Form 8-K Knowles Corp For: Feb 11
UNITED STATES
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): February 11, 2016
Knowles Corporation
(Exact name of registrant as specified in its charter)
Delaware (State or Other Jurisdiction of Incorporation) | 001-36102 (Commission File Number) | 90-1002689 (I.R.S. Employer Identification No.) |
1151 Maplewood Drive, Itasca, IL | 60143 | |
(Address of Principal Executive Offices) | (Zip Code) | |
Registrant's telephone number, including area code: (630) 250-5100 | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01 Entry into a Material Definitive Agreement. | |
On February 9, 2016, Knowles Corporation (the “Company”) entered into the Third Amendment to Amended and Restated Credit Agreement (the “Third Amendment”) among the Company, as borrower, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent (the “Agent”). The Third Amendment amends the Credit Agreement dated as of January 27, 2014, as amended and restated as of December 31, 2014, among the Company, Knowles Luxembourg International S.à r.l., the lenders named therein and the Agent (as amended by the First Amendment dated April 17, 2015 and the Second Amendment dated November 19, 2015, the “Credit Agreement”). The Third Amendment was entered into in connection with the Company’s anticipated sale of the speaker and receiver product line of the Company’s Mobile Consumer Electronics segment (the “Speaker and Receiver Product Line ”). | |
The Third Amendment, among other things, amended the definition of “Consolidated EBITDA” in the Credit Agreement to allow the Company to make certain adjustments in connection with operations (including assets held for sale) comprising the Speaker and Receiver Product Line that have been disposed of, abandoned or discontinued or which are being held for sale (the “Speakers and Receivers Discontinued Operations”). Such adjustments are permitted for (i) the amount by which consolidated net income has been reduced by net losses attributable to the Speaker and Receiver Discontinued Operations for any fiscal quarter ending on or prior to December 31, 2016 and (ii) cash costs and expenses incurred in connection with the Speaker and Receiver Discontinued Operations on or prior to March 31, 2017, with an aggregate cap on adjustments attributable to such cash costs and expenses of $45,000,000; provided that, in each case, such adjustments to Consolidated EBITDA attributable to the Speaker and Receiver Discontinued Operations shall be disregarded in calculating the leverage ratio for purposes of determining the Applicable Rate (as defined in the Credit Agreement). The effectiveness of the Third Amendment is conditioned upon, among other things, the payment of an amendment fee and a permanent reduction by the Company of the aggregate revolving commitment under the Credit Agreement from $350,000,000 to $300,000,000. | |
The description of the Third Amendment in this Current Report on Form 8-K is qualified in its entirety by reference to the full text of the Third Amendment filed as Exhibit 10.1 hereto, which is incorporated by reference herein. | |
Item 2.02 Results of Operations and Financial Condition. | |
On February 11, 2016, Knowles Corporation issued a Press Release announcing its results of operations for the fiscal year and quarter ended December 31, 2015 and posted on its website at http://investor.knowles.com presentation slides for the fiscal year and quarter ended December 31, 2015. Knowles Corporation's quarterly financial conference call and webcast will be held on February 11, 2016. A copy of the Press Release is being furnished as Exhibit 99.1, and a copy of the presentation slides is being furnished as Exhibit 99.2 hereto. | |
The information furnished under this Item 2.02 and the related exhibits included in Item 9.01 of this Current Report on Form 8-K shall not be deemed to be “filed” for purposes of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing. | |
Item 9.01 Financial Statements and Exhibits. | ||
(d) Exhibits. | ||
The following exhibits are furnished as part of this report: | ||
Exhibit Number | Description | |
10.1 | Third Amendment, dated as of February 9, 2016, to Amended and Restated Credit Agreement by and among Knowles Corporation, as borrower, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent. | |
99.1 | Press Release of Knowles Corporation dated February 11, 2016. | |
99.2 | Presentation Slides dated February 11, 2016. | |
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 CORPORATION | |
Date: February 11, 2016 | By: /s/ Thomas G. Jackson |
Thomas G. Jackson | |
Senior Vice President, General Counsel & Secretary | |
EXHIBIT INDEX
Exhibit Number | Description | |
10.1 | Third Amendment, dated as of February 9, 2016, to Amended and Restated Credit Agreement by and among Knowles Corporation, as borrower, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent. | |
99.1 | Press Release of Knowles Corporation dated February 11, 2016. | |
99.2 | Presentation Slides dated February 11, 2016. | |
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as of February 9, 2016 (this “Amendment”), among KNOWLES CORPORATION (the “Company”), the Lenders party hereto and JPMORGAN CHASE BANK, N.A., as the Administrative Agent. WITNESSETH: WHEREAS, the Company, the Luxembourg Borrower, the Lenders and the Administrative Agent previously entered into that certain Credit Agreement dated as of January 27, 2014, as amended and restated as of December 31, 2014 (as amended by the First Amendment dated as of April 17, 2015, and as further amended by the Second Amendment dated as of November 19, 2015, the “Credit Agreement”; capitalized terms used and not otherwise defined herein have the meanings set forth in the Credit Agreement); WHEREAS, the Company has requested that the Lenders agree to amend the definition of “Consolidated EBITDA” in the Credit Agreement as set forth herein; and WHEREAS, the Company, the Administrative Agent and the Lenders party hereto, constituting the Required Lenders, have so agreed on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Amendment to Section 1.01. Section 1.01 of the Credit Agreement is hereby amended by (i) moving the definition of “Consolidated Cash Interest Expense” to its appropriate alphabetical order and (ii) adding the following new definition thereto (in appropriate alphabetical order): “Speakers and Receivers Discontinued Operations” means operations (including assets held for sale) comprising the speakers and receivers business of the Company and its Subsidiaries that shall have been disposed of, abandoned or discontinued or which are being held for sale. 2. Amendment to Definition of “Applicable Rate”. The definition of “Applicable Rate,” in Section 1.01 of the Credit Agreement is hereby amended by inserting the words “(determined for this purpose taking into account the proviso at the end of clause (a) of the definition of Consolidated EBITDA)” immediately after the phrase “Leverage Ratio” in the first paragraph therein. 3. Amendment to Definition of “Consolidated EBITDA”. (a) The definition of “Consolidated EBITDA,” in Section 1.01 of the Credit Agreement is hereby amended to (i) delete the word “and” at the end of subclauses (xi) and (xii) of clause (a), (ii) replace the semicolon at the end of subclause (xiii) of clause (a) with “,” and (iii) insert the following new subclauses (xiv) and (xv):
