similarly titled measures used by other companies. | |
(8) | Adjusted EBITDA as presented herein is a financial measure used by our strategic owner to measure operating performance and the indenture governing the notes. Adjusted EBITDA is calculated as EBITDA adjusted for particular items relevant to explaining operating performance. These adjustments include significant items of a non-recurring or unusual nature that cannot be attributed to ordinary business operations, restructuring and redundancy costs, gains and losses in relation to the valuation of derivatives, the full-period effect of businesses acquired after the beginning of a period and the full-period effect to implemented cost savings initiatives. Adjusted EBITDA is not a presentation made in accordance with GAAP, is not a measure of financial condition, liquidity or profitability and should not be considered as an alternative to net income (loss) from continuing operations for the period determined in accordance with GAAP or operating cash flows determined in accordance with GAAP. The determination of Adjusted EBITDA contains a number of estimates and assumptions that may prove to be incorrect and differ materially from actual results. See “Risk Factors.” Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not take into account certain items such as interest and principal payments on our indebtedness, working capital needs, tax payments, and capital expenditures. We believe that the inclusion of Adjusted EBITDA in this prospectus is appropriate to provide additional information to investors about our operating performance and to provide a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. We additionally believe that issuers of high yield debt securities also present Adjusted EBITDA because investors, analysts and rating agencies consider these measures useful in measuring the ability of those issuers to meet debt service obligations. In addition, Adjusted EBITDA is used to determine our compliance with certain covenants, including the fixed charge coverage ratio used for purposes of debt incurrence under the indenture governing the notes and certain other agreements governing our indebtedness. Because not all companies calculate Adjusted EBITDA identically, this presentation of Adjusted EBITDA may not be comparable to the similarly titled measures of other companies. |
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Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
(Unaudited) | ||||||||||||
($ in millions except percentages) | ||||||||||||
Net income (loss) attributable to UCI International, Inc.(a) | $ | (11.6 | ) | $ | 9.2 | $ | 23.0 | |||||
Less: Net loss attributable to noncontrolling interest | (0.8 | ) | (0.7 | ) | — | |||||||
Net income (loss) attributable to UCI International, Inc., as adjusted(a) | (12.4 | ) | 8.5 | 23.0 | ||||||||
Income tax expense (benefit)(b) | (4.3 | ) | 5.1 | 14.6 | ||||||||
Net interest expense(b) | 65.4 | 60.5 | 60.8 | |||||||||
Depreciation and amortization expense(b) | 37.0 | 37.1 | 35.4 | |||||||||
EBITDA(7) (above) | 85.7 | 111.2 | 133.8 | |||||||||
Restructuring costs and severance(c) | 2.8 | 4.0 | 1.9 | |||||||||
Trademark impairment loss(d) | 0.5 | — | — | |||||||||
Patent litigation costs(e) | — | 7.0 | 5.9 | |||||||||
Cost of defending class action litigation(f) | 4.0 | 1.5 | 7.2 | |||||||||
Special warranty expense(g) | 6.7 | — | — | |||||||||
New business changeover and sales commitment costs(h) | 5.0 | 5.0 | 1.7 | |||||||||
Establishment of new facilities in China(i) | 3.6 | 0.5 | — | |||||||||
Valuation allowance for non-trade receivables(j) | — | — | 1.4 | |||||||||
UCI International, Inc. non-operating expenses(k) | 2.3 | 2.2 | 6.5 | |||||||||
Loss on early extinguishment of debt(l) | — | — | 8.7 | |||||||||
Non-cash stock options expense(m) | 0.8 | 0.4 | 0.4 | |||||||||
Management fee(n) | 2.0 | 2.0 | 2.0 | |||||||||
Adjusted EBITDA(8) (above) | $ | 113.4 | $ | 133.8 | $ | 169.5 | ||||||
Net sales | $ | 880.4 | $ | 885.0 | $ | 945.0 | ||||||
Adjusted EBITDA margin | 12.9 | % | 15.1 | % | 17.9 | % |
(a) | Net income (loss), as adjusted, for all periods does not exclude the amount of net income (loss) attributable to noncontrolling interests as required by GAAP. The definition of Adjusted EBITDA in the Senior Secured Credit Facilities excludes any impact of noncontrolling interests. | |
(b) | Income tax expense (benefit), net interest expense and depreciation and amortization expense are not reduced by the amounts attributable to noncontrolling interests. | |
(c) | We have taken various restructuring actions to align our cost structure with customers’ spending and current market conditions. These actions have included the integration of our pre-ASC acquisition water pump product line into the water pump operations of ASC, as well as other targeted actions to reduce excess capacity and reduce our operating expenses. See Note 2 to the audited consolidated financial statements of UCI International included elsewhere in this prospectus for further information regarding our restructuring actions. | |
(d) | In 2008, we recognized a trademark impairment loss of $0.5 million. This non-cash loss was due to a customer’s decision to market a significant portion of UCI-supplied products under the customer’s own private label brand, instead of UCI’s brand. This decision has not affected and is not expected to affect UCI’s sales of these products. | |
(e) | Our wholly owned subsidiary, Champion Laboratories, Inc. (“Champion”), is a defendant in litigation with Parker-Hannifin Corporation (“Parker-Hannifin”) pursuant to which Parker-Hannifin claims that certain of Champion’s products infringe a Parker-Hannifin patent. On December 11, 2009, following trial, a jury |
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verdict was reached, finding in favor of Parker-Hannifin with damages of approximately $6.5 million. We recorded a provision of $6.5 million in the fourth quarter of 2009 and incurred trial costs of $0.5 million in the fourth quarter of 2009 related to this matter. During 2010, we incurred post-trial costs of $1.1 million. On May 3, 2010, the court entered a partial judgment in this matter, awarding Parker-Hannifin $6.5 million in damages and a permanent injunction. On March 17, 2011, the court issued an order denying Champion’s motion for a judgment at law and awarding Parker-Hannifin an additional $3.3 million in damages plus attorneys’ fees, estimated to be approximately $1.5 million. See “Our Business — Litigation — Patent Litigation.” | ||
(f) | We incurred costs to defend ourselves in litigation, including class action litigation, alleging violations of antitrust and consumer protection laws by us and other parties in the North American automotive filter aftermarket. See “Our Business — Litigation — Antitrust Litigation.” | |
(g) | The special warranty expense of $6.7 million in 2008 related to a higher than normal failure rate of a specific category of parts resulting in an unusually high level of warranty returns. | |
(h) | New business changeover and sales commitment costs were up-front costs incurred to obtain new business and to extend existing long-term sales commitments. These costs are comprised of costs associated with stocklifts. | |
(i) | In 2008 and 2009, we incurred non-recurringstart-up costs to establish two new factories in China. | |
(j) | In 2010, we provided a $1.4 million valuation allowance due to uncertainties of collection of Mexican value-added tax refund receivables. | |
(k) | From time to time, we have incurred costs related to evaluating strategic opportunities including potential merger and acquisition and capital structure activities that are non-operating in nature. Costs in 2010 included costs related to our proposed initial public offering of our stock that was withdrawn in November 2010 and costs associated with the Rank Acquisition. | |
(l) | The loss on early extinguishment of debt relates to the termination of the 2006 Credit Facility and the discharge of the Previously Outstanding Subordinated Notes. The loss consisted of the call premium on the Previously Outstanding Subordinated Notes ($3.6 million), interest during the Previously Outstanding Subordinated Notes redemption period ($1.9 million) and the write-off of unamortized deferred financing costs and original issue discount ($3.2 million). | |
(m) | Non-cash stock based compensation expense related to stock based awards under our amended and restated equity incentive plan. | |
(n) | Pursuant to our previous management agreement with TC Group, L.L.C., an affiliate of Carlyle, for management and financial advisory services and oversight provided to us and our subsidiaries, we have historically paid an annual management fee of $2.0 million andout-of-pocket expenses. The agreement was terminated upon the consummation of the Rank Acquisition. The terms of the instruments governing our indebtedness permit us to pay management fees to Rank Group, but Rank Group currently does not intend for us to do so. |
(9) | The ratio of earnings to fixed charges is calculated by dividing earnings before income taxes from continuing operations by fixed charges of continuing operations. For the periods presented, fixed charges consisted of interest expense, amortization and write off of financing costs and debt discount, and management’s estimate of interest within rent expense. |
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Year Ended | ||||
December 31, 2010 | ||||
(Unaudited) | ||||
($ in millions) | ||||
Income Statement | ||||
Net sales | $ | 945.0 | ||
Cost of sales | 712.3 | |||
Gross profit | 232.7 | |||
Operating expenses | ||||
Selling and warehousing | (60.9 | ) | ||
General and administrative | (50.8 | ) | ||
Amortization of acquired intangible assets | (22.9 | ) | ||
Restructuring costs, net | (1.7 | ) | ||
Patent litigation costs | (5.9 | ) | ||
Operating income | 90.5 | |||
Other expense | ||||
Interest expense, net | (55.5 | ) | ||
Miscellaneous, net | (3.5 | ) | ||
Income before income taxes | 31.5 | |||
Income tax expense | (12.3 | ) | ||
Net income | $ | 19.2 | ||
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As of | ||||
December 31, 2010 | ||||
(Unaudited) | ||||
($ in millions) | ||||
Balance Sheet Data: | ||||
Cash and cash equivalents | $ | 37.6 | ||
Accounts receivable, net | 271.8 | |||
Inventories, net | 159.8 | |||
Property, plant and equipment, net | 162.1 | |||
Goodwill and other intangible assets, net | 795.6 | |||
Other current and non-current assets | 79.0 | |||
Total assets | 1,505.9 | |||
Accounts payable | 125.5 | |||
Short-term borrowings | 3.3 | |||
Current maturities of long-term debt | 3.0 | |||
Other current liabilities | 115.8 | |||
Long-term debt, less current maturities | 696.2 | |||
Other non-current liabilities | 255.0 | |||
Total liabilities | 1,198.8 | |||
Shareholder’s equity | $ | 307.1 | ||
Year Ended | ||||
December 31, 2010 | ||||
(Unaudited) | ||||
($ in millions except ratios) | ||||
Pro Forma Other Financial Data: | ||||
Total capital expenditures | $ | 21.3 | ||
EBITDA(1) | 143.1 | |||
Adjusted EBITDA(2) | 168.1 | |||
Net cash interest expense(3) | 52.5 | |||
Pro Forma Credit Statistics (at period end): | ||||
Total net senior secured debt(4) | $ | 266.4 | ||
Total net debt(5) | 666.4 | |||
Total net senior secured debt to Adjusted EBITDA | 1.6x | |||
Total net debt to Adjusted EBITDA | 4.0x | |||
Adjusted EBITDA to net cash interest expense | 3.2x | |||
Pro forma ratio of earnings to fixed charges(6) | 1.6x |
(1) | For a discussion regarding the calculation and purposes of the EBITDA presentation, see note 7 under “— Summary Historical UCI International Financial Information.” The following table reconciles the pro forma EBITDA calculation presented above to our net income for the period presented (net income, income tax |
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expense, net interest expense and depreciation and amortization expense are not reduced by the amounts attributable to noncontrolling interests): |
Year Ended | ||||
December 31, 2010 | ||||
(Unaudited) | ||||
($ in millions) | ||||
Net income | $ | 19.2 | ||
Income tax expense | 12.3 | |||
Net interest expense | 55.5 | |||
Depreciation and amortization expense | 56.1 | |||
EBITDA(2) | $ | 143.1 | ||
(2) | For a discussion regarding the calculation and purposes of the Adjusted EBITDA presentation, see note 8 under “— Summary Historical UCI International Financial Information.” The following table reconciles pro forma EBITDA as presented above to the pro forma Adjusted EBITDA for the period presented: |
Year Ended | ||||
December 31, 2010 | ||||
($ in millions) | ||||
EBITDA(2) | $ | 143.1 | ||
Restructuring costs and severance(a) | 1.9 | |||
Patent litigation costs(b) | 5.9 | |||
Cost of defending class action litigation(c) | 7.2 | |||
New business changeover costs(d) | 1.7 | |||
Valuation allowance for non-trade receivables(e) | 1.4 | |||
UCI International, Inc. non-operating expenses(f) | 6.5 | |||
Non-cash stock option expense(g) | 0.4 | |||
Adjusted EBITDA(3) | $ | 168.1 | ||
(a) | We have taken various restructuring actions to align our cost structure with customers’ spending and current market conditions. These actions have included the integration of our pre-ASC acquisition water pump product line into the water pump operations of ASC, as well as other targeted actions to reduce excess capacity and reduce our operating expenses. See Note 2 to the audited consolidated financial statements of UCI International included elsewhere in this prospectus for further information regarding our restructuring actions. | |
(b) | Our wholly owned subsidiary, Champion Laboratories, Inc. (“Champion”), is a defendant in litigation with Parker-Hannifin Corporation (“Parker-Hannifin”) pursuant to which Parker-Hannifin claims that certain of Champion’s products infringe a Parker-Hannifin patent. On December 11, 2009, following trial, a jury verdict was reached, finding in favor of Parker-Hannifin with damages of approximately $6.5 million. We recorded a provision of $6.5 million in the fourth quarter of 2009 and incurred trial costs of $0.5 million in the fourth quarter of 2009 related to this matter. During 2010, we incurred post-trial costs of $1.1 million. On May 3, 2010, the court entered a partial judgment in this matter, awarding Parker-Hannifin $6.5 million in damages and a permanent injunction. On March 17, 2011, the court issued an order denying Champion’s motion for a judgment at law and awarding Parker-Hannifin an additional $3.3 million in damages plus attorneys’ fees, estimated to be approximately $1.5 million. See “Our Business — Litigation — Patent Litigation.” | |
(c) | We incurred costs to defend ourselves in litigation, including class action litigation, alleging violations of antitrust and consumer protection laws by us and other parties in the North American automotive filter aftermarket. See “Our Business — Litigation — Antitrust Litigation.” |
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(d) | New business changeover and sales commitment costs were up-front costs incurred to obtain new business and to extend existing long-term sales commitments. These costs are comprised of costs associated with stocklifts. | |
(e) | In 2010, we provided a $1.4 million valuation allowance due to uncertainties of collection of Mexican value-added tax refund receivables. | |
(f) | From time to time, we have incurred costs related to evaluating strategic opportunities including potential merger and acquisition and capital structure activities that are non-operating in nature. Costs in 2010 included costs related to our proposed initial public offering of our stock that was withdrawn in November 2010 and costs associated with the Rank Acquisition. | |
(g) | Non-cash stock based compensation expense related to stock based awards under our amended and restated equity incentive plan. |
(3) | Net cash interest excludes interest related to the original issue discount and amortization of deferred financing costs, as derived from the unaudited pro forma condensed consolidated income statement included under “Unaudited Pro Forma Condensed Consolidated Financial Information.” | |
(4) | Total net senior secured debt represents total senior secured debt less cash and cash equivalents of $37.6 million. Total senior secured debt of $304.0 million represents the aggregate of (i) $300.0 million under the Senior Secured Term Loan Facility and (ii) $4.0 million of secured short-term borrowings and finance lease obligations. | |
(5) | Total net debt represents total debt less cash and cash equivalents of $37.6 million. Total debt of $704.0 million represents the aggregate of (i) total senior secured debt described in note 4 above and (ii) $400.0 million of the notes. | |
(6) | For the purposes of calculating the ratio of earnings to fixed charges on a pro forma basis, earnings represent pro forma earnings before income taxes from continuing operations. Fixed charges include pro forma interest expense, amortization and write off of financing costs and debt discount, and management’s estimate of interest within rent expense. |
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• | fluctuations in currency exchange rates; | |
• | geopolitical instability; | |
• | exchange controls; | |
• | compliance with U.S. Department of Commerce export controls; | |
• | tariffs or other trade protection measures and import or export licensing requirements; | |
• | transport availability and cost; | |
• | potentially negative consequences from changes in tax laws; | |
• | fluctuations in interest rates; | |
• | unexpected changes in regulatory requirements; | |
• | differing labor regulations; | |
• | enforceability of contracts in the People’s Republic of China; | |
• | requirements relating to withholding taxes on remittances and other payments by subsidiaries; | |
• | restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses in these jurisdictions; | |
• | restrictions on our ability to repatriate dividends from our subsidiaries; | |
• | exposure to liabilities under the U.S. Foreign Corrupt Practices Act; | |
• | difficulty of enforcing judgments or other remedies in foreign jurisdictions; | |
