Restructuring initiatives lead to improved third quarter results for Proliance International, Inc.

Proliance International, Inc. recently reported improvements in its operating income for the third quarter ended Sept. 30, 2007. According to the company, the increase in operating income is the result of certain restructuring initiatives that were put in place last year.

"We saw the benefits of our restructuring initiatives drive improved profitability (this quarter)," says Charles E. Johnson, the company's president and chief executive officer. "Operating income increased by $0.6 million to $6.2 million in the third quarter, despite a $1.0 million increase in restructuring expenses year-over-year. The 10.6 percent improvement in operating income primarily reflects the impact of our continued cost reduction efforts. These actions have significantly reduced operating expenses, thereby improving our operating performance and offsetting the impact of lower revenues."

For the third quarter of 2007, net sales were $115.3 million, down 4.5 percent from $120.7 million in the third quarter of 2006. In the domestic segment, the company experienced a decline in sales of air conditioning and heat exchange products, primarily attributable to the impact of reductions in branch locations, soft market conditions and customer inventory reduction actions. International sales increased by $3.5 million, or 12.4 percent, on a year-over-year basis, primarily due to higher marine sales, the strength in the heavy duty market and the effect of changes in currency exchange rates.

Net income for the three months ended Sept. 30, 2007 was $0.1 million, or $0.01 per basic and diluted share, which included $1.9 million in restructuring charges as well as $0.9 million in one-time debt extinguishment costs as a result of the Company's recent senior debt refinancing. This compares to net income of $1.3 million, or $0.08 per basic and diluted share, for the same period a year ago, which included $0.8 million in restructuring charges.

Gross margin, as a percentage of net sales, was 23.6 percent during the third quarter of 2007 versus 25.2 percent in the third quarter of 2006, reflecting higher commodity costs, competitive pricing pressure, the shift in the customer sales mix away from the branch locations to wholesale customers, as well as lower production levels due to the company's inventory reduction actions. This was offset in part by reduced expenses from lower manufacturing levels and inventory related costs.

Selling, general and administrative expenses decreased in the third quarter of 2007 both in dollars and as a percentage of net sales compared to the third quarter of 2006. The $4.8 million decline in expenses and the decline to 16.6 percent from 19.8 percent as a percentage of net sales reflect the actions taken to lower administrative spending during 2006 and 2007, as well as lower branch expenses as a result of the year-over-year reduction in branch locations.

Proliance closed two branches in the third quarter of 2007 and is closing an additional 36 branch locations during the fourth quarter. These actions should drive selling, general and administrative expenses as a percentage of net sales lower in future quarters. As a result of these branch closures, the company expects to record between $0.5 million and $0.7 million in additional restructuring charges in the fourth quarter of 2007. Proliance will have 47 branches in operation after these actions.

In the third quarter of 2007, the company reported $1.9 million of restructuring costs compared to $0.8 million in the same period a year ago. The 2007 restructuring costs were associated with changes to the company's branch operating structure and headcount reductions in North America. Since July 1, 2007, Proliance has reduced headcount by approximately 16 percent including the previously announced branch closures. All of the restructuring charges described above are part of the previously announced $5.0 million to $7.0 million in total restructuring initiatives to be undertaken throughout 2007, of which approximately $3.2 million have been incurred to date.

Earnings before interest, taxes, depreciation and amortization (EBITDA) excluding restructuring charges were $10.3 million and $8.1 million for the three months ended Sept. 30, 2007 and 2006, respectively. EBITDA excluding restructuring charges and the previously announced arbitration earn-out decision charge incurred in the second quarter of 2007 was $12.1 million and $13.5 million for the nine months ended Sept. 30, 2007 and 2006, respectively. The EBITDA measures above constitute “non-GAAP financial measures” as defined by the rules of the Securities and Exchange Commission.

Inventories at Sept. 30, 2007 of $111.2 million were $7.8 million lower than levels at Dec. 31, 2006 and $25.9 million lower than levels at Sept. 30, 2006, reflecting the company's efforts to better manage its inventory levels through additional speed and supply flexibility, along with other ongoing inventory reduction efforts. Proliance continues to expect year-end inventory levels of approximately $100 million.

"Looking ahead, we are on track to deliver on our previously announced guidance for the year. We continue to expect year-over-year improved financial results in the fourth quarter and profitability on a pre-tax basis before restructuring and debt extinguishment expenses for the second half of 2007," Johnson says. "While there is a risk of on-going softness in our markets, we are taking the necessary steps and making required investments to drive our operating costs even lower in future periods while continuing to deliver on our commitment to our customers."

Proliance International, Inc. is a global manufacturer and distributor of aftermarket heat exchange and temperature control products for automotive and heavy-duty applications serving North America, Central America and Europe. For more information about the company, visit its Web site.