2 “(xiv) with respect to any fiscal quarter ending on or prior to December 31, 2016, the amount by which Consolidated Net Income for such quarter shall have been reduced by net losses for such quarter attributable to the Speakers and Receivers Discontinued Operations, and (xv) with respect to any fiscal quarter ending on or prior to March 31, 2017, cash costs and cash expenses (including those consisting of costs and expenses associated with inventory, severance costs, relocation costs, integration costs, other business optimization costs, expenses or reserves, signing costs, retention or completion bonuses, transition costs, costs related to the closure or consolidation of facilities or curtailments, new systems design and implementation costs and modifications to pension and post-retirement employee benefit plans (including any settlement of pension liabilities)) to the extent incurred by the Company and its Subsidiaries in connection with the Speakers and Receivers Discontinued Operations (but excluding (A) any such cash costs and cash expenses reflected in the net losses for such quarter attributable to the Speakers and Receivers Discontinued Operations referred to in clause (a)(xiv) and (B) any such cash costs and cash expenses in respect of noncash items added back in computing Consolidated EBITDA for any prior quarter); provided, that the aggregate amount added back pursuant to this clause (xv) in the determination of Consolidated EBITDA for all periods shall not exceed $45,000,000;” (b) The proviso to clause (a) of the definition of “Consolidated EBITDA,” as set forth in Section 1.01, is hereby amended and restated in its entirety to read as follows: “provided that (A) any cash payment made with respect to any noncash items added back in computing Consolidated EBITDA for any prior period pursuant to this clause (a) shall be subtracted in computing Consolidated EBITDA for the period in which such cash payment is made, (B) the aggregate adjustments in any period of four consecutive fiscal quarters of the Company attributable to cash items under clauses (a)(v)(B), (a)(ix) and (a)(x)(B) shall not account for more than 15% of Consolidated EBITDA for such period, other than with respect to any fiscal quarter occurring in the fiscal year 2014, which may be added back without limitation (except with regard to calculating the Leverage Ratio solely for purposes of determining the Applicable Rate, in which case the 15% cap set forth above shall apply) and (C) in calculating the Leverage Ratio solely for purposes of determining the Applicable Rate, clauses (a)(xiv) and (a)(xv) shall be disregarded; and minus” 4. Effectiveness. This Amendment shall become effective on the date (the “Effective Date”) on which the following conditions precedent shall have been satisfied: (a) The representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct in all material respects, in each case on and as of the date hereof as if made on and as of such date, except in the case of any such representation and warranty that expressly relates to a prior date, in which case such representation and warranty shall be true and correct in all material respects as of the prior date;
3 (b) The Company shall have paid to the Administrative Agent, for the account of each Lender that shall have executed and delivered a counterpart of this Amendment on or before 12:00pm EDT on February 9, 2016, an amendment fee equal to 0.05% of the sum of (i) the aggregate amount of such Lender’s Revolving Commitment and (ii) the aggregate principal amount of such Lender’s Tranche A Term Loans, in each case as of the Effective Date; (c) Pursuant to Section 2.07 of the Credit Agreement, the Company shall have permanently reduced the Aggregate Revolving Commitment to $300,000,000; (d) As of the date hereof and immediately after giving effect to this Amendment no Default shall have occurred and be continuing; and (e) The Administrative Agent shall have received either (i) counterparts of this Amendment that, when taken together, bear the signatures of (A) the Company, (B) the Required Lenders, and (C) the Administrative Agent or (ii) written evidence satisfactory to the Administrative Agent (which may include facsimile or other electronic transmission of a signed counterpart of this Amendment) that each such party has signed a counterpart of this Amendment. 5. Counterparts; Effectiveness; Entirety. (a) This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. The delivery of an executed counterpart of a signature page of this Amendment by facsimile or other electronic imaging shall be effective as delivery of a manually executed counterpart of this Amendment. (b) Except as expressly set forth herein, all of the terms and provisions of the Credit Agreement are and shall remain in full force and effect. The amendments contained herein shall not constitute a waiver, amendment or modification of any other provision of the Credit Agreement or for any other purpose except as expressly set forth herein. (c) This Amendment, the Credit Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. 6. Severability. Any provision of this Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality or enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. 7. Governing Law; Miscellaneous. (a) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
4 (b) This Amendment shall be deemed to be a Loan Document. (c) The captions and headings of this Amendment are for convenience of reference only and shall not affect the interpretation of this Amendment. [Signature Pages Follow]
[Signature Page to Third Amendment] IN WITNESS WHEREOF, the parties hereto have caused this amendment to be duly executed by their respective authorized officers as of the day and year first above written. KNOWLES CORPORATION by _________________________ Name: John S. Anderson Title: Senior Vice President and Chief Financial Officer JPMORGAN CHASE BANK N.A., individually and as Administrative Agent by _________________________ Name: Title:
[Signature Page to Third Amendment] SIGNATURE PAGE TO THIRD AMENDMENT TO KNOWLES CORPORATION CREDIT AGREEMENT Name of Lender:____________________________________ by Name: Title: For any Lender requiring a second signature line: by Name: Title:
Exhibit 99.1
Financial Contact: Mike Knapp Knowles Investor Relations Phone: (630) 238-5236 Email: [email protected] | Media Contact: Roxanne Pipitone Knowles Communications Phone: (630) 238-5257 Email: [email protected] |
Knowles Reports Q4 and Full Year 2015 Financial Results and Provides Outlook for Q1 2016
Q4 Revenue and Adjusted EBIT Margin at High-End of Projections
Q4 non-GAAP EPS Exceeds Expectations
Generated $66 million in Cash from Operations in Q4
Company Announces Intent to Sell MCE Speaker and Receiver Product Line
ITASCA, Ill., Feb. 11, 2016 - Knowles Corporation (NYSE: KN), a market leader and global supplier of advanced micro-acoustic solutions, audio processing, and specialty component solutions, today announced results for the fourth quarter and year ended December 31, 2015.
“We are pleased to report that Q4 revenue came in at the high-end of our original expectations,” said Jeffrey Niew, president and CEO of Knowles. “In our mobile consumer electronics segment, sales increased sequentially driven by strong demand from our largest customer early in the quarter, and improving trends with Chinese OEMs. Revenue from our specialty components segment was up 4 percent quarter over quarter driven by robust sales into the hearing health market. In addition, our Q4 non-GAAP gross margins expanded more than 800 basis points from Q1 levels highlighting the strength in our core business, and reflecting the benefits of higher utilization rates and an optimized manufacturing footprint.”
“Today, we are also announcing our intent to sell the speaker and receiver product line in our mobile consumer electronics segment,” stated Niew. “While we’ve made operational improvements to this product line over the past several years, we do not believe this electro-mechanical business can leverage our long-term investment in semiconductor and software design capabilities. By exiting this product line, we anticipate meaningful improvements to our overall gross and operating margins while reducing capex intensity and improving free cash flow.”
“As we enter 2016, we plan to focus on businesses where we believe we have strong competitive advantage to sustain long-term revenue growth. We expect our leading position in microphones, intelligent audio and hearing health, combined with stable sales of precision devices will drive top-line growth and strong operating margins in the future.”
