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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 2004
Or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-58675
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KEY COMPONENTS, LLC
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(Exact name of Registrant as Specified in its charter)
Delaware 04-3425424
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
200 White Plains Road, Tarrytown NY 10591
----------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(914) 332-8088
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(Registrant's Telephone Number, Including Area Code)
Commission File Number 333-58675-01
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KEY COMPONENTS FINANCE CORP. *
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(Exact name of Registrant as specified in its charter)
Delaware 14-1805946
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
200 White Plains Road, Tarrytown NY 10591
----------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(914) 332-8088
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
|X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
|_| Yes |X| No
As of May 14, 2004, all of the membership interests in Key Components,
LLC were owned by Key Components, Inc., a privately held New York corporation.
All of the shares of common stock of Key Components Finance Corp. were owned by
Key Components, LLC.
*Key Components Finance Corp. meets the conditions set forth in General
Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form
with reduced disclosure format.
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KEY COMPONENTS, LLC
Form 10-Q Index
March 31, 2004
Page
Number
------
PART I
Item 1. -- Consolidated Financial Statements:
Balance Sheets............................................................. 2
Statements of Income....................................................... 3
Statements of Members Equity............................................... 4
Statement of Cash Flows.................................................... 5
Statement of Comprehensive Income (loss)................................... 6
Notes to Consolidated Financial Statements................................. 7
Item 2. -- Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 13
Item 3. -- Quantitative and Qualitative Disclosures about Market Risk................. 21
Item 4. -- Controls and Procedures.................................................... 22
PART II
Item 6. -- Exhibits and Reports on Form 8-K........................................... 22
Signatures ........................................................................... 23
1
PART I -- FINANCIAL INFORMATION
Item 1 -- Consolidated Financial Statements
KEY COMPONENTS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2004 2003
----------- ------------
Assets: (unaudited)
Current
Cash $ 1,808 $ 3,872
Accounts receivable, net of allowance for doubtful
accounts of $1,742 and $1,702 in 2004 and 2003,
respectively 29,004 23,989
Inventories 26,069 24,063
Prepaid expenses and other current assets 986 1,862
Deferred income taxes 5,413 5,308
Assets held for sale 20,354 20,464
-------- --------
Total current assets 83,634 79,558
Property, plant and equipment, net 17,636 18,149
Goodwill, net 80,289 80,165
Deferred financing costs, net 3,131 3,370
Prepaid pension cost 2,601 2,684
Other assets 654 779
-------- --------
Total assets $187,945 $184,705
======== ========
Liabilities and Member's Equity:
Current
Current portion of long-term debt $ 12,749 $ 12,196
Accounts payable 11,173 11,010
Accrued compensation 3,785 4,170
Accrued expenses 7,023 6,541
Accrued income taxes 3,109 1,458
Accrued interest 3,215 1,102
Liabilities associated with assets held for sale 2,595 1,922
-------- --------
Total current liabilities 43,649 38,399
Long-term debt 116,130 120,561
Deferred income taxes 2,526 2,626
Other long-term liabilities 1,698 1,739
-------- --------
Total liabilities 164,003 163,325
Commitments and contingencies
Member's equity 23,942 21,380
-------- --------
Total liabilities and member's equity $187,945 $184,705
======== ========
The accompanying notes are an integral part of these financial statements.
2
KEY COMPONENTS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands)
Three months ended March 31, 2004 2003
-------- --------
Net sales $ 50,868 $ 43,807
Cost of goods sold 31,419 27,417
-------- --------
Gross profit 19,449 16,390
Selling, general and administrative expenses 10,506 9,234
-------- --------
Income from operations 8,943 7,156
Interest expense 3,017 3,143
-------- --------
Income before provision for income taxes and discontinued
operations 5,926 4,013
Provision for income taxes 2,359 1,732
-------- --------
Income from continuing operations 3,567 2,281
(Loss) income from discontinued operations, net of tax of
$(778) and $81 (1,192) 123
-------- --------
Net income $ 2,375 $ 2,404
======== ========
The accompanying notes are an integral part of these financial statements.
3
KEY COMPONENTS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY
(In thousands)
For the Three Months For the Year
Ended March 31, 2004 Ended December 31, 2003
-------------------- -----------------------
(Unaudited)
Member's Equity, beginning of period $ 21,380 $ 25,044
Net income (loss) 2,375 (3,430)
Member contribution 187 --
Member withdrawal -- (100)
Minimum pension liability, net of tax -- (134)
-------- --------
Member's Equity, end of period $ 23,942 $ 21,380
======== ========
The accompanying notes are an integral part of these financial statements.
4
KEY COMPONENTS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the Three Months Ended March 31, 2004 2003
------- -------
Cash flows from operating activities:
Net income $ 2,375 $ 2,404
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss (income) of discontinued operations 1,192 (123)
Depreciation and amortization 893 888
Amortization of deferred finance costs 239 240
Deferred taxes (205) (1)
Provision for bad debts 205 23
Changes in assets and liabilities:
Accounts receivable (5,220) (6,715)
Inventories (2,006) (760)
Prepaid expenses and other assets 959 2,011
Accounts payable 163 2,308
Accrued expenses 3,820 1,561
------- -------
Net cash provided by continuing operations 2,415 1,836
Net cash (used in) provided by discontinued operations
(380) 427
------- -------
Net cash provided by operating activities 2,035 2,263
------- -------
Cash flows from investing activities:
Business acquisition -- (4,421)
Capital expenditures (379) (894)
------- -------
Net cash used in continuing operations (379) (5,315)
Net cash used in discontinued operations (29) (199)
------- -------
Net cash used in investing activities (408) (5,514)
------- -------
Cash flows from financing activities:
Payments of long-term debt and capital lease obligations (3,878) (8)
Proceeds from long-term debt borrowings -- 2,000
Member contributions 187 --
Member withdrawal -- (100)
------- -------
Net cash (used in) provided by financing activities (3,691) 1,892
------- -------
Net decrease in cash and cash equivalents (2,064) (1,359)
Cash and cash equivalents, beginning of period 3,872 2,879
------- -------
Cash and cash equivalents, end of period $ 1,808 $ 1,520
======= =======
The accompanying notes are an integral part of these financial statements.