• | diminished protection for intellectual property outside of the United States; and | |
• | the potential for terrorism against U.S. interests. |
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• | product quality; | |
• | technical expertise and development capability; | |
• | new product innovation; | |
• | reliability and timeliness of delivery; | |
• | price competitiveness; | |
• | product design capability; | |
• | manufacturing expertise; | |
• | operational flexibility; | |
• | customer service; and | |
• | overall management. |
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• | make it more difficult for us to generate sufficient cash to satisfy our obligations with respect to the notes, the Senior Secured Credit Facilities and our other indebtedness; | |
• | increase our vulnerability to general adverse economic or market conditions; | |
• | limit our ability to obtain additional financing necessary for our business; | |
• | require us to dedicate a substantial portion of our cash flow from operations to payments in relation to indebtedness, reducing the amount of cash flow available for other purposes, including working capital, capital expenditures, acquisitions and other general corporate purposes; | |
• | require us to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable terms, to meet debt payment obligations; | |
• | restrict us from making strategic acquisitions or exploiting business opportunities; | |
• | limit our flexibility in planning for, or reacting to, changes in our business or industry; | |
• | place us at a possible competitive disadvantage compared to our competitors that have less debt; | |
• | expose us to increased interest expense because certain of our indebtedness bears variable rates of interest; and | |
• | subject us to financial and other restrictive covenants, and if we fail to comply with these covenants and that failure is not waived or cured, could result in an event of default under our indebtedness. |
• | incur or guarantee additional indebtedness or issue preferred stock or disqualified stock (including to refinance existing indebtedness); |
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• | pay dividends or make distributions in respect of capital stock; | |
• | purchase or redeem capital stock; | |
• | make certain investments or certain other restricted payments; | |
• | create or incur liens; | |
• | sell assets; | |
• | limit the ability of certain of our subsidiaries to make distributions; | |
• | enter into transactions with affiliates; and | |
• | effect a consolidation, amalgamation or merger. |
• | the lenders under our Senior Secured Credit Facilities could elect to terminate their commitments thereunder, declare all the outstanding loans thereunder to be due and payable and, if not promptly paid, institute foreclosure proceedings against our assets; | |
• | even if those lenders do not declare a default, they may be able to cause all of our available cash to be used to repay their loans; and | |
• | such default could cause a cross-default or cross-acceleration under our other indebtedness. |
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• | we or any of the guarantors, as applicable, were insolvent or rendered insolvent by reason of the issuance of the notes or the incurrence of the guarantee; | |
• | the issuance of the notes or the incurrence of the guarantee left us or any of the guarantors, as applicable, with an unreasonably small amount of capital or assets to carry on the business; or | |
• | we or any of the guarantors intended to, or believed that we or such note guarantor would, incur debts beyond our or such note guarantor’s ability to pay as they mature. |
• | the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets; |
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• | the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or | |
• | it could not pay its debts as they became due. |
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• | our operating performance and financial conditions; | |
• | the interest of securities dealers in making a market; and | |
• | the market for similar securities. |
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• | our substantial indebtedness, which could adversely affect our ability to fulfill our obligations under the notes and our Senior Secured Credit Facilities; | |
• | risks related to restrictive covenants in the notes, our Senior Secured Credit Facilities and our other indebtedness which could adversely affect our business by limiting our operating and strategic flexibility; | |
• | 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; | |
• | the impact of general economic conditions in the regions in which we do business; | |
• | increases in costs of fuel, transportation and utilities and in the costs of labor, employment and health care; | |
• | general industry conditions, including competition, consolidation, pricing pressure and product, raw material and energy prices; | |
• | our relationship with AutoZone creates risks associated with a concentrated net sales source; | |
• | our contracts with our customers are generally short-term and do not require the purchase of a minimum amount; | |
• | disruptions in our supply chain; | |
• | implementing effective cost-cutting initiatives; | |
• | the introduction of new and improved products or manufacturing techniques; | |
• | the impact of governmental laws and regulations and the outcome of legal proceedings; | |
• | changes in exchange rates and currency values; | |
• | capital expenditure requirements; | |
• | access to capital markets; | |
• | protecting our intellectual property rights; | |
• | our dependence on key personnel or our inability to hire additional qualified personnel; | |
• | the risks and uncertainties described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; and | |
• | risks related to other factors discussed in this prospectus. |
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• | such new notes are acquired in the ordinary course of business; | |
• | at the time of the commencement of the exchange offer such holder has no arrangement or understanding with any person to participate in a distribution of such new notes; and | |
• | such holder is not engaged in and does not intend to engage in a distribution of such new notes. |
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• | any new notes to be received by you will be acquired in the ordinary course of business; | |
• | you have no arrangements or understandings with any person to participate in the distribution of the old notes or new notes within the meaning of the Securities Act; and | |
• | you are not our “affiliate,” as defined in Rule 405 under the Securities Act. |
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• | certificates of old notes must be received by the exchange agent along with the applicable letter of transmittal; or | |
• | a timely confirmation of a book-entry transfer of old notes, if such procedures are available, into the exchange agent’s account at the book-entry transfer facility, The Depository Trust Company, pursuant to the procedure for book-entry transfer described below, must be received by the exchange agent prior to the expiration date with the letter of transmittal. |
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• | purchase or make offers for any old notes that remain outstanding subsequent to the expiration date or, as set forth under “— Conditions,” to terminate the exchange offer; | |
• | redeem the old notes as a whole or in part at any time and from time to time, as set forth under “Description of the Notes — Optional Redemption;” and | |
• | the extent permitted under applicable law, purchase the old notes in the open market, in privately negotiated transactions or otherwise. |
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• | certificates for such old notes or a timely book-entry confirmation of such old notes into the exchange agent’s account at the book-entry transfer facility; | |
• | a properly completed and duly executed letter of transmittal; and | |
• | all other required documents. |
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• | specify the name of the person having tendered the old notes to be withdrawn; | |
• | identify the old notes to be withdrawn, including the principal amount of such old notes; | |
• | in the case of old notes tendered by book-entry transfer, specify the number of the account at the book-entry transfer facility from which the old notes were tendered and specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn old notes and otherwise comply with the procedures of such facility; | |
• | contain a statement that such holder is withdrawing its election to have such old notes exchanged; | |
• | be signed by the holder in the same manner as the original signature on the letter of transmittal by which such old notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer to have the trustee with respect to the old notes register the transfer of such old notes in the name of the person withdrawing the tender; and | |
• | specify the name in which such old notes are registered, if different from the person who tendered such old notes. |
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By registered or certified mail, hand delivery or overnight courier: D. F. King & Co., Inc. 48 Wall Street, 22nd Floor New York, New York 10005 | By facsimile: (Eligible Institutions Only) (212) 809-8838 Attn: Elton Bagley | To confirm by telephone or for information call: (212) 493-6996 |
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Year Ended December 31, | ||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
(Audited) | ||||||||||||||||||||
($ in millions) | ||||||||||||||||||||
Income Statement Data: | ||||||||||||||||||||
Net sales(1) | $ | 906.1 | $ | 969.8 | $ | 880.4 | $ | 885.0 | $ | 945.0 | ||||||||||
Cost of sales(2)(3) | 731.3 | 751.6 | 705.2 | 688.2 | 708.6 | |||||||||||||||
Gross profit | 174.8 | 218.2 | 175.2 | 196.8 | 236.4 | |||||||||||||||
Operating (expenses) income | ||||||||||||||||||||
Selling and warehousing | (60.0 | ) | (61.2 | ) | (62.9 | ) | (56.6 | ) | (60.5 | ) | ||||||||||
General and administrative(4) | (40.1 | ) | (47.1 | ) | (48.9 | ) | (44.9 | ) | (50.6 | ) | ||||||||||
Amortization of acquired intangible assets | (6.7 | ) | (7.0 | ) | (6.3 | ) | (5.8 | ) | (5.2 | ) | ||||||||||
Restructuring (costs) gains, net(5) | (13.4 | ) | 0.8 | (2.4 | ) | (0.9 | ) | (1.7 | ) | |||||||||||
Trademark impairment loss(6) | — | (3.6 | ) | (0.5 | ) | — | — | |||||||||||||
Patent litigation costs(7) | — | — | — | (7.0 | ) | (5.9 | ) | |||||||||||||
Operating income | 54.6 | 100.1 | 54.2 | 81.6 | 112.5 |
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Year Ended December 31, | ||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
(Audited) | ||||||||||||||||||||
($ in millions) | ||||||||||||||||||||
Other expense | ||||||||||||||||||||
Interest expense, net | (44.2 | ) | (72.9 | ) | (65.4 | ) | (60.5 | ) | (60.8 | ) | ||||||||||
Management fee expense | (2.0 | ) | (2.0 | ) | (2.0 | ) | (2.0 | ) | (2.0 | ) | ||||||||||
Loss on early extinguishment of debt(8) | (2.6 | ) | — | — | — | (8.7 | ) | |||||||||||||
Miscellaneous, net | (1.0 | ) | (2.8 | ) | (3.5 | ) | (5.5 | ) | (3.5 | ) | ||||||||||
Income (loss) before income taxes | 4.8 | 22.4 | (16.7 | ) | 13.6 | 37.5 | ||||||||||||||
Income tax (expense) benefit | (0.2 | ) | (8.4 | ) | 4.3 | (5.1 | ) | (14.5 | ) | |||||||||||
Net income (loss) from continuing operations | 4.6 | 14.0 | (12.4 | ) | 8.5 | 23.0 | ||||||||||||||
Net income from discontinued operations, net of tax | 2.0 | — | — | — | — | |||||||||||||||
Gain (loss) on sale of discontinued operations, net of tax | (16.9 | ) | 2.7 | — | — | — | ||||||||||||||
Net income (loss) | (10.3 | ) | 16.7 | (12.4 | ) | 8.5 | 23.0 | |||||||||||||
Less: Loss attributable to noncontrolling interest | (0.8 | ) | (0.1 | ) | (0.8 | ) | (0.7 | ) | (0.0 | ) | ||||||||||
Net income (loss) attributable to UCI International, Inc. | $ | (9.5 | ) | $ | 16.8 | $ | (11.6 | ) | $ | 9.2 | $ | 23.0 | ||||||||
Other Financial Data: | ||||||||||||||||||||
Net cash provided by operating activities of continuing operations | $ | 74.1 | $ | 93.1 | $ | 31.7 | $ | 129.3 | $ | 113.3 | ||||||||||
Net cash (used in) operating activities of discontinued operations | (1.5 | ) | — | — | — | — | ||||||||||||||
Net cash (used in) investing activities of continuing operations | (79.7 | ) | (19.0 | ) | (31.5 | ) | (22.1 | ) | (27.5 | ) | ||||||||||
Net cash (used in) investing activities of discontinued operations | (2.9 | ) | — | — | — | — | ||||||||||||||
Net cash provided by (used in) financing activities of continuing operations | 15.5 | (63.5 | ) | 4.7 | (22.0 | ) | (17.3 | ) |
December 31, | ||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
(Audited) | ||||||||||||||||||||
($ in millions) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 31.5 | $ | 42.0 | $ | 46.7 | $ | 131.9 | $ | 200.3 | ||||||||||
Working capital | 280.2 | 280.9 | 298.5 | 339.3 | 434.4 | |||||||||||||||
Total assets | 1,005.1 | 1,002.0 | 1,007.7 | 1,058.9 | 1,145.3 | |||||||||||||||
Total debt (including current maturities) | 727.4 | 696.6 | 732.9 | 741.6 | 774.5 | |||||||||||||||
Total shareholders’ equity (deficit) | 19.3 | 49.6 | (7.5 | ) | 9.2 | 23.6 |
(1) | Net sales in 2008 includes a special $6.7 million warranty provision related to unusually high warranty returns related to one category of parts. | |
(2) | Cost of sales in 2006 includes $9.8 million for the sale of inventory written up to market value from historical cost per GAAP rules for accounting for the acquisition of ASC. | |
(3) | Cost of sales in 2007 and 2006 include $4.7 million and $3.9 million, respectively, of costs incurred in connection with the integration of our pre-ASC Acquisition water pump operations with the operations of ASC. The remaining $0.7 million of water pump integration costs in 2007 and $7.0 million in 2006 are included in “Restructuring gains (costs), net.” |
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(4) | During 2010, 2009 and 2008, we incurred $7.2 million, $1.3 million and $4.0 million, respectively, defending against claims, including class action litigation, alleging violations of antitrust and consumer protection laws by us and other parties in the North American automotive filter aftermarket. See Note 14 to the audited consolidated financial statements of UCI International included elsewhere in this prospectus. In addition, we incurred $6.5 million, $2.2 million and $2.3 million of costs in 2010, 2009 and 2008, respectively, related to evaluating strategic opportunities including potential merger and acquisition and capital structure activities that are non-operating in nature. Costs in 2010 include costs related to the proposed initial public offering of UCI International’s stock that was withdrawn in November 2010 and costs associated with the Rank Acquisition. | |
(5) | Restructuring costs in 2010, 2009 and 2008 result from our capacity consolidation and realignment actions. The restructuring gain in 2007 includes a gain on the sale of land and building. The restructuring costs in 2006 include asset write-downs and severance and other costs in connection with the closures of our Canadian fuel pump facility and Mexican filter manufacturing facility. | |
(6) | 2008 and 2007 amounts relate to trademark impairment losses due to a customer’s decision to market a significant portion of our products under the customer’s own private label brand. | |
(7) | Includes trial costs and damages awarded in connection with an unfavorable jury verdict on a patent infringement matter. See Note 14 to the audited consolidated financial statements of UCI International included elsewhere in this prospectus. | |
(8) | The loss on early extinguishment of debt in 2010 relates to the termination of our 2006 Credit Facility and the discharge of UCI’s Previously Outstanding Subordinated Notes. The loss consists of the call premium on the Previously Outstanding Subordinated Notes ($3.6 million), interest during the Previously Outstanding Subordinated Notes redemption period ($1.9 million) and the write-off of unamortized deferred financing costs and original issue discount ($3.2 million). See further discussion in Note 11 to the audited consolidated financial statements of UCI International included elsewhere in this prospectus. The loss on early extinguishment of debt in 2006 related to the write-off of unamortized deferred financing costs related to previously outstanding debt, which was replaced in connection with the establishment of our 2006 Credit Facility. |
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The Transactions | ||||||||||||||||
Preliminary | ||||||||||||||||
Fair Value | ||||||||||||||||
Historical | and Other | |||||||||||||||
UCI | Adjustments | |||||||||||||||
International | New Financing | for the | Pro | |||||||||||||
Information(1) | Arrangements(2) | Acquisition(3) | Forma(4)(5) | |||||||||||||
($ in millions) | ||||||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 200.3 | $ | 997.1 | (a) | $ | (1,159.8 | )(a) | $ | 37.6 | ||||||
Accounts receivable, net | 271.8 | — | — | 271.8 | ||||||||||||
Inventories, net | 144.2 | — | 15.6 | (k) | 159.8 | |||||||||||
Deferred tax assets | 38.4 | — | (5.6 | )(k) | 32.8 | |||||||||||
Restricted cash | 16.3 | — | (16.3 | )(l) | — | |||||||||||
Other current assets | 17.7 | — | — | 17.7 | ||||||||||||
Total current assets | 688.7 | 997.1 | (1,166.1 | ) | 519.7 | |||||||||||
Property, plant and equipment, net | 135.1 | — | 27.0 | (k) | 162.1 | |||||||||||
Goodwill | 241.5 | — | 116.6 | (k) | 358.1 | |||||||||||
Other intangible assets, net | 63.0 | — | 374.5 | (k) | 437.5 | |||||||||||
Deferred financing costs, net | 9.9 | 21.4 | (b) | (9.9 | )(b) | 21.4 | ||||||||||
Other long-term assets | 7.1 | — | — | 7.1 | ||||||||||||
Total non-current assets | 456.6 | 21.4 | 508.2 | 986.2 | ||||||||||||
Total assets | $ | 1,145.3 | $ | 1,018.5 | $ | (657.9 | ) | $ | 1,505.9 | |||||||
Liabilities and Shareholder’s Equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 115.2 | $ | — | $ | 10.3 | (a) | $ | 125.5 | |||||||
Short-term borrowings | 3.3 | — | — | 3.3 | ||||||||||||