Financial Highlights
The following highlights the Company’s financial performance on both a GAAP and supplemental non-GAAP basis (in millions except for per share data.
Q4FY15 | Q3FY15 | Q4FY14 | Sequential Change | Year Ago Period Change | |
Revenue | $310.5 | $294.6 | $286.1 | 5% | 9% |
Gross profit | $43.4 | $88.7 | $63.6 | (51%) | (32%) |
Non-GAAP gross profit (as a % of revenue) | $101.7 32.8% | $94.5 32.1% | $70.3 24.6% | 8% | 45% |
Loss before interest and income taxes* | $(199.0) | $(14.6) | $(1.2) | NM** | NM** |
Adjusted earnings before interest and income taxes (as a % of revenue) | $26.4 8.5% | $19.6 6.7% | $17.6 6.2% | 35% | 50% |
Diluted loss per share | $(2.11) | $(0.17) | $(0.01) | NM** | NM** |
Non-GAAP diluted earnings per share | $0.34*** | $0.16 | $0.14 | 113% | 143% |
Cash from Operations | $66.0 | $11.9 | $26.3 | 455% | 151% |
* Current period results include $144.3 million impairment of intangible assets, $11.1 million from amortization of intangibles, $6.4 million in restructuring charges, $4.9 million in stock-based compensation, $53.0 million in fixed asset and related inventory charges, and $3.8 million in production transfer costs.
** NM means Not Meaningful
** Non-GAAP EPS impacted by reduction in our Q4 2015 effective tax rate due to a recently enacted R&D tax credit and a change in the geographic mix of earnings.
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In addition to the GAAP results included in this press release, Knowles has presented supplemental non-GAAP gross profit, loss before interest and income taxes, adjusted earnings before interest and income taxes, diluted loss per share, cash from operations as well as other metrics on a non-GAAP basis that excludes certain amounts that are included in the most directly comparable GAAP measure to facilitate evaluation of Knowles’ operating performance. Non-GAAP results are not presented in accordance with GAAP. Non-GAAP information should be considered a supplement to, and not a substitute for, financial statements prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release do not have standard meanings and may vary from similarly titled non-GAAP financial measures used by other companies. Knowles uses non-GAAP measures as supplements to its GAAP results of operations in evaluating certain aspects of its business, and its Board of Directors and executive management team focus on non-GAAP items as key measures of Knowles’ performance for business planning purposes. These measures assist Knowles in comparing its performance between various reporting periods on a consistent basis, as these measures remove from operating results the impact of items that, in Knowles’ opinion, do not reflect its core operating performance including, for example, stock-based compensation, certain intangibles amortization expense, fixed asset impairment charges, restructuring, production transfer costs, and other charges which management considers to be outside our core operating results. Knowles believes that its presentation of these non-GAAP financial measures is useful because it provides investors and securities analysts with the same information that Knowles uses internally for purposes of assessing its core operating performance. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the reconciliation table accompanying this release.
Company Plans to Sell Mobile Consumer Electronics Speaker & Receiver Product Line
Today, Knowles announced its intention to sell its speaker and receiver product line within the mobile consumer electronics business segment. As a result, the Company expects to reclassify the assets, liabilities and results of the operations of the product line to discontinued operations in the first quarter of 2016. Knowles has not entered into any definitive agreement for the sale of the product line and there can be no assurance that Knowles will complete a sale in a timely manner or at all.
During the fourth quarter of 2015, Knowles recorded a pre-tax impairment charge of $191.5 million resulting from the carrying value of the speaker and receiver product line’s net assets being less than their fair-market value.
As of December 31, 2015, the speaker and receiver product line had total assets and liabilities of $441.1 million and $51.8 million, respectively. For the twelve months ended December 31, 2015, the speaker and receiver product line had revenues of $235.0 million and pre-tax losses of $272.4 million. Adjusted loss before interest and income of the speaker and receiver product line was $49.5 million for the same period.
First Quarter 2016 Outlook
The forward looking guidance for the quarter ending March 31, 2016 on a continuing operations basis is as follows:
Revenue | $170 to $190 million |
Non-GAAP Gross Margin | 36 to 38 Percent |
Adjusted EBIT Margin | 3 to 5 Percent |
Non-GAAP EPS | $0.01 to $0.07 |
Q1 2016 GAAP results for the company are expected to include approximately $6 million in stock-based compensation, $4 million in amortization of intangibles, $2 million in production and restructuring related costs, and related tax effects on these items.
Webcast and Conference Call Information
Investors can listen to a live or replay webcast of the Company’s quarterly financial conference call at http://investor.knowles.com. Slides will be made available on the website that will be referred to during the earnings call. The live webcast will begin today at 3:30 p.m. Central time. The webcast replay will be available after 7:00 p.m. Central time through May 1, 2016.
Investors can also listen to the conference call at 3:30 p.m. Central time today by calling (877) 359-9508 (United States) or (224) 357-2393 (International). The conference call replay will be available after 7:00 p.m. Central time on February 11, 2016 through 11:59 p.m. Central time on February 18, 2016 at (855) 859-2056 (United States) or (404) 537-3406 (International). The access code is 26518603.
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About Knowles
Knowles Corporation (NYSE: KN) is a market leader and global supplier of advanced micro-acoustic, audio processing, and specialty component solutions, serving the mobile consumer electronics, communications, medical, military, aerospace, and industrial markets. Knowles uses its leading position in MEMS (micro-electro-mechanical systems) microphones and strong capabilities in audio processing technologies to optimize audio systems and improve the user experience in smartphones, tablets, and wearables. Knowles is also the leader in acoustics components used in hearing aids and has a strong position in high-end oscillators (timing devices) and capacitors. Knowles’ focus on the customer, combined with unique technology, proprietary manufacturing techniques, rigorous testing and global scale, enables it to deliver innovative solutions that optimize the user experience. Founded in 1946 and headquartered in Itasca, Illinois, Knowles has approximately 12,000 employees in 15 countries around the world. For more information, visit knowles.com.
