KEMET CORPORATION GREENVILLE, S.C., Oct. 30, 2014 /PRNewswire/ -- KEMET Corporation (the "Company") (NYSE: KEM), a leading global supplier of electronic components, today reported preliminary results for our second quarter ended September 30, 2014.
Net sales of $215.3 million for the quarter ended September 30, 2014 increased 3.3% compared to net sales of $208.4 million for the quarter ended September 30, 2013. The U.S. GAAP net income from continuing operations was $7.7 million, or $0.15 per diluted share for the quarter ended September 30, 2014, compared to a net loss from continuing operations of $11.9 million or $0.26 loss per basic and diluted share for the quarter ended September 30, 2013.
Non-U.S. GAAP Adjusted net income improved to $3.5 million or $0.07 per diluted share for the quarter ended September 30, 2014, compared to a non-U.S. GAAP Adjusted net loss of $4.6 million or $0.10 loss per basic and diluted share for the period ended September 30, 2013.
"We are extremely pleased that the financial results for the quarter exceeded our expectations. Operating margins, influenced by our cost improvement actions and favorable product mix, improved 340 basis points compared to the prior quarter ended June 30, 2014, surpassing our forecast," stated Per Loof, KEMET's Chief Executive Officer. "Operating margins will continue to be our primary focus for the company. Our expectation for our December 2014 quarter is an operating margin generally at or near the same level as this quarter," continued Loof.
The net income (loss) for the quarters ended September 30, 2014 and 2013 include various items affecting comparability as denoted in the U.S. GAAP to Non-U.S. GAAP reconciliation table included hereafter. Prior period financial results included in this earnings release have been adjusted to reflect discontinued operations as the Film and Electrolytic business group completed the sale of its machinery division on April 30, 2014.
About KEMET
The Company's common stock is listed on the NYSE under the ticker symbol "KEM" (NYSE: KEM). At the Investor Relations section of our web site at http://www.kemet.com/IR, users may subscribe to KEMET news releases and find additional information about our Company. KEMET applies world class service and quality to deliver industry leading, high performance capacitance solutions to its customers around the world and offers the world's most complete line of surface mount and through hole capacitor technologies across tantalum, ceramic, film, aluminum, electrolytic, and paper dielectrics. Additional information about KEMET can be found at http://www.kemet.com.
QUIET PERIOD
Beginning January 1, 2015, we will observe a quiet period during which the information provided in this news release and quarterly report on Form 10-Q will no longer constitute our current expectations. During the quiet period, this information should be considered to be historical, applying prior to the quiet period only and not subject to update by management. The quiet period will extend until the day when our next quarterly earnings release is published.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about the Company's financial condition and results of operations that are based on management's current expectations, estimates and projections about the markets, in which the Company operates, as well as management's beliefs and assumptions. Words such as "expects," "anticipates," "believes," "estimates," variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's judgment only as of the date hereof. The Company undertakes no obligation to update publicly any of these forward-looking statements to reflect new information, future events or otherwise.
Factors that may cause actual outcome and results to differ materially from those expressed in, or implied by, these forward-looking statements include, but are not necessarily limited to the following: (i) adverse economic conditions could impact our ability to realize operating plans if the demand for our products declines, and such conditions could adversely affect our liquidity and ability to continue to operate; (ii) continued net losses could impact our ability to realize current operating plans and could materially adversely affect our liquidity and our ability to continue to operate; (iii) adverse economic conditions could cause the write down of long-lived assets or goodwill; (iv) an increase in the cost or a decrease in the availability of our principal or single-sourced purchased materials; (v) changes in the competitive environment; (vi) uncertainty of the timing of customer product qualifications in heavily regulated industries; (vii) economic, political, or regulatory changes in the countries in which we operate; (viii) difficulties, delays or unexpected costs in completing restructuring plans; (ix) equity method investment in NEC TOKIN expose us to a variety of risks; (x) acquisitions and other strategic transactions expose us to a variety of risks; (xi) inability to attract, train and retain effective employees and management; (xii) inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xiii) exposure to claims alleging product defects; (xiv) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xv) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xvi) volatility of financial and credit markets affecting our access to capital; (xvii) the need to reduce the total costs of our products to remain competitive; (xviii) potential limitation on the use of net operating losses to offset possible future taxable income; (xix) restrictions in our debt agreements that limit our flexibility in operating our business; and (xx) additional exercise of the warrant by K Equity which could potentially result in the existence of a significant stockholder who could seek to influence our corporate decisions.