5
KEY COMPONENTS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the Three Months For the Year
Ended March 31, 2004 Ended December 31, 2003
-------------------- -----------------------
(Unaudited)
Net income (loss) $ 2,375 $(3,430)
Minimum pension liability, net of tax -- (134)
------- -------
Comprehensive income (loss) $ 2,375 $(3,564)
======= =======
6
KEY COMPONENTS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the financial statements of Key
Components, LLC ("KCLLC"), and its subsidiaries, all of which are wholly owned
(collectively, the "Company"). All significant intercompany transactions have
been eliminated.
The Company is in the business of the manufacture and sale of custom engineered
essential componentry in a diverse array of end use markets. Through its two
business segments, mechanical engineered components and electrical components,
the Company targets its products to original equipment manufacturers. The
Company's electrical components business product offerings include power
conversion products, specialty electrical components and high-voltage utility
switches. The Company's mechanical engineered components business product
offerings consist primarily of flexible shaft and remote valve control
components and turbocharger components.
KCLLC's assets are limited to the Company's corporate office and its investments
in its subsidiaries. KCLLC's financial statements include the related expenses
of operating the Company's corporate office. KCLLC is wholly-owned by Key
Components, Inc. ("KCI"), a New York corporation. KCI holds no other assets
other than its investments in KCLLC and has no operations.
The accompanying unaudited financial statements of the Company contain all
adjustments that are, in the opinion of management, necessary for a fair
statement of results for the interim periods presented. While certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted, the Company
believes that the disclosures herein are adequate to make the information not
misleading. The results of operations for the interim periods are not
necessarily indicative of the results for full years. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto for the year ended December 31, 2003 included in the Company's
Annual Report on Form 10-K.
Certain reclassifications were made to conform the prior periods to the current
year presentation.
2. Acquisitions and Dispositions
Arens Controls, LLC
On March 3, 2003, the Company acquired the mechanical components business of
Arens Controls, LLC for a purchase price of approximately $4.4 million and
assumed liabilities of approximately $642,000. The Company recorded the
estimated excess purchase price over net assets acquired of approximately $2.0
million as goodwill. Other intangibles acquired in the transaction were not
material. The product line, which manufactures mechanical push-pull control
solutions, was fully integrated into the Company's Binghamton, New York
manufacturing facility in November 2003. The Company borrowed $2.0 million on
its revolving credit facility to partially finance this acquisition.
Hudson Lock, LLC
The Company's lock product line's net sales declined significantly during the
three years ended December 31, 2003. Net sales of the lock product line were
approximately $17.2 million, $21.8 million and $32.6 million for the years ended
December 31, 2003, 2002 and 2001, respectively. Management attributes such
decline to the downturn in the economy plus the impact of foreign competition,
both of which have led to the product line becoming a commodity over that
period. As the net sales eroded, the shift in manufacturing to Mexico has
negatively impacted customer service and quality. Further, the decline in net
sales volume has made it prohibitive to carry the dual overhead infrastructures
of its domestic and Mexico manufacturing facilities. As a result, the Company
closed the lock manufacturing facility in Mexico in February 2004. In closing
down the facility the Company recorded a charge of approximately $664,000 for
severance and closing costs and to write down inventory and leaseholds. In
addition the Company recorded a charge of approximately $605,000 to record the
balance of the lease of the facility on a present value basis, less any estimate
for sublease income.
7
In March 2004, after reviewing the lock product line's 2003 operating
performance, which in the past was included as part of the Company's MEC
business operating results as well as its long-term strategic plan, the Board of
Directors of KCI and KCLLC concluded to sell Hudson Lock, LLC ("Hudson"). In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," the Company
recorded the assets and liabilities of Hudson as held for sale and reported the
results of operations as discontinued operations. At March 31, 2004, the Company
had not accrued any loss on disposal related to the sale since it is been
management's estimate that a sale of this product line would generate after-tax
proceeds at least equal to the current carrying value of the assets of this
product line.
The following table summarizes the net assets of the lock product line
(unaudited):
(In thousands) March 31, December 31,
2004 2003
--------- ------------
Accounts receivable $ 2,171 $ 2,011
Inventory 5,144 4,628
Other current assets and prepaid expenses 538 524
Plant and equipment, net 5,423 6,018
Deferred tax assets 7,078 7,283
------- -------
Assets held for sale 20,354 20,464
------- -------
Accounts payable 1,073 845
Accrued wages and related expenses 470 562
Accrued expenses 1,052 515
------- -------
Liabilities associated with assets held for sale 2,595 1,922
------- -------
Net assets of lock product line $17,759 $18,542
======= =======
The summary of the operations of the lock business for the three months ended
March 31, 2004 and 2003 is as follows:
(in thousands)
Three Months ended March 31, 2004 2003
------- -------
Net sales $ 3,787 $ 5,030
------- -------
(Loss) income from operations of the lock business (less income taxes
(credit) of $(778) and $81, respectively) $(1,192) $ 123
======= =======
8
3. Inventories
Inventories consist of the following:
(In thousands) March 31, December 31,
2004 2003
----------- ------------
(unaudited)
Raw materials $14,467 $12,805
Work-in-process 4,921 4,856
Finished goods 6,681 6,402
------- -------
Total inventory $26,069 $24,063
======= =======
4. Provision for Income Taxes
For the three months ended March 31, 2004 and 2003, the Company's provision for
income taxes primarily relates to the federal and state income taxes of its sole
member, KCI. Deferred income taxes have been recorded to reflect the tax
consequences on future years of temporary differences between the tax bases of
assets and liabilities and their financial reporting amounts at year-end.
Valuation allowances are recorded when necessary to reduce deferred tax assets
to expected realizable amounts.
5. Member contributions and withdrawals
During the three months ended March 31, 2004, KCLLC received a contribution of
$187,000 from KCI related to proceeds from stock options exercised to purchase
KCI common stock. During the three months ended March 31, 2003, KCLLC
distributed approximately $100,000 to its member, KCI, to enable KCI to
repurchase common stock from a shareholder.