Current maturities of long-term debt | 4.5 | 3.0 | (c) | (4.5 | )(c) | 3.0 | ||||||||||
Accrued expenses and other current liabilities | 131.3 | — | (15.5 | )(k) | 115.8 | |||||||||||
Total current liabilities | 254.3 | 3.0 | (9.7 | ) | 247.6 | |||||||||||
Long-term debt, less current maturities | 766.7 | 695.5 | (d) | (766.0 | )(d) | 696.2 | ||||||||||
Pension and other postretirement benefits | 87.0 | — | — | 87.0 | ||||||||||||
Deferred tax liabilities | 9.0 | — | 153.3 | (k) | 162.3 | |||||||||||
Other long-term liabilities | 4.7 | — | 1.0 | (k) | 5.7 | |||||||||||
Total non-current liabilities | 867.4 | 695.5 | (611.7 | ) | 951.2 | |||||||||||
Total liabilities | 1,121.7 | 698.5 | (621.4 | ) | 1,198.8 | |||||||||||
Shareholder’s equity | ||||||||||||||||
Common stock | — | 320.0 | (e) | — | (e) | 320.0 | ||||||||||
Additional paid in capital | 279.9 | — | (279.9 | )(f) | — | |||||||||||
Retained deficit | (214.8 | ) | — | 201.9 | (g) | (12.9 | ) | |||||||||
Accumulated other comprehensive loss | (41.5 | ) | — | 41.5 | (h) | — | ||||||||||
Total equity (deficit) | 23.6 | 320.0 | (36.5 | ) | 307.1 | |||||||||||
Total liabilities and shareholder’s equity | $ | 1,145.3 | $ | 1,018.5 | $ | (657.9 | ) | $ | 1,505.9 | |||||||
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December 31, 2010
The Transactions | ||||||||||||||||
Preliminary | ||||||||||||||||
Fair Value | ||||||||||||||||
Historical | and Other | |||||||||||||||
UCI | Adjustments | |||||||||||||||
International | New Financing | for the | Pro | |||||||||||||
Information(1) | Arrangements(2) | Acquisition(3) | Forma(4) | |||||||||||||
($ in millions) | ||||||||||||||||
Net sales | $ | 945.0 | $ | — | $ | — | $ | 945.0 | ||||||||
Cost of sales | 708.6 | — | 3.7 | (k) | 712.3 | |||||||||||
Gross profit | 236.4 | — | (3.7 | ) | 232.7 | |||||||||||
Operating expense income | ||||||||||||||||
Selling and warehousing | (60.5 | ) | — | (0.4 | )(k) | (60.9 | ) | |||||||||
General and administrative | (50.6 | ) | — | (0.2 | )(k) | (50.8 | ) | |||||||||
Amortization of acquired intangible assets | (5.2 | ) | — | (17.7 | )(k) | (22.9 | ) | |||||||||
Restructuring costs, net | (1.7 | ) | — | — | (1.7 | ) | ||||||||||
Patent litigation costs | (5.9 | ) | — | — | (5.9 | ) | ||||||||||
Operating income | 112.5 | — | (22.0 | ) | 90.5 | |||||||||||
Interest expense, net | (60.8 | ) | (55.4 | )(f) | 60.7 | (i) | (55.5 | ) | ||||||||
Management fee expense | (2.0 | ) | — | 2.0 | (m) | — | ||||||||||
Loss on early extinguishment of debt | (8.7 | ) | — | 8.7 | (j) | — | ||||||||||
Miscellaneous, net | (3.5 | ) | — | — | (3.5 | ) | ||||||||||
Income (loss) before income taxes | 37.5 | (55.4 | ) | 49.4 | 31.5 | |||||||||||
Income tax (expense) benefit | (14.5 | ) | 21.2 | (g) | (19.0 | )(n) | (12.3 | ) | ||||||||
Net income (loss) | $ | 23.0 | $ | (34.2 | ) | $ | 30.4 | $ | 19.2 | |||||||
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FINANCIAL INFORMATION
(1) | Historical UCI International Information |
(2) | New Financing Arrangements |
• | borrowings of $300.0 million under the Senior Secured Term Loan Facility, net of the original issue discount; | |
• | the issuance of $400.0 million of notes; | |
• | the Equity Contribution; and | |
• | the assumed estimated transaction costs associated with the issuance of the notes and the borrowings under the Senior Secured Credit Facilities. |
($ in millions) | ||||
Senior Secured Term Loan Facility(i) | $ | 300.0 | ||
Notes(ii) | 400.0 | |||
Equity Contribution | 320.0 | |||
Payment of the estimated fees and expenses(iii) | (22.9 | ) | ||
Net adjustment to cash | $ | 997.1 | ||
(i) | Represents borrowings under the Senior Secured Term Loan Facility in the amount of $300.0 million. | |
(ii) | Represents the proceeds from the notes in aggregate principal amount of $400.0 million. | |
(iii) | Represents the payment of an estimated $12.3 million of fees and expenses associated with the notes, an estimated $9.1 million of fees and expenses associated with the Senior Secured Credit Facilities and $1.5 million of original issue discount on the Senior Secured Revolving Facility. |
(b) | Represents the deferred financing costs associated with the notes and the Senior Secured Credit Facilities: |
($ in millions) | ||||
Estimated fees and expenses associated with the notes | $ | 12.3 | ||
Estimated fees and expenses associated with the Senior Secured Credit Facilities | 9.1 | |||
Adjustment to deferred financing costs | $ | 21.4 | ||
(c) | Represents the current portion of the Senior Secured Term Loan Facility, calculated as follows: |
($ in millions) | ||||
Senior Secured Term Loan Facility(i) | $ | 3.0 | ||
Adjustment to current maturities of long-term debt | $ | 3.0 | ||
(i) | Represents the current portion of the Senior Secured Term Loan Facility, equal to the 1% per annum required amortization under the Senior Secured Term Loan Facility. |
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FINANCIAL INFORMATION (Continued)
(d) | Represents the net increase in long-term debt less current maturities, calculated as follows: |
($ in millions) | ||||
Notes(i) | $ | 400.0 | ||
Senior Secured Term Loan Facility(ii) | 297.0 | |||
Original issue discount associated with the Senior Secured Credit Facilities(iii) | (1.5 | ) | ||
Net adjustment to long-term debt, less current maturities | $ | 695.5 | ||
(i) | Represents the proceeds from the notes in aggregate principal amount of $400.0 million. | |
(ii) | Represents the borrowings under the Senior Secured Term Loan Facility of $300.0 million, less current maturities of $3.0 million. | |
(iii) | Represents the $1.5 million original issue discount associated with the Senior Secured Revolving Facility. |
(e) | Represents the net adjustment to common stock, comprising: |
($ in millions) | ||||
Equity Contribution | $ | 320.0 | ||
Net adjustment to common stock | $ | 320.0 | ||
For the Year | ||||
Ended | ||||
December 31, | ||||
2010 | ||||
($ in millions) | ||||
Interest expense on the notes(i) | $ | (34.5 | ) | |
Amortization of notes deferred financing costs(ii) | (1.2 | ) | ||
Interest expense on notes | (35.7 | ) | ||
Interest expense on the Senior Secured Term Loan Facility(iii) | (16.5 | ) | ||
Revolving facility commitment fee(iv) | (1.5 | ) | ||
Amortization of the Senior Secured Credit Facilities deferred financing costs(v) | (1.4 | ) | ||
Amortization of the original issue discount associated with the Senior Secured Revolving Facility(vi) | (0.3 | ) | ||
Adjustment to interest expense, net | $ | (55.4 | ) | |
(i) | Reflects the interest on the notes of 8.625%. | |
(ii) | Reflects the non-cash amortization expense of an assumed aggregate $12.3 million of deferred financing costs associated with the notes. This non-cash expense has been calculated using the effective interest rate method. | |
(iii) | The interest rate on the Senior Secured Term Loan Facility is 5.50% (based on a LIBOR floor of 1.50% and an applicable margin of 400 basis points). Each 0.125% change in the interest rate above the LIBOR floor would change interest expense on the Senior Secured Term Loan Facility by $0.4 million for the year ended December 31, 2010. | |
(iv) | Represents the revolving facility commitment fee calculated as 1% per annum on the undrawn portion of the Senior Secured Revolving Facility. This revolving facility commitment fee assumes no borrowings on the Senior Secured Revolving Facility during the pro forma periods. The undrawn portion of the Senior Secured |
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FINANCIAL INFORMATION (Continued)
Revolving Facility assumes $16.3 million of letters of credit were issued which would reduce available borrowing capacity. | ||
(v) | Reflects the non-cash amortization expense of an assumed aggregate $9.1 million of deferred financing costs associated with the Senior Secured Credit Facilities. This non-cash expense has been calculated using the effective interest rate method. | |
(vi) | Reflects the non-cash amortization expense of an aggregate $1.5 million of original issue discount associated with the Senior Secured Revolving Facility. This non-cash expense has been calculated using the effective interest rate method. |
(3) | Preliminary Fair Value and Other Adjustments for the Rank Acquisition |
• | the Rank Acquisition; | |
• | preliminary fair value adjustments with respect to the Rank Acquisition; | |
• | the repayment or redemption of the Former UCI International External Borrowings, which will be repaid or redeemed as part of the Transactions; and | |
• | the payment of estimated fees and expenses. |
($ in millions) | ||||
Purchase consideration to acquire UCI International(i) | $ | (375.0 | ) | |
Repayment of the Former UCI International External Borrowings(ii) | (779.0 | ) | ||
Change in control call premiums on the Former UCI International External Borrowings(iii) | (5.9 | ) | ||
Payment of the estimated fees and expenses(iv) | (16.2 | ) | ||
Reclassification from restricted cash(v) | 16.3 | |||
Net adjustment to cash | $ | (1,159.8 | ) | |
(i) | Under the terms of the Rank Acquisition, the aggregate purchase consideration was $375.0 million. | |
(ii) | Represents the full repayment of the Former UCI International External Borrowings with a principal value of $779.0 million based upon the amount outstanding as of December 31, 2010. | |
(iii) | Represents the change of control call premiums and associated transaction costs on the Former UCI International External Borrowings repaid as part of the Transactions. | |
(iv) | Represents the estimated fees and expenses associated with the Rank Acquisition, including advisory fees, other transaction costs and other professional fees, as well as expenses related to the cancelled initial public offering of UCI International, totaling $26.5 million. As part of the Transactions, $10.3 million of the estimated fees and expenses were paid on behalf of UCI International by Rank Group, a related party. These amounts will be repaid by UCI International to Rank Group in the future. | |
(v) | Represents cash of $16.3 million presented as restricted cash on UCI International’s balance sheet as of December 31, 2010. This restricted cash collateralizes letters of credit in the same amount. Cash in the table above reflects that the letters of credit were replaced by letters of credit issued under the Senior Secured Revolving Facility and that the restrictions on the cash were eliminated. |
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FINANCIAL INFORMATION (Continued)
($ in millions) | ||||
Unamortized deferred financing costs written off on early extinguishment of the Former UCI International External Borrowings | $ | (9.9 | ) | |
Adjustment to deferred financing costs | $ | (9.9 | ) | |
($ in millions) | ||||
Repayment of the current portion of the Former UCI International External Borrowings(i) | $ | (4.5 | ) | |
Adjustment to current maturities of long-term debt | $ | (4.5 | ) | |
(i) | Represents the repayment of the current portion of the Former UCI International External Borrowings with a principal value of $4.5 million repaid as part of the Transactions. |
($ in millions) | ||||
Repayment of the non-current portion of the Former UCI International External Borrowings(i) | $ | (774.5 | ) | |
Unamortized original issue discount written off on early extinguishment of the Former UCI International External Borrowings(ii) | 8.5 | |||
Net adjustment to long-term debt less current maturities | $ | (766.0 | ) | |
(i) | Represents the repayment of the non-current portion of the Former UCI International External Borrowings with a principal value of $774.5 million, repaid as part of the Transactions. | |
(ii) | Represents unamortized original issue discount in respect of the Former UCI International External Borrowings repaid as part of the Transactions. |
($ in millions) | ||||
Elimination of UCI International pre-acquisition common stock | $ | — | ||
Adjustment to common stock | $ | — | ||
($ in millions) | ||||
Elimination of UCI International pre-acquisition additional paid in capital | $ | (279.9 | ) | |
Adjustment to additional paid in capital | $ | (279.9 | ) | |
($ in millions) | ||||
Elimination of UCI International pre-acquisition accumulated deficit | $ | 214.8 | ||
Other transaction fees and expenses associated with the acquisition of UCI International(i) | (12.9 | ) | ||
Adjustment to accumulated deficit | $ | 201.9 | ||
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FINANCIAL INFORMATION (Continued)
(i) | Represents the transaction fees and expenses associated with the acquisition of UCI International of $15.3 million to be recorded as period costs, net of a tax benefit of $2.4 million. The tax benefit has been recognized as a reduction in Accrued expenses and other current liabilities. |
($ in millions) | ||||
Elimination of UCI International pre-acquisition accumulated other comprehensive loss | $ | 41.5 | ||
Adjustment to accumulated other comprehensive loss | $ | 41.5 | ||
For the Year | ||||
Ended | ||||
December 31, | ||||
2010 | ||||
($ in millions) | ||||
Elimination of historical interest on the Former UCI International External Borrowings(i) | $ | 60.7 | ||
Adjustment to interest expense, net | $ | 60.7 | ||
(i) | Represents the pro forma effect of the repayment of the Former UCI International External Borrowings with a principal value of $779.0 million repaid as part of the Transactions. |
For the Year | ||||
Ended | ||||
December 31, | ||||
2010 | ||||
($ in millions) | ||||
Elimination of historical loss on early extinguishment of the 2006 Credit Facility and the Previously Outstanding Subordinated Notes(i) | $ | 8.7 | ||
Adjustment to loss on early extinguishment of debt | $ | 8.7 | ||
(i) | Represents the elimination of the loss incurred by UCI International on the early extinguishment of the 2006 Credit Facility and the Previously Outstanding Subordinated Notes in the year ended December 31, 2010. |
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FINANCIAL INFORMATION (Continued)
($ in millions) | ||||||||
Cost of acquisition(i) | $ | 375.0 | ||||||
Less estimated book value of assets acquired and liabilities assumed: | ||||||||
Historical book value of assets acquired and liabilities assumed(ii) | 23.6 | |||||||
Pre-acquisition transaction costs(iii) | (7.3 | ) | ||||||
Less UCI International’s existing goodwill(ii) | (241.5 | ) | ||||||
GAAP book value of identifiable assets acquired and liabilities assumed | (225.2 | ) | ||||||
Fair value adjustments | ||||||||
Inventory(iv) | 15.6 | |||||||
Provisions — unfavorable lease contracts(v) | (1.0 | ) | ||||||
Pension liability(vi) | — | |||||||
Property, plant and equipment(vii) | 27.0 | |||||||
Identifiable intangible assets(viii) | 374.5 | |||||||
Change of control call premiums and write off of unamortized deferred financing costs and unamortized original issue discount on the Former UCI International External Borrowings that were repaid as part of the Transactions(ix) | (24.3 | ) | ||||||
Deferred tax asset(x) | 9.6 | |||||||
Deferred tax liability(x) | (159.3 | ) | ||||||
Fair value adjustment to assets acquired and liabilities assumed | 242.1 | |||||||
Goodwill arising from the Acquisition | $ | 358.1 | ||||||
(i) | Under the terms of the Rank Acquisition, the aggregate purchase consideration was $375.0 million. | |
(ii) | Derived from the UCI International audited consolidated balance sheet as of December 31, 2010, included elsewhere in this prospectus. | |
(iii) | Reflects expenses associated with the cancelled initial public offering of UCI International and seller-side merger and acquisition costs aggregating expenses of $11.2 million, net of a tax benefit of $3.9 million. The tax benefit has been recognized as a reduction in Accrued expenses and other current liabilities. | |
(iv) | Reflects the preliminary fair value adjustment to increase inventory by $15.6 million based on our preliminary assessment as of December 31, 2010. | |
(v) | Reflects the preliminary assessment of the fair value of the liability associated with certain unfavorable contractual arrangements which are contractual arrangements with terms less favorable to UCI International than current market terms. | |
(vi) | The net pension liability of UCI International’s pension plans at December 31, 2010 was calculated using December 31, 2010 plan asset values and discount rates. As such, there is no fair value adjustment necessary to the pro forma balance sheet at December 31, 2010. Based upon changes in the pension plan asset values and discount rates from December 31, 2010 to the date of the Rank Acquisition, the net liability has been preliminarily determined to have decreased by approximately $7.0 million. Accordingly, the final purchase price allocation as of the date of the Rank Acquisition will include a fair value adjustment of approximately $7.0 million to reduce the net pension liability. | |
(vii) | Reflects the preliminary fair value adjustment to property, plant and equipment. For the purpose of the unaudited pro forma income statement, depreciation has been calculated based on the revised fair value using the remaining estimated average useful lives of each class of asset. A change in the remaining estimated average useful lives of each class of property, plant and equipment would change depreciation expense. An increase of one year in the remaining estimated average useful lives would decrease depreciation expense by $6.8 million in the year ended December 31, 2010. A decrease of one year would increase depreciation expense by $13.1 million in the year ended December 31, 2010. |
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FINANCIAL INFORMATION (Continued)
(viii) | Reflects the preliminary fair value adjustments to identifiable intangible assets to reflect the value of trade names, lease arrangements, customer relationships, and software. For the purpose of the unaudited pro forma income statement, amortization has been calculated based on the estimated average useful lives of the definite life intangible assets recognized on acquisition. A change in the remaining estimated average useful lives of each class of intangible asset would change amortization expense. An increase of one year in the remaining estimated average useful lives would decrease amortization expense by $1.7 million in the year ended December 31, 2010. A decrease of one year would increase amortization expense by $2.5 million in the year ended December 31, 2010. |