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
Quarters Ended September 30,
----------------------------
2014 2013
---- ----
Net sales $215,293 $208,449
Operating costs and
expenses:
Cost of
sales 169,538 177,532
Selling,
general
and
administrative
expenses 25,510 22,315
Research
and
development 6,338 5,611
Restructuring
charges 1,687 1,364
Net
(gain)
loss on
sales
and
disposals
of
assets (550) 42
---- ---
Total
operating
costs
and
expenses 202,523 206,864
Operating
income
(loss) 12,770 1,585
Non-operating (income)
expense:
Interest
income (3) (11)
Interest
expense 10,287 9,908
Other
(income)
expense,
net (7,595) 946
------ ---
Income
(loss) (loss)
from from NEC
continuing TOKIN
operations
before
income
taxes
and
equity
income 10,081 (9,258)
Income
tax
expense 2,583 1,444
----- -----
Income
(loss)
from
continuing
operations
before
equity
income
(loss)
from NEC
TOKIN 7,498 (10,702)
Equity
income
(loss)
from NEC
TOKIN 232 (1,243)
--- ------
Income
(loss)
from
continuing
operations 7,730 (11,945)
Income
(loss) $1,017,
from $(124),
discontinued $1,935
operations, and
net of $(360),
income respectively
tax
expense
(benefit)
of (1,400) (1,151)
------ ------
Net
income
(loss) $6,330 $(13,096)
====== ========
Net income (loss) per
basic share:
Net
income
(loss)
from
continuing
operations $0.17 $(0.26)
Net
income
(loss)
from
discontinued
operations $(0.03) $(0.03)
Net
income
(loss) $0.14 $(0.29)
===== ======
Net income (loss) per
diluted share:
Net
income
(loss)
from
continuing
operations $0.15 $(0.26)
Net
income
(loss)
from
discontinued
operations $(0.03) $(0.03)
Net
income
(loss) $0.12 $(0.29)
===== ======
Weighted-average
shares outstanding:
Basic 45,400 45,092
Diluted 52,521 45,092
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
September 30, March 31,
2014 2014
---- ----
ASSETS
Current assets:
Cash and cash equivalents $51,576 $57,929
Accounts receivable, net 95,581 98,947
Inventories, net 188,833 187,974
Prepaid expenses and other 40,229 36,871
Deferred income taxes 6,569 6,695
Current assets of discontinued operations - 12,160
--- ------
Total current assets 382,788 400,576
Property, plant and equipment, net of accumulated depreciation of $810,224 and $805,687 as of September 30, 2014 and March 31, 2014,
respectively 275,498 292,648
Goodwill 35,584 35,584
Intangible assets, net 35,377 37,184
Investment in NEC TOKIN 48,449 46,419
Restricted cash 12,955 13,512
Deferred income taxes 6,423 6,778
Other assets 20,153 10,130
Noncurrent assets of discontinued operations - 836
Total assets $817,227 $843,667
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $25,826 $7,297
Accounts payable 72,629 74,818
Accrued expenses 66,400 76,468
Income taxes payable and deferred income taxes 345 980
Current liabilities of discontinued operations - 7,269
--- -----
Total current liabilities 165,200 166,832
Long-term debt, less current portion 376,256 391,292
Other non-current obligations 52,246 55,864
Deferred income taxes 8,687 5,203
Noncurrent liabilities of discontinued operations - 2,592
Stockholders' equity:
Preferred stock, par value $0.01, authorized 10,000 shares, none issued - -
Common stock, par value $0.01, authorized 175,000 shares, issued 46,508 shares at September 30, 2014 and March 31, 2014 465 465
Additional paid-in capital 461,478 465,027
Retained deficit (228,948) (231,738)
Accumulated other comprehensive income 6,935 18,184
Treasury stock, at cost (1,103 and 1,301 shares at September 30, 2014 and March 31, 2014, respectively) (25,092) (30,054)
Total stockholders' equity 214,838 221,884
------- -------
Total liabilities and stockholders' equity $817,227 $843,667
======== ========
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Six Month Periods Ended September 30,
-------------------------------------
2014 2013
---- ----