Forward Looking Statements
This news release contains forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “project,” “estimate,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “objective,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made. The statements in this news release are based on current plans, expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes or results to differ materially from those outcomes or results that are projected, anticipated or implied in these statements. These risks and uncertainties include, but are not limited to: the pace and success of achieving the cost savings from our announced restructurings, acquisitions and operating expense reduction efforts; fluctuations in our stock's market price; fluctuations in operating results and cash flows; our ability to prevent or identify quality issues in our products or to promptly remedy any such issues that are identified; the timing of OEM product launches; customer purchasing behavior in light of anticipated mobile phone launches; downward pressure on the average selling prices for our products; risks associated with increasing our inventories in advance of anticipated orders by customers; macroeconomic conditions, both in the U.S. and internationally; any downturn or slower than expected growth in the handset market; foreign currency exchange rate fluctuations; our ability to maintain and improve costs, quality and delivery for our customers; our ability to qualify our products and facilities with customers; risks and costs inherent in litigation; our ability to obtain, enforce, defend or monetize our intellectual property rights; increases in the costs of critical raw materials and components; availability of raw materials and components; sub-assemblies and other inputs; anticipated growth for us and adoption of our technologies and solutions that may not occur; the success and rate of multi-microphone adoption and our “intelligent audio” solutions; managing rapid declines in customer demand for certain of our products or solutions, delays in customer product introductions and other related customer challenges that may occur; our ability to successfully consummate acquisitions and divestitures, including the proposed divestiture of our speaker and receiver product line, and our ability to integrate acquisitions following consummation; our obligations and risks under various transaction agreements that were executed as part of our spin-off from our former parent company, Dover Corporation; managing new product ramps and introductions for our customers; risks associated with international sales and operations; retaining key personnel; our dependence on a limited number of large customers; our need to maintain and expand our existing relationships with leading OEMs and to establish relationships with new OEMs in order to maintain and increase our revenue; business and competitive factors generally affecting the advanced micro-acoustic solutions and specialty components industry, our customers and our business; fluctuations in demand by our telecom and other customers and telecom end markets; our ability to enter new end user product markets; increasing competition and new entrants in the market for our products; our ability to develop new or enhanced products or technologies in a timely manner that achieve market acceptance; our reliance on third parties to manufacture, assemble and test our products and sub-components; changes in tax laws or our ability to utilize our tax structure and any net operating losses and other factors that we may not have currently identified or quantified; the impairment of our goodwill, other intangible assets or long-lived assets; our ability to comply with certain financial covenants in our credit agreement; security breaches; our use of open source software; the actions of activist or hostile stockholders; and other risks, relevant factors and uncertainties identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, subsequent Reports on Forms 10-Q and 8-K and our other filings we make with the SEC. Knowles disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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INVESTOR SUPPLEMENT - FOURTH QUARTER 2015
KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions except share and per share amounts)
(unaudited)
Quarter Ended | ||||||||||||
December 31, 2015 | September 30, 2015 | December 31, 2014 | ||||||||||
Revenues | $ | 310.5 | $ | 294.6 | $ | 286.1 | ||||||
Cost of goods sold | 214.0 | 204.9 | 220.1 | |||||||||
Impairment of fixed and other assets | 49.9 | 0.5 | 0.2 | |||||||||
Restructuring charges - cost of goods sold | 3.2 | 0.5 | 2.2 | |||||||||
Gross profit | 43.4 | 88.7 | 63.6 | |||||||||
Research and development expenses | 36.8 | 33.0 | 21.1 | |||||||||
Selling and administrative expenses | 57.1 | 58.8 | 45.5 | |||||||||
Impairment of intangible assets | 144.3 | 0.4 | — | |||||||||
Restructuring charges | 3.2 | 8.9 | 0.7 | |||||||||
Operating expenses | 241.4 | 101.1 | 67.3 | |||||||||
Operating loss | (198.0 | ) | (12.4 | ) | (3.7 | ) | ||||||
Interest expense, net | 3.5 | 3.7 | 2.1 | |||||||||
Other expense (income), net | 1.0 | 2.2 | (2.5 | ) | ||||||||
Loss before income taxes | (202.5 | ) | (18.3 | ) | (3.3 | ) | ||||||
Benefit from income taxes | (15.5 | ) | (3.4 | ) | (2.2 | ) | ||||||
Net loss | $ | (187.0 | ) | $ | (14.9 | ) | $ | (1.1 | ) | |||
Basic loss per share | $ | (2.11 | ) | $ | (0.17 | ) | $ | (0.01 | ) | |||
Diluted loss per share | $ | (2.11 | ) | $ | (0.17 | ) | $ | (0.01 | ) | |||
Weighted average common shares outstanding: | ||||||||||||
Basic | 88,474,926 | 88,429,627 | 85,069,459 | |||||||||
Diluted | 88,474,926 | 88,429,627 | 85,069,459 | |||||||||
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KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions except share and per share amounts)
(unaudited)
Year Ended | ||||||||
December 31, 2015 | December 31, 2014 | |||||||
Revenues | $ | 1,084.6 | $ | 1,141.3 | ||||
Cost of goods sold | 785.1 | 883.9 | ||||||
Impairment of fixed and other assets | 53.4 | 1.4 | ||||||
Restructuring charges - cost of goods sold | 3.6 | 23.3 | ||||||
Gross profit | 242.5 | 232.7 | ||||||
Research and development expenses | 112.1 | 83.0 | ||||||
Selling and administrative expenses | 208.1 | 196.5 | ||||||
Impairment of intangible assets | 144.7 | — | ||||||
Restructuring charges | 12.7 | 6.3 | ||||||
Operating expenses | 477.6 | 285.8 | ||||||
Operating loss | (235.1 | ) | (53.1 | ) | ||||
Interest expense, net | 12.7 | 6.6 | ||||||
Other expense (income), net | 1.1 | (4.6 | ) | |||||
Loss before income taxes | (248.9 | ) | (55.1 | ) | ||||
(Benefit from) provision for income taxes | (15.1 | ) | 31.9 | |||||
Net loss | $ | (233.8 | ) | $ | (87.0 | ) | ||