6. Warranty Costs
The Company records a liability for its expected claims under existing product
warranty policies. The accrual is based on the Company's historical warranty
experience. For the three months ended March 31, 2004 and 2003, the Company's
warranty accrual changed as follows:
(In thousands)
Three Months ended March 31, 2004 2003
------ ------
(unaudited)
Balance, beginning of period $1,372 $ 985
Additions 340 18
Charges -- --
------ ------
Balance, end of period $1,712 $1,003
====== ======
9
7. Operating Segments
The Company conducts its continuing operations through its two businesses, the
manufacture and sale of electrical components and mechanical engineered
components. The electrical components business ("EC") product offerings include
power conversion products, specialty electrical components and high-voltage
utility switches. The mechanical engineered components business ("MEC")
manufactures flexible shaft products and turbo charger actuators.
The Company evaluates its operating segments' performance and allocates
resources among them based on profit or loss from continuing operations before
interest, taxes, depreciation and amortization ("EBITDA"). EBITDA is not based
on accounting principles generally accepted in the United States of America, but
is the performance measure used by Company management to analyze and monitor the
Company and is commonly used by investors and financial analysts to compare and
analyze companies. Corporate overhead expenses are not allocated to the
segments. In computation of all the financial maintenance covenants under the
Company's credit facility, the Company is allowed to adjust EBITDA for certain
charges as defined in the agreement. The Company's non-GAAP financial measures
may not necessarily be comparable to other companies.
(In thousands) Mechanical
Electrical Engineered
Components Components Total
---------- ---------- -----
(unaudited)
Three months ended March 31, 2004:
Net sales to external customers $ 31,481 $ 19,387 $ 50,868
Intersegment net sales -- 13 13
Segment profit - EBITDA 6,166 4,755 10,921
Segment assets 111,225 54,169 165,394
Goodwill 59,192 21,097 80,289
Depreciation and amortization 282 600 882
======== ======== ========
Three months ended March 31, 2003:
Net sales to external customers $ 29,446 $ 14,361 $ 43,807
Intersegment net sales -- 14 14
Segment profit - EBITDA 5,162 3,552 8,714
Segment assets 113,419 52,470 165,889
Goodwill 59,192 21,459 80,651
Depreciation and amortization 253 626 879
======== ======== ========
10
Reconciliation of Selected Segment Information to the Company's Consolidated
Totals:
(In thousands)
Three Months Ended March 31, 2004 2003
-------- --------
Profit or loss: (unaudited)
Total profit from reportable segments- EBITDA $ 10,921 $ 8,714
Reconciling items:
Corporate expenses (1,085) (670)
Depreciation and amortization (893) (888)
Interest expense (3,017) (3,143)
-------- --------
Income before provision for income taxes and
discontinued operations $ 5,926 $ 4,013
======== ========
March 31, December 31,
(In thousands) 2004 2003
----------- ------------
(unaudited)
Assets:
Total assets for reportable segments $165,394 $160,223
Corporate assets 2,197 4,018
Assets of discontinued operations 20,354 20,464
-------- --------
Total consolidated assets $187,945 $184,705
======== ========
(In thousands)
Three Months ended March 31, 2004 2003
-------- --------
Geographical Sales Information:
United States $ 45,173 $ 37,974
Canada 1,227 1,084
China 1,090 1,160
England 1,426 1,284
Japan 264 257
Mexico 145 152
Netherlands 381 470
Other 1,162 1,426
-------- --------
Total $ 50,868 $ 43,807
======== ========
11
8. Stock Options
The Company applies the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," ("APB 25") in accounting for
stock-based compensation. In accordance with APB No. 25, compensation costs for
stock options is recognized in income based on the excess, if any, of the quoted
market price over the exercise price of the stock on the date of grant. The
exercise price for all stock option grants equals the fair market value on the
date of grant, therefore no compensation expense is recorded.
In accordance with the disclosure provisions of SFAS 148, "Accounting for
Stock-Based Compensation - transition and disclosure," which amended SFAS No.
123, "Accounting for Stock-Based Compensation", the following table illustrates
the effect on net income as if the Company had applied the fair value
recognition provisions for the three months ended March 31, 2004 and 2003:
(In thousands)
Three Months Ended March 31, 2004 2003
------ ------
(unaudited)
Net income:
As reported $2,375 $2,404
Pro forma $2,374 $2,301
====== ======
9. Pension Plans
The components of the net periodic benefit cost for the three months ended
March 31, 2004 and 2003 related to the Company's pension plans were as follows:
(In thousands)
Three Months ended March 31, 2004 2003
----- -----
Service Cost $ 110 $ 99
Interest Cost 255 266
Expected return on plan assets (303) (310)
Amortization of net loss 20 19
----- -----
Net periodic benefit cost $ 82 $ 74
===== =====
Employer Contributions
The Company is not required to make any contributions in 2004 and did not make
any contributions in 2003.
10. Subsequent Event
On May 7, 2004, The Company acquired the net assets of Advanced Devices, Inc.
for a purchase price of approximately $8.1 million and assumed liabilities of
approximately $62,000. The Company recorded the estimated excess purchase price
over net assets acquired of approximately $7.2 million as goodwill. The value
ascribed to the estimated excess purchase price over net assets acquired is
preliminary and is subject to change. Other intangibles are not material. The
product line, which manufactures electrical wiring devices, will be integrated
into the Company's Napa Valley, CA manufacturing facility. The Company borrowed
$4.5 million on its revolving credit facility to partially finance this
acquisition. The acquisition calls for approximately 75% of the total purchase
price to be paid at closing, 10% to be paid at the earlier of when the product
line is fully integrated into the Company's Napa, California manufacturing
facility or March 7, 2005, with the remainder being paid over the next four
years.
