KEMET CORPORATION GREENVILLE, S.C., Oct. 29, 2015 /PRNewswire/ -- KEMET Corporation (the "Company") (NYSE: KEM), a leading global supplier of electronic components, today reported preliminary results for our second quarter fiscal year 2016 ended September 30, 2015.
Net sales of $186.1 million for the quarter ended September 30, 2015 decreased 0.8% from net sales of $187.6 million for the prior quarter ended June 30, 2015 and decreased 13.5% from net sales of $215.3 million for the quarter ended September 30, 2014.
The U.S. GAAP net income was $7.2 million or $0.14 per diluted share for the quarter ended September 30, 2015, which included a non-cash gain of $2.2 million or $0.04 per diluted share related to the change in value of the NEC TOKIN option. This compares to a net loss of $37.1 million or $0.81 per basic and diluted share for the quarter ended June 30, 2015, which included a non-cash charge of $29.2 million or $0.64 per basic and diluted share related to the change in value of the NEC TOKIN option. For the quarter ended September 30, 2014, the Company reported net income of $6.3 million or $0.12 per diluted share which, for comparison purposes, included a non-cash gain of $6.6 million or $0.13 per diluted share related to the change in value of the NEC TOKIN option.
Non-U.S. GAAP adjusted net income of $4.3 million or $0.09 per basic and diluted share for the quarter ended September 30, 2015 improved by $3.6 million compared to non-U.S. GAAP adjusted net income of $0.7 million or $0.01 per basic and diluted share in the quarter ended June 30, 2015. For the quarter ended September 30, 2014, the Company reported non-U.S. GAAP adjusted net income of $3.5 million or $0.07 per diluted share.
"Continued margin improvement remains our focus and we are ahead of our plan achieving another 180 basis point margin improvement this quarter over the prior quarter," stated Per Loof, KEMET's Chief Executive Officer. "Our cost structure is in the best shape of my tenure at KEMET. The team has positioned us to be able to achieve positive bottom-line results during a time of economic slowdown and created significant operating leverage for the future as revenue returns to more normalized levels," continued Loof.
The net income (loss) for the quarters ended September 30, 2015, June 30, 2015 and September 30, 2014 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 January 1, 2016, 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 outcomes 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 plans; (ix) equity method investment in NEC TOKIN exposes us to a variety of risks; (x) possible acquisition of NEC TOKIN may not achieve all of the anticipated results; (xi) acquisitions and other strategic transactions expose us to a variety of risks; (xii) our business could be negatively impacted by increased regulatory scrutiny and litigation; (xiii) inability to attract, train and retain effective employees and management; (xiv) inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xv) exposure to claims alleging product defects; (xvi) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xvii) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xviii) volatility of financial and credit markets affecting our access to capital; (xix) the need to reduce the total costs of our products to remain competitive; (xx) potential limitation on the use of net operating losses to offset possible future taxable income; (xxi) restrictions in our debt agreements that limit our flexibility in operating our business; (xxii) failure of our information technology systems to function properly or our failure to control unauthorized access to our systems may cause business disruptions; (xxiii) 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; and (xxiv) fluctuation in distributor sales could adversely affect our results of operations.
KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
Quarters Ended September 30,
----------------------------
2015 2014
---- ----
Net sales $186,123 $215,293
Operating costs and expenses:
Cost of
sales 143,317 169,538
Selling,
general
and
administrative
expenses 22,948 25,510
Research
and
development 6,152 6,338
Restructuring
charges 23 1,687
Net (gain)
loss on
sales and
disposals
of assets (304) (550)
---- ----
Total
operating
costs and
expenses 172,136 202,523
Operating
income
(loss) 13,987 12,770
Non-operating (income)
expense:
Interest
income (3) (3)
Interest
expense 9,811 10,287
Change in
value of
NEC TOKIN
options (2,200) (6,600)
Other
(income)
expense,
net (2,091) (995)
------ ----
Income
(loss) from NEC
from TOKIN
continuing
operations
before
income
taxes and
equity
income
(loss) 8,470 10,081
Income tax
expense
(benefit) 1,438 2,583
----- -----
Income
(loss)
from
continuing
operations
before
equity
income
(loss)
from NEC
TOKIN 7,032 7,498
Equity
income
(loss)
from NEC
TOKIN 162 232
--- ---
Income
(loss)
from
continuing
operations 7,194 7,730
Income
(loss) respectively
from
discontinued
operations,
net of
income tax
expense
(benefit)
of $0 and
$1,017, - (1,400)
--- ------
Net income
(loss) $7,194 $6,330
====== ======
Net income (loss) per basic
share:
Net income
(loss)
from
continuing
operations $0.16 $0.17
Net income
(loss)
from
discontinued
operations $ - $(0.03)
Net income
(loss) $0.16 $0.14
===== =====
Net income (loss) per diluted
share:
Net income
(loss)
from
continuing
operations $0.14 $0.15
Net income
(loss)
from
discontinued
operations $ - $(0.03)
Net income
(loss) $0.14 $0.12
===== =====
Weighted-average shares
outstanding:
Basic 45,767 45,400
