KEMET CORPORATION 
By GREENVILLE, S.C., Jan. 30, 2014 /PRNewswire/ --
Financial Highlights:
-- Revenue of $207.3 million increased 4.9% compared to $197.7 million for
the same quarter last year
-- Adjusted Operating income increased $5.7 million over the prior quarter
-- Adjusted Gross Margin up 3.1% to 18.5% over the prior quarter
KEMET Corporation (the "Company") (NYSE: KEM), a leading global supplier of electronic components, today reported preliminary results for the third fiscal quarter ended December 31, 2013. Results included in this earnings release have been adjusted to reflect discontinued operations as the Film and Electrolytic Business group has initiated a plan to dispose of its machinery division.
Net sales of $207.3 million for the quarter ended December 31, 2013 decreased 0.5% from net sales of $208.4 million for the prior quarter ended September 30, 2013, and increased 4.9% compared to net sales of $197.7 million for the quarter ended December 31, 2012.
The U.S. GAAP net loss from continuing operations was $4.7 million, or $0.11 loss per basic and diluted share for the quarter ended December 31, 2013, compared to a U.S. GAAP net loss from continuing operations of $11.9 million or $0.26 loss per basic and diluted share for the prior quarter ended September 30, 2013. For the quarter ended December 31, 2012 the U.S. GAAP net loss from continuing operations was $12.6 million or $0.28 loss per basic and diluted share.
Non-U.S. GAAP Adjusted net income improved to $0.9 million or $0.02 per basic and diluted share for the quarter ended December 31, 2013, 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 prior quarter ended September 30, 2013. For the quarter ended December 31, 2012 the non-U.S. GAAP Adjusted net loss was $0.7 million or $0.01 loss per basic and diluted share.
"Revenue, excluding discontinued operations, was essentially flat compared to the prior quarter as we forecasted and it is gratifying to see our cost reduction efforts reflected in our financial results with positive non-GAAP earnings per share in this challenging environment," stated Per Loof, KEMET's Chief Executive Officer. "We have seen steady improvement in our operating margins and we will continue to stay focused on our overall cost structure to leverage our position as the economic rebound occurs in our industry," continued Loof.
The net loss for the quarters ended December 31, 2013 and 2012 include various items affecting comparability as denoted in the U.S. GAAP to Non-U.S. GAAP reconciliation table included hereafter
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 April 1, 2014, 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 the restructuring plan; (ix) equity method investments 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 Nine Month Periods Ended
December 31,
December 31,
------------
2013 2012 2013 2012
---- ---- ---- ----
Net sales $207,339 $197,698 $617,845 $624,363
Operating costs and expenses:
Cost of sales 169,677 162,733 530,722 525,653
Selling, general and administrative expenses 22,431 25,313 70,826 77,119
Research and development 6,027 6,290 17,703 20,183
Restructuring charges 2,194 3,886 8,169 13,672
Goodwill impairment - - - 1,092
Write down of long-lived assets 3,358 3,084 3,358 7,318
Net (gain) loss on sales and disposals of assets 29 (196) 71 (123)
--- ---- --- ----
Total operating costs and expenses 203,716 201,110 630,849 644,914
Operating income (loss) 3,623 (3,412) (13,004) (20,551)
Other (income) expense:
Interest income (7) (54) (182) (111)
Interest expense 10,349 10,247 30,291 30,840
Other (income) expense, net (1,349) (1,641) (49) (1,126)
------ ------ --- ------
Loss from continuing operations before income taxes
and equity income (loss) from NEC TOKIN (5,370) (11,964) (43,064) (50,154)
Income tax expense 1,033 611 4,293 4,004
----- --- ----- -----
Loss from continuing operations before equity income
(loss) from NEC TOKIN (6,403) (12,575) (47,357) (54,158)
Equity income (loss) from NEC TOKIN 1,657 - (2,962) -
Loss from continuing operations $(4,746) $(12,575) $(50,319) $(54,158)
Loss from discontinued operations (1,076) (1,682) (3,737) (2,773)
Net loss $(5,822) $(14,257) $(54,056) $(56,931)
======= ======== ======== ========
Net loss per basic share:
Loss from continuing operations $(0.11) $(0.28) $(1.12) $(1.21)
Loss from discontinued operations $(0.02) $(0.04) $(0.08) $(0.06)
Net loss $(0.13) $(0.32) $(1.20) $(1.27)
Net loss per diluted share:
Loss from continuing operations $(0.11) $(0.28) $(1.12) $(1.21)
Loss from discontinued operations $(0.02) $(0.04) $(0.08) $(0.06)