12
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
GENERAL
KCLLC is the parent holding company of the wholly owned subsidiaries of the
Company. KCI, the sole member of KCLLC, holds no other assets other than its
investment in KCLLC and has no operations. The Company has two operating
business segments, its electrical components ("EC") business and mechanical
engineered components ("MEC") business. Through its two businesses, the Company
is a leading manufacturer of custom-engineered essential componentry for
application in a diverse array of end-use products. The Company targets original
equipment manufacturer ("OEM") markets where the Company believes its
value-added engineering and manufacturing capabilities, along with its timely
delivery, reliability and customer service, enable it to differentiate the
Company from its competitors and enhance profitability. Further, as the Company
leverages itself in order to acquire additional product lines, management uses
free cash flow (a non-GAAP financial measure defined by the Company as cash flow
provided by operating activities of its continuing operations less cash flow
used in investing activities of its continuing operations) as a key indicator of
each product line. The EC business product lines include power conversion
products, specialty electrical components and high-voltage utility switches. The
product lines of the MEC business consist primarily of flexible shaft and remote
valve control components and turbo-charger actuators.
The Company has historically acquired complementary or related manufacturing
businesses and sought to integrate them into existing operations. Following an
acquisition, management seeks to rationalize operations, reduce overhead costs,
develop additional cross-selling opportunities and establish new customer
relationships. As a result of its integration efforts and internal growth, the
Company's consolidated net sales have increased from approximately $9.1 million
in fiscal year 1992 to approximately $197.3 million for fiscal year 2003.
The Company continues to seek to make selective acquisitions of light industrial
manufacturing companies (see Note 10 elsewhere in this Form 10-Q).
13
Results of Operations
The following table sets forth, for the periods indicated, consolidated
statement of operations data for the Company expressed in dollar amounts (in
thousands) and as a percentage of net sales. The financial data set forth
includes the results of operations of its wholly owned subsidiaries from their
respective dates of acquisition. The data set forth below should be read in
conjunction with the Company's consolidated financial statements and notes
thereto contained elsewhere in this Form 10-Q.
Three months ended March 31, 2004 2003
---------------------- ---------------------
(In thousands) % of % of
Amount Net Sales Amount Net Sales
-------- --------- -------- ---------
Net Sales $ 50,868 100.0% $ 43,807 100.0%
Cost of Goods Sold 31,419 61.8 27,417 62.6
-------- ----- -------- -----
Gross Profit 19,449 38.2 16,390 37.4
Selling, general and administrative expenses 10,506 20.7 9,234 21.1
-------- ----- -------- -----
Income from operations 8,943 17.5 7,156 16.3
Interest expense 3,017 5.9 3,143 7.1
-------- ----- -------- -----
Income before provision for income taxes and discontinued
operations 5,926 11.6 4,013 9.2
Provision for income taxes 2,359 4.6 1,732 4.0
-------- ----- -------- -----
Income from continuing operations 3,567 7.0 2,281 5.2
(Loss) income from discontinued operations, net of tax of
$(891) and $52 (1,192) (2.3) 123 0.3
-------- ----- -------- -----
Net income $ 2,375 4.7% $ 2,404 5.5%
======== ===== ======== =====
14
A summary of the Company's segments is as follows:
Electrical Components Business
Three Months Ended March 31, 2004 2003
-------------------- --------------------
(In thousands) % of % of
Amount Net Sales Amount Net Sales
------- --------- ------- ---------
Net Sales $31,481 100.0% $29,446 100.0%
Cost of Sales 18,715 59.4 18,214 61.9
------- ----- ------- -----
Gross Profit 12,766 40.6 11,232 38.1
Selling, general and administrative expenses 7,200 22.9 6,696 22.7
------- ----- ------- -----
Income from operations $ 5,566 17.7% $ 4,536 15.4%
======= ===== ======= =====
Mechanical Engineered Components
Three Months Ended March 31, 2004 2003
-------------------- --------------------
(In thousands) % of % of
Amount Net Sales Amount Net Sales
------- --------- ------- ---------
Net Sales $19,387 100.0% $14,361 100.0%
Cost of Sales 12,704 65.5 9,203 64.1
------- ----- ------- -----
Gross Profit 6,683 34.5 5,158 35.9
Selling, general and administrative expenses 2,210 11.4 1,859 12.9
------- ----- ------- -----
Income from operations $ 4,473 23.1% $ 3,299 23.0%
======= ===== ======= =====
Three months ended March 31, 2004 compared to the three months ended March 31,
2003
Net Sales: Net sales for the three months ended March 31, 2004 ("Quarter 2004")
increased by approximately $7.1 million, or 16.1%, from net sales for the three
months ended March 31, 2003 ("Quarter 2003"). This increase was the sum of the
approximately $5.0 million, or 35.0%, increase in the net sales of the MEC
business and the approximately $2.0 million, or 6.9%, increase in net sales of
the EC business.
The approximately $5.0 million increase in net sales of the MEC business for the
Quarter 2004 as compared to the Quarter 2003 was driven by continued growth of
both MEC product lines. Net sales of the flexible shaft product line increased
by approximately $2.2 million, or 36.0%, for the Quarter 2004 as compared to the
Quarter 2003. This increase was driven by new product introductions as well as
the acquisition of the mechanical components business of Arens Controls, LLC
("Arens Controls"). The Company completed this acquisition on March 3, 2003 (See
Note 2 to the consolidated financials elsewhere in this Form 10-Q), which
resulted in having this product line in the Company's results for only one month
during the Quarter 2003. Net sales of the turbocharger components product line
increased by approximately $2.8 million, or 34.2%, for the Quarter 2004 as
compared to the Quarter 2003. This increase was driven primarily by continued
volume growth of a new product introduced in December 2002.
The approximately $2.0 million or 6.9% increase in the EC business for the
Quarter 2004 as compared to the Quarter 2003 was driven primarily by the growth
in the Company's specialty electrical components product line, which had net
sales growth of approximately $1.8 million, or 15%. This growth was generated
through both its recreational and industrial channels as the increased sales
volume experienced in the fourth quarter of 2003 continued into the first
quarter 2004.
15
Gross Profit: Gross profit increased by approximately $3.1 million, or 18.7%,
for Quarter 2004 as compared to Quarter 2003, resulting from the sum of the
approximately $1.5 million, or 29.6%, increase in the gross profit of the MEC
business and the approximately $1.5 million, or 13.7%, increase in gross profit
of the EC business for the Quarter 2004.