Net income (loss) 2,790 $(48,236)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gain on sale of discontinued
operations (5,809) -
Net cash provided by (used in)
operating activities of
discontinued operations (1,357) 933
Depreciation and amortization 20,974 25,590
Equity (income) loss from NEC
TOKIN 1,443 4,620
Non-cash interest expense 1,332 1,959
Stock-based compensation expense 1,952 1,628
Long-term receivable write down 59 1,444
Change in value of NEC TOKIN
options (10,700) 382
Net loss on sales and disposals
of assets (185) 42
Pension and other post-
retirement benefits 37 27
Change in deferred income taxes 2,142 (957)
Change in operating assets (4,268) (8,261)
Change in operating liabilities (6,341) (10,932)
Other (475) 155
---- ---
Net cash provided by (used in)
operating activities 1,594 (31,606)
Investing activities:
Capital expenditures (11,975) (18,337)
Proceeds from sale of assets 2,451 -
Change in restricted cash 558 2,874
Proceeds from sale of
discontinued operations 10,125 -
------ ---
Net cash provided by (used in)
investing activities 1,159 (15,463)
Financing activities:
Proceeds from revolving line of
credit 14,300 21,000
Payments of revolving line of
credit (7,500) -
Deferred acquisition payments (11,597) (11,452)
Payments of long-term debt (3,135) (1,422)
Proceeds from exercise of stock
options 25 57
--- ---
Net cash provided by (used in)
financing activities (7,907) 8,183
------ -----
Net increase (decrease) in cash
and cash equivalents (5,154) (38,886)
Effect of foreign currency
fluctuations on cash (1,199) 608
Cash and cash equivalents at
beginning of fiscal period 57,929 95,978
------ ------
Cash and cash equivalents at end
of fiscal period 51,576 57,700
====== ======
Non-U.S. GAAP Financial Measures
In this news release, the Company makes reference to certain Non-U.S. GAAP financial measures, including "Adjusted gross margin", "Adjusted net loss", "Adjusted net loss per share" and "Adjusted EBITDA". Management believes that investors may find it useful to review the Company's financial results as adjusted to exclude items as determined by management.
Adjusted gross margin
Adjusted gross margin represents net sales less cost of sales excluding adjustments which are outlined in the quantitative reconciliation provided below. Management uses Adjusted gross margin to facilitate our analysis and understanding of our business operations and believes that Adjusted gross margin is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company. Adjusted gross margin should not be considered as an alternative to gross margin or any other performance measure derived in accordance with U.S. GAAP.
The following table provides reconciliation from U.S. GAAP Gross margin to Non-U.S. GAAP Adjusted gross margin (amounts in thousands):
Quarters Ended
(Unaudited)
September 30, June 30, September 30,
2014 2014 2013
---- ---- ----
Net sales $215,293 $212,881 $208,449
Gross margin 45,755 32,957 30,917
Non-U.S. GAAP-
adjustments:
Plant start-up costs 1,114 1,647 1,050
Stock-based
compensation expense 341 346 229
Plant shut-down costs - 889 -
Inventory revaluation (821) 2,676 -
Adjusted gross margin $46,389 $38,515 $32,196
======= ======= =======
21.5% 18.1% 15.4%
Adjusted Operating Income (Loss)
Adjusted operating income (loss) represents operating income (loss), excluding adjustments which are outlined in the quantitative reconciliation provided above. We use Adjusted operating income (loss) to facilitate our analysis and understanding of our business operations and believe that Adjusted operating income (loss) is useful to investors because it provides a supplemental way to understand our underlying operating performance. Adjusted operating loss should not be considered as an alternative to operating income (loss) or any other performance measure derived in accordance with U.S. GAAP.
