8-K 1 c84561e8vk.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 15, 2004 -------------- Knowles Electronics Holdings, Inc. DELAWARE 333-40076 36-2270096 ----------------- ------------ ------------------ (State (Commission (IRS Employer of incorporation) File Number) Identification No.)

1151 MAPLEWOOD DRIVE, ITASCA, ILLINOIS 60143 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (630) 250-5100 -------------- ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE Knowles Electronics Holdings, Inc. has obtained a Seventh Amendment to Credit Agreement and Second Amendment to Security Agreement dated as of April 8, 2004 to the Credit Agreement dated as of June 28, 1999, as amended and restated as of July 21, 1999 (as amended, restated, supplemented or otherwise modified from time to time) among Knowles Electronics Holdings, Inc. (f/k/a Knowles Electronics, Inc.), as Parent Borrower, Lenders, JPMorgan Chase Bank (successor to The Chase Manhattan Bank) as Administrative Agent and Morgan Stanley Senior Funding, Inc., as Syndication Agent, (the "Seventh Amendment"). The Seventh Amendment, which is effective April 14, 2004, provides for Tranche D Term Loans in a principal amount of $48 million, refinance of Tranche C Term Loans with Tranche D Term Loans and amends the interest coverage ratio and leverage ratio requirements, among other changes. The Tranche D Term Loans bear interest, at the Company's option, at either: (1) one-, two-, three-, or six-month LIBOR plus 7.25%, or (2) the greatest of the prime rate, a base certificate of deposit rate plus 1.0% or the federal funds effective rate plus 0.50%, in each case plus an initial margin of 6.25%. The Company has repaid the outstanding principal balance under the Tranche C Term Loans, which had an 18.5% interest rate, of $36.0 million and paid a related prepayment penalty of $1.1 million. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Knowles Electronics Holdings, Inc. Date: April 15, 2004 By: /s/ James H. Moyle ----------------------- Name: James H. Moyle Title: Executive Vice-President and CFO

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) August 13, 2003

Knowles Electronics Holdings, Inc.

DELAWARE	333-40076	36-2270096
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

1151 MAPLEWOOD DRIVE, ITASCA, ILLINOIS		60143
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (630) 250-5100

TABLE OF CONTENTS

ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS SIGNATURES

ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.

On July 29, 2003 Knowles Electronics Holdings, Inc. announced that it had completed the sale of Ruwido Austria Gesellschaft m.b.H., its Austrian subsidiary whose operations made up its Infrared division, to FM Electronics Holdings GmbH, which is controlled by the Ruwido Managing Director, Mr. Ferdinand Maier. A small minority interest was purchased by a second unrelated entity. Ruwido accounted for approximately $19 million of Knowles’ sales in 2002 and included approximately $18 million of assets. The sale price was $100,000 and the buyer retained approximately $4.0 million of debt. The sale of Ruwido is the third transaction Knowles has made in the last twelve months aimed at focusing the Company on its core electro-acoustic business. As a result of the sale, Knowles has made a $1.0 million prepayment of Term B Facility loans outstanding under its Credit Agreement as required by the Amendment Number Six and Waiver to its Credit Agreement, dated as of May 28, 2003.

Reference Exhibit 10.26 – Amendment No. 6 and Waiver dated as of May 28, 2003 to the Credit Agreement dated as of June 28, 1999, as amended and restated as of July 21, 1999, as amended, among Knowles Electronics Holdings, Inc., formerly known as Knowles Electronics, Inc., a Delaware corporation; the financial institutions party thereto as Lenders; JPMorgan Chase Bank, as successor to The Chase Manhattan Bank, as administrative agent and Morgan Stanley Senior Funding, Inc., as Syndication Agent is incorporated in the Form 8-K dated June 16, 2003.