Preliminary | Estimated | |||||||
Type of Identifiable Intangible Assets | Fair Value | Useful Life | ||||||
(In $ millions) | ||||||||
Trade names | $ | 154.8 | indefinite | |||||
Trade names | 0.6 | 5 years | ||||||
Customer relationships | 273.0 | 10-15 years | ||||||
Software | 9.1 | 5 years | ||||||
Total | $ | 437.5 | ||||||
For the Year | ||||
Ended | ||||
December 31, | ||||
2010 | ||||
(In $ millions) | ||||
Amortization of intangible assets (excluding goodwill) | $ | 17.7 | ||
Depreciation of property, plant and equipment | 3.0 | |||
Total | $ | 20.7 | ||
Recognized in: | ||||
Cost of sales | $ | 2.5 | ||
Selling and warehousing | 0.1 | |||
General and administrative | 0.4 | |||
Amortization of acquired intangible assets | 17.7 | |||
Total | $ | 20.7 | ||
(ix) | Reflects the preliminary fair value adjustment to recognize change in control premiums (including associated transaction expenses) of $5.9 million, to write off unamortized original issue discounts of $8.5 million, and to write off deferred debt issuance costs of $9.9 million associated with the Former UCI International External Borrowings that were repaid as part of the Transactions. | |
(x) | Reflects the tax effect of the above preliminary fair value adjustments determined using an estimated effective tax rate of 38.2%. |
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FINANCIAL INFORMATION (Continued)
($ in millions) | ||||
Reclassification to cash | $ | 16.3 | ||
Adjustment to restricted cash | $ | 16.3 | ||
For the Year | ||||
Ended | ||||
December 31, | ||||
2010 | ||||
($ in millions) | ||||
Elimination of historical management fee expense(i) | $ | 2.0 | ||
Adjustment to management fee expense | $ | 2.0 | ||
(i) | Represents the elimination of the historical management fee paid to TC Group L.L.C., an affiliate of Carlyle, for management and financial advisory services and oversight, which terminated upon consummation of the Acquisition. Pursuant to the indenture governing the notes, we are permitted to pay management fees to Rank Group, but Rank Group currently does not intend for us to do so. |
(4) | Pro Forma Depreciation and Amortization |
For the Year | ||||
Ended | ||||
December 31, | ||||
2010 | ||||
($ in millions) | ||||
UCI International | $ | 56.1 | ||
Total for the period | $ | 56.1 | ||
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FINANCIAL INFORMATION (Continued)
(5) | Debt |
($ in millions) | ||||
Notes(i) | $ | 400.0 | ||
Senior Secured Credit Facilities(ii) | 298.5 | |||
Short-term borrowings and capitalized lease obligations | 4.0 | |||
Total debt | $ | 702.5 | ||
Short-term borrowings | $ | 3.3 | ||
Current maturities of long-term debt | 3.0 | |||
Long-term debt, less current maturities | 696.2 | |||
Total debt | $ | 702.5 | ||
(i) | Represents the proceeds from the notes in aggregate principal amount of $400.0 million. | |
(ii) | Represents borrowings under the Senior Secured Term Loan Facility in aggregate principal amount of $300.0 million and the $1.5 million of original issue discount associated with the Senior Secured Revolving Facility. |
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Sales | $ | 1,074.2 | $ | 1,004.6 | $ | 996.7 | ||||||
Provision for warranty costs and sales returns | (70.6 | ) | (62.0 | ) | (61.6 | ) | ||||||
Provision for customer contracted sales deductions | (49.7 | ) | (44.8 | ) | (37.3 | ) | ||||||
New business costs and other | (8.9 | ) | (12.8 | ) | (17.4 | ) | ||||||
Net sales | $ | 945.0 | $ | 885.0 | $ | 880.4 | ||||||
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2010 | 2009 | 2008 | ||||||||||
Net sales | $ | 945.0 | $ | 885.0 | $ | 880.4 | ||||||
Cost of sales | 708.6 | 688.2 | 705.2 | |||||||||
Gross profit | 236.4 | 196.8 | 175.2 | |||||||||
Operating (expenses) income | ||||||||||||
Selling and warehousing | (60.5 | ) | (56.6 | ) | (62.9 | ) | ||||||
General and administrative | (50.6 | ) | (44.9 | ) | (48.9 | ) | ||||||
Amortization of acquired intangible assets | (5.2 | ) | (5.8 | ) | (6.3 | ) | ||||||
Restructuring (costs) gains | (1.7 | ) | (0.9 | ) | (2.4 | ) | ||||||
Trademark impairment loss | — | — | (0.5 | ) | ||||||||
Patent litigation costs | (5.9 | ) | (7.0 | ) | — | |||||||
Operating income | 112.5 | 81.6 | 54.2 | |||||||||
Other expense | ||||||||||||
Interest expense, net | (60.8 | ) | (60.5 | ) | (65.4 | ) | ||||||
Management fee expense | (2.0 | ) | (2.0 | ) | (2.0 | ) | ||||||
Loss on early extinguishment of debt | (8.7 | ) | — | — | ||||||||
Miscellaneous, net | (3.5 | ) | (5.5 | ) | (3.5 | ) | ||||||
Income (loss) before income taxes | 37.5 | 13.6 | (16.7 | ) | ||||||||
Income tax (expense) benefit | (14.5 | ) | (5.1 | ) | 4.3 | |||||||
Net income (loss) | 23.0 | 8.5 | (12.4 | ) | ||||||||
Less: Loss attributable to noncontrolling interest | (0.0 | ) | (0.7 | ) | (0.8 | ) | ||||||
Net income (loss) attributable to UCI International, Inc. | $ | 23.0 | $ | 9.2 | $ | (11.6 | ) | |||||
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Year Ended December 31, | ||||||||||||||||
2010 | % | 2009 | % | |||||||||||||
($ in millions, except percentages) | ||||||||||||||||
Filtration | $ | 352.3 | 37 | % | $ | 346.6 | 39 | % | ||||||||
Fuel delivery systems | 262.8 | 28 | % | 221.9 | 25 | % | ||||||||||
Vehicle electronics | 183.9 | 20 | % | 163.2 | 19 | % | ||||||||||
Cooling systems | 146.0 | 15 | % | 153.3 | 17 | % | ||||||||||
$ | 945.0 | 100 | % | $ | 885.0 | 100 | % | |||||||||
2010 | 2009 | |||||||
($ in millions) | ||||||||
Gross profit, as reported | $ | 236.4 | $ | 196.8 | ||||
Add back special items: | ||||||||
New business changeover and sales commitment costs | 1.7 | 5.0 | ||||||
Valuation allowance for non-trade receivables | 1.4 | — | ||||||
Severance costs | — | 0.8 | ||||||
Costs to establish additional manufacturing in China | — | 0.5 | ||||||
Adjusted gross profit | $ | 239.5 | $ | 203.1 | ||||
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Previously Outstanding Subordinated Notes call premium | $ | 3.6 | ||
Write-off unamortized debt discount | 1.8 | |||
Previously Outstanding Subordinated Notes redemption period interest | 1.9 | |||
Write-off unamortized deferred financing costs | 1.4 | |||
$ | 8.7 | |||
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Year Ended December 31, | ||||||||||||||||
2009 | % | 2008 | % | |||||||||||||
($ in millions, except percentages) | ||||||||||||||||
Filtration | $ | 346.6 | 39 | % | $ | 366.2 | 42 | % | ||||||||
Fuel delivery systems | 221.9 | 25 | 218.2 | 25 | ||||||||||||
Vehicle electronics | 163.2 | 19 | 142.3 | 16 | ||||||||||||
Cooling systems | 153.3 | 17 | 153.7 | 17 | ||||||||||||
$ | 885.0 | 100 | % | $ | 880.4 | 100 | % | |||||||||
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2009 | 2008 | |||||||
($ in millions) | ||||||||
Gross profit, as reported | $ | 196.8 | $ | 175.2 | ||||
Add back special items: | ||||||||
Special provision for warranty costs | — | 6.7 | ||||||
New business changeover and sales commitment costs | 5.0 | 7.8 | ||||||
Severance costs | 0.8 | 0.1 | ||||||
Costs to establish additional manufacturing in China | 0.5 | 3.1 | ||||||
Adjusted Gross profit | $ | 203.1 | $ | 192.9 | ||||
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Year Ended | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
($ in millions) | ||||||||
Severance | $ | — | $ | 0.2 | ||||
Costs of maintaining the pre-acquisition water pump system facility | 0.4 | 0.6 | ||||||
Additional asset impairments | — | 1.6 | ||||||
$ | 0.4 | $ | 2.4 | |||||
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Year Ended December 31, | ||||||||||||||||||||||||
2010 | % | 2009 | % | 2008 | % | |||||||||||||||||||
($ in millions, except percentages) | ||||||||||||||||||||||||
United States subsidiaries | $ | 874.5 | 93 | % | $ | 818.3 | 92 | % | $ | 812.1 | 92 | % | ||||||||||||
Foreign subsidiaries | 70.5 | 7 | % | 66.7 | 8 | % | 68.3 | 8 | % | |||||||||||||||
$ | 945.0 | 100 | % | $ | 885.0 | 100 | % | $ | 880.4 | 100 | % | |||||||||||||
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Income (loss) before income taxes | ||||||||||||
United States | $ | 35.8 | $ | 8.1 | $ | (17.7 | ) | |||||
Foreign | 1.7 | 5.5 | 1.0 | |||||||||
$ | 37.5 | $ | 13.6 | $ | (16.7 | ) | ||||||
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Sources | Uses | |||||||||
Revolving credit facility | $ | — | Accrued interest payment | $ | 6.4 | |||||
2010 Credit Facility term loan | 425.0 | Repay 2006 Credit Facility term loan | 172.3 | |||||||
Cash on Balance Sheet | 4.0 | Redeem Previously Outstanding Subordinated Notes | 230.0 | |||||||
Transaction costs and original issue discount | 20.3 | |||||||||
Total Sources | $ | 429.0 | Total Uses | $ | 429.0 | |||||
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December 31, | ||||||||||||
December 31, | December 31, | 2010 | ||||||||||
2010 | 2009 | (Pro Forma for the | ||||||||||
(Actual) | (Actual) | Transactions) | ||||||||||
Senior PIK Notes | $ | 355.1 | $ | 324.1 | $ | — | ||||||
Notes | — | — | 400.0 | |||||||||
2010 Credit Facility — Term Loan | 423.9 | — | — | |||||||||
2010 Credit Facility — Revolver | — | — | — | |||||||||
2006 Credit Facility — Term Loan | — | 190.0 | — | |||||||||
Senior Secured Term Loan Facility | — | — | 300.0 | |||||||||
Senior Secured Revolving Facility | — | — | — | |||||||||
Previously Outstanding Subordinated Notes | — | 230.0 | — | |||||||||
UCI short-term borrowings | 3.3 | 3.5 | 3.3 | |||||||||
UCI capital lease obligations | 0.7 | 0.9 | 0.7 | |||||||||
Unamortized original issue discount | (8.5 | ) | (6.9 | ) | (1.5 | ) | ||||||
774.5 | 741.6 | 702.5 | ||||||||||
Less: | ||||||||||||
UCI short-term borrowings | 3.3 | 3.5 | 3.3 | |||||||||
Current maturities | 4.5 | 17.9 | 3.2 | |||||||||
Long-term debt | $ | 766.7 | $ | 720.2 | $ | 696.0 | ||||||
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2011 | $ | 6.5 | ||
2012 | 3.2 | |||
2013 | 3.1 | |||
2014 | 3.1 | |||
2015 | 3.0 | |||
Thereafter | 685.1 | |||
$ | 704.0 | |||
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Payments Due by Period | ||||||||||||||||||||
Less Than | More Than | |||||||||||||||||||
1 Year | 2-3 Years | 4-5 Years | 5 Years | Total | ||||||||||||||||
Debt repayments (excluding interest)(1) | $ | 7.7 | $ | 8.8 | $ | 243.6 | $ | 402.8 | $ | 662.9 | ||||||||||
Interest payments(2) | 27.2 | 216.8 | 52.2 | 26.6 | 322.8 | |||||||||||||||
Estimated pension funding(3) | 15.6 | 29.2 | 24.2 | See (3) below | 69.0 | |||||||||||||||
Other postretirement benefit payments(4) | 0.7 | 1.5 | 1.5 | See (4) below | 3.7 | |||||||||||||||
Operating leases | 5.3 | 7.1 | 5.7 | 8.2 | 26.3 | |||||||||||||||
Purchase obligations(5) | 96.7 | — | — | — | 96.7 | |||||||||||||||
Management fees(6) | — | — | — | — | — | |||||||||||||||
Unrecognized tax benefits(7) | — | — | — | — | — | |||||||||||||||
Total contractual cash obligations | $ | 153.2 | $ | 263.4 | $ | 327.2 | $ | 437.6 | $ | 1,181.4 | ||||||||||
(1) | Debt repayments exclude $120.1 million of the Senior PIK Notes which were issued in lieu of cash interest. See (2) below for a discussion of thecatch-up interest payment. See “— Pro Forma Contractual Obligations” below for revised contractual cash obligations for debt repayments on a pro forma basis assuming the Transactions occurred on December 31, 2010. | |
(2) | Estimated interest payments are based on the assumption that (i) December 31, 2010 interest rates will prevail throughout all future periods, (ii) debt is repaid on its original due date, and (iii) no new debt is issued. Had the Senior PIK Notes not been redeemed as part of the Transactions, UCI International would have been required to make cash payments for all accumulatedpaid-in-kind interest on the Senior PIK Notes in 2012 or in some combination of 2012 and 2013, depending on certain circumstances. In the above table, the entire cash payment is presented in 2012. See “— Pro Forma Contractual Obligations” below for revised contractual cash obligations for interest repayments on a pro forma basis assuming the Transactions occurred on December 31, 2010. | |
(3) | Estimated pension funding is based on the current composition of pension plans and current actuarial assumptions. Pension funding will continue beyond year 5. Nevertheless, estimated pension funding is |
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excluded from the table after year 5. See Note 13 to the financial statements of UCI International included elsewhere in this prospectus for the funding status of the pension plans at December 31, 2010. | ||
(4) | Estimated benefit payments are based on current actuarial assumptions. Benefit payments will continue beyond year 5. Nevertheless, estimated payments are excluded from the table after year 5. See Note 13 to the financial statements of UCI International included elsewhere in this prospectus for the funding status of the other postretirement benefit plans at December 31, 2010. | |
(5) | Included in the purchase obligations is $6.4 million related to property, plant and equipment. The remainder is for materials, supplies and services routinely used in the normal course of operations. | |
(6) | Pursuant to the instruments governing our indebtedness, we are permitted to pay management fees to Rank Group, but Rank Group does not currently intend for us to do so. | |
(7) | Possible payments of $5.0 million related to unrecognized tax benefits are not included in the table because management cannot make reasonable reliable estimates of when cash settlement will occur, if ever. These unrecognized tax benefits are discussed in Note 12 to the financial statements of UCI International included elsewhere in this prospectus. |
Payments Due by Period | ||||||||||||||||||||
Less Than | More Than | |||||||||||||||||||
1 Year | 2-3 Years | 4-5 Years | 5 Years | Total | ||||||||||||||||
Debt repayments (excluding interest)(1) | $ | 6.5 | $ | 6.3 | $ | 6.1 | $ | 685.1 | $ | 704.0 | ||||||||||
Interest payments(2) | 52.1 | 103.8 | 102.9 | 132.0 | 390.8 |
(1) | Represents contractual obligations in relation to the Senior Secured Term Loan Facility, the notes and other short-termnon-U.S. borrowings and capital lease obligations. | |
(2) | Includes commitment fees. |
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2010 | Potential | |||||||
Sales | Impact | |||||||
Euro | $ | 33.4 | $ | 3.3 | ||||
Mexican Peso | 26.3 | 2.6 | ||||||
Pound Sterling | 7.6 | 0.8 | ||||||
Chinese Yuan | 3.3 | 0.3 |
2010 Net | Potential | |||||||
Asset Value | Impact | |||||||
Euro | $ | 14.0 | $ | 1.4 | ||||
Mexican Peso | 15.9 | 1.6 | ||||||
Pound Sterling | 1.3 | 0.1 |
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• | Non-Discretionary: Our fuel delivery systems, vehicle electronics and cooling systems products are critical for vehicle operation and must be replaced upon failure for the vehicle to successfully operate. | |
• | Recurring Maintenance: Our filtration products are replaced at regular maintenance intervals, generating a predictable, recurring revenue stream. |
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(1) | Based on 2010 net sales. | |
(2) | Numbers reflected are approximate. | |
(3) | Includes our brands, licensed brands and private label brands. |
• | Non-Discretionary: Our fuel delivery systems, vehicle electronics and cooling systems products are critical for vehicle operation and must be replaced upon failure for the vehicle to successfully operate. | |
• | Recurring Maintenance: Our filtration products are replaced at regular maintenance intervals, generating a predictable, recurring revenue stream. |
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• | Highly Engineered: Our product lines require significant engineering, product development, product support, sourcing and manufacturing capabilities. As the parts within our product lines continue to increase in complexity, we believe we are well positioned to benefit from these trends. |
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• | increasing average fill rates from the low 90s to approximately 98%; | |
• | increasing annual net sales per employee from approximately $140,000 to $245,000; | |
• | expanding our global footprint, while reducing total facilities from 47 to 29; and | |
• | increasing our Adjusted EBITDA as a percentage of net sales from 13.1% in the year ended December 31, 2003 to 17.9% for the year ended December 31, 2010. |
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• | Increasing global vehicle population: Growth in vehicle population represents increased demand for aftermarket parts. Registered passenger cars and light trucks in the United States increased by approximately 20% or 40 million from 1999 to 2009. According to J.D. Power, the global vehicle population is expected to experience growth at a CAGR of 3.3% from 2009 to 2015, and light vehicles in operation in the United States are expected to grow at a projected CAGR of 1.3% between 2009 and 2015. | |
• | Aging of vehicle population: Average vehicle age also is a demand driver for light vehicle aftermarket parts and services. As vehicles age, increased maintenance is required, resulting in a greater demand for |
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replacement parts. The average age of light vehicles in use in the United States grew from 8.8 years in 1999 to 10.2 years in 2009 and is expected to continue increasing due to the higher quality of vehicles sold today. Continued aging is expected to accelerate demand for aftermarket parts due to the large number of vehicles entering the prime age for maintenance (6-12 years) where warranties expire and ownership often changes hands. |
• | Increasing vehicle miles driven: Increased vehicle usage naturally leads to greater demand for replacement parts. Miles driven in the United States has increased steadily over the last several decades. For example, between 1981 and 2010, miles driven in the United States increased at a CAGR of 2.3%, according to the U.S. Department of Transportation, and declined in only one year, 2008, mainly due to sharp increases in fuel prices. This amount increased 0.2% in 2009 from 2008 and 0.7% in 2010 from 2009. | |