Basic loss per share | $ | (2.69 | ) | $ | (1.02 | ) | ||
Diluted loss per share | $ | (2.69 | ) | $ | (1.02 | ) | ||
Weighted average common shares outstanding: | ||||||||
Basic | 86,802,828 | 85,046,042 | ||||||
Diluted | 86,802,828 | 85,046,042 | ||||||
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KNOWLES CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (1)
(in millions, except for share and per share amounts)
(unaudited)
Quarter Ended | Year Ended | |||||||||||||||
December 31, 2015 | September 30, 2015 | December 31, 2014 | December 31, 2015 | December 31, 2014 | ||||||||||||
Gross profit | $ | 43.4 | $ | 88.7 | $ | 63.6 | $ | 242.5 | $ | 232.7 | ||||||
Stock-based compensation expense | 0.3 | 0.4 | 0.3 | 1.3 | 0.8 | |||||||||||
Fixed asset, inventory and other charges | 49.9 | 0.5 | (1.0 | ) | 53.4 | 39.5 | ||||||||||
Restructuring charges | 3.2 | 0.5 | 2.2 | 3.6 | 23.3 | |||||||||||
Production transfer costs (2) | 3.8 | 3.6 | 5.2 | 18.0 | 24.5 | |||||||||||
Other (3) | 1.1 | 0.8 | — | 1.9 | 15.0 | |||||||||||
Non-GAAP gross profit | $ | 101.7 | $ | 94.5 | $ | 70.3 | $ | 320.7 | $ | 335.8 | ||||||
Non-GAAP gross profit as % of revenues | 32.8 | % | 32.1 | % | 24.6 | % | 29.6 | % | 29.4 | % | ||||||
Research and development expenses | $ | 36.8 | $ | 33.0 | $ | 21.1 | $ | 112.1 | $ | 83.0 | ||||||
Stock-based compensation expense | (1.0 | ) | (0.7 | ) | 0.1 | (2.1 | ) | (0.3 | ) | |||||||
Fixed asset, inventory and other charges | (3.0 | ) | — | — | (3.0 | ) | — | |||||||||
Non-GAAP research and development expenses | $ | 32.8 | $ | 32.3 | $ | 21.2 | $ | 107.0 | $ | 82.7 | ||||||
Non-GAAP research and development expenses as % of revenues | 10.6 | % | 11.0 | % | 7.4 | % | 9.9 | % | 7.2 | % | ||||||
Selling and administrative expenses | $ | 57.1 | $ | 58.8 | $ | 45.5 | $ | 208.1 | $ | 196.5 | ||||||
Stock-based compensation expense | (3.6 | ) | (3.9 | ) | (2.3 | ) | (13.1 | ) | (7.9 | ) | ||||||
Intangibles amortization expense | (11.1 | ) | (11.1 | ) | (10.5 | ) | (42.1 | ) | (42.6 | ) | ||||||
Fixed asset, inventory and other charges | (0.1 | ) | — | — | (0.1 | ) | — | |||||||||
Production transfer costs (2) | — | — | — | — | (0.7 | ) | ||||||||||
Other (3) | (0.8 | ) | (3.4 | ) | — | (6.8 | ) | (2.3 | ) | |||||||
Non-GAAP selling and administrative expenses | $ | 41.5 | $ | 40.4 | $ | 32.7 | $ | 146.0 | $ | 143.0 | ||||||
Non-GAAP selling and administrative expenses as % of revenues | 13.4 | % | 13.7 | % | 11.4 | % | 13.5 | % | 12.5 | % | ||||||
Operating expenses | $ | 241.4 | $ | 101.1 | $ | 67.3 | $ | 477.6 | $ | 285.8 | ||||||
Stock-based compensation expense | (4.6 | ) | (4.6 | ) | (2.2 | ) | (15.2 | ) | (8.2 | ) | ||||||
Intangibles amortization expense | (11.1 | ) | (11.1 | ) | (10.5 | ) | (42.1 | ) | (42.6 | ) | ||||||
Fixed asset, inventory and other charges | (3.1 | ) | — | — | (3.1 | ) | — | |||||||||
Restructuring charges | (3.2 | ) | (8.9 | ) | (0.7 | ) | (12.7 | ) | (6.3 | ) | ||||||
Impairment of intangible assets | (144.3 | ) | (0.4 | ) | — | (144.7 | ) | — | ||||||||
Production transfer costs (2) | — | — | — | — | (0.7 | ) | ||||||||||
Other (3) | (0.8 | ) | (3.4 | ) | — | (6.8 | ) | (2.3 | ) | |||||||
Non-GAAP operating expenses | $ | 74.3 | $ | 72.7 | $ | 53.9 | $ | 253.0 | $ | 225.7 | ||||||
Non-GAAP operating expenses as % of revenues | 23.9 | % | 24.7 | % | 18.8 | % | 23.3 | % | 19.8 | % | ||||||
Net loss | $ | (187.0 | ) | $ | (14.9 | ) | $ | (1.1 | ) | $ | (233.8 | ) | $ | (87.0 | ) | |
Interest expense, net | 3.5 | 3.7 | 2.1 | 12.7 | 6.6 | |||||||||||
(Benefit from) provision for income taxes | (15.5 | ) | (3.4 | ) | (2.2 | ) | (15.1 | ) | 31.9 | |||||||
Loss before interest and income taxes | (199.0 | ) | (14.6 | ) | (1.2 | ) | (236.2 | ) | (48.5 | ) | ||||||
Stock-based compensation expense | 4.9 | 5.0 | 2.5 | 16.5 | 9.0 | |||||||||||
Intangibles amortization expense | 11.1 | 11.1 | 10.5 | 42.1 | 42.6 | |||||||||||
Fixed asset, inventory and other charges | 53.0 | 0.5 | (1.0 | ) | 56.5 | 39.5 | ||||||||||
Restructuring charges | 6.4 | 9.4 | 2.9 | 16.3 | 29.6 | |||||||||||
Impairment of intangible assets | 144.3 | 0.4 | — | 144.7 | — | |||||||||||
Production transfer costs (2) | 3.8 | 3.6 | 5.2 | 18.0 | 25.2 | |||||||||||
Other (3) | 1.9 | 4.2 | (1.3 | ) | 8.7 | 16.0 | ||||||||||
Adjusted earnings before interest and income taxes | $ | 26.4 | $ | 19.6 | $ | 17.6 | $ | 66.6 | $ | 113.4 | ||||||
Adjusted earnings before interest and income taxes as % of revenues | 8.5 | % | 6.7 | % | 6.2 | % | 6.1 | % | 9.9 | % | ||||||
6
Quarter Ended | Year Ended | |||||||||||||||
December 31, 2015 | September 30, 2015 | December 31, 2014 | December 31, 2015 | December 31, 2014 | ||||||||||||
(Benefit from) provision for income taxes | $ | (15.5 | ) | $ | (3.4 | ) | $ | (2.2 | ) | $ | (15.1 | ) | $ | 31.9 | ||
Income tax effects of non-GAAP reconciling adjustments | 8.1 | 5.0 | 5.8 | 12.2 | (19.4 | ) | ||||||||||
Non-GAAP (benefit from) provision for income taxes | $ | (7.4 | ) | $ | 1.6 | $ | 3.6 | $ | (2.9 | ) | $ | 12.5 | ||||
Net loss | $ | (187.0 | ) | $ | (14.9 | ) | $ | (1.1 | ) | $ | (233.8 | ) | $ | (87.0 | ) | |
Non-GAAP reconciling adjustments (4) | 225.4 | 34.2 | 18.8 | 302.8 | 161.9 | |||||||||||
Income tax effects of non-GAAP reconciling adjustments | 8.1 | 5.0 | 5.8 | 12.2 | (19.4 | ) | ||||||||||
Non-GAAP net earnings | $ | 30.3 | $ | 14.3 | $ | 11.9 | $ | 56.8 | $ | 94.3 | ||||||
Non-GAAP net earnings as % of revenues | 9.8 | % | 4.9 | % | 4.2 | % | 5.2 | % | 8.3 | % | ||||||
Non-GAAP diluted earnings per share | $ | 0.34 | $ | 0.16 | $ | 0.14 | $ | 0.65 | $ | 1.10 | ||||||
Diluted average shares outstanding (5) | 88,474,926 | 88,429,627 | 85,069,459 | 86,802,828 | 85,046,042 | |||||||||||
Non-GAAP adjustment (6) | 1,138,179 | 1,166,388 | 481,298 | 961,841 | 539,734 | |||||||||||
Non-GAAP diluted average shares outstanding (6) | 89,613,105 | 89,596,015 | 85,550,757 | 87,764,669 | 85,585,776 | |||||||||||
Notes:
(1) In addition to the GAAP financial measures included herein, Knowles has presented certain non-GAAP financial measures. Knowles uses non-GAAP measures as supplements to its GAAP results of operations in evaluating certain aspects of its business, and its Board of Directors and executive management team focus on non-GAAP items as key measures of Knowles' performance for business planning purposes. These measures assist Knowles in comparing its performance between various reporting periods on a consistent basis, as these measures remove from operating results the impact of items that, in Knowles' opinion, do not reflect its core operating performance. Knowles believes that its presentation of non-GAAP financial measures is useful because it provides investors and securities analysts with the same information that Knowles uses internally for purposes of assessing its core operating performance.