The approximately $1.5 million, or 29.6%, increase in gross profit of the MEC
business for Quarter 2004 as compared to Quarter 2003 was driven by volume
increases of the flexible shaft and turbocharger components product lines.
The approximately $1.5 million, or 13.7% increase in gross profit of the EC
business for the Quarter 2004 as compared to the Quarter 2003 resulted primarily
from the volume increases of the specialty electrical components product line
for the Quarter 2004 as compared to the Quarter 2003. In addition, continued
productivity and negotiated material cost savings related to the power
conversion product line also increased gross profit for the EC business for the
Quarter 2004 as compared to the Quarter 2003.
The gross profit, as a percentage of net sales ("GP percentage"), for the MEC
business declined by approximately 1.4% for the Quarter 2004 as compared to the
Quarter 2003 related to price concessions of the Company's turbocharger product
line. For the EC business, the GP percentage increased by approximately 2.4%
during the Quarter 2004 as compared to the Quarter 2003 as additional volume was
serviced without additional fixed cost as well as change in product mix and the
productivity gains as described above.
Selling, General and Administrative Expenses: Selling, general and
administrative ("SG&A") expenses increased approximately $1.3 million, or 13.8%,
for the Quarter 2004 as compared to the Quarter 2003. As a percentage of net
sales, SG&A declined to 20.7% for the Quarter 2004 from 21.1% for the Quarter
2003. SG&A of the MEC business increased by approximately $351,000, or 18.9%,
for the Quarter 2004 as compared to the Quarter 2003 and as a percentage of net
sales, decreased approximately 1.5%. SG&A of the EC business increased by
approximately $504,000, or 7.5%, for the Quarter 2004 as compared to the Quarter
2003 and increased as a percentage of net sales by approximately 0.2%.
The increase in SG&A of the MEC business is primarily the result of the Company
adding additional cost to the turbocharger product line to service its
continuing growth and maintain high quality levels. In addition, higher
incentive compensation costs drove the increase in SG&A of the turbocharger
product line, as a result of the growth in the operating performance of that
product line during the Quarter 2004 as compared to the Quarter 2003. Commission
and freight expense related to additional volume drove the increase in SG&A for
the EC business for the Quarter 2004 as compared to the Quarter 2003. In
addition certain costs were incurred as the Company continues to explore
migrating production off-shore. Corporate expenses were higher during the
Quarter 2004 as compared to the Quarter 2003, related to professional fees.
Income from Operations: The increase in income from operations of approximately
$1.8 million, or 25.0%, for the Quarter 2004 as compared to the Quarter 2003,
resulted from the increase in gross profit of approximately $3.1 million, offset
by the increase in SG&A expenses of approximately $1.3 million.
Interest Expense: Interest expense decreased by approximately $126,000, or 4.0%,
during the Quarter 2004 as compared to the Quarter 2003. This decrease is
primarily due to lower levels of outstanding borrowings during the Quarter 2004
as compared to the Quarter 2003.
Provision for Income Taxes: The provision for income taxes increased by
approximately $627,000, or 36.2%, for the Quarter 2004 as compared to the
Quarter 2003. The Company's effective tax rate on income before provision for
income taxes and cumulative effect of change in accounting principle for the
Quarter 2004 was approximately 39.0%. The effective rate on income before
provision for income taxes and cumulative effect of change in accounting
principle for the Quarter 2003 was approximately 43.0%. The decline in the
effective rate from the Quarter 2003 to the Quarter 2004 was primarily driven by
the Company's foreign tax credits.
Income from continuing operations: Income from continuing operations increased
by approximately $1.3 million, or 56.4%, during the Quarter 2004 as compared to
the Quarter 2003. The increase resulted from the sum of the increase in income
from operations of approximately $1.8 million and the decrease in interest
expense of approximately $126,000 offset by the increase in provision for income
taxes of approximately $627,000, due to the factors discussed above.
16
(Loss) income from Discontinued operations: In March 2004, after reviewing the
lock product line's 2003 operating performance as well as its long-term
strategic plan, the Board of Directors of KCI and KCLLC concluded to sell Hudson
Lock, LLC ("Hudson"). In accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," the Company recorded the assets and liabilities of Hudson as held for
sale and reported the results of operations, which were formerly included in the
results of the Company's MEC business, as discontinued operations. At March 31,
2004, The Company had not accrued any loss on disposal related to the sale since
it is management's estimate that a sale of this product line would generate
after-tax proceeds at least equal to the current carrying value of the net
assets of this product line. The Lock product line had a net loss for the
Quarter 2004 of approximately $1.2 million (net of tax credit of approximately
$778,000). This compares to net income of approximately $123,000 (net of taxes
of approximately $81,000 for the Quarter 2003). In February 2004, management
concluded to close the lock manufacturing facility in Mexico as the continuing
decline in net sales volume of this product line made it prohibitive to carry
the dual overhead infrastructures of its domestic and Mexico manufacturing
facilities. The assets of Mexico were primarily inventory, leasehold
improvements and machinery and equipment. In closing down the facility, the
Company recorded a charge of approximately $664,000 for severance and closing
costs and to write down inventory and leaseholds. In addition, the Company
recorded a charge of approximately $605,000 to record the balance of the lease
on the facility on a present value basis, less any estimate for sublease income.
Net Income: Net income decreased by approximately $29,000 for the Quarter 2004
as compared to the Quarter 2003. Income from continuing operations increased
approximately $1.3 million, as described above. This was offset by the increase
in loss from discontinued operations of approximately $1.3 million, discussed
above.
Liquidity and Capital Resources
The Company has historically generated funds from its continuing operations and
its working capital requirements generally have not materially fluctuated from
quarter to quarter. The Company's other main sources of liquidity have
historically been the Company's $80.0 million of uncollateralized 10.5% senior
notes due 2008 and it's outstanding credit facilities. The credit facility
provides for a six-year $40.0 million revolving credit facility, which as a
result of the amendment discussed below was reduced to $25.0 million through
March 30, 2005, and a six-year $100.0 million term loan facility. The
obligations under the credit agreement governing the credit facilities are
guaranteed by the Company's subsidiaries and KCI, and are collateralized by all
of the capital stock of the subsidiaries, receivables, inventories, equipment
and certain intangible property. There were no amounts outstanding under the
revolving credit facility at March 31, 2004. The term loan is payable in
quarterly installments through September 2006. Both the term loan and revolving
credit facility bear interest at fluctuating interest rates determined by
reference to a base rate or the London interbank offered rate ("LIBOR") plus an
applicable margin which will vary from 1.0% to 3.75% and require the payment of
a commitment fee of ranging from 0.375% to 0.5% on the unused portion of the
facility as well as quarterly commitment fees.