Adjusted operating income (loss) is calculated as follows (amounts in thousands):
Quarters Ended
(Unaudited)
September 30, June 30, September 30,
2014 2014 2013
---- ---- ----
Operating income (loss) $12,770 $(606) $1,585
Adjustments:
Restructuring charges 1,687 1,830 1,364
Stock-based compensation expense 958 994 659
ERP integration costs 409 895 1,071
Plant start-up costs 1,114 1,647 1,050
Plant shut-down costs - 889 -
NEC TOKIN investment-related expenses 487 580 124
Net (gain) loss on sales and disposals of assets (550) 365 42
Inventory revaluation (821) 2,676 -
---- ----- ---
Adjusted operating income (loss) $16,054 $9,270 $5,895
======= ====== ======
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share
"Adjusted net income (loss)" and "Adjusted net income (loss) per basic and diluted share" represent net income (loss) and net income (loss) per basic and diluted share excluding adjustments which are outlined in the quantitative reconciliation provided below. Management believes that these Non-U.S. GAAP financial measures are useful to investors because they provide a supplemental way to understand the underlying operating performance of the Company. Management uses these Non-U.S. GAAP financial measures to evaluate operating performance. Non-U.S. GAAP financial measures should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with U.S. GAAP.
The following table provides reconciliation from U.S. GAAP net income (loss) to Non-U.S. GAAP adjusted net income (loss):
U.S. GAAP to Non- U.S. GAAP Reconciliation
Quarters Ended
--------------
September 30, June 30, September 30,
2014 2014 2013
---- ---- ----
(Unaudited)
U.S. GAAP
Net sales $215,293 $212,881 $208,449
Net loss from continuing operations 7,730 (10,483) (11,945)
Income (loss) from discontinued operations (1,400) 6,943 (1,151)
------ ----- ------
Net income (loss) $6,330 $(3,540) $(13,096)
====== ======= ========
Net income (loss) from continuing operations - basic 0.17 (0.23) (0.26)
Income (loss) from discontinued operations - basic (0.03) 0.15 (0.03)
----- ---- -----
Net income (loss) - basic 0.14 (0.08) (0.29)
==== ===== =====
Net income (loss) from continuing operations - diluted 0.15 (0.23) (0.26)
Income (loss) from discontinued operations - diluted (0.03) 0.15 (0.03)
----- ---- -----
Net income (loss) - diluted 0.12 (0.08) (0.29)
==== ===== =====
Non-U.S. GAAP
Net income (loss) $6,330 $(3,540) $(13,096)
====== ======= ========
Adjustments:
Restructuring charges 1,687 1,830 1,364
Equity (income) loss from NEC TOKIN (232) 1,675 1,243
Inventory revaluation (821) 2,676 -
Net (gain) loss on sales and disposals of assets (550) 365 42
Stock-based compensation expense 958 994 659
ERP integration costs 409 895 1,071
Change in value of NEC TOKIN options (6,600) (4,100) 382
Plant start-up costs 1,114 1,647 1,050
Plant shut-down costs - 889 -
Net foreign exchange (gain) loss (1,351) 527 515
NEC TOKIN investment-related expenses 487 580 124
(Income) loss from discontinued operations 1,400 (6,943) 1,151
Amortization included in interest expense 583 665 945
Income tax effect of non-GAAP adjustments (1) 51 (24) (19)
$3,465 $(1,864) $(4,569)
Adjusted net income (loss)
$0.08 $(0.04) $(0.10)
Adjusted net income (loss) per basic share
$0.07 $(0.04) $(0.10)
Adjusted net income (loss) per diluted share
Weighted average shares outstanding:
Basic 45,400 45,274 45,092
Diluted 52,521 45,274 45,092
(1) The income tax effect of the excluded items is calculated by applying the applicable jurisdictional income tax rate, considering the deferred tax valuation for each applicable jurisdiction.