• | Growing heavy-duty aftermarket: The North American heavy-duty aftermarket is comprised of replacement parts and accessories for vehicles weighing more than 19,500 pounds. Increased North American freight activity and fleet utilization drive heavy-duty vehicle aftermarket demand. According to FTR Associates, historical total truckton-miles increased in each year over the past 17 years, except for 2008 and 2009, when fuel price increases and the economic downturn affected this trend. However, truck tonnage climbed 5.7% in 2010 compared with 2009 according to American Trucking Association. Additionally, MacKay & Company had estimated that the heavy-duty vehicle aftermarket would grow by approximately 8% in 2010, however final growth rates are not yet available. |
• | Retail: National chains that primarily serve the DIY group and are strategically pursuing the DIFM group by targeting independent repair shops and professional installers or “commercial” sales. Leading retail providers include Advance, AutoZone and O’Reilly. | |
• | Traditional: Independent repair shops and professional installers supplied through companies like CARQUEST and NAPA, as well as buying groups such as The Alliance and The Network. | |
• | OES: Dealership service bays associated with OEMs such as GM, Ford and Chrysler. |
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• | Automotive: Ford, GM and Remy | |
• | Heavy-duty Truck: Perkins/Caterpillar, Freightliner and Parker-Hannifin | |
• | Motorcycle: Harley-Davidson and Kawasaki | |
• | Recreational Equipment: Onan and Polaris | |
• | Agriculture: Deere and Kubota | |
• | Marine: Mercury Marine and Sierra Supply | |
• | Lawn and Garden: Briggs and Stratton, Deere and Kohler |
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Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
United States | $ | 805.4 | $ | 755.1 | $ | 735.1 | ||||||
Canada | 31.4 | 29.0 | 30.1 | |||||||||
Mexico | 23.5 | 24.7 | 32.9 | |||||||||
United Kingdom | 15.6 | 11.6 | 12.3 | |||||||||
France | 10.7 | 8.6 | 9.8 | |||||||||
Germany | 6.5 | 5.4 | 5.0 | |||||||||
Spain | 4.4 | 4.2 | 5.2 | |||||||||
Venezuela | 2.2 | 2.3 | 4.6 | |||||||||
Other | 45.3 | 44.1 | 45.4 | |||||||||
Allnon-U.S. | 139.6 | 129.9 | 145.3 | |||||||||
Total | $ | 945.0 | $ | 885.0 | $ | 880.4 | ||||||
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Location | Owned/Leased | Square Footage | Products Manufactured | |||||
North America | ||||||||
Albion, Illinois I | Owned | 271,000 | Spin-on Oil Filters; Heavy-duty Lube Filters; Micro Glass Elements | |||||
Albion, Illinois II | Owned | 53,000 | Spin-on Oil Filters; Poly Panel Air Filters | |||||
Albion, Illinois III | Owned | 50,000 | Heavy-duty Lube Units; Round Air Filters | |||||
Albion, Illinois IV | Owned | 101,000 | Heavy-duty Air Filters; Radial Air Filters; Automotive Conical and Radial Air Filters | |||||
Shelby Township, Michigan | Leased | 30,000 | Auto Fuel Filters | |||||
West Salem, Illinois | Owned | 217,000 | Heavy-duty Lube Filters; Spin-on Oil Filters | |||||
York, South Carolina | Owned | 189,000 | Auto Spin-on Oil Filters | |||||
Fairfield, Illinois I | Owned | 183,000 | Electric and Mechanical Fuel Pump Components | |||||
Fairfield, Illinois II | Owned | 457,000 | Electric Fuel Pump Assemblies and Components; Mechanical Fuel Pumps and Components | |||||
North Canton, Ohio | Leased | 210,000 | Water Pump Assemblies | |||||
Fond du Lac, Wisconsin I | Owned | 230,000 | Screw Machining and Stampings | |||||
Fond du Lac, Wisconsin II | Owned | 36,000 | Electronic Controls; Sensors; Voltage Regulators | |||||
Puebla, Mexico | Two Owned Buildings, One Leased Building | 229,000 | Gray Iron Foundry Castings and Pump Assemblies; Water Pump Assemblies and Components | |||||
Reynosa, Mexico | Owned | 108,000 | Coils; Distributor Caps and Rotors; Sensors; Solenoids; Switches and Wire Sets; 5,000 square feet utilized for Fuel Products | |||||
Europe | ||||||||
Mansfield Park, United Kingdom | Leased | 100,000 | Radial Seal Air Filters; Poly Panel Air Filters; Heavy-duty Air Filters; Dust Collection Filters | |||||
Zaragoza, Spain | Leased | 86,000 | Water Pump Assemblies; Gray Iron Foundry Castings; Water Pump Assemblies and Components | |||||
China | ||||||||
Tianjin, China | Land leased/Building owned | 162,000 | Water Pump Components | |||||
Tianjin Economic Development Areas, China | Leased | 60,000 | Fuel Pump Components | |||||
Wujiang, China | Leased | 35,000 | Light-duty Panel Air Filters |
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Name | Age | Position | ||||
Graeme Hart | 55 | Sole indirect owner, Director of Holdings | ||||
Allen Hugli | 48 | Director of Holdings and UCI International, Inc. | ||||
Gregory Cole | 48 | Director of Holdings and UCI International, Inc. | ||||
Bryce Murray | 53 | Director of Holdings | ||||
Thomas Degnan | 63 | Director of UCI International, Inc. | ||||
Helen Golding | 48 | Director of UCI International, Inc. | ||||
Bruce Zorich | 57 | President, Chief Executive Officer, Director of UCI International, Inc. | ||||
Keith Zar | 56 | Vice President, General Counsel and Secretary; Acting Chief Financial Officer | ||||
Michael Malady | 55 | Vice President, Human Resources |
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Non-Equity | Change in | |||||||||||||||||||||||||||||||||||
Name and | Stock | Option | Incentive Plan | Pension | All Other | |||||||||||||||||||||||||||||||
Principal Position | Year | Salary | Bonus | Awards(1) | Awards(1) | Compensation(2) | Value | Compensation(3) | Total | |||||||||||||||||||||||||||
Bruce M. Zorich | 2010 | $ | 465,000 | $ | 558,000 | $ | 49,232 | $ | 1,073,232 | |||||||||||||||||||||||||||
President and | 2009 | 465,000 | 558,000 | 36,936 | $ | 8,401 | 1,068,337 | |||||||||||||||||||||||||||||
Chief Executive Officer | 2008 | 465,000 | $ | 125,000 | (4) | $ | 267,691 | 36,856 | 7,935 | 902,482 | ||||||||||||||||||||||||||
Mark P. Blaufuss | 2010 | 380,000 | 75,000 | (5) | 285,000 | 1,488 | 741,488 | |||||||||||||||||||||||||||||
Chief Financial Officer | 2009 | 126,667 | 75,000 | (7) | 1,129,200 | 95,000 | 556 | 1,426,423 | ||||||||||||||||||||||||||||
and Executive Vice President(6) | ||||||||||||||||||||||||||||||||||||
Michael G. Malady | 2010 | 238,000 | 125,000 | 47,851 | 1,062 | 411,913 | ||||||||||||||||||||||||||||||
Vice President, | 2009 | 238,000 | 125,000 | 29,984 | 3,143 | 396,012 | ||||||||||||||||||||||||||||||
Human Resources | 2008 | 238,000 | 35,000 | (4) | 114,566 | 28,212 | 7,140 | 422,918 | ||||||||||||||||||||||||||||
Keith A. Zar | 2010 | 289,000 | 50,000 | (5) | 173,400 | 1,292 | 513,692 | |||||||||||||||||||||||||||||
Vice President, General | 2009 | 289,000 | 173,400 | 3,410 | 465,810 | |||||||||||||||||||||||||||||||
Counsel and Secretary | 2008 | 289,000 | 50,000 | (4) | 128,714 | 5,661 | 473,375 | |||||||||||||||||||||||||||||
(1) | Amounts represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. | |
(2) | Represents bonus amounts earned under UCI International’s annual bonus program for fiscal years ended December 31, 2010 and December 31, 2009. No bonuses were earned under the annual bonus program with respect to performance for the year ended December 31, 2008. | |
(3) | Includes UCI’s matching funds under the 401(k) plan and life insurance premiums paid by UCI. |
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(4) | Represents discretionary bonuses paid in 2009 with respect to the year ended December 31, 2008. These bonuses were not paid under our annual bonus program. | |
(5) | Represents discretionary bonuses paid in 2010 outside of our annual bonus program. |
(6) | Mr. Blaufuss’s employment with UCI commenced on September 8, 2009. Mr. Blaufuss resigned his position with UCI effective April 29, 2011. |
(7) | Represents payments made to Mr. Blaufuss in connection with the commencement of his employment with UCI. |
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Number of | Present | |||||||||||||
Years | Value of | Payments | ||||||||||||
Credited | Accumulated | During Last | ||||||||||||
Name | Plan Name | Service | Benefit | Fiscal Year | ||||||||||
Bruce Zorich | Champion Laboratories Inc. Pension Plan | 8 | $ | 201,765 | $ | 0 | ||||||||
Michael Malady | Champion Laboratories Inc. Pension Plan | 7 | 175,042 | 0 |
Years of Service | ||||||||||||||||||||||||
5 | 10 | 15 | 20 | 25 | 30 | |||||||||||||||||||
Remuneration | ||||||||||||||||||||||||
$125,000 | $ | 9,375 | $ | 18,750 | $ | 28,125 | $ | 37,500 | $ | 46,875 | $ | 56,250 | ||||||||||||
$150,000 | 11,250 | 22,500 | 33,750 | 45,000 | 56,250 | 67,500 | ||||||||||||||||||
$175,000 | 13,125 | 26,250 | 39,375 | 52,500 | 65,625 | 78,750 | ||||||||||||||||||
$200,000 and over | 15,000 | 30,000 | 45,000 | 60,000 | 75,000 | 90,000 |
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• | $300.0 million of term loans under the Senior Secured Term Loan Facility, borrowed by the Issuer on the closing of the Transactions; and | |
• | a Senior Secured Revolving Facility of $75.0 million (of which up to $50.0 million may be drawn by way of letters of credit), which was undrawn at the closing of the Transactions and which may be drawn by the Issuer or any Additional Borrowers. Certain letters of credit were deemed issued at the closing and, consequently, availability under the Senior Secured Revolving Facility was reduced by $16.3 million. |
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• | incur additional indebtedness (including guarantees and hedging arrangements); | |
• | incur liens; | |
• | enter into sale and lease-back transactions; | |
• | make loans and investments; | |
• | implement mergers, dispositions and sales of assets; | |
• | make restricted payments or enter into restrictive agreements; | |
• | enter into transactions with affiliates on non-arm’s length terms; | |
• | change the business conducted by Holdings and its subsidiaries; | |
• | prepay, or make redemptions and repurchases of the notes and certain other specified debt; | |
• | amend the terms of the notes; | |
• | amend certain organizational documents; | |
• | change Holdings’ fiscal year; and | |
• | conduct an active business (in the case of Holdings). |
• | non-payment of principal, interest or other amounts; | |
• | violation of covenants; | |
• | material breach of the representations or warranties; | |
• | cross-default and cross-acceleration to other material indebtedness; | |
• | bankruptcy; | |
• | material judgments; | |
• | certain ERISA events; |
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• | actual or asserted invalidity of any collateral or guarantee; and | |
• | a change of control (as defined in the Senior Secured Credit Facilities). |
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• | are general senior obligations of the Issuer; | |
• | rankpari passuin right of payment with all existing and future Senior Indebtedness of the Issuer; | |
• | are effectively subordinated to any Secured Indebtedness of the Issuer (including Indebtedness of the Issuer outstanding under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such Indebtedness; | |
• | are senior in right of payment to any future Subordinated Indebtedness of the Issuer; | |
• | are unconditionally guaranteed on a senior basis by the Guarantors; and | |
• | are subordinated to all claims of creditors, including trade creditors, and claims of preferred stockholders (if any) of each of the Subsidiaries of the Company that is not a Guarantor or the Issuer. |
• | are general senior obligations of each Guarantor; | |
• | rankpari passuin right of payment with all existing and future Senior Indebtedness of such Guarantor; |
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• | are effectively subordinated to any Secured Indebtedness of such Guarantor (including Indebtedness of such Guarantor with respect to its guarantee of the Senior Secured Credit Facilities) to the extent of the value of the assets securing such Indebtedness; and | |
• | are senior in right of payment to any Subordinated Indebtedness of such Guarantor. |
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Redemption | ||||
Period | Price | |||
2015 | 104.313 | % | ||
2016 | 102.156 | % | ||
2017 and thereafter | 100.000 | % |
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• | any aspect of the records of the Depositary or any participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest, for any such payments made by the Depositary or any participant or indirect participants, or maintaining, supervising or reviewing the records of the Depositary or any participant or indirect participant relating to or payments made on account of a Book-Entry Interest; or | |
• | the Depositary or any participant or indirect participant. |
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• | such new notes are acquired in the ordinary course of business; | |
• | at the time of the commencement of the exchange offer, such holder has no arrangement or understanding with any person to participate in a distribution of such new notes; and | |
• | such holder is not engaged in and does not intend to engage in a distribution of such new notes. |
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Audited annual consolidated financial statements of UCI International, Inc. | ||||
F-2 | ||||
Consolidated Financial Statements | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
Page | ||||
Audited annual consolidated financial statements of UCI Holdings Limited | ||||
F-56 | ||||
Consolidated Financial Statements | ||||
F-57 | ||||
F-58 | ||||
F-59 | ||||
F-60 | ||||
F-61 |
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December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 200,330 | $ | 131,942 | ||||
Accounts receivable, net | 271,832 | 261,210 | ||||||
Inventories, net | 144,156 | 133,058 | ||||||
Deferred tax assets | 38,377 | 31,034 | ||||||
Restricted cash | 16,290 | — | ||||||
Other current assets | 17,663 | 23,499 | ||||||
Total current assets | 688,648 | 580,743 | ||||||
Property, plant and equipment, net | 135,060 | 149,753 | ||||||
Goodwill | 241,461 | 241,461 | ||||||
Other intangible assets, net | 63,048 | 68,030 | ||||||
Deferred financing costs, net | 9,937 | 3,164 | ||||||
Restricted cash | — | 9,400 | ||||||
Other long-term assets | 7,103 | 6,304 | ||||||
Total assets | $ | 1,145,257 | $ | 1,058,855 | ||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 115,159 | $ | 111,898 | ||||
Short-term borrowings | 3,271 | 3,460 | ||||||
Current maturities of long-term debt | 4,473 | 17,925 | ||||||
Accrued expenses and other current liabilities | 131,331 | 108,147 | ||||||
Total current liabilities | 254,234 | 241,430 | ||||||
Long-term debt, less current maturities | 766,735 | 720,202 | ||||||
Pension and other postretirement liabilities | 87,040 | 70,802 | ||||||
Deferred tax liabilities | 8,975 | 8,785 | ||||||
Other long-term liabilities | 4,636 | 6,672 | ||||||
Total liabilities | 1,121,620 | 1,047,891 | ||||||
Contingencies — Note 14 | ||||||||
Shareholders’ equity (deficit) | ||||||||
UCI International, Inc. shareholders’ equity | ||||||||
Common stock | 29 | 29 | ||||||
Additional paid in capital | 279,939 | 279,485 | ||||||
Retained deficit | (214,856 | ) | (237,858 | ) | ||||
Accumulated other comprehensive loss | (41,475 | ) | (32,502 | ) | ||||
Total UCI International, Inc. shareholders’ equity | 23,637 | 9,154 | ||||||
Noncontrolling interest | — | 1,810 | ||||||
Total equity | 23,637 | 10,964 | ||||||
Total liabilities and equity | $ | 1,145,257 | $ | 1,058,855 | ||||
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Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Net sales | $ | 944,983 | $ | 884,954 | $ | 880,441 | ||||||
Cost of sales | 708,581 | 688,192 | 705,280 | |||||||||
Gross profit | 236,402 | 196,762 | 175,161 | |||||||||
Operating (expenses) income | ||||||||||||
Selling and warehousing | (60,550 | ) | (56,598 | ) | (62,906 | ) | ||||||
General and administrative | (50,643 | ) | (44,927 | ) | (48,854 | ) | ||||||
Amortization of acquired intangible assets | (5,219 | ) | (5,758 | ) | (6,349 | ) | ||||||
Restructuring costs, net (Note 2) | (1,655 | ) | (923 | ) | (2,380 | ) | ||||||
Trademark impairment loss (Note 7) | — | — | (500 | ) | ||||||||
Patent litigation costs (Note 14) | (5,869 | ) | (7,002 | ) | — | |||||||
Operating income | 112,466 | 81,554 | 54,172 | |||||||||
Other expense | ||||||||||||
Interest expense, net | (60,829 | ) | (60,469 | ) | (65,404 | ) | ||||||
Management fee expense | (2,000 | ) | (2,000 | ) | (2,000 | ) | ||||||
Loss on early extinguishment of debt (Note 11) | (8,687 | ) | — | — | ||||||||
Miscellaneous, net | (3,433 | ) | (5,458 | ) | (3,507 | ) | ||||||
Income (loss) before income taxes | 37,517 | 13,627 | (16,739 | ) | ||||||||
Income tax (expense) benefit | (14,552 | ) | (5,105 | ) | 4,313 | |||||||
Net income (loss) | 22,965 | 8,522 | (12,426 | ) | ||||||||
Less: Loss attributable to noncontrolling interest | (37 | ) | (680 | ) | (818 | ) | ||||||
Net income (loss) attributable to UCI International, Inc. | $ | 23,002 | $ | 9,202 | $ | (11,608 | ) | |||||
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Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) attributable to UCI International, Inc. | $ | 23,002 | $ | 9,202 | $ | (11,608 | ) | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization of other intangible assets | 35,405 | 37,134 | 36,970 | |||||||||
Amortization of deferred financing costs and debt issuance costs | 3,209 | 2,978 | 3,088 | |||||||||
Non-cash interest expense on Senior PIK Notes | 31,150 | 28,921 | 29,801 | |||||||||
Non-cash loss on early extinguishment of debt | 8,662 | — | — | |||||||||
Deferred income taxes | (1,870 | ) | 407 | (5,245 | ) | |||||||
Trademark impairment loss | — | — | 500 | |||||||||
Other non-cash, net | 3,485 | 258 | 2,980 | |||||||||
Changes in operating assets and liabilities | ||||||||||||
Accounts receivable | (11,742 | ) | 1,017 | (9,538 | ) | |||||||
Inventories | (13,692 | ) | 27,008 | (19,088 | ) | |||||||
Other current assets | 6,931 | (3,863 | ) | 9,513 | ||||||||
Accounts payable | 5,626 | 7,237 | 2,954 | |||||||||
Accrued expenses and other current liabilities | 22,187 | 18,883 | (7,527 | ) | ||||||||
