Knowles Electronics Announces Third Quarter and Year To-date Financial Results
ITASCA, Ill.--Nov. 5, 2001--Knowles Electronics Holdings, Inc. announced its results for the quarter ended September 30 and the first nine months of 2001.The manufacturer of hearing aid components and other products reported third quarter sales of $54.6 million, 3% less than the $56.4 million reported for the third quarter of 2000. The company's sales for the first nine months of 2001 totaled $166.6 million, 6% less than the $176.9 million reported for the first nine months of 2000.
All three of the company's divisions reported flat or lower sales for the third quarter. Sales at the company's Knowles Electronics Division remained essentially flat at $34.1 million. The company's Emkay Division reported sales of $7.7 million, 8% less than the $8.4 million reported in the third quarter of 2000. The company's Automotive Components Group reported sales of $12.9 million, a decline of 7% compared to the $13.9 million reported for the third quarter of 2000.
"Although our sales continue to lag last year's results, they have improved during the course of the year," said President and CEO John Zei. The company's Knowles Electronics Division sales for the first nine months of the year totaled $101.4 million, 4% less than the $106.0 million reported for the first nine months of 2000, with flat third quarter sales. The decline in automotive sales also grew narrower. Automotive sales for the first nine months were down 14%, to $40.2 million, but were down only 7% in the third quarter. Only the company's Emkay Division reported a quarter-to-quarter decline in sales growth, after reporting strong sales in first half of the year due to large new orders for the company's infrared products. The Emkay Division's sales totaled $25.1 million, 4% more than the $24.0 million reported for the first nine months of 2000.
The company's EBITDA for the third quarter totaled $14.1 million or 25.9% of sales. For the first nine months, the company's EBITDA reached $42.4 million or 25.5% of sales. Operating income for the third quarter totaled $10.8 million, compared to $12.4 million for the third quarter of 2000. Operating income for the first nine months totaled $34.2 million, compared to $20.1 million for the first nine months of 2000. The net loss for the third quarter was $850,000, compared to $1.3 million loss the third quarter of 2000. Net income for the year to date was $70,000, compared to a loss of $16.8 million for the first nine months of 2000, after the company reported a $20 million restructuring charge to consolidate its worldwide manufacturing operations
"In the third quarter, we clearly saw the results of our restructuring program," Zei said, "as we are saving over $1 million per month of manufacturing costs." The company's gross profit margin rose by more than four percentage points, to 47.7%, compared to 43.3% in the third quarter of 2000.
"We are addressing the challenges of a slower economy while we continue to invest for the future," said James F. Brace, Executive Vice President and CFO. "We have made progress in reducing inventories, although more work remains to be done. We also will work aggressively to reduce receivables in the coming quarter, which grew while our operations in England and Austria were focused on implementing our new Enterprise Resource Planning system. We have now launched the system at all North American and key European locations, and the costs associated with implementing the new system, which accounted for three-quarters of the increase in our general and administrative expenses, will decline sharply going forward."
The company's launch of new products is proceeding on schedule. New products developed by Emkay are proving attractive for military/security applications, and the division plans to begin selling new silicon microphone products by the end of the year. The Automotive Group's SSPI Electroforce product line, established earlier this year, received its first orders for new heavy-duty solenoids.
"We are moving in the right direction," said Zei. "We have continued to improve our operations--and more progress is on the way. We are the leader in our core markets, and our new technologies will help us extend our lead. We're making the most of current conditions and looking forward to growth."
Knowles Electronics is the world's leading manufacturer of transducers and related components used in hearing aids. The company also manufactures acoustic components used in voice recognition and telephony applications as well as automotive sensors and solenoids. In 1999, the European fund management company Doughty Hanson & Co Ltd acquired Knowles.
(Please see attached financial statements)
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Any Forward Looking Statements contained herein involve risks and uncertainties, including, but not limited to, product demand and market acceptance risks, the effect of economic conditions, the impact of competitive products and pricing, product development and patent protection, commercialization and technological difficulties, capacity and supply constraints or difficulties, actual purchases under agreements, the effect of the company's accounting policies, and other risks.