Reference Exhibit 10.27 – The Share Deal agreed by and between Knowles Intermediate Holdings, Inc. and FM Electronics-Holding GmbH and WEHA Holding GmbH dated July 29, 2003 is incorporated in the Form 10-Q filed on August 13, 2003.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

(b.) The following pro forma financial statements include the remaining pro forma effects of the previously disclosed SSPI sale that have not already been reflected in the historical accounts. The Pro-forma Consolidated Balance Sheet as of June 30, 2003, the Condensed Pro-Forma Statements of Operations for six months ended June 30, 2003 and the year ended December 31, 2002 to reflect the sale of the Ruwido Austria Gesellschaft m.b.H (IR) follow:

Knowles Electronics Holdings, Inc.

Conslidated Pro-Forma Balance Sheet (1) (unaudited)

					Net Expenses			Prepayment			Prepayment			Proforma
		June 30,			IR Division			of Term B			of Term B			June 30,
		2003			Sale (2)			Facility (3)			Facility (4)			2003
					(in thousands)
Assets
	Cash and cash equivalents	$	17,153		$	(250	)	$	(1,000	)	$	(2,250	)	$	13,653
	Accounts receivable, net		22,061			—			—			—			22,061
	Inventories, net		16,214			—			—			—			16,214
	Prepaid expenses and other		3,979			—			—			—			3,979
	Assets of discontinued operations		9,169			—			—			—			9,169
Total current assets			68,576			(250	)		(1,000	)		(2,250	)		65,076
Property, plant and equipment, at cost:
Land			2,787			—			—			—			2,787
Building and improvements			18,475			—			—			—			18,475
Machinery and equipment			44,996			—			—			—			44,996
Furniture and fixtures			23,699			—			—			—			23,699
Construction in progress			7,293			—			—			—			7,293
	Subtotal		97,250			—			—			—			97,250
Accumulated depreciation			(58,751	)		—			—			—			(58,751	)
	Net		38,499			—			—			—			38,499
Other assets, net			3,333			—			—			—			3,333
Deferred finance costs, net			7,562			—			—			—			7,562
Total assets		$	117,970		$	(250	)	$	(1,000	)	$	(2,250	)	$	114,470
Liabilities and stockholders’ equity (deficit)
	Accounts payable	$	9,414		$	—		$	—		$	—		$	9,414
	Accrued compensation and employee benefits		3,964			—			—			—			3,964
	Accrued interest payable		4,877			—			—			—			4,877
	Accrued warranty and rebates		5,664			—			—			—			5,664
	Accrued restructuring costs		329			—			—			—			329
	Other liabilities		3,176			(250	)		—			(1,000	)		1,926
	Income taxes		7,464			—			—			—			7,464
	Deferred income taxes		502			—			—			—			502
	Current portion of notes payable		2,250			—			(1,000	)		(1,250	)		—
	Liabilities of discontinued operations		9,169			—			—			—			9,169
Total current liabilities			46,809			(250	)		(1,000	)		(2,250	)		43,309
Accrued pension liability			13,439			—			—			—			13,439
Other noncurrent liabilities			84			—			—			—			84
Notes payable			288,698			—			—			—			288,698
Preferred stock mandatorily redeemable in 2019			—
	including accumulating dividends		270,858			—			—			—			270,858
Stockholders’ equity (deficit):			—
	Common stock		—			—			—			—			—
	Capital in excess of par value		16,488			—			—			—			16,488
	Accumulated deficit		(513,106	)		—			—			—			(513,106	)
	Accumulated other comprehensive loss		(5,300	)		—			—			—			(5,300	)
Total stockholders’ equity (deficit)			(501,918	)		—			—			—			(501,918	)
Total liabilities and stockholders’ equity (deficit)		$	117,970		$	(250	)	$	(1,000	)	$	(2,250	)	$	114,470

(1)		Pro-forma results to estimate the June 30, 2003 Consolidated Balance Sheet as if the sale of the Infrared Division was completed on June 30, 2003, the associated transaction expenses were paid on that date and the agreed prepayment of $2.25 million of the Term Loan B facility.
(2)		Payment of estimated net transaction expenses based on transaction costs of $250 and severance costs of $100 less the sale price of $100, related to the sale of IR division.
(3)		Prepayment of Term B Facility loans of $1 million under the Credit Agreement related to sale of IR division.
(4)		Prepayment of Term B Facility loans of $1.25 million under the Credit Agreement and payment of $1 million in other closing costs related to Synchro-Start sale.