Other assets | 672 | 1,057 | 252 | |||||||||
Other long-term liabilities | 315 | (958 | ) | (1,317 | ) | |||||||
Net cash provided by operating activities | 113,340 | 129,281 | 31,735 | |||||||||
Cash flows from investing activities: | ||||||||||||
Capital expenditures | (21,298 | ) | (15,266 | ) | (31,940 | ) | ||||||
Proceeds from sale of property, plant and equipment | 437 | 2,566 | 421 | |||||||||
Proceeds from sale of joint venture interest (net of transaction costs and cash sold) | 272 | — | — | |||||||||
Increase in restricted cash | (6,890 | ) | (9,400 | ) | — | |||||||
Net cash used in investing activities | (27,479 | ) | (22,100 | ) | (31,519 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Issuance of debt | 11,917 | 13,187 | 27,993 | |||||||||
Debt repayments | (13,439 | ) | (35,227 | ) | (23,407 | ) | ||||||
Proceeds of 2010 Credit Facility (net of original issue discount of $5,375) | 419,625 | — | — | |||||||||
Payment of deferred financing costs and swaption premium | (9,893 | ) | — | — | ||||||||
Repayment of 2006 Credit Facility | (190,000 | ) | — | — | ||||||||
Redemption of senior subordinated notes, including call premium and redemption period interest | (235,512 | ) | — | — | ||||||||
Proceeds from exercise of stock options | 2 | 18 | 146 | |||||||||
Net cash (used in) provided by financing activities | (17,300 | ) | (22,022 | ) | 4,732 | |||||||
Effect of exchange rate changes on cash | (173 | ) | 128 | (318 | ) | |||||||
Net increase in cash and cash equivalents | 68,388 | 85,287 | 4,630 | |||||||||
Cash and cash equivalents at beginning of year | 131,942 | 46,655 | 42,025 | |||||||||
Cash and cash equivalents at end of year | $ | 200,330 | $ | 131,942 | $ | 46,655 | ||||||
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UCI International, Inc. | ||||||||||||||||||||||||||||
Shareholders’ Equity (Deficit) | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||
Common | Paid In | Retained | Comprehensive | Noncontrolling | Total | Comprehensive | ||||||||||||||||||||||
Stock | Capital | Deficit | Income (Loss) | Interest | Equity | Income (Loss) | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Balance at January 1, 2008 | $ | 28 | $ | 278,306 | $ | (235,452 | ) | $ | 6,762 | $ | 3,308 | $ | 52,952 | |||||||||||||||
Recognition of stock based compensation expense | 833 | 833 | ||||||||||||||||||||||||||
Exercise of stock options | 1 | 146 | 147 | |||||||||||||||||||||||||
Tax effect of exercise of stock options | (144 | ) | (144 | ) | ||||||||||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||
Net income | (11,608 | ) | (818 | ) | (12,426 | ) | $ | (11,608 | ) | |||||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||||||
Interest rate swaps (after $3 of income tax) | 4 | 4 | 4 | |||||||||||||||||||||||||
Foreign currency (after $(134) of income tax) | (4,357 | ) | (4,357 | ) | (4,357 | ) | ||||||||||||||||||||||
Pension and OPEB liability (after $25,994) of income tax) | (42,009 | ) | (42,009 | ) | (42,009 | ) | ||||||||||||||||||||||
Total comprehensive income | $ | (57,970 | ) | |||||||||||||||||||||||||
Balance at December 31, 2008 | $ | 29 | $ | 279,141 | $ | (247,060 | ) | $ | (39,600 | ) | $ | 2,490 | $ | (5,000 | ) | |||||||||||||
Balance at January 1, 2009 | $ | 29 | $ | 279,141 | $ | (247,060 | ) | $ | (39,600 | ) | $ | 2,490 | $ | (5,000 | ) | |||||||||||||
Recognition of stock based compensation expense | 350 | 350 | ||||||||||||||||||||||||||
Exercise of stock options | 18 | 18 | ||||||||||||||||||||||||||
Tax effect of exercise of stock options | (24 | ) | (24 | ) | ||||||||||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||
Net (loss) | 9,202 | (680 | ) | 8,522 | $ | 9,202 | ||||||||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||||||
Foreign currency (after $(213) of income tax) | 1,242 | 1,242 | 1,242 | |||||||||||||||||||||||||
Pension and OPEB liability (after $(3,622) of income tax) | 5,856 | 5,856 | 5,856 | |||||||||||||||||||||||||
Total comprehensive loss | $ | 16,300 | ||||||||||||||||||||||||||
Balance at December 31, 2009 | $ | 29 | $ | 279,485 | $ | (237,858 | ) | $ | (32,502 | ) | $ | 1,810 | $ | 10,964 | ||||||||||||||
Balance at January 1, 2010 | $ | 29 | $ | 279,485 | $ | (237,858 | ) | $ | (32,502 | ) | $ | 1,810 | $ | 10,964 | ||||||||||||||
Recognition of stock based compensation expense | 443 | 443 | ||||||||||||||||||||||||||
Exercise of stock options | 2 | 2 | ||||||||||||||||||||||||||
Tax effect of exercise of stock options | 9 | 9 | ||||||||||||||||||||||||||
Sale of joint venture | (1,773 | ) | (1,773 | ) | ||||||||||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||
Net income | 23,002 | (37 | ) | 22,965 | $ | 23,002 | ||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||
Foreign currency (after $14 of income tax) | (139 | ) | (139 | ) | (139 | ) | ||||||||||||||||||||||
Pension and OPEB liability (after $5,464 of income tax) | (8,834 | ) | (8,834 | ) | (8,834 | ) | ||||||||||||||||||||||
Total comprehensive income | $ | 14,029 | ||||||||||||||||||||||||||
Balance at December 31, 2010 | $ | 29 | $ | 279,939 | $ | (214,856 | ) | $ | (41,475 | ) | $ | — | $ | 23,637 | ||||||||||||||
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Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Costs to maintain land and building held for sale | $ | (0.3 | ) | $ | (0.4 | ) | $ | (0.6 | ) | |||
Curtailment and settlement losses | (0.6 | ) | (0.2 | ) | — | |||||||
Severance costs | — | — | (0.2 | ) | ||||||||
Disposition of joint venture interest | (1.1 | ) | — | — | ||||||||
Gain on sale of building, net of moving costs | 0.3 | 1.5 | — | |||||||||
Asset impairments | — | (1.8 | ) | (1.6 | ) | |||||||
$ | (1.7 | ) | $ | (0.9 | ) | $ | (2.4 | ) | ||||
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December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Beginning of year | $ | 3.2 | $ | 4.0 | $ | 2.3 | ||||||
Provision for doubtful accounts | 0.5 | 0.4 | 2.0 | |||||||||
Accounts written off | (0.9 | ) | (1.2 | ) | (0.3 | ) | ||||||
$ | 2.8 | $ | 3.2 | $ | 4.0 | |||||||
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December 31, | ||||||||
2010 | 2009 | |||||||
Raw materials | $ | 56.7 | $ | 47.5 | ||||
Work in process | 26.3 | 27.6 | ||||||
Finished products | 77.3 | 73.1 | ||||||
Valuation reserves | (16.1 | ) | (15.1 | ) | ||||
$ | 144.2 | $ | 133.1 | |||||
December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Beginning of year | $ | 15.1 | $ | 14.9 | $ | 15.6 | ||||||
Charges to income | 3.2 | 3.1 | 3.7 | |||||||||
Inventory written off | (2.1 | ) | (3.0 | ) | (4.3 | ) | ||||||
Other | (0.1 | ) | 0.1 | (0.1 | ) | |||||||
$ | 16.1 | $ | 15.1 | $ | 14.9 | |||||||
December 31, | ||||||||||
Depreciable Life | 2010 | 2009 | ||||||||
Land and improvements | 5-10 years (for improvements) | $ | 6.1 | $ | 6.1 | |||||
Buildings and improvements | 5-40 years | 65.3 | 65.5 | |||||||
Equipment | 3-15 years | 236.6 | 234.1 | |||||||
308.0 | 305.7 | |||||||||
Less accumulated depreciation | (172.9 | ) | (155.9 | ) | ||||||
$ | 135.1 | $ | 149.8 | |||||||
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December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||||
Amortizable | Accumulated | Accumulated | ||||||||||||||||||||||||
Life | Gross | Amortization | Net | Gross | Amortization | Net | ||||||||||||||||||||
Acquired intangible assets | ||||||||||||||||||||||||||
Customer relationships | 3 - 20 years | $ | 62.1 | $ | (36.5 | ) | $ | 25.6 | $ | 62.1 | $ | (32.4 | ) | $ | 29.7 | |||||||||||
Technologies | 10 years | 8.9 | (7.8 | ) | 1.1 | 8.9 | (7.0 | ) | 1.9 | |||||||||||||||||
Trademarks | 10 years | 4.3 | (2.8 | ) | 1.5 | 4.3 | (2.3 | ) | 2.0 | |||||||||||||||||
Trademarks | Indefinite | 25.5 | — | 25.5 | 25.5 | — | 25.5 | |||||||||||||||||||
Integrated software system | 7 years | 23.6 | (14.3 | ) | 9.3 | 20.1 | (11.2 | ) | 8.9 | |||||||||||||||||
$ | 124.4 | $ | (61.4 | ) | $ | 63.0 | $ | 120.9 | $ | (52.9 | ) | $ | 68.0 | |||||||||||||
Acquired | Integrated | |||||||
Intangible | Software | |||||||
Assets | System | |||||||
2011 | $ | 4.7 | $ | 3.2 | ||||
2012 | 4.3 | 2.6 | ||||||
2013 | 3.8 | 1.8 | ||||||
2014 | 3.3 | 0.7 | ||||||
2015 | 3.0 | 0.6 |
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December 31, | ||||||||
2010 | 2009 | |||||||
Salaries and wages | $ | 3.1 | $ | 3.1 | ||||
Bonuses and profit sharing | 8.5 | 6.1 | ||||||
Vacation pay | 4.4 | 4.4 | ||||||
Product returns | 53.7 | 42.1 | ||||||
Rebates, credits and discounts due customers | 17.4 | 13.6 | ||||||
Insurance | 11.0 | 9.8 | ||||||
Taxes payable | 7.1 | 7.0 | ||||||
Interest | 2.0 | 2.4 | ||||||
Other | 24.1 | 19.6 | ||||||
$ | 131.3 | $ | 108.1 | |||||
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Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Beginning of year | $ | 42.1 | $ | 32.0 | $ | 28.1 | ||||||
Cost of unsalvageable returned parts | (52.0 | ) | (46.4 | ) | (51.6 | ) | ||||||
Additional reductions to sales | 63.6 | 55.2 | 55.5 | |||||||||
Reclassification from other current liabilities | — | 1.3 | — | |||||||||
End of year | $ | 53.7 | $ | 42.1 | $ | 32.0 | ||||||
December 31, | ||||||||
2010 | 2009 | |||||||
UCI International Senior PIK notes | $ | 355.1 | $ | 324.1 | ||||
UCI 2010 Term Loan | 423.9 | — | ||||||
UCI 2010 Revolving Credit Facility | — | — | ||||||
UCI 2006 Credit Facility term loan | — | 190.0 | ||||||
UCI Previously Outstanding Subordinated Notes | — | 230.0 | ||||||
UCI short-term borrowings | 3.3 | 3.5 | ||||||
UCI capital lease obligations | 0.7 | 0.9 | ||||||
Unamortized debt discount and debt issuance costs | (8.5 | ) | (6.9 | ) | ||||
774.5 | 741.6 | |||||||
Less: | ||||||||
UCI short-term borrowings | 3.3 | 3.5 | ||||||
Current maturities | 4.5 | 17.9 | ||||||
Long-term debt | $ | 766.7 | $ | 720.2 | ||||
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Sources | Uses | |||||||||
2010 Revolving Credit Facility | $ | — | Accrued interest payment | $ | 6.4 | |||||
2010 Term Loan | 425.0 | Repay UCI 2006 Credit Facility | 172.3 | |||||||
Cash on balance sheet | 4.0 | Redeem UCI Previously Outstanding Subordinated Notes | 230.0 | |||||||
Transaction costs and original issue discount | 20.3 | |||||||||
Total Sources | $ | 429.0 | Total Uses | $ | 429.0 | |||||
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UCI International recorded a loss of $8.7 million on the early extinguishment of the 2006 Credit Facility and the Previously Outstanding Subordinated Notes. The components of the loss on early extinguishment were as follows (in millions):
UCI Previously Outstanding Subordinated Notes call premium | $ | 3.6 | ||
Write-off unamortized original issue discount | 1.8 | |||
UCI Previously Outstanding Subordinated Notes redemption period interest | 1.9 | |||
Write-off unamortized deferred financing costs | 1.4 | |||
$ | 8.7 | |||
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Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Income (loss) before income taxes | ||||||||||||
United States | $ | 35.8 | $ | 8.1 | $ | (17.7 | ) | |||||
Foreign | 1.7 | 5.5 | 1.0 | |||||||||
$ | 37.5 | $ | 13.6 | $ | (16.7 | ) | ||||||
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Current | ||||||||||||
Federal | $ | 12.4 | $ | 3.5 | $ | (3.1 | ) | |||||
State | 2.7 | 1.0 | 0.9 | |||||||||
Foreign | 1.9 | 1.3 | 2.5 | |||||||||
17.0 | 5.8 | 0.3 | ||||||||||
Deferred | ||||||||||||
Federal | (0.9 | ) | (1.4 | ) | (2.4 | ) | ||||||
State | — | (0.6 | ) | (0.3 | ) | |||||||
Foreign | (1.5 | ) | 1.3 | (1.9 | ) | |||||||
(2.4 | ) | (0.7 | ) | (4.6 | ) | |||||||
$ | 14.6 | $ | 5.1 | $ | (4.3 | ) | ||||||
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Income tax expense (benefit) at U.S. Federal statutory rate | $ | 13.1 | $ | 4.8 | $ | (5.8 | ) | |||||
Federal income taxes related to “check the box” election | (0.3 | ) | (0.4 | ) | 3.4 | |||||||
Foreign income not taxable, foreign income tax losses not benefited and rate differential | 0.9 | 0.1 | (2.0 | ) | ||||||||
State income taxes, net of Federal income tax benefit | 1.8 | 0.2 | 0.4 | |||||||||
Other, net | (0.9 | ) | 0.4 | (0.3 | ) | |||||||
Income tax expense (benefit) | $ | 14.6 | $ | 5.1 | $ | (4.3 | ) | |||||
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December 31, | ||||||||
2010 | 2009 | |||||||
Deferred tax assets | ||||||||
Pension and postretirement benefits | $ | 5.3 | $ | 7.5 | ||||
Product returns and warranty accruals | 20.5 | 16.0 | ||||||
Inventory valuation | 6.6 | 6.8 | ||||||
Net operating loss carryforwards | 5.0 | 5.2 | ||||||
Vacation accrual | 1.4 | 1.3 | ||||||
Insurance accruals | 2.8 | 3.1 | ||||||
Allowance for doubtful accounts | 0.9 | 1.1 | ||||||
Tax credit carryforwards | 0.3 | 0.3 | ||||||
Pension liability adjustment included in other comprehensive income (loss) | 24.5 | 19.1 | ||||||
Other accrued liabilities | 8.5 | 6.7 | ||||||
Other | 2.5 | 2.2 | ||||||
78.3 | 69.3 | |||||||
Less: valuation allowance for net operating loss carryforwards and foreign tax credit carryforwards | (4.9 | ) | (5.2 | ) | ||||
Total deferred tax assets | 73.4 | 64.1 | ||||||
Deferred tax liabilities | ||||||||
Depreciation and amortization | (14.7 | ) | (14.5 | ) | ||||
Goodwill amortization for tax, but not book | (24.6 | ) | (21.2 | ) | ||||
Acquired intangible assets | (2.8 | ) | (2.4 | ) | ||||
Prepaid expenses | (1.7 | ) | (2.7 | ) | ||||
Other | (0.2 | ) | (1.1 | ) | ||||
Total deferred tax liabilities | (44.0 | ) | (41.9 | ) | ||||
Net deferred tax assets | $ | 29.4 | $ | 22.2 | ||||
December 31, | ||||||||
2010 | 2009 | |||||||
Deferred tax assets | $ | 38.4 | $ | 31.0 | ||||
Deferred tax liabilities | (9.0 | ) | (8.8 | ) | ||||
Net deferred tax assets | $ | 29.4 | $ | 22.2 | ||||
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December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Beginning of year | $ | 5.2 | $ | 4.2 | $ | 4.3 | ||||||
Provisions | 0.7 | 0.4 | 0.9 | |||||||||
Deductions | (1.0 | ) | 0.6 | (1.0 | ) | |||||||
End of year | $ | 4.9 | $ | 5.2 | $ | 4.2 | ||||||
2010 | 2009 | 2008 | ||||||||||
Balance at January 1 | $ | 7.7 | $ | 7.5 | $ | 5.6 | ||||||
Additions for tax positions related to the current year | 1.9 | 1.3 | 2.4 | |||||||||
Reductions based on tax positions related to the current year | (0.6 | ) | (0.2 | ) | (0.3 | ) | ||||||
Additions for tax positions of prior years | 0.8 | 0.1 | 0.3 | |||||||||
Reductions for tax positions of prior years | (0.1 | ) | (0.2 | ) | (0.1 | ) | ||||||
Reduction for lapse of applicable statutes of limitations | (0.6 | ) | (0.8 | ) | (0.4 | ) | ||||||
Balance at December 31 | $ | 9.1 | $ | 7.7 | $ | 7.5 | ||||||
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NOTE 13 — | EMPLOYEE BENEFIT PLANS |
December 31, | ||||||||
2010 | 2009 | |||||||
Accumulated benefit obligation | $ | 243.3 | $ | 214.9 | ||||
Change in projected benefit obligations: | ||||||||
Projected benefit obligations at beginning of year | $ | 227.6 | $ | 217.5 | ||||
Service cost | 4.3 | 4.4 | ||||||
Interest cost | 13.4 | 13.0 | ||||||
Actuarial loss | 21.1 | 2.4 | ||||||
Plan amendments | — | — | ||||||
Plan curtailment and settlements | 0.3 | (0.1 | ) | |||||
Benefits paid | (10.5 | ) | (9.7 | ) | ||||
Special termination benefits | — | — | ||||||
Currency translation adjustment | 0.1 | 0.1 | ||||||
Projected benefit obligations at end of year | $ | 256.3 | $ | 227.6 | ||||
Change in plan assets: | ||||||||
Fair value of plan assets at beginning of year | $ | 166.5 | $ | 146.5 | ||||
Actual return on plan assets | 21.2 | 25.4 | ||||||
Employer contributions | 3.0 | 4.2 | ||||||
Benefits paid | (10.5 | ) | (9.7 | ) | ||||
Currency translation adjustment | 0.1 | 0.1 | ||||||
Plan assets at end of year | $ | 180.3 | $ | 166.5 | ||||
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December 31, | ||||||||
2010 | 2009 | |||||||
Funded status, net | $ | (76.0 | ) | $ | (61.1 | ) | ||
Amounts recognized in the balance sheet consist of: | ||||||||
Noncurrent assets | $ | 0.8 | $ | 0.6 | ||||
Current liabilities | (0.1 | ) | (0.1 | ) | ||||
Noncurrent liabilities | (76.7 | ) | (61.6 | ) | ||||
$ | (76.0 | ) | $ | (61.1 | ) | |||
Amortization and | ||||||||||||||||
Curtailment | ||||||||||||||||
in 2010 | ||||||||||||||||
Dec 31, | Pension | 2010 | Dec 31, | |||||||||||||
2009 | Expense | Additions | 2010 | |||||||||||||
Prior service costs | $ | (2.7 | ) | $ | 0.4 | $ | — | $ | (2.3 | ) | ||||||
Net actuarial gain (loss) | (46.3 | ) | 0.6 | (14.2 | ) | (59.9 | ) | |||||||||
Deferred income tax benefit (expense) | 18.8 | (0.4 | ) | 5.4 | 23.8 | |||||||||||
Accumulated other comprehensive income (loss) | $ | (30.2 | ) | $ | 0.6 | $ | (8.8 | ) | $ | (38.4 | ) | |||||
Amortization | ||||||||||||||||
in 2009 | ||||||||||||||||
Dec 31, | Pension | 2009 | Dec 31, | |||||||||||||
2008 | Expense | Additions | 2009 | |||||||||||||
Prior service costs | $ | (3.1 | ) | $ | 0.4 | $ | — | $ | (2.7 | ) | ||||||
Net actuarial gain (loss) | (55.2 | ) | 0.3 | 8.6 | (46.3 | ) | ||||||||||
Deferred income tax benefit (expense) | 22.2 | (0.3 | ) | (3.1 | ) | 18.8 | ||||||||||
Accumulated other comprehensive income (loss) | $ | (36.1 | ) | $ | 0.4 | $ | 5.5 | $ | (30.2 | ) | ||||||
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Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Service cost | $ | 4.3 | $ | 4.4 | $ | 4.4 | ||||||
Interest cost | 13.4 | 13.0 | 12.6 | |||||||||
Expected return on plan assets | (14.7 | ) | (14.4 | ) | (15.2 | ) | ||||||
Amortization of prior service cost | 0.3 | 0.3 | 0.3 | |||||||||
Amortization of unrecognized (gain) loss | 0.6 | 0.3 | (0.1 | ) | ||||||||
Special termination benefits and curtailment loss recognized | 0.6 | 0.2 | 0.2 | |||||||||
$ | 4.5 | $ | 3.8 | $ | 2.2 | |||||||
2010 | 2009 | 2008 | ||||||||||
Weighted average discount rate to determine benefit obligations | 5.5% | 6.0% | 6.2% | |||||||||
Weighted average discount rate to determine net cost | 6.0% | 6.2% | 6.5% | |||||||||
Weighted average rate of future compensation increases to determine benefit obligation | 3.5% | 3.5% | 4.0% | |||||||||
Weighted average rate of future compensation increases to determine net cost | 3.5% | 4.0% | 4.0% | |||||||||
Weighted average rate of return on plan assets to determine net cost | 8.0% | 8.0% | 8.0% |