Net loss $(0.13) $(0.32) $(1.20) $(1.27)
Weighted-average shares outstanding:
Basic 45,120 44,918 45,078 44,879
Diluted 45,120 44,918 45,078 44,879
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
December 31, 2013 March 31, 2013
----------------- --------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $55,594 $95,978
Accounts receivable, net 93,542 93,774
Inventories, net 200,853 198,888
Prepaid expenses and other 37,732 41,100
Deferred income taxes 5,752 4,167
Current assets of discontinued operations 10,293 9,517
Total current assets 403,766 443,424
Property and equipment 303,741 303,942
Goodwill 35,584 35,584
Intangible assets, net 37,722 38,646
Investment in NEC TOKIN 49,713 52,738
Restricted cash 14,028 17,397
Deferred income taxes 8,400 7,994
Other assets 8,885 10,150
Noncurrent assets of discontinued operations 486 1,716
Total assets $862,325 $911,591
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $27,672 $10,793
Accounts payable 71,598 72,002
Accrued expenses 75,822 91,950
Income taxes payable and deferred income taxes 3,660 1,074
Current liabilities of discontinued operations 5,862 5,661
Total current liabilities 184,614 181,480
Long-term debt, less current portion 374,223 372,707
Other non-current obligations 54,900 69,022
Deferred income taxes 8,033 8,542
Noncurrent liabilities of discontinued operations 2,728 2,924
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 December 31, 2013 and March 31, 2013 465 465
Additional paid-in capital 466,316 467,096
Retained deficit (217,291) (163,235)
Accumulated other comprehensive income 20,332 7,694
Treasury stock, at cost (1,384 and 1,519 shares at
December 31, 2013
and March 31, 2013, respectively) (31,995) (35,104)
Total stockholders' equity 237,827 276,916
------- -------
Total liabilities and stockholders' equity $862,325 $911,591
======== ========
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Nine Month Periods Ended
December 31,
------------
2013 2012
---- ----
Net loss from continuing
operations $(50,319) $(54,158)
Adjustments to reconcile net
loss to net cash provided by
(used in)
operating
activities:
Depreciation and
amortization 37,352 33,389
Equity loss from NEC
TOKIN 2,962 -
Amortization of debt
discount and debt
issuance costs 2,817 3,046
Stock-based compensation
expense 2,288 3,523
Long-term receivable
write down 1,484 -
Change in value of NEC
TOKIN options (1,334) -
Net (gain) loss on sales
and disposals of assets 71 (123)
Pension and other post-
retirement benefits 24 232
Write down of long-lived
assets 3,358 7,318
Net curtailment and
settlement gain on
benefit plans - (1,088)
Goodwill impairment - 1,092
Change in deferred income
taxes (2,496) 1,517
Change in operating
assets 8,579 (13,632)
Change in operating
liabilities (28,296) (25,446)
Other 474 153
Net cash used in
operating activities (23,036) (44,177)
Investing activities:
Capital expenditures (24,993) (38,349)
Change in restricted cash 3,532 (24,000)
Net cash used in
investing activities (21,461) (62,349)
Financing activities:
Proceeds from revolving line
of credit 21,000 -
Proceeds from issuance of
debt - 39,825
Deferred acquisition payments (11,703) (6,617)
Payments of long-term debt (2,858) (1,901)
Proceeds from exercise of
stock options 86 58
Debt issuance costs - (275)
Net cash provided by
financing activities 6,525 31,090
----- ------
Net decrease in cash and
cash equivalents (37,972) (75,436)
Effect of foreign currency fluctuations on cash 864 (81)
Net cash used in operating activities of discontinued operations (3,276) 2,555
Cash and cash equivalents at beginning of fiscal period 95,978 210,521
------ -------
Cash and cash equivalents at end of fiscal period $55,594 $137,559
======= ========
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
--------------
December 31, 2013 September 30, 2013
----------------- ------------------
(Unaudited) (Amounts in thousands)
U.S. GAAP
Net sales $207,339 $208,449
Gross margin 37,662 30,917
Non-U.S. GAAP-
adjustments:
Stock-based
compensation
expense 265 213
Plant start-up
costs 485 1,050
--- -----
Adjusted gross
margin $38,412 $32,180
======= =======
18.5% 15.4%
Adjusted Operating Income
Adjusted operating loss represents operating income, excluding adjustments which are outlined in the quantitative reconciliation provided above. We use Adjusted operating loss to facilitate our analysis and understanding of our business operations and believe that Adjusted operating 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 or any other performance measure derived in accordance with U.S. GAAP.