The credit facility also allows for up to $5.0 million of outstanding letters of
credit. At March 31, 2004, the Company had two letters of credit outstanding for
approximately $1.5 million. The letters of credit primarily relate to the
Company's workman's compensation insurance programs. Currently, the Company
believes that the $5.0 million allowance for letters of credit is sufficient for
its needs.
The credit agreement contains certain covenants and restrictions, which require
the maintenance of financial ratios and restrict or limit dividends and other
shareholder distributions, transactions with affiliates, capital expenditures,
rental obligations and the incurrence of indebtedness.
In September 2002, the Company amended its credit agreement (the "Amendment") to
provide for revised financial covenant ratios from September 30, 2002 through
March 30, 2004 from the original covenant ratios stipulated in the credit
agreement. The Company anticipated that certain of the original covenants, which
became more stringent over the term of the agreement, would not be met due to
the general decline in the economy. In addition, the Amendment revised the
Company's applicable margin on borrowings, the maximum allowable capital
expenditures through March 29, 2004 and reduced the amount allowed for permitted
acquisitions (as defined in the credit agreement) from $15 million to $7.5
million through March 30, 2004. Concurrent with the Amendment, the Company
voluntarily reduced the availability under its revolving credit facility by $15
million from $40 million to $25 million until March 30, 2004.
17
As a result of the impact of the domestic economy on the Company's business
coupled with the performance of the lock product line and cash spent on an
unsuccessful acquisition attempt during 2003, the Company would not have been
able to achieve the required step down in the financial covenants that was to
occur as of September 2003 in accordance with the Amendment. Accordingly, the
Company entered into a second amendment to its credit agreement (the "Second
Amendment"). The financial covenants as modified by the Second Amendment apply
from September 30, 2003 through March 30, 2005, at which time the financial
covenants return to the financial covenants in effect before the Amendment. At
March 31, 2004, the Company was in compliance with the credit agreement, as
amended.
On May 7, 2004, The Company acquired the net assets of Advanced Devices, Inc.
for a purchase price of approximately $8.1 million and assumed liabilities of
approximately $62,000. The Company recorded the estimated excess purchase price
over net assets acquired of approximately $7.2 million as goodwill. The value
ascribed to the estimated excess purchase price over net assets acquired is
preliminary and is subject to change. Other intangibles are not material. The
product line, which manufactures electrical wiring devices, will be integrated
into the Company's Napa Valley, CA manufacturing facility. The Company borrowed
$4.5 million on its revolving credit facility to partially finance this
acquisition. The acquisition calls for approximately 75% of the total purchase
price to be paid at closing, 10% to be paid at the earlier of when the product
line is fully integrated into the Company's Napa, California manufacturing
facility or March 7, 2005, with the remainder being paid over the next four
years.
The Company's remaining liquidity demands are for capital expenditures, general
corporate purposes, and principal and interest payments on its outstanding debt.
The Company's senior notes require semiannual interest payments on the
outstanding principal. The term loan requires quarterly principal payments. At
March 31, 2004, the Company had prepaid its next principal payment. Principal
payments required for the next 12 months will be approximately $12.8 million.
Under the revolving credit facility and term loan, the Company has the option to
lock in a specified interest rate by entering into a contract, for different
periods, which cannot exceed 180 days. As the underlying contract comes up for
renewal, the interest associated with the contract becomes due. The Company
anticipates its capital expenditures for the year ended December 31, 2004 to be
approximately $4.0 million. The expenditures are primarily needed to maintain
its facilities, expand its production capacity for new product introduction as
well as fund the Company's ongoing plan to expand foreign operations in order to
take advantage of profitable market opportunities. To the extent cash flow from
continuing operations is insufficient to cover the Company's capital
expenditures, debt service and other general requirements, the Company would
seek to utilize its borrowing availability under its existing revolving credit
facility, which it believes to be sufficient for any such purpose.
KCI has no operations and is dependent on KCLLC for financial resources in the
form of capital distributions to meet its obligations. KCI obligations include
the liquidation preferences of $107.0 million for its preferred stock plus any
dividends payable in arrears (at March 31, 2004 there were approximately $4.2
million in cumulative dividends in arrears, payable in kind), which are
redeemable for cash at the option of the holder after June 2, 2009, the
requirement to purchase shares from its common shareholders under certain
circumstances and its tax obligations. Repurchases of KCI Common Stock are made
at fair market value as defined in KCI's shareholder agreement. At March 31,
2004 approximately 1.3 million KCI common shares plus potentially 191,000 shares
covered by stock options were subject to repurchase by KCI. The ability of KCLLC
to make such capital distributions will be limited by its available resources
and is limited by restrictions of debt and other agreements. KCLLC reflects the
tax obligations of KCI in its tax provision.
Cash flows provided by operating activities were approximately $2.0 million and
$2.3 million for Quarter 2004 and 2003, respectively. The net decrease in cash
flows of approximately $228,000 for Quarter 2004 resulted primarily from the
cash used by the discontinued operations. For the Quarter 2004 cash provided by
operating activities of continuing operations increased approximately $579,000
from approximately $1.8 million for the Quarter 2003 to approximately $2.4
million for the Quarter 2004. This was primarily driven by the growth in
earnings slightly offset by the investment in working capital related to such
growth. For the Quarter 2004, net income plus non-cash charges totaled
approximately $4.7 million as compared to the Quarter 2003 of approximately $3.4
million. The Company's primary working capital accounts (accounts receivable,
inventory and accounts payable) used net cash in its continuing operations of
approximately $7.1 million for the Quarter 2004 as compared to Quarter 2003,
when the working capital accounts used net cash of approximately $5.2 million.