(2) Production Transfer Costs represent one-time and duplicate costs incurred to migrate manufacturing to new or existing facilities in Asia. These amounts are included in the corresponding Gross profit, Selling and administrative expenses, Operating expenses and Loss before interest and income taxes for each period presented.
(3) In 2015, Other represents expenses related to the Audience acquisition. In 2014, Other in Gross profit represents a charge related to the resolution of customer claims for products no longer produced, and Other in Operating expenses represents expenses related to the spin-off of Knowles from Dover Corporation.
(4) The Non-GAAP reconciling adjustments are those adjustments made to reconcile Loss before interest and income taxes to Adjusted earnings before interest and income taxes.
(5) Diluted average shares outstanding are consistent with basic average shares outstanding as all periods are reporting a net loss.
(6) The number of shares used in the diluted per share calculations on a non-GAAP basis excludes the impact of stock-based compensation expense expected to be incurred in future periods and not yet recognized in the financial statements, which would otherwise be assumed to be used to repurchase shares under the GAAP treasury stock method.
7
KNOWLES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except for share and per share amounts)
December 31, 2015 | December 31, 2014 | ||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 63.3 | $ | 55.2 | |||
Receivables, net of allowances of $1.8 and $0.8 | 192.4 | 236.3 | |||||
Inventories, net | 152.0 | 162.0 | |||||
Prepaid and other current assets | 11.6 | 10.7 | |||||
Deferred tax assets | — | 9.8 | |||||
Total current assets | 419.3 | 474.0 | |||||
Property, plant and equipment, net | 224.8 | 315.9 | |||||
Goodwill | 925.8 | 914.7 | |||||
Intangible assets, net | 97.0 | 270.3 | |||||
Other assets and deferred charges | 30.8 | 23.6 | |||||
Total assets | $ | 1,697.7 | $ | 1,998.5 | |||
Current liabilities: | |||||||
Current maturities of long-term debt | $ | 30.0 | $ | 15.0 | |||
Accounts payable | 116.5 | 172.1 | |||||
Accrued compensation and employee benefits | 37.3 | 38.7 | |||||
Other accrued expenses | 41.6 | 48.8 | |||||
Federal and other taxes on income | 1.5 | 14.0 | |||||
Total current liabilities | 226.9 | 288.6 | |||||
Long-term debt | 400.0 | 385.0 | |||||
Deferred income taxes | 18.4 | 49.2 | |||||
Other liabilities | 45.6 | 39.5 | |||||
Commitments and contingencies | |||||||
Stockholders' equity: | |||||||
Preferred stock - $0.01 par value; 10,000,000 shares authorized; none issued | — | — | |||||
Common stock - $0.01 par value; 400,000,000 shares authorized; 88,451,564 and 85,061,449 shares issued at December 31, 2015 and December 31, 2014, respectively | 0.9 | 0.9 | |||||
Additional paid-in capital | 1,449.9 | 1,372.6 | |||||
Accumulated deficit | (317.8 | ) | (84.0 | ) | |||
Accumulated other comprehensive loss | (126.2 | ) | (53.3 | ) | |||
Total stockholders' equity | 1,006.8 | 1,236.2 | |||||
Total liabilities and stockholders' equity | $ | 1,697.7 | $ | 1,998.5 | |||
8
Q4 & Full Year 2015 Earnings Call Investor Slides February 11, 2016
1 Non-GAAP Disclaimer The financial results disclosed in this presentation include certain measures calculated and presented in accordance with GAAP. In addition to the GAAP results included in this presentation, Knowles has presented supplemental, non-GAAP gross profit, earnings before interest and income taxes, adjusted earnings before interest and income taxes and non- GAAP diluted earnings per share to facilitate evaluation of Knowles’ operating performance. These non-GAAP financial measures exclude certain amounts that are included in the most directly comparable GAAP measure. In addition, these non-GAAP financial measures do not have standard meanings and may vary from similarly titled non-GAAP financial measures used by other companies. Knowles uses non-GAAP measures as supplements to its GAAP results of operations in evaluating certain aspects of its business, and its Board of Directors and executive management team focus on non-GAAP items as key measures of Knowles’ performance for business planning purposes. These measures assist Knowles in comparing its performance between various reporting periods on a consistent basis, as these measures remove from operating results the impact of items that, in Knowles’ opinion, do not reflect its core operating performance. Knowles believes that its presentation of these non-GAAP financial measures is useful because it provides investors and securities analysts with the same information that Knowles uses internally for purposes of assessing its core operating performance. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the reconciliation tables included in the fourth quarter and year end 2015 earnings release.
2 Intend to sell low-margin mobile consumer electronics speaker/receiver product line Continuing operations expected to generate significant earnings and cash flow, with reduced exposure to the handset market Intelligent Audio investment enables long-term growth through dollar content increases and expansion into new markets Knowles Strategic Outlook
3 Knowles 2016 Key Priorities Investing for Long-Term GrowthOptimizing the Portfolio Performance Audio • Microphone leadership • Multi-mic adoption • Leverage microphone scale Intelligent Audio • Software and digital signal processing capabilities • Integrated acoustic + software solutions shipping in 2016 Specialty Components - Acoustics • Hearing Health leadership • Hearables opportunities Sell mobile consumer speaker/receiver product line Audience integration; annualized cost savings on track Rationalize additional operating expenses Improve free cash flow
4 Selling Mobile Consumer Electronics Speaker/Receiver Product Line Rationale • Limited ability to improve profitability • Lack of scale and associated volatility with being #3 supplier • Purely electro-mechanical in nature, lack of synergy with our semiconductor design and software capabilities • CapEx intensive Financial Impact • Action expected to result in meaningful improvement to gross margins • Reduced CapEx; improves free cash flow Time Table • Evaluating potential interest from multiple parties in Q1 ‘16 • Intend to sell by end of Q2 ‘16 Optimizing Our Portfolio
Knowles well positioned to deliver increased content 5 MARKET DRIVERS Higher-performance mics, smart mics, multi-mic integration Acoustics + Intelligent Audio software solutions Microphone performance leadership and scale Leader in smart mics Best-in-class audio software TYPES OF APPLICATIONS OUR OFFERING KNOWLES ADVANTAGE IMPROVED VOICE & AUDIO QUALITYVOICE AS A USER INTERFACE Investing for Long-Term Growth in Existing Market Third party logos used in the presentation are the licensed trademarks or intellectual property of their respective owners. Knowles does not claim ownership , license rights or endorsement by these third parties.