Adjusted operating income is calculated as follows (amounts in thousands):
Quarters Ended
--------------
December 31, 2013 September 30, 2013 December 31, 2012
----------------- ------------------ -----------------
(Unaudited)
Operating income (loss) $3,623 $1,583 $(3,412)
Adjustments:
Restructuring charges 2,194 1,365 3,886
ERP integration costs 994 1,072 1,374
Plant start-up costs 485 1,050 1,524
Stock-based compensation expense 689 644 1,059
NEC TOKIN investment related expenses 249 125 164
Net (gain) loss on sales and disposals of assets 29 42 (196)
Write down of long-lived assets 3,358 - 3,084
Settlement gain on benefit plan - - 588
--- --- ---
Adjusted operating income $11,621 $5,881 $8,071
======= ====== ======
Adjusted Net Loss and Adjusted Net Loss Per Share
"Adjusted net loss" and "Adjusted net loss per share" represent net loss and net loss per 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 loss to Non-U.S. GAAP adjusted net loss:
U.S. GAAP to Non- U.S. GAAP Reconciliation
Quarters Ended
--------------
December 31, 2013 September 30, 2013 December 31, 2012
----------------- ------------------ -----------------
(Unaudited) (Amounts in thousands, except per share data)
U.S. GAAP
Net sales $207,339 $208,449 $197,698
Loss from continuing operations (4,746) (11,947) (12,575)
Loss from discontinued operations (1,076) (1,151) (1,682)
------ ------ ------
Net loss $(5,822) $(13,098) $(14,257)
Net loss per basic and diluted share $(0.13) $(0.29) $(0.32)
Excluding the following items (Non-U.S. GAAP)
Loss from continuing operations $(4,746) $(11,947) $(12,575)
Adjustments:
Restructuring charges 2,194 1,365 3,886
Equity (income) loss from NEC TOKIN (1,657) 1,243 -
ERP integration costs 994 1,072 1,374
Change in value of NEC TOKIN options (1,716) 383 -
Plant start-up costs 485 1,050 1,524
Amortization included in interest expense 858 945 1,122
Stock-based compensation expense 689 644 1,059
Net foreign exchange (gain) loss 207 514 (464)
NEC TOKIN investment related expenses 249 125 164
Net (gain) loss on sales and disposals of assets 29 42 (196)
Write down of long-lived assets 3,358 - 3,084
Settlement gain on benefit plan - - 588
Income tax effect of non-U.S. GAAP adjustments (1) (52) (18) (228)
--- --- ----
Adjusted net income (loss) from continuing operations $892 $(4,582) $(662)
==== ======= =====
Adjusted net income (loss) per basic share from continuing
operations $0.02 $(0.10) $(0.01)
Adjusted net income (loss) per diluted share from continuing
operations $0.02 $(0.10) $(0.01)
Weighted average shares outstanding:
Basic 45,120 45,092 44,918
Diluted 52,494 45,092 44,918
(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 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 only supplementally.
The following table provides a reconciliation from U.S. GAAP net loss from continuing operations to Adjusted EBITDA from continuing operations (amounts in thousands):
Quarters Ended
--------------
December 31, 2013 September 30, 2013 December 31, 2012
----------------- ------------------ -----------------
U.S. GAAP
Loss from continuing operations $(4,746) $(11,947) $(12,575)
Interest expense, net 10,342 9,897 10,193
Income tax expense 1,033 1,444 611
Depreciation and amortization 11,762 11,952 10,405
------ ------ ------
EBITDA from continuing operations 18,391 11,346 8,634
Excluding the following items (Non-U.S. GAAP):
Restructuring charges 2,194 1,365 3,886
Equity (income) loss from NEC TOKIN (1,657) 1,243 -
ERP integration costs 994 1,072 1,374
Change in value of NEC TOKIN options (1,716) 383 -
Plant start-up costs 485 1,050 1,524
Stock-based compensation expense 689 644 1,059
Net foreign exchange (gain) loss 207 514 (464)
NEC TOKIN investment related expenses 249 125 164
Net (gain) loss on sales and disposals of assets 29 42 (196)
Write down long-lived assets 3,358 - 3,084
Settlement gain on benefit plan - - 588
--- --- ---
Adjusted EBITDA from continuing operations $23,223 $17,784 $19,653
======= ======= =======
Contact:
William M. Lowe, Jr.
Executive Vice President and Chief Financial Officer
williamlowe@kemet.com
864-963-6484
Richard J. Vatinelle
Director of Finance and Investor Relations
richardvatinelle@kemet.com
954-766-2800
SOURCE KEMET Corporation