In addition, as a result of the Company's anticipated sale of the lock product
line, accrued expenses increased as the Company accrued income taxes in the
Quarter 2004 but has not made any estimated payments for income taxes.
18
The approximately $807,000 increase in cash used in operating activities of
discontinued operations was driven by the closure of the lock product
manufacturing facility in Mexico in February 2004. The decline in net sales
volume made it prohibitive to carry the dual overhead infrastructures of the
domestic and Mexico lock manufacturing facilities. As a result, management
concluded to close the lock manufacturing facility in Mexico. In closing down
the facility the Company recorded a charge of approximately $664,000 for
severance and closing costs and to write down inventory and leaseholds. In
addition the Company recorded a charge of approximately $605,000 to record the
balance on the lease of the facility on a present value basis, less any estimate
for sublease income. Further, the decline in net sales of approximately 24.7%
for the Quarter 2004 as compared to the Quarter 2003 also was a contributing
factor in the increase in cash used by the operating activities of this product
line for the Quarter 2004 as compared to the Quarter 2003 (see Note 2 to the
consolidating financial statements elsewhere in this Form 10-Q).
Cash flows used in investing activities were approximately $408,000 and $5.5
million for Quarter 2004 and the Quarter 2003, respectively. Cash flows used in
investing activities of continuing operations were approximately $379,000 and
$5.3 million for Quarter 2004 and the Quarter 2003, respectively. Capital
expenditures for continuing operations for the Quarter 2004 and 2003 were
approximately $379,000 and $894,000, respectively. The decline in capital
expenditures for Quarter 2004 as compared to the Quarter 2003 was timing
related.
On March 3, 2003, the Company acquired the mechanical components business of
Arens Controls for a purchase price of approximately $4.4 million and assumed
liabilities of approximately $642,000. The Company recorded the estimated excess
purchase price over net assets acquired of approximately $2.0 million as
goodwill. Other intangibles acquired in the transaction were not material. The
product line, which manufactures mechanical push-pull control solutions, was
fully integrated into the Company's Binghamton, New York manufacturing facility
in November 2003. The Company borrowed $2.0 million on its revolving credit
facility to partially finance this acquisition.
Cash flows used in investing activities of discontinued operations were
approximately $29,000 and $199,000 for Quarter 2004 and the Quarter 2003,
respectively. These amounts relate to capital expenditures of the lock product
line for those periods.
Cash flows from financing activities used net cash for the Quarter 2004 of
approximately $3.7 million and provided net cash for the Quarter 2003 of
approximately $1.9 million. The net cash used in financing activities for
Quarter 2004 was primarily related to the Company's repayment of debt under its
existing credit facilities of approximately $3.9 million. For the Quarter 2003,
the cash provided by financing activities primarily related to the borrowing of
$2.0 million to particially finance the acquisition of Arens Controls. At March
31, 2004, the Company was one payment ahead of schedule under its current term
debt facility.
Management believes that the Company's cash flow from continuing operations,
together with its borrowing availability under its existing credit facilities,
will be adequate to meet its anticipated capital requirements for the next
twelve months.
Commitments and Contingencies
The following is a schedule of the Company's contractual obligations outstanding
at March 31, 2004:
(in Thousands) Payments due by period
------------------------------------------------------------------
Contractual Obligations Less than 1 More than 5
Total year 1-3 years 3-5 years years
-------- ----------- --------- --------- -----------
Long-term debt obligations $128,879 $ 12,748 $ 35,438 $ 80,693 $ --
Operating lease obligations 8,835 1,768 2,915 1,996 2,156
Accrued lease costs 453 -- 212 241 --
Other long-term liabilities 1,313 -- -- -- 1,313
Stand by letters of credit 1,468 -- -- -- 1,468
-------- -------- -------- -------- --------
$140,948 $ 14,516 $ 38,565 $ 82,930 $ 4,937
======== ======== ======== ======== ========
19
Critical Accounting Policies
The following is a brief discussion of the more significant accounting policies
and methods used by the Company.
Revenue recognition: The Company recognizes revenue upon shipment of
products to customers, when title passes and all risks and rewards of
ownership have transferred. The Company considers revenue realized or
realizable and earned when the product has been shipped, the sales
price is fixed or determinable and collectibility is reasonably
assured. The Company reduces revenue for estimated customer returns.
Inventory: Inventories are stated at the lower of cost or market, on a
first-in, first-out basis. The Company purchases materials for the
manufacture of inventory for sale in its various markets. The decision
to purchase a set quantity of a particular inventory item is influenced
by several factors including current and projected cost, future
estimated availability and existing and projected sales to produce
certain items. The Company evaluates the net realizable value of its
inventories and establishes allowances to reduce the carrying amount of
these inventories as deemed necessary.
Goodwill and other intangible assets: At March 31, 2004, the Company
has recorded approximately $80.2 million in goodwill and other
intangible assets related to acquisitions made in 2003 and prior years.
The recoverability of these assets is subject to an impairment test
based on the estimated fair value of the underlying businesses. These
estimated fair values are determined using a valuation methodology that
triangulates the discounted cash flows, market multiples and
transactional multiples of the reporting units. Factors affecting these
future cash flows include: the continued market acceptance of the
products and services offered by the businesses; the development of new
products and services by the businesses and the underlying cost of
development; the future cost structure of the businesses; and future
technological changes.
Pension Plans: The Company's assets and liabilities recorded in
connection with the Company's pension plans use estimates that include
but are not limited to expected return on assets and life expectancy of
participants. In preparation of the consolidated financial statements
the Company reviews these estimates by reviewing current market
conditions and internal information at its disposal.