6 Voice is re-defining the relationship between consumers and technology Investing for Growth Beyond Smartphones Knowles is leveraging enhanced audio capabilities to drive growth
7 Revenue lower • Exit from speaker/receiver product line • Normal seasonality • Inventory correction at major customer Significant gross margin improvement ex-speaker/receiver, despite seasonally low Q1 OpEx • Impact of speaker and receiver in discontinued operations • Rationalized non-core R&D spending • Lower corporate overhead Q1 FY 2016 Guidance Q1FY16E (Cont. Ops.) Revenue $170 - $190 million Non-GAAP Gross Margin 36% - 38% Non-GAAP R&D $25 - $27 million Non-GAAP SG&A $35 - $37 million Adjusted EBIT Margin 3% - 5% Non-GAAP Diluted Earnings per Share $0.01 - $0.07 Q1 2016 GAAP results for the company are expected to include approximately $6 million in stock-based compensation, $4 million in amortization of intangibles, $2 million in production and restructuring related costs, and related tax effects on these items
8 Full Year 2016 Outlook (Cont. Ops.) Modest full-year revenue increase • Smartphone growth • Share gains in MEMS mics • Multi-mic adoption • Intelligent audio • Specialty components • Expect 40% in 1H; 60% in 2H Full year non-GAAP gross margin of 38% - 40% • Sequential improvement throughout the year • Benefits of prior manufacturing footprint optimization • Normal seasonality and related operating leverage • New higher margin products in 2H Committed to reducing non-GAAP OpEx • Expect R&D levels to increase modestly throughout the year from Q1 ‘16 levels • Continue to invest in growth opportunities • Reduce R&D spend in non-core areas in Q1 • SG&A rationalization • Reductions realized in back half of year to align with intended sale of speaker/receiver product line • Achieve $140 million annualized run rate by Q4 ‘16
9 Leverage core high performance, low power acoustic expertise Deliver fully integrated audio solutions with software and signal processing Increase device content with disruptive products and software Drive audio adoption in new markets Acoustics Software Signal Processor / Audio Silicon Our Value Proposition Leading Provider of High Performance Audio Solutions Acoustics Signal Processor Software
10 Appendix
11 Revenue (Cont. Ops.) $186.6 $192.8 $246.7 $223.5 $0 $50 $100 $150 $200 $250 $300 Q1FY15 Q2FY15 Q3FY15 Q4FY15 $ M i l l i o n s
12 Adjusted EBIT (Cont. Ops.) $ M i l l i o n s $0 $10 $20 $30 $40 Q1FY15 Q2FY15 Q3FY15 Q4FY15 $23.3 $31.2 $36.0 $25.6
Revenue by Segment – Cont. Ops. (% of revenue) 2015 Mobile Consumer Electronics 50% Specialty Components 50% 13
14 Historical Segment Data – As Reported December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015 December 31, 2014 December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015 December 31, 2014 Revenues 200.5$ 189.2$ 132.3$ 134.7$ 170.9$ 110.0$ 105.4$ 108.6$ 103.9$ 115.2$ Gross Profit 6.7$ 49.0$ 18.1$ 19.2$ 22.2$ 37.3$ 40.2$ 38.8$ 34.7$ 41.6$ Stock-Based Compensation Expense 0.1 0.1 0.1 - - 0.2 0.1 0.2 0.1 0.2 Fixed Asset, Inventory and Other Charges 47.8 0.5 3.0 - (1.0) 2.1 - - - - Restructuring Charges 0.6 0.3 0.2 0.1 0.6 2.4 0.1 0.3 (0.7) 1.6 Production Transfers Costs 0.2 0.6 1.6 2.4 2.9 3.6 3.0 3.6 3.0 2.3 Other 1.1 0.8 - - - - - - - - Non-GAAP Gross Profit 56.5$ 51.3$ 23.0$ 21.7$ 24.7$ 45.6$ 43.4$ 42.9$ 37.1$ 45.7$ Non-GAAP Gross Profit as % of Revenues 28.2% 27.1% 17.4% 16.1% 14.5% 41.5% 41.2% 39.5% 35.7% 39.7% Research and Development Expenses 29.3$ 26.3$ 15.5$ 12.8$ 14.3$ 7.5$ 6.7$ 7.2$ 6.8$ 6.8$ Stock-Based Compensation Expense (1.0) (0.8) (0.2) (0.1) 0.1 - 0.1 - (0.1) - Fixed Asset, Inventory and Other Charges (3.0) - - - - - - - - - Non-GAAP Research and Development Expenses 25.3$ 25.5$ 15.3$ 12.7$ 14.4$ 7.5$ 6.8$ 7.2$ 6.7$ 6.8$ Non-GAAP Research and Development Expenses as % of Revenues12.6% 13.5% 11.6% 9.4% 8.4% 6.8% 6.5% 6.6% 6.4% 5.9% Selling and Administrative Expenses 27.6$ 28.6$ 17.9$ 18.1$ 17.7$ 15.9$ 15.5$ 15.3$ 15.1$ 16.1$ Stock-Based Compensation Expense (0.9) (1.2) (0.5) (0.6) (0.4) (0.5) (0.4) (0.5) (0.4) (0.3) Intangibles Amortization Expense (8.3) (8.3) (7.1) (7.2) (7.7) (2.8) (2.8) (2.8) (2.8) (2.8) Fixed Asset, Inventory and Other Charges (0.1) - - - - - - - - - Other (0.2) (0.7) - - - - - - - - Non-GAAP Selling and Administrative Expenses 18.1$ 18.4$ 10.3$ 10.3$ 9.6$ 12.6$ 12.3$ 12.0$ 11.9$ 13.0$ Non-GAAP Selling and Administrative Expenses as % of Revenues 9.0% 9.7% 7.8% 7.6% 5.6% 11.5% 11.7% 11.0% 11.5% 11.3% Operating Expenses 204.4$ 63.7$ 33.5$ 31.2$ 32.7$ 23.4$ 22.4$ 22.7$ 21.9$ 22.9$ Stock-Based Compensation Expense (1.9) (2.0) (0.7) (0.7) (0.3) (0.5) (0.3) (0.5) (0.5) (0.3) Intangibles Amortization Expense (8.3) (8.3) (7.1) (7.2) (7.7) (2.8) (2.8) (2.8) (2.8) (2.8) Fixed Asset, Inventory and Other Charges (3.1) - - - - - - - - - Restructuring Charges (3.2) (8.4) (0.1) (0.3) (0.7) - (0.2) (0.2) - - Impairment of Intangible Assets (144.3) (0.4) - - - - - - - - Production Transfers Costs - - - - - - - - - - Other (0.2) (0.7) - - - - - - - - Non-GAAP Operating Expenses 43.4$ 43.9$ 25.6$ 23.0$ 24.0$ 20.1$ 19.1$ 19.2$ 18.6$ 19.8$ Non-GAAP Operating Expenses as % of Revenues 21.6% 23.2% 19.3% 17.1% 14.0% 18.3% 18.1% 17.7% 17.9% 17.2% Operating (Loss) Earnings (197.8)$ (14.7)$ (15.4)$ (12.0)$ (10.5)$ 14.0$ 17.8$ 16.1$ 12.8$ 18.7$ Other Expense (Income), net (0.1) 1.2 (0.2) - 1.7 (0.3) 0.1 (0.2) 0.1 0.2 (Loss) Earnings Before Interest and Income Taxes (197.7) (15.9) (15.2) (12.0) (12.2) 14.3 17.7 16.3 12.7 18.5 Stock-Based Compensation Expense 2.0 2.1 0.8 0.7 0.3 0.7 0.4 0.7 0.6 0.5 Intangibles Amortization Expense 8.3 8.3 7.1 7.2 7.7 2.8 2.8 2.8 2.8 2.8 Fixed Asset, Inventory and Other Charges 50.9 0.5 3.0 - (1.0) 2.1 - - - - Restructuring Charges 3.8 8.7 0.3 0.4 1.3 2.4 0.3 0.5 (0.7) 1.6 Impairment of Intangible Assets 144.3 0.4 - - - - - - - - Production Transfers Costs 0.2 0.6 1.6 2.4 2.9 3.6 3.0 3.6 3.0 2.3 Other 1.3 1.5 - - - - - - - - Adjusted Earnings (Loss) Before Interest and Income Taxes 13.1$ 6.2$ (2.4)$ (1.3)$ (1.0)$ 25.9$ 24.2$ 23.9$ 18.4$ 25.7$ Adjusted Earnings (Loss) Before Interest and Income Taxes as % of Revenues 6.5% 3.3% -1.8% -1.0% -0.6% 23.5% 23.0% 22.0% 17.7% 22.3% Mobile Consumer Electronics Specialty Components Quarter Ended Quarter Ended(in $ millions)