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Strategic | ||||||
Target | Permitted Range | |||||
U.S. equities | 42 | % | 37% to 47% | |||
Foreign equities | 23 | % | 18% to 28% | |||
Fixed income | 35 | % | 25% to 45% | |||
100 | % | |||||
% of Total | ||||||||||||
Plan Assets | ||||||||||||
U.S. equities | ||||||||||||
Large Cap Growth | $ | 17.2 | ||||||||||
Large Cap Value | 16.4 | |||||||||||
Large Cap Indexed | 28.8 | |||||||||||
Small and Mid Cap Growth | 9.1 | |||||||||||
Small and Mid Cap Value | 10.4 | |||||||||||
Total U.S. equities | 81.9 | 46 | % | |||||||||
Foreign equities | 38.4 | 21 | % | |||||||||
Fixed income | ||||||||||||
Short & Mid Duration | 17.0 | |||||||||||
Long Duration | 37.1 | |||||||||||
Long Duration Indexed | 5.2 | |||||||||||
Total fixed income | 59.3 | 33 | % | |||||||||
Cash | 0.7 | * | ||||||||||
$ | 180.3 | 100 | % | |||||||||
* | Less than 1% |
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F-29
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December 31, | ||||||||
2010 | 2009 | |||||||
Change in benefit obligations | ||||||||
Benefit obligations at beginning of year | $ | 9.8 | $ | 9.7 | ||||
Service cost | 0.3 | 0.3 | ||||||
Interest cost | 0.6 | 0.6 | ||||||
Actuarial loss | 1.0 | — | ||||||
Benefits paid | (0.7 | ) | (0.8 | ) | ||||
Benefit obligations accrued at end of year | $ | 11.0 | $ | 9.8 | ||||
December 31, | ||||||||
2010 | 2009 | |||||||
Accrued obligation included in “Accrued expenses and other current liabilities” | $ | (0.7 | ) | $ | (0.7 | ) | ||
Accrued obligation included in “Pension and other postretirement liabilities” | (10.3 | ) | (9.1 | ) | ||||
$ | (11.0 | ) | $ | (9.8 | ) | |||
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Service cost | $ | 0.3 | $ | 0.3 | $ | 0.3 | ||||||
Interest cost | 0.6 | 0.6 | 0.5 | |||||||||
$ | 0.9 | $ | 0.9 | $ | 0.8 | |||||||
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NOTE 14 — | COMMITMENTS AND CONTINGENCIES |
Minimum | ||||
Payments | ||||
2011 | $ | 5.3 | ||
2012 | 4.0 | |||
2013 | 3.1 | |||
2014 | 2.9 | |||
2015 | 2.8 | |||
2016 and thereafter | 8.2 | |||
$ | 26.3 | |||
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NOTE 15 — | RELATED PARTY TRANSACTIONS |
NOTE 16 — | GEOGRAPHIC INFORMATION |
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
United States | $ | 805.4 | $ | 755.1 | $ | 735.1 | ||||||
Canada | 31.4 | 29.0 | 30.1 | |||||||||
Mexico | 23.5 | 24.7 | 32.9 | |||||||||
United Kingdom | 15.6 | 11.6 | 12.3 | |||||||||
France | 10.7 | 8.6 | 9.8 | |||||||||
Germany | 6.5 | 5.4 | 5.0 | |||||||||
Spain | 4.4 | 4.2 | 5.2 | |||||||||
Venezuela | 2.2 | 2.3 | 4.6 | |||||||||
Other | 45.3 | 44.1 | 45.4 | |||||||||
$ | 945.0 | $ | 885.0 | $ | 880.4 | |||||||
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December 31, | ||||||||
2010 | 2009 | |||||||
United States | $ | 181.0 | $ | 194.2 | ||||
China | 24.9 | 29.7 | ||||||
Mexico | 6.5 | 8.9 | ||||||
Spain | 2.7 | 3.8 | ||||||
Goodwill | 241.5 | 241.5 | ||||||
$ | 456.6 | $ | 478.1 | |||||
NOTE 17 — | STOCK-BASED COMPENSATION |
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December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Number of shares under option: | ||||||||||||
Outstanding, beginning of year | 127,715 | 177,426 | 233,995 | |||||||||
Granted | — | 2,000 | 2,000 | |||||||||
Canceled | (525 | ) | (48,061 | ) | (38,000 | ) | ||||||
Exercised | (375 | ) | (3,650 | ) | (20,569 | ) | ||||||
Outstanding, end of year | 126,815 | 127,715 | 177,426 | |||||||||
Exercisable, end of year | 116,792 | 110,906 | 141,520 | |||||||||
Valuation Assumptions | 2009 | 2008 | ||||||
Dividend yield | 0.00 | % | 0.00 | % | ||||
Risk-free interest rate | 2.92 | % | 2.82 | % | ||||
Volatility | 41.76 | % | 42.15 | % | ||||
Expected option term in years | 8 | 8 | ||||||
Weighted average exercise price per share | $ | 58.80 | $ | 23.63 | ||||
Weighted average market value per share | $ | 58.80 | $ | 13.87 |
Weighted | ||||||||||
Average | ||||||||||
Number | Weighted | Remaining | ||||||||
of Shares | Average | Contractual | ||||||||
Under Option | Exercise Price | Life | ||||||||
Outstanding at December 31, 2009 | 127,715 | $ | 13.66 | |||||||
Granted | — | — | ||||||||
Canceled | (525 | ) | 5.00 | |||||||
Exercised | (375 | ) | 5.00 | |||||||
Outstanding at December 31, 2010 | 126,815 | $ | 9.63 | 4.4 years | ||||||
Exercisable at December 31, 2010 | 116,792 | $ | 8.76 | 4.3 years |
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Weighted | Weighted | Number | Weighted | |||||||||||||
Average | Average | Exercisable at | Average | |||||||||||||
Number of Shares Under Option | Remaining Life | Exercise Price | December 31, 2010 | Exercise Price | ||||||||||||
107,815 | 3.9 | $ | 5.00 | 103,457 | $ | 5.00 | ||||||||||
15,000 | 7.1 | $ | 23.63 | 10,534 | $ | 23.63 | ||||||||||
2,000 | 9.0 | $ | 58.80 | 800 | $ | 58.80 | ||||||||||
2,000 | 7.0 | $ | 105.00 | 2,000 | $ | 105.00 |
Weighted Average | ||||||||
Number of | Grant Date | |||||||
Shares | Fair Value | |||||||
Restricted Stock Outstanding at December 31, 2009 | 109,840 | $ | 26.05 | |||||
Granted | — | $ | — | |||||
Vested | — | $ | — | |||||
Forfeited | (2,000 | ) | $ | 58.80 | ||||
Restricted Stock Outstanding at December 31, 2010 | 107,840 | $ | 31.94 | |||||
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NOTE 18 — | FAIR VALUE ACCOUNTING |
Level 3 — | Unobservable inputs developed using UCI International’s estimates and assumptions, which reflect those that market participants would use when valuing an asset or liability |
Fair Value Measurements | ||||||||
Using Significant | 2008 | |||||||
Unobservable Inputs | Write-down | |||||||
Description | (Level 3) | Loss Adjustments | ||||||
Assets held for sale(a) | $ | 0.0 | $ | (1.3 | ) | |||
Trademarks(b) | $ | 0.5 | $ | (0.5 | ) |
(a) | See Note 2 for a description of the impairment write-down of these long-lived assets held for sale. Their carrying amount of $1.3 million was written down to their fair value of zero. This resulted in a loss of $1.3 million, which was included in the 2008 income statement in “Restructuring costs”. | |
(b) | See Note 7 for a description of the 2008 impairment write-down of this intangible asset. The estimated fair value of this asset is based on discounted cash flows. The cash flows are estimated benefits, which are in the form of avoided costs, because UCI International owns this intangible asset. The estimated fair value of this intangible asset is based on “Level 3” inputs. |
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NOTE 19 — | JOINT VENTURE SALE |
Current assets (excluding cash sold of $0.3 million) | $ | 3.4 | ||
Long-lived assets | 5.1 | |||
Current liabilities | (2.6 | ) | ||
Noncurrent liabilities | (0.3 | ) | ||
Noncontrolling interest | (1.8 | ) | ||
Net book value of joint venture investment sold | 3.8 | |||
Less proceeds: | ||||
Liabilities assumed by LMC | 2.4 | |||
Cash proceeds (net of transaction costs and cash sold) | 0.3 | |||
Loss on sale of joint venture interest | $ | 1.1 | ||
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NOTE 20 — | OTHER COMPREHENSIVE INCOME (LOSS) |
Total | ||||||||||||
Pension | Accumulated | |||||||||||
Foreign | and OPEB | Other | ||||||||||
Currency | Liability | Comprehensive | ||||||||||
Adjustment | Adjustment | Income (Loss) | ||||||||||
Balance at January 1, 2008 | $ | 1.4 | $ | 5.4 | $ | 6.8 | ||||||
2008 change | (4.3 | ) | (42.1 | ) | (46.4 | ) | ||||||
Balance at December 31, 2008 | (2.9 | ) | (36.7 | ) | (39.6 | ) | ||||||
2009 change | 1.2 | 5.9 | 7.1 | |||||||||
Balance at December 31, 2009 | (1.7 | ) | (30.8 | ) | (32.5 | ) | ||||||
2010 change | (0.1 | ) | (8.9 | ) | (9.0 | ) | ||||||
Balance at December 31, 2010 | $ | (1.8 | ) | $ | (39.7 | ) | $ | (41.5 | ) | |||
NOTE 21 — | OTHER INFORMATION |
NOTE 22 — | CONCENTRATION OF RISK |
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NOTE 23 — | QUARTERLY FINANCIAL INFORMATION (unaudited) |
Quarter Ended | ||||||||||||||||
March 31 | June 30 | Sept. 30 | Dec. 31 | |||||||||||||
2010 | ||||||||||||||||
Net sales | $ | 230.3 | $ | 236.2 | $ | 241.5 | $ | 237.0 | ||||||||
Gross profit | 57.2 | 60.0 | 62.0 | 57.2 | ||||||||||||
Net income attributable to UCI International, Inc. | 6.6 | 8.9 | 4.4 | 3.1 | ||||||||||||
2009 | ||||||||||||||||
Net sales | $ | 219.9 | $ | 217.4 | $ | 228.9 | $ | 218.8 | ||||||||
Gross profit | 40.3 | 48.3 | 55.8 | 55.2 | ||||||||||||
Net income (loss) attributable to UCI International, Inc. | (4.4 | ) | 2.5 | 8.2 | 2.9 |
2010 Quarter Ended | ||||||||||||||||
March 31 | June 30 | Sept. 30 | Dec. 31 | |||||||||||||
Note 2 — Restructuring costs | $ | (1.3 | ) | $ | (0.2 | ) | $ | 0.2 | $ | 0.3 | ||||||
Note 11 — Loss on early extinguishment of debt | — | — | (5.4 | ) | — | |||||||||||
Note 14 — Antitrust litigation costs | (0.6 | ) | (1.5 | ) | (1.3 | ) | (1.1 | ) | ||||||||
Note 14 — Patent litigation costs | (0.6 | ) | (0.1 | ) | — | (3.0 | ) |
2009 Quarter Ended | ||||||||||||||||
March 31 | June 30 | Sept. 30 | Dec. 31 | |||||||||||||
Note 2 — Restructuring costs | $ | (0.1 | ) | $ | 0.4 | $ | (0.3 | ) | $ | (0.6 | ) | |||||
Note 14 — Antitrust litigation costs | (0.3 | ) | (0.1 | ) | (0.1 | ) | (0.3 | ) | ||||||||
Note 14 — Patent litigation costs | — | — | — | 4.3 |
NOTE 24 — | SUBSEQUENT EVENTS — RANK ACQUISITION AND RELATED FINANCING |
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Available Cash(1) | $ | 177.0 | ||
Senior Secured Revolving Facility(2) | — | |||
Senior Secured Term Loan Facility(3) | 298.5 | |||
Senior Notes(4) | 400.0 | |||
Equity Contribution(5) | 320.0 | |||
Advances from Rank(6) | 10.3 | |||
Total Sources of Funds | $ | 1,205.8 | ||
Purchase equity(7) | $ | 375.0 | ||
Repayment of the 2010 Credit Facility(8) | 424.1 | |||
Redemption and discharge of Senior PIK Notes(9) | 363.9 | |||
Fees and expenses(10) | 42.8 | |||
Total uses of funds | $ | 1,205.8 | ||
(1) | Reflects available cash of UCI International used in connection with the Transactions. | |
(2) | Reflects the $75.0 million of commitments under the Senior Secured Revolving Facility, which was undrawn at closing. Letters of credit previously collateralized by cash were replaced by letters of credit issued under the Senior Secured Revolving Facility. The letters of credit reduced the available borrowing capacity under the Senior Secured Revolving Facility by $16.3 million. | |
(3) | Reflects $300.0 million of borrowings under the Senior Secured Term Loan Facility, net of $1.5 million of assumed original issue discount. | |
(4) | Reflects $400.0 million of aggregate principal amount of the Senior Notes. | |
(5) | Reflects the Equity Contribution of $320.0 million. | |
(6) | Reflects advances from Rank Group for fees and expenses associated with the Transactions made on trade terms. | |
(7) | Reflects the purchase price of $375.0 million for the Rank Acquisition. |
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(8) | Reflects the repayment and termination of the 2010 Credit Facility, including $423.9 million of outstanding principal at the time of the Transactions and $0.2 million of accrued interest. | |
(9) | Reflects the repayment of the Senior PIK Notes consisting of $355.1 million of aggregate principal amount outstanding, accrued interest of $3.8 million and $5.0 million of call premium and redemption period interest. | |
(10) | Reflects the fees and expenses associated with the Transactions. |
Senior PIK Notes call premium and redemption period interest | $ | 5.0 | ||
Write-off Senior PIK Notes unamortized original issue discount | 3.3 | |||
Write-off Senior PIK Notes unamortized deferred financing costs | 0.9 | |||
Write-off 2010 Credit Facility unamortized original issue discount | 5.1 | |||
Write-off 2010 Credit Facility unamortized deferred financing costs | 8.9 | |||
Fees and expenses related to early extinguishment of debt | 1.0 | |||
$ | 24.2 | |||
Borrower: | UCI International, Inc. | |
Facilities: | Senior Secured Revolving Facility: $75.0 million (letter of credit sublimit of $50.0 million) Senior Secured Term Loan Facility: $300.0 million | |
Incremental Facility Amount: | $235.0 million of incremental term or revolving facilities | |
Guarantors: | Holdings and certain of its direct and indirect subsidiaries including, among others, UCI and certain of its domestic subsidiaries | |
Security: | First priority lien on substantially all tangible and intangible assets, as well as outstanding capital stock of UCI and certain of its domestic subsidiaries and 65% of the voting equity interests in certain domestic and first-tier foreign subsidiaries | |
Term (Maturity Date) | Senior Secured Revolving Facility: 5 years — January 26, 2016 Senior Secured Term Loan Facility: 6.5 years — July 26, 2017 | |
Interest: | At UCI’s option, Eurocurrency Rate (subject to a floor of 1.5%) or Alternate Base Rate (subject to a floor of the three month Adjusted LIBO Rate (as defined in the Senior Secured Credit Facilities) plus 1%), in each case, an applicable margin | |
Applicable Margin: | Eurocurrency Rate Loans Alternate Base Rate Loans | |
4.0% per annum 3.0% per annum | ||
Fees: | Unused Revolving Credit Facility Commitment Fee: 1.125% per annum Letter of Credit Fees: Outstanding Letter of Credit Fee — 4.0% per annum |
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Table of Contents
Amortization: | Senior Secured Revolving Facility: None Senior Secured Term Loan Facility: 1% per annum, paid quarterly beginning March 31, 2011, balance due July 26, 2017 | |
Optional Prepayments: | Indebtedness under the Senior Secured Credit Facilities may be voluntarily prepaid in whole or in part, subject to minimum amounts and break funding costs or pursuant to auction procedures set forth in the Senior Secured Credit Facilities. | |
Mandatory Prepayments: | • 100% of net cash proceeds of asset sales (subject to certain exceptions) | |
• 100% of debt issuances (not otherwise permitted by the Senior Secured Credit Facilities) | ||
• 50% of excess cash flow with step downs to 25% when Senior Secured Leverage Ratio is less than or equal to 2.0x | ||
Financial Covenants: | (i) Maximum Senior Secured Leverage Ratio; (ii) Minimum Interest Coverage Ratio; and (iii) Maximum Capital Expenditures | |
Negative Covenants: | The Senior Secured Credit Facilities include certain negative covenants restricting or limiting the ability of Holdings, the borrowers and their material subsidiaries to, among other things: declare dividends or redeem stock; repay certain debt; make loans or investments; guarantee or incur additional debt; incur liens; engage in acquisitions or other business combinations; sell assets; and change the business conducted by Holdings. |
Period | Percentage | |||
2015 | 104.313% | |||
2016 | 102.156% | |||
2017 and thereafter | 100% |
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Table of Contents
2011 | $ | 6.5 | ||
2012 | 3.2 | |||
2013 | 3.1 | |||
2014 | 3.1 | |||
2015 | 3.0 | |||
Thereafter | 685.1 | |||
$ | 704.0 | |||
NOTE 25 — | GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS |
F-46
Table of Contents
December 31, 2010
UCI | ||||||||||||||||||||
International | UCI | Non- | ||||||||||||||||||
Consolidated | Eliminations | International | Guarantors | Guarantors | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 200,330 | $ | — | $ | 17 | $ | 190,865 | $ | 9,448 | ||||||||||
Accounts receivable, net | 271,832 | — | — | 255,999 | 15,833 | |||||||||||||||
Inventories, net | 144,156 | — | — | 117,996 | 26,160 | |||||||||||||||
Deferred tax assets | 38,377 | — | 175 | 37,659 | 543 | |||||||||||||||
Restricted cash | 16,290 | — | — | 16,290 | — | |||||||||||||||
Other current assets | 17,663 | — | 84 | 8,531 | 9,048 | |||||||||||||||
Total current assets | 688,648 | — | 276 | 627,340 | 61,032 | |||||||||||||||
Property, plant and equipment, net | 135,060 | — | — | 102,307 | 32,753 | |||||||||||||||
Investment in subsidiaries | — | (400,182 | ) | 339,047 | 61,135 | — | ||||||||||||||
Goodwill | 241,461 | — | — | 241,461 | — | |||||||||||||||
Other intangible assets, net | 63,048 | — | — | 62,215 | 833 | |||||||||||||||
Deferred financing costs, net | 9,937 | — | 951 | 8,986 | — | |||||||||||||||
Other long-term assets | 7,103 | — | — | 5,600 | 1,503 | |||||||||||||||
Total assets | $ | 1,145,257 | $ | (400,182 | ) | $ | 340,274 | $ | 1,109,044 | $ | 96,121 | |||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Accounts payable | $ | 115,159 | $ | — | $ | — | $ | 97,434 | $ | 17,725 | ||||||||||
Short-term borrowings | 3,271 | — | — | — | 3,271 | |||||||||||||||
Current maturities of long-term debt | 4,473 | — | — | 4,473 | — | |||||||||||||||
Accrued expenses and other current liabilities | 131,331 | — | 4,234 | 120,806 | 6,291 | |||||||||||||||
Total current liabilities | 254,234 | — | 4,234 | 222,713 | 27,287 | |||||||||||||||
Long-term debt, less current maturities | 766,735 | — | 351,697 | 415,038 | — | |||||||||||||||
Pension and other postretirement liabilities | 87,040 | — | — | 86,159 | 881 | |||||||||||||||
Deferred tax liabilities | 8,975 | — | 59 | 8,485 | 431 | |||||||||||||||
Other long-term liabilities | 4,636 | — | — | 3,853 | 783 | |||||||||||||||
Intercompany payables (receivables) | — | — | (39,353 | ) | 33,749 | 5,604 | ||||||||||||||
Total shareholders’ equity | 23,637 | (400,182 | ) | 23,637 | 339,047 | 61,135 | ||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,145,257 | $ | (400,182 | ) | $ | 340,274 | $ | 1,109,044 | $ | 96,121 | |||||||||
F-47
Table of Contents
December 31, 2009
UCI | ||||||||||||||||||||
International | UCI | Non- | ||||||||||||||||||
Consolidated | Eliminations | International | Guarantors | Guarantors | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 131,942 | $ | — | $ | 29 | $ | 123,504 | $ | 8,409 | ||||||||||
Accounts receivable, net | 261,210 | — | — | 245,606 | 15,604 | |||||||||||||||
Inventories, net | 133,058 | — | — | 110,247 | 22,811 | |||||||||||||||
Deferred tax assets | 31,034 | — | 320 | 31,641 | (927 | ) | ||||||||||||||
Other current assets | 23,499 | — | — | 15,642 | 7,857 | |||||||||||||||
Total current assets | 580,743 | — | 349 | 526,640 | 53,754 | |||||||||||||||
Property, plant and equipment, net | 149,753 | — | — | 110,179 | 39,574 | |||||||||||||||
Investment in subsidiaries | — | (360,712 | ) | 299,936 | 60,776 | — | ||||||||||||||