Management's Estimates
The Company's discussion and analysis of its financial condition and results of
operations are based on the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates, including those related to product returns, bad debts,
inventories, intangible assets, pensions and post retirement benefits, warranty
obligations and contingencies and litigation. The Company bases its estimates on
historical experience, the use of external resources and various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
Significant estimates used by the Company that are subject to change include,
but are not limited to the following:
(i) The Company's allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make
required payments for their open accounts receivable with the
Company; if the financial condition of the Company's customers
were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances could be
required;
(ii) Allowances established against its inventory carrying value to
record its inventories at net realizable value; if actual
market conditions are less favorable than those projected by
management, additional inventory allowances may be required;
20
(iii) The Company's deferred tax assets primarily relate to
deductible tax intangibles resulting from the Company's
acquisition transactions and temporary differences in the
basis of its working capital accounts due to non-deductible
reserves. The Company records as necessary, valuation
allowances against its deferred tax assets. To date the
Company believes that it will realize the benefits from its
deferred tax assets as it is expected to generate taxable
income in the future. If the Company were to determine that it
would not be able to realize its deferred tax assets in the
future, valuation allowances could be required;
(iv) The Company evaluates the carrying amounts of its long-lived
assets for recoverability; if the Company were to determine
that the value ascribed to any of its long-lived assets was
not recoverable an allowance could be required;
(v) The Company records the effects of its existing pension plans
in its financial statements using various assumptions and the
use of independent actuaries; if any of the underlying
assumptions were to change, the carrying value of the pension
assets and obligations may require adjustment; and,
(vi) The Company's financial covenants, as defined in its credit
facilities, were based, in part, by estimates of future
results of the Company's continuing operations; if actual
results were not to meet those expectations, the Company may
not meet its financial covenants and may be required to obtain
waivers for those covenants.
Inflation
Inflation has not been material to the Company's continuing operations for the
periods presented.
Backlog
The Company's backlog of orders as of March 31, 2004, was approximately $31.9
million. The Company includes in its backlog only accepted purchase orders.
However, backlog is not necessarily indicative of future sales. In addition,
purchase orders can generally be cancelled at any time without penalty.
Other Matters
Forward-Looking Statements
This report contains forward-looking statements based on current expectations
that involve a number of risks and uncertainties. Generally, forward-looking
statements include words or phrases such as "management anticipates," "the
Company believes," "the Company anticipates," and words and phrases of similar
impact, and include but are not limited to statements regarding future
operations and business environment. The forward-looking statements are made
pursuant to safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. The factors that could cause actual results to differ materially
from the forward-looking statements include the following: (i) industry
conditions and competition, (ii) operational risks and insurance, (iii)
environmental liabilities which may arise in the future and not covered by
insurance or indemnity, (iv) the impact of current and future laws and
government regulations, and (v) the risks described from time to time in the
Company's reports to the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary exposure to market risk is related to the variability in
interest rates associated with the $48.0 million outstanding under its term loan
and with any amounts outstanding under its $25 million revolving credit
facility. Under both the term loan and the revolving credit facility, the
Company has the option to lock in a certain interest rate based on either the
base rate, which is equivalent to prime, or LIBOR plus an applicable margin
specified in the agreement. Principally all of the borrowings under the term
loan are locked in at approximately 4.4% until July 2004, when the underlying
LIBOR contract is up for renewal. At March 31, 2004, the Company had no amounts
outstanding under its line of credit and was one payment ahead of schedule on
its term debt. A 1% change in the interest rate for the Company's credit
facilities in place at December 31, 2003 would have resulted in a change in the
Company's annual interest expense of approximately $603,000. The senior notes
bear a fixed rate of interest and therefore are not subject to market risk. The
Company does not hold derivative financial instruments or believe that material
imbedded derivatives exist within its contracts.
21
While the Company uses commodity metals in certain of its products, its exposure
to market risk is reduced by the pass-through of increased costs to its customer
base.
As the Company has operations outside the United States of America, it is
subject to foreign currency exchange risk. To date those risks have not had a
material impact on the Company's results of operations or financial position.
Item 4. Controls and Procedures
The management of KCLLC carried out an evaluation, with the participation of its
President and Chief Financial Officer, of the effectiveness of its disclosure
controls and procedures as of March 31, 2004. Based upon that evaluation,
KCLLC's President and Chief Financial Officer concluded that KCLLC's disclosure
controls and procedures were effective to ensure that information required to be
disclosed by KCLLC in reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the Securities and Exchange
Commission.
There has not been any change in KCLLC's internal control over financial
reporting in connection with the evaluation required by Rule 15d-15(d) under the
Exchange Act that occurred during the quarter ended March 31, 2004 that has
materially affected, or is reasonably likely to materially affect, KCLLC's
internal control over financial reporting.
The management of Key Components Finance Corp. ("Finance Corp.") carried out an
evaluation, with the participation of its President and Chief Financial Officer,
of the effectiveness of its disclosure controls and procedures as of March 31,
2004. Based upon that evaluation, Finance Corp.'s President and Chief Financial
Officer concluded that Finance Corp.'s disclosure controls and procedures were
effective to ensure that information required to be disclosed by Finance Corp.
in reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the Securities and Exchange Commission.
There has not been any change in Finance Corp.'s internal control over financial
reporting in connection with the evaluation required by Rule 15d-15(d) under the
Exchange Act that occurred during the quarter ended March 31, 2004 that has
materially affected, or is reasonably likely to materially affect, Finance
Corp.'s internal control over financial reporting.
Part II - Other Information
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
The Company filed the following report on Form 8-K during the
first quarter of the year ending March 31, 2004:
Date of Report Date Report Filed with SEC Items Reported
--------------------------- ---------------------------------- --------------------------------------------
March 17, 2004 March 17, 2004 Press Release dated March 17, 2004,
announcing financial results for the Year
and Quarter ended December 31, 2003
(furnished pursuant to Item 12 of Form 8-K).
22
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 thereunto duly authorized.
KEY COMPONENTS, LLC
-----------------------------------
Date: May 17, 2004 By: /s/ Robert. B. Kay
--------------------------------
Robert B. Kay
President
Date: May 17, 2004 By: /s/Keith A. McGowan
--------------------------------
Keith A. McGowan
Chief Financial Officer
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 thereunto duly authorized.
KEY COMPONENTS FINANCE CORP.
-----------------------------------
Date: May 17, 2004 By: /s/ Robert. B. Kay
--------------------------------
Robert B. Kay
President
Date: May 17, 2004 By: /s/Keith A. McGowan
--------------------------------
Keith A. McGowan
Chief Financial Officer
23