Diluted 50,004 52,521
KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
September 30, 2015 March 31,
2015
----
ASSETS
Current assets:
Cash and cash equivalents $37,315 $56,362
Accounts receivable, net 93,099 90,857
Inventories, net 183,667 171,843
Prepaid expenses and other 42,428 41,503
Deferred income taxes 8,933 10,762
----- ------
Total current assets 365,442 371,327
Property, plant and equipment, net of
accumulated depreciation of $816,386
and $804,286 as of September 30,
2015 and March 31, 2015,
respectively 245,353 249,641
Goodwill 40,294 35,584
Intangible assets, net 34,282 33,282
Investment in NEC TOKIN 42,156 45,016
Restricted cash 1,849 1,775
Deferred income taxes 5,096 5,111
Other assets 4,441 11,056
Total assets $738,913 $752,792
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $5,000 $962
Accounts payable 70,108 69,785
Accrued expenses 57,178 60,456
Income taxes payable and deferred
income taxes - 1,017
--- -----
Total current liabilities 132,286 132,220
Long-term debt, less current portion 390,076 390,409
Other non-current obligations 78,966 57,131
Deferred income taxes 7,313 8,350
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, 2015
and March 31, 2015 465 465
Additional paid-in capital 453,782 461,191
Retained deficit (275,737) (245,881)
Accumulated other comprehensive
income (35,387) (28,796)
Treasury stock, at cost (731 and
1,057 shares at September 30, 2015
and March 31, 2015, respectively) (12,851) (22,297)
Total stockholders' equity 130,272 164,682
------- -------
Total liabilities and stockholders'
equity $738,913 $752,792
======== ========
KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Six Month Periods Ended September 30,
-------------------------------------
2015 2014
---- ----
Net income (loss) $(29,856) $2,790
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)
Depreciation and amortization 19,182 20,974
Equity (income) loss from NEC
TOKIN (1,747) 1,443
Amortization of debt and financing
costs 437 1,248
Stock-based compensation expense 2,607 1,952
Long-term receivable write down - 59
Change in value of NEC TOKIN
options 27,000 (10,700)
Net (gain) loss on sales and
disposals of assets (362) (185)
Pension and other post-retirement
benefits 333 37
Change in deferred income taxes 52 2,142
Change in operating assets (14,474) (4,268)
Change in operating liabilities (14,514) (6,341)
Other 410 (391)
--- ----
Net cash provided by (used in)
operating activities (10,932) 1,594
Investing activities:
Capital expenditures (9,268) (11,975)
Acquisitions, net of cash received (2,892) -
Proceeds from sale of assets 247 2,451
Change in restricted cash - 558
Proceeds from sale of discontinued
operations - 10,125
--- ------
Net cash provided by (used in)
investing activities (11,913) 1,159
Financing activities:
Proceeds from revolving line of
credit 8,000 14,300
Payments on revolving line of
credit (3,500) (7,500)
Deferred acquisition payments - (11,597)
Payments on long-term debt (481) (3,135)
Purchase of treasury stock (575) -
Proceeds from exercise of stock
options - 25
--- ---
Net cash provided by (used in)
financing activities 3,444 (7,907)
----- ------
Net increase (decrease) in cash
and cash equivalents (19,401) (5,154)
Effect of foreign currency
fluctuations on cash 354 (1,199)
Cash and cash equivalents at
beginning of fiscal period 56,362 57,929
------ ------
Cash and cash equivalents at end
of fiscal period $37,315 $51,576
======= =======
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 operating income (loss)", "Adjusted net income (loss)", "Adjusted net income (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, 2015 June 30, September 30, 2014
2015
----
Net sales $186,123 $187,590 $215,293
Cost of sales 143,317 147,877 169,538
------- ------- -------
Gross margin 42,806 39,713 45,755
Gross margin as a %
of net sales 23.0% 21.2% 21.3%
Non-U.S. GAAP
adjustments:
Plant start-up costs 187 195 1,114
Stock-based
compensation expense 459 413 359
Inventory revaluation - - (821)
Adjusted gross margin $43,452 $40,321 $46,407
======= ======= =======
Adjusted gross margin
as a % of net sales 23.3% 21.5% 21.6%
Adjusted Operating Income (Loss)
Adjusted operating income (loss) represents operating income (loss), excluding adjustments which are outlined in the quantitative reconciliation provided below. 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,
2015 2014
2015
----
Operating income
(loss) $13,987 $1,243 $12,770
Adjustments:
Restructuring charges 23 1,824 1,687
Inventory revaluation - - (821)
Net (gain) loss on
sales and disposals
of assets (304) (58) (550)
Stock-based
compensation expense 1,328 1,279 958
ERP integration/IT
transition costs 282 4,369 409
Legal expenses
related to antitrust
class actions 541 718 -
Plant start-up costs 187 195 1,114
Pension plan
adjustment - 312 -
NEC TOKIN investment-
related expenses 186 224 487
Adjusted operating
income (loss) $16,230 $10,106 $16,054
======= ======= =======
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) (amounts in thousands):
U.S. GAAP to Non-U.S. GAAP Reconciliation
Quarters Ended
--------------
September 30, June 30, September 30,
2015 2015 2014
---- ---- ----
(Unaudited)
U.S. GAAP
Net sales $186,123 $187,590 $215,293
Net income (loss) from continuing operations 7,194 (37,050) 7,730
Income (loss) from discontinued operations - - (1,400)
--- --- ------
Net income (loss) $7,194 $(37,050) $6,330
====== ======== ======
Earnings per basic and diluted share:
Net income (loss) from continuing operations 0.16 (0.81) 0.17
Income (loss) from discontinued operations - - (0.03)