Knowles Electronics Holdings, Inc. Condensed Pro-Forma Consolidated Statements of Operations (1) Six months ended June 30, 2003 (Unaudited)

					Adjust
					Interest		Pro-forma
		June 30, 2003			Expense (2)		June 30, 2003
					(in thousands)
Net sales		$	76,410		$	—	$	76,410
Cost of sales			37,874			—		37,874
Gross margin			38,536			—		38,536
Research and development expenses			5,170			—		5,170
Selling and marketing expenses			4,422			—		4,422
General and administrative expenses			10,527			—		10,527
Operating Income (loss)			18,417			—		18,417
Other income (expense):
	Interest income		40			—		40
	Interest expense		(18,955	)		1,765		(17,190	)
Income (loss) from continuing operations before income taxes			(498	)		1,765		1,267
Income tax			1,287			—		1,287
Loss from continuing operations		$	(1,785	)	$	1,765	$	(20	)

(1)		The operating results of the Synchro Start Products Division and the Infrared Division for the six months ended June 30, 2003 were excluded from the operating results of the company’s continuing operations. Pro-forma results to estimate operating results for the six months ended June 30, 2003 as if the sales of the Synchro-Start Products and Infrared Divisions were completed December 31, 2002 and associated transaction expenses and loan prepayment paid on that date.
(2)		Reduce interest expense and deferred finance cost based on a prepayment of $43.25 million in principal of the Term B Facility related to the Synchro-Start sale and a $1 million prepayment in principal of the Term B Facility related to the Infrared Division sale for the six months ended June 30, 2003.

Knowles Electronics Holdings, Inc.

Condensed Pro-Forma Consolidated Statements of Operations (1) Year ended December 31, 2002 (unaudited)

			As Reported			Delete			Delete			Adjust		Pro-forma
			December 31,			SSPI Division			IR Division			Interest		December 31,
			2002			Results (2)			Results (3)			Expense (4)		2002
						(in thousands)
Net sales			$	216,105		$	(33,339	)	$	(18,647	)	$	—	$	164,119
	Cost of sales			123,222			(20,983	)		(14,270	)		—		87,969
	Gross margin			92,883			(12,356	)		(4,377	)		—		76,150
	Research and development expenses			13,728			(789	)		(1,204	)		—		11,735
	Selling and marketing expenses			13,769			(2,821	)		(1,444	)		—		9,504
	General and administrative expenses			25,081			(1,853	)		(1,751	)		—		21,477
	Loss on sale of business			16,736			—			—			—		16,736
	Restructuring expenses			2,158			(46	)		—			—		2,112
	Operating Income			21,411			(6,847	)		22			—		14,586
	Other income (expense):
		Interest income		129			—			—			—		129
		Interest expense		(34,126	)		—			234			2,904		(30,988	)
	Income (loss) before income taxes			(12,586	)		(6,847	)		256			2,904		(16,273	)
	Income tax (benefit)			11,790			(333	)		286			—		11,743
	Net income (loss)		$	(24,376	)	$	(6,514	)	$	(30	)	$	2,904	$	(28,016	)

(1)		Pro-forma results to estimate operating results for the twelve months ended December 31, 2002 as if the sale of the Synchro-Start Products and Infrared Divisions were completed December 31, 2001 and associated transaction expenses and loan prepayment paid on that date.
(2)		Delete the operating results of the Synchro-Start Products Division for the twelve months ended December 31, 2002.
(3)		Delete the operating results of the Infrared Division for the twelve months ended December 31, 2002.
(4)		Reduce interest expense based on prepayments of $43.25 million in principal of the Term B Facility for Synchro-Start Products and $1 million in principal of the Term B Facility for the Infrared Division.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		Knowles Electronics Holdings, Inc.
Date: August 13, 2003	By:	/s/ James H. Moyle
		Name: James H. Moyle
		Title: Vice-President and CFO

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