Knowles Electronics Holdings, Inc.
Consolidated Statements of Operations
(unaudited)
Three months ended Nine months ended
September 30 September 30
2001 2000 2001 2000
---- ---- ---- ----
(in thousands) (in thousands)
Net sales $ 54,639 $ 56,375 $ 166,648 $ 176,948
Cost of sales 28,564 31,940 88,584 99,893
---------- ---------- ---------- ----------
Gross margin 26,075 24,435 78,064 77,055
Research and development
expenses 3,291 3,074 10,274 9,043
Selling expenses 3,903 3,146 10,578 9,153
General and administrative
expenses 7,946 6,133 24,632 18,938
Restructuring expenses 171 (296) (1,665) 19,798
---------- ---------- ---------- ----------
Operating income 10,764 12,378 34,245 20,123
Other income (expense):
Interest income 17 171 121 717
Interest expense (9,280) (10,662) (29,443) (32,283)
---------- ---------- ---------- ----------
Income (loss) before taxes 1,501 1,887 4,923 (11,443)
Income tax expense (2,351) (3,227) (4,853) (5,378)
---------- ---------- ---------- ----------
Net income (loss) $ (850) $ (1,340) $ 70 $ (16,821)
========== ========== ========== ==========
Knowles Electronics Holdings, Inc.
Consolidated Balance Sheets
(unaudited)
September 30, December 31
2001 2000
------------- -------------
Assets (in thousands)
Current Assets:
Cash and cash equivalents $ 10,247 $ 17,076
Accounts receivable, net 45,130 41,192
Inventories, net 44,575 47,465
Prepaid expenses and other 5,530 4,334
------------- -------------
Total current assets 105,482 110,067
Property, plant and equipment, at cost:
Land 6,829 6,957
Building and improvements 31,158 31,469
Machinery and equipment 60,571 65,482
Furniture and fixtures 23,982 23,705
Construction in progress 11,376 4,501
------------- -------------
Subtotal 133,916 132,114
Accumulated depreciation (70,518) (71,580)
------------- -------------
Net 63,398 60,534
Other assets, net 3,558 3,855
Deferred income taxes 5,777 5,744
Deferred finance costs, net 7,748 9,577
------------- -------------
Total assets $ 185,963 $ 189,777
============= =============
Liabilities and stockholders' equity
(deficit)
Current liabilities:
Accounts payable $ 14,110 $ 14,471
Accrued compensation and employee
benefits 7,149 9,334
Accrued interest payable 10,265 4,898
Accrued warranty and rebates 9,382 8,971
Accrued restructuring costs 7,472 12,886
Other liabilities 8,368 8,652
Income taxes 6,138 4,134
Short-term debt 2,853 1,253
Current portion of notes payable 11,250 9,375
------------- -------------
Total current liabilities 76,987 73,974
Accrued pension liability 8,448 7,902
Other noncurrent liabilities 9 764
Notes payable 332,933 339,432
Preferred stock mandatorily redeemable
in 2019 including accumulating
dividends of: $44,446 September 2001;
$28,675 December, 2000 229,446 213,675
Stockholders' equity (deficit):
Common stock, Class A, $0.001 par
value, 1,052,632 shares authorized,
outstanding: 981,667 September, 2001;
983,333 December, 2000 - -
Common stock, Class B, $0.001 par
value, 52,632 shares authorized,
none ever issued - -
Capital in excess of par value 17,213 17,263
Retained earnings (accumulated loss) (471,879) (456,430)
Accumulated other comprehensive income
- translation adjustment (7,194) (6,803)
------------- -------------
Total stockholders' equity (deficit) (461,860) (445,970)
------------- -------------
Total liabilities and stockholders'
equity (deficit) $ 185,963 $ 189,777
========= =========