Adjusted EBITDA
Adjusted EBITDA from continuing operations represents net income (loss) from continuing operations before net interest expense, income tax expense, and depreciation and amortization expense, adjusted to exclude certain item which are outlined in the quantitative reconciliation provided below. We use Adjusted EBITDA from continuing operations to monitor and evaluate our operating performance and to facilitate internal and external comparisons of the historical operating performance of our business. We present Adjusted EBITDA from continuing operations as a supplemental measure of our performance and ability to service debt. We also present Adjusted EBITDA from continuing operations because we believe such measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.
We believe Adjusted EBITDA from continuing operations is an appropriate supplemental measure of debt service capacity, because cash expenditures on interest are, by definition, available to pay interest, and tax expense is inversely correlated to interest expense because tax expense goes down as deductible interest expense goes up; depreciation and amortization are non-cash charges. The other adjustments to arrive at Adjusted EBITDA from continuing operations are excluded in order to better reflect our continuing operations.
In evaluating Adjusted EBITDA from continuing operations, you should be aware that in the future we may incur expenses similar to the adjustments noted below. Our presentation of Adjusted EBITDA from continuing operations should not be construed as an inference that our future results will be unaffected by these types of adjustments. Adjusted EBITDA from continuing operations is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.
Our Adjusted EBITDA from continuing operations measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
-- it does not reflect our cash expenditures, future requirements for
capital expenditures or contractual commitments;
-- it does not reflect changes in, or cash requirements for, our working
capital needs;
-- it does not reflect the significant interest expense or the cash
requirements necessary to service interest or principal payment on our
debt;
-- although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the
future, and our Adjusted EBITDA from continuing operations measure does
not reflect any cash requirements for such replacements;
-- it is not adjusted for all non-cash income or expense items that are
reflected in our statements of cash flows;
-- it does not reflect the impact of earnings or charges resulting from
matters we consider not to be indicative of our ongoing operations;
-- it does not reflect limitations on or costs related to transferring
earnings from our subsidiaries to us; and
-- other companies in our industry may calculate this measure differently
than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA from continuing operations should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA from continuing operations as supplementary information.
The following table provides a reconciliation from U.S. GAAP net income (loss) to Adjusted EBITDA from continuing operations (amounts in thousands):
For the Quarters Ended
----------------------
(Amounts in thousands) September 30, June 30, September 30,
2014 2014 2013
---- ---- ----
U.S. GAAP
Net income (loss) $6,330 $(3,540) $(13,096)
Interest expense, net 10,284 10,453 9,897
Income tax expense (benefit) 2,583 1,282 1,444
Depreciation and amortization 10,177 10,797 11,951
------ ------ ------
EBITDA 29,374 18,992 10,196
Excluding the following items (non-GAAP):
Restructuring charges 1,687 1,830 1,364
Equity (income) loss from NEC TOKIN (232) 1,675 1,243
Inventory revaluation (821) 2,676 -
Net (gain) loss on sales and disposals of assets (550) 365 42
Stock-based compensation expense 958 994 659
ERP integration costs 409 895 1,071
Change in value of NEC TOKIN options (6,600) (4,100) 382
Plant start-up costs 1,114 1,647 1,050
Plant shut-down costs - 889 -
Net foreign exchange (gain) loss (1,351) 527 515
NEC TOKIN investment-related expenses 487 580 124
(Income) loss from discontinued operations 1,400 (6,943) 1,151
Adjusted EBITDA $25,875 $20,027 $17,797
======= ======= =======
Contact: William M. Lowe, Jr. Richard J. Vatinelle
Executive Vice President and Vice President and
Chief Financial Officer Treasurer
williamlowe@kemet.com richardvatinelle@kemet.com
864-963-6484 954-766-2838
SOURCE KEMET Corporation