15 Reconciliation of Segment EBIT to Consolidated Net Loss – As Reported (in $ millions) December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015 December 31, 2014 (Loss) earnings before interest and income taxes Mobile Consumer Electronics (197.7)$ (15.9)$ (15.2)$ (12.0)$ (12.2)$ Specialty Components 14.3 17.7 16.3 12.7 18.5 Total segments (183.4) 1.8 1.1 0.7 6.3 Corporate expense / other 15.6 16.4 13.8 10.6 7.5 Interest expense, net 3.5 3.7 3.1 2.4 2.1 Loss before income taxes (202.5) (18.3) (15.8) (12.3) (3.3) (Benefit from) provision for income taxes (15.5) (3.4) 0.3 3.5 (2.2) Net loss (187.0)$ (14.9)$ (16.1)$ (15.8)$ (1.1)$ Quarter Ended
16 Reconciliation of Revenue and Adjusted EBIT to Continuing Operations (in $ millions) Consolidated S/R Cont. Ops. Consolidated S/R Cont. Ops. Consolidated S/R Cont. Ops. Consolidated S/R Cont. Ops. Revenue 238.6 52.0 186.60 240.9 48.1 192.80 294.6 47.9 246.70 310.5 87.0 223.50 Adjusted Earnings (Loss) Before Interest and Income Taxes 8.6 (14.7) 23.30 12.0 (19.2) 31.20 19.6 (16.4) 36.00 26.4 0.8 25.60 Q1 2015 Q2 2015 Q3 2015 Q4 2015
17 Forward Looking Statements This presentation contains forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “project,” “estimate,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “objective,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made. The statements in this presentation are based on current plans, expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes or results to differ materially from those outcomes or results that are projected, anticipated or implied in these statements. These risks and uncertainties include, but are not limited to: the pace and success of achieving the cost savings from our announced restructurings, acquisitions and operating expense reduction efforts; fluctuations in our stock's market price; fluctuations in operating results and cash flows; our ability to prevent or identify quality issues in our products or to promptly remedy any such issues that are identified; the timing of OEM product launches; customer purchasing behavior in light of anticipated mobile phone launches; downward pressure on the average selling prices for our products; risks associated with increasing our inventories in advance of anticipated orders by customers; macroeconomic conditions, both in the U.S. and internationally; foreign currency exchange rate fluctuations; our ability to maintain and improve costs, quality and delivery for our customers; our ability to qualify our products and facilities with customers; risks and costs inherent in litigation; our ability to obtain, enforce, defend or monetize our intellectual property rights; increases in the costs of critical raw materials and components; availability of raw materials and components; anticipated growth for us and adoption of our technologies and solutions that may not occur; the success and rate of multi-microphone adoption and our “intelligent audio” solutions; managing rapid declines in customer demand for certain of our products or solutions, delays in customer product introductions and other related customer challenges that may occur; our ability to successfully consummate acquisitions and divestitures, including the proposed divestiture of our speaker and receiver product line, and our ability to integrate acquisitions following consummation; our obligations and risks under various transaction agreements that were executed as part of our spin-off from our former parent company, Dover Corporation; managing new product ramps and introductions for our customers; risks associated with international sales and operations; retaining key personnel; our dependence on a limited number of large customers; our need to maintain and expand our existing relationships with leading OEMs and to establish relationships with new OEMs in order to maintain and increase our revenue; business and competitive factors generally affecting the advanced micro-acoustic solutions and specialty components industry, our customers and our business; fluctuations in demand by our telecom and other customers and telecom end markets; our ability to enter new end user product markets; increasing competition and new entrants in the market for our products; our ability to develop new or enhanced products or technologies in a timely manner that achieve market acceptance; our reliance on third parties to manufacture, assemble and test our products and sub-components; changes in tax laws or our ability to utilize our tax structure and any net operating losses and other factors that we may not have currently identified or quantified; and other risks, relevant factors and uncertainties identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, subsequent Reports on Forms 10-Q and 8-K and our other filings we make with the SEC. Knowles disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Thank You