Goodwill | 241,461 | — | — | 241,461 | — | |||||||||||||||
Other intangible assets, net | 68,030 | — | — | 67,540 | 490 | |||||||||||||||
Deferred financing costs, net | 3,164 | — | 1,321 | 1,843 | — | |||||||||||||||
Restricted cash | 9,400 | — | — | 9,400 | — | |||||||||||||||
Other long-term assets | 6,304 | — | — | 6,126 | 178 | |||||||||||||||
Total assets | $ | 1,058,855 | $ | (360,712 | ) | $ | 301,606 | $ | 1,023,965 | $ | 93,996 | |||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Accounts payable | $ | 111,898 | $ | — | $ | — | $ | 94,095 | $ | 17,803 | ||||||||||
Short-term borrowings | 3,460 | — | — | — | 3,460 | |||||||||||||||
Current maturities of long-term debt | 17,925 | — | — | 17,925 | — | |||||||||||||||
Accrued expenses and other current liabilities | 108,147 | — | 1,159 | 103,149 | 3,839 | |||||||||||||||
Total current liabilities | 241,430 | — | 1,159 | 215,169 | 25,102 | |||||||||||||||
Long-term debt, less current maturities | 720,202 | — | 319,349 | 400,853 | — | |||||||||||||||
Pension and other postretirement liabilities | 70,802 | — | — | 69,788 | 1,014 | |||||||||||||||
Deferred tax liabilities | 8,785 | — | 239 | 7,970 | 576 | |||||||||||||||
Other long-term liabilities | 6,672 | — | — | 4,739 | 1,933 | |||||||||||||||
Intercompany payables (receivables) | — | — | (30,105 | ) | 25,510 | 4,595 | ||||||||||||||
Total shareholders’ equity | 10,964 | (360,712 | ) | 10,964 | 299,936 | 60,776 | ||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,058,855 | $ | (360,712 | ) | $ | 301,606 | $ | 1,023,965 | $ | 93,996 | |||||||||
F-48
Table of Contents
Year Ended December 31, 2010
UCI | ||||||||||||||||||||
International | UCI | Non- | ||||||||||||||||||
Consolidated | Eliminations | International | Guarantors | Guarantors | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net sales | $ | 944,983 | $ | (104,564 | ) | $ | — | $ | 902,979 | $ | 146,568 | |||||||||
Cost of sales | 708,581 | (104,564 | ) | — | 681,219 | 131,926 | ||||||||||||||
Gross profit | 236,402 | — | — | 221,760 | 14,642 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Selling and warehousing | (60,550 | ) | — | — | (53,955 | ) | (6,595 | ) | ||||||||||||
General and administrative | (50,643 | ) | — | (6,472 | ) | (39,564 | ) | (4,607 | ) | |||||||||||
Amortization of acquired intangible assets | (5,219 | ) | — | — | (5,219 | ) | — | |||||||||||||
Restructuring gains (costs) | (1,655 | ) | — | — | 49 | (1,704 | ) | |||||||||||||
Patent litigation costs | (5,869 | ) | — | — | (5,869 | ) | — | |||||||||||||
Operating income (loss) | 112,466 | — | (6,472 | ) | 117,202 | 1,736 | ||||||||||||||
Other income (expense) | ||||||||||||||||||||
Interest expense, net | (60,829 | ) | — | (32,837 | ) | (27,988 | ) | (4 | ) | |||||||||||
Intercompany interest | — | — | — | 350 | (350 | ) | ||||||||||||||
Management fee expense | (2,000 | ) | — | — | (2,000 | ) | — | |||||||||||||
Loss on early extinguishment of debt | (8,687 | ) | — | (25 | ) | (8,662 | ) | — | ||||||||||||
Miscellaneous, net | (3,433 | ) | — | — | (3,433 | ) | — | |||||||||||||
Income (loss) before income taxes | 37,517 | — | (39,334 | ) | 75,469 | 1,382 | ||||||||||||||
Income tax (expense) benefit | (14,552 | ) | — | 12,901 | (27,342 | ) | (111 | ) | ||||||||||||
Increase (decrease) from continuing operations before equity in earnings of subsidiaries | 22,965 | — | (26,433 | ) | 48,127 | 1,271 | ||||||||||||||
Equity in earnings of subsidiaries | — | (50,743 | ) | 49,435 | 1,308 | — | ||||||||||||||
Net income (loss) | 22,965 | (50,743 | ) | 23,002 | 49,435 | 1,271 | ||||||||||||||
Less: Loss attributable to noncontrolling interest | (37 | ) | — | — | — | (37 | ) | |||||||||||||
Net income attributable to UCI International, Inc. | $ | 23,002 | $ | (50,743 | ) | $ | 23,002 | $ | 49,435 | $ | 1,308 | |||||||||
F-49
Table of Contents
Year Ended December 31, 2009
UCI | ||||||||||||||||||||
International | UCI | Non- | ||||||||||||||||||
Consolidated | Eliminations | International | Guarantors | Guarantors | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net sales | $ | 884,954 | $ | (104,585 | ) | $ | — | $ | 842,830 | $ | 146,709 | |||||||||
Cost of sales | 688,192 | (104,585 | ) | — | 662,574 | 130,203 | ||||||||||||||
Gross profit | 196,762 | — | — | 180,256 | 16,506 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Selling and warehousing | (56,598 | ) | — | — | (50,829 | ) | (5,769 | ) | ||||||||||||
General and administrative | (44,927 | ) | — | (2,238 | ) | (37,529 | ) | (5,160 | ) | |||||||||||
Amortization of acquired intangible assets | (5,758 | ) | — | — | (5,758 | ) | — | |||||||||||||
Restructuring costs | (923 | ) | — | — | (1,371 | ) | 448 | |||||||||||||
Patent litigation costs | (7,002 | ) | — | — | (7,002 | ) | — | |||||||||||||
Operating income (loss) | 81,554 | — | (2,238 | ) | 77,767 | 6,025 | ||||||||||||||
Other income (expense) | ||||||||||||||||||||
Interest expense, net | (60,469 | ) | — | (30,468 | ) | (29,843 | ) | (158 | ) | |||||||||||
Intercompany interest | — | — | — | 494 | (494 | ) | ||||||||||||||
Management fee expense | (2,000 | ) | — | — | (2,000 | ) | — | |||||||||||||
Miscellaneous, net | (5,458 | ) | — | — | (5,458 | ) | — | |||||||||||||
Income (loss) before income taxes | 13,627 | — | (32,706 | ) | 40,960 | 5,373 | ||||||||||||||
Income tax (expense) benefit | (5,105 | ) | — | 11,272 | (14,192 | ) | (2,185 | ) | ||||||||||||
Increase (decrease) from continuing operations before equity in earnings of subsidiaries | 8,522 | — | (21,434 | ) | 26,768 | 3,188 | ||||||||||||||
Equity in earnings of subsidiaries | — | (34,504 | ) | 30,636 | 3,868 | — | ||||||||||||||
Net income (loss) | 8,522 | (34,504 | ) | 9,202 | 30,636 | 3,188 | ||||||||||||||
Less: Loss attributable to noncontrolling interest | (680 | ) | — | — | — | (680 | ) | |||||||||||||
Net income attributable to UCI International, Inc. | $ | 9,202 | $ | (34,504 | ) | $ | 9,202 | $ | 30,636 | $ | 3,868 | |||||||||
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Table of Contents
Year Ended December 31, 2008
UCI | ||||||||||||||||||||
International | UCI | Non- | ||||||||||||||||||
Consolidated | Eliminations | International | Guarantors | Guarantors | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net sales | $ | 880,441 | $ | (88,019 | ) | $ | — | $ | 834,630 | $ | 133,830 | |||||||||
Cost of sales | 705,280 | (88,019 | ) | — | 662,453 | 130,846 | ||||||||||||||
Gross profit | 175,161 | — | — | 172,177 | 2,984 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Selling and warehousing | (62,906 | ) | — | — | (57,115 | ) | (5,791 | ) | ||||||||||||
General and administrative | (48,854 | ) | — | (2,292 | ) | (40,386 | ) | (6,176 | ) | |||||||||||
Amortization of acquired intangible assets | (6,349 | ) | — | — | (6,349 | ) | — | |||||||||||||
Restructuring costs | (2,380 | ) | — | — | (2,380 | ) | — | |||||||||||||
Trademark impairment loss | (500 | ) | — | — | (500 | ) | — | |||||||||||||
Operating income (loss) | 54,172 | — | (2,292 | ) | 65,447 | (8,983 | ) | |||||||||||||
Other income (expense) | ||||||||||||||||||||
Interest expense, net | (65,404 | ) | — | (31,212 | ) | (34,080 | ) | (112 | ) | |||||||||||
Intercompany interest | — | — | — | 862 | (862 | ) | ||||||||||||||
Management fee expense | (2,000 | ) | — | — | (2,000 | ) | — | |||||||||||||
Miscellaneous, net | (3,507 | ) | — | — | (14,207 | ) | 10,700 | |||||||||||||
Income (loss) before income taxes | (16,739 | ) | — | (33,504 | ) | 16,022 | 743 | |||||||||||||
Income tax (expense) benefit | 4,313 | — | 11,969 | (7,161 | ) | (495 | ) | |||||||||||||
Increase (decrease) from continuing operations before equity in earnings of subsidiaries | (12,426 | ) | — | (21,535 | ) | 8,861 | 248 | |||||||||||||
Equity in earnings of subsidiaries | — | (10,993 | ) | 9,927 | 1,066 | — | ||||||||||||||
Net income (loss) | (12,426 | ) | (10,993 | ) | (11,608 | ) | 9,927 | 248 | ||||||||||||
Less: Loss attributable to noncontrolling interest | (818 | ) | — | — | — | (818 | ) | |||||||||||||
Net income (loss) attributable to UCI International, Inc. | $ | (11,608 | ) | $ | (10,993 | ) | $ | (11,608 | ) | $ | 9,927 | $ | 1,066 | |||||||
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Table of Contents
Year Ended December 31, 2010
UCI | ||||||||||||||||||||
International | UCI | Non- | ||||||||||||||||||
Consolidated | Eliminations | International | Guarantors | Guarantors | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 113,340 | $ | $ | (3,633 | ) | $ | 111,754 | $ | 5,219 | ||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Capital expenditures | (21,298 | ) | — | — | (16,114 | ) | (5,184 | ) | ||||||||||||
Proceeds from sale of property, plant and equipment | 437 | — | 352 | 85 | ||||||||||||||||
Proceeds from sale of joint venture (net of transaction costs and cash sold) | 272 | — | — | 272 | ||||||||||||||||
Increase in restricted cash | (6,890 | ) | — | — | (6,890 | ) | — | |||||||||||||
Net cash used in investing activities: | (27,479 | ) | — | — | (22,652 | ) | (4,827 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Issuances of debt | 11,917 | — | — | — | 11,917 | |||||||||||||||
Debt repayments | (13,439 | ) | — | — | (1,333 | ) | (12,106 | ) | ||||||||||||
Proceeds of 2010 Credit Facility (net of original issue discount of $5,375) | 419,625 | — | — | 419,625 | — | |||||||||||||||
Payment of deferred financing costs and swaption premium | (9,893 | ) | — | — | (9,893 | ) | — | |||||||||||||
Repayment of 2006 Credit Facility | (190,000 | ) | — | — | (190,000 | ) | — | |||||||||||||
Redemption of senior subordinated notes, including call premium and redemption period interest | (235,512 | ) | — | — | (235,512 | ) | — | |||||||||||||
Change in intercompany indebtedness | — | — | 3,619 | (4,628 | ) | 1,009 | ||||||||||||||
Proceeds from exercise of stock options | 2 | — | 2 | — | — | |||||||||||||||
Net cash provided by (used in) financing activities | (17,300 | ) | — | 3,621 | (21,741 | ) | 820 | |||||||||||||
Effect of exchange rate changes on cash | (173 | ) | — | — | — | (173 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 68,388 | — | (12 | ) | 67,361 | 1,039 | ||||||||||||||
Cash and cash equivalents at beginning of year | 131,942 | — | 29 | 123,504 | 8,409 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 200,330 | $ | — | $ | 17 | $ | 190,865 | $ | 9,448 | ||||||||||
F-52
Table of Contents
Year Ended December 31, 2009
UCI | ||||||||||||||||||||
International | UCI | Non- | ||||||||||||||||||
Consolidated | Eliminations | International | Guarantors | Guarantors | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 129,281 | $ | $ | (4,247 | ) | $ | 108,077 | $ | 25,451 | ||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Capital expenditures | (15,266 | ) | — | — | (10,543 | ) | (4,723 | ) | ||||||||||||
Proceeds from sale of property, plant and equipment | 2,566 | — | 96 | 2,470 | ||||||||||||||||
Increase in restricted cash | (9,400 | ) | — | — | (9,400 | ) | — | |||||||||||||
Net cash used in investing activities: | (22,100 | ) | — | — | (19,847 | ) | (2,253 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Issuances of debt | 13,187 | — | — | — | 13,187 | |||||||||||||||
Debt repayments | (35,227 | ) | — | — | (20,304 | ) | (14,923 | ) | ||||||||||||
Intercompany capital contribution | — | — | — | (5,400 | ) | 5,400 | ||||||||||||||
Change in intercompany indebtedness | — | — | 4,215 | 21,057 | (25,272 | ) | ||||||||||||||
Proceeds from exercise of stock options | 18 | — | 18 | — | — | |||||||||||||||
Net cash provided by (used in) financing activities | (22,022 | ) | �� | 4,233 | (4,647 | ) | (21,608 | ) | ||||||||||||
Effect of exchange rate changes on cash | 128 | — | — | — | 128 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 85,287 | — | (14 | ) | 83,583 | 1,718 | ||||||||||||||
Cash and cash equivalents at beginning of year | 46,655 | — | 43 | 39,921 | 6,691 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 131,942 | $ | — | $ | 29 | $ | 123,504 | $ | 8,409 | ||||||||||
F-53
Table of Contents
Year Ended December 31, 2008
UCI | ||||||||||||||||||||
International | UCI | Non- | ||||||||||||||||||
Consolidated | Eliminations | International | Guarantors | Guarantors | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 31,735 | $ | $ | (187 | ) | $ | 28,739 | $ | 3,183 | ||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Capital expenditures | (31,940 | ) | — | — | (21,276 | ) | (10,664 | ) | ||||||||||||
Proceeds from sale of property, plant and equipment | 421 | — | — | 121 | 300 | |||||||||||||||
Net cash used in investing activities: | (31,519 | ) | — | — | (21,155 | ) | (10,364 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Issuances of debt | 27,993 | — | — | 20,003 | 7,990 | |||||||||||||||
Debt repayments | (23,407 | ) | — | — | (10,479 | ) | (12,928 | ) | ||||||||||||
Change in intercompany indebtedness | — | — | (501 | ) | (15,105 | ) | 15,606 | |||||||||||||
Proceeds from exercise of stock options | 146 | — | 146 | — | — | |||||||||||||||
Net cash provided by (used in) financing activities | 4,732 | — | (355 | ) | (5,581 | ) | 10,668 | |||||||||||||
Effect of exchange rate changes on cash | (318 | ) | — | — | — | (318 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 4,630 | — | (542 | ) | 2,003 | 3,169 | ||||||||||||||
Cash and cash equivalents at beginning of year | 42,025 | — | 585 | 37,918 | 3,522 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 46,655 | $ | — | $ | 43 | $ | 39,921 | $ | 6,691 | ||||||||||
F-54
Table of Contents
Consolidated financial statements as of December 31, 2010 and
for the period from November 26, 2010 (date of incorporation) through December 31, 2010 and
Report of the Independent Registered Public Accounting Firm
F-55
Table of Contents
F-56
Table of Contents
December 31, | ||||
2010 | ||||
(In thousands) | ||||
Assets | ||||
Current assets | ||||
Cash and cash equivalents | $ | — | ||
Deferred tax assets | — | |||
Total current assets | — | |||
Deferred financing costs, net | — | |||
Other long-term assets (Note 2) | 5,305 | |||
Total assets | $ | 5,305 | ||
Liabilities and shareholder’s equity (deficit) | ||||
Current liabilities | ||||
Accounts payable and accruals | $ | 3,995 | ||
Amount due to Rank Group Limited (Note 3) | 2,569 | |||
Total current liabilities | 6,564 | |||
Deferred tax liabilities | — | |||
Total liabilities | 6,564 | |||
Shareholder’s equity (deficit) | ||||
Common stock | — | |||
Additional paid in capital | — | |||
Retained deficit | (1,259 | ) | ||
Accumulated other comprehensive income (loss) | — | |||
Total shareholder’s equity (deficit) | (1,259 | ) | ||
Total liabilities and shareholder’s equity (deficit) | $ | 5,305 | ||
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Period Ended | ||||
December 31, | ||||
2010* | ||||
(In thousands) | ||||
Net sales | $ | — | ||
Cost of sales | — | |||
Gross profit | — | |||
Operating (expenses) income | ||||
General and administrative | (1,259 | ) | ||
Operating income | (1,259 | ) | ||
Other expense | ||||
Interest expense, net | — | |||
Loss before income taxes | (1,259 | ) | ||
Income tax (expense) benefit | ||||
Net loss | $ | (1,259 | ) | |
* | For the period from the date of incorporation (November 26, 2010) to December 31, 2010 |
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Period Ended | ||||
December 31, | ||||
2010* | ||||
(In thousands) | ||||
Cash flows from operating activities: | ||||
Net loss | $ | (1,259 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||
Non-cash acquisition costs | 1,259 | |||
Net cash provided by operating activities | — | |||
Cash flows from investing activities: | ||||
Net cash used in investing activities | — | |||
Cash flows from financing activities: | ||||
Net cash provided by financing activities | — | |||
Effect of exchange rate changes on cash | — | |||
Net increase in cash and cash equivalents | — | |||
Cash and cash equivalents at beginning of the period* | — | |||
Cash and cash equivalents at end of year | $ | — | ||
* | For the period from the date of incorporation (November 26, 2010) to December 31, 2010 |
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Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common | Paid In | Retained | Comprehensive | Total | Comprehensive | |||||||||||||||||||
Stock | Capital | (Deficit) | Income (Loss) | Equity/(Deficit) | Loss | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Balance at November 26, 2010* | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Comprehensive income/(loss) | ||||||||||||||||||||||||
Net loss | (1,259 | ) | (1,259 | ) | (1,259 | ) | ||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||
(Foreign currency) | — | — | ||||||||||||||||||||||
Total comprehensive loss | $ | (1,259 | ) | |||||||||||||||||||||
Balance at December 31, 2010 | $ | — | $ | — | $ | (1,259 | ) | $ | — | $ | (1,259 | ) | ||||||||||||
* | For the period from the date of incorporation (November 26, 2010) to December 31, 2010 |
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NOTE 2 — | OTHER LONG-TERM ASSETS |
December 31, | ||||
2010 | ||||
Other Long-Term Assets | $ | 5,305 | ||
$ | 5,305 | |||
NOTE 3 — | AMOUNT DUE TO RANK GROUP LIMITED |
December 31, | ||||
2010 | ||||
Amount due to Rank Group Limited | $ | 2,569 | ||
$ | 2,569 | |||
NOTE 4 — | RELATED PARTY TRANSACTIONS |
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NOTE 5 — | OTHER INFORMATION |
NOTE 6 — | SUBSEQUENT EVENTS |
• | Uncle Acquisition 2010 Corp issued $400 million 8.625% senior notes due 2019 (the “Senior Notes”). The Senior Notes are guaranteed by the Company and certain of its subsidiaries. | |
• | The Company and certain of its subsidiaries entered into a $375 million senior secured credit facilities agreement comprising a $300 million senior secured term loan facility (“Term Loans”) and a $75 million senior secured revolving facility (together the “Senior Secured Credit Facilities”). The Company and certain of its subsidiaries guaranteed and provided security for the Senior Secured Credit Facilities. | |
• | The Group completed the acquisition of UCI at which time Uncle Acquisition 2010 Corp merged into UCI with UCI continuing as the surviving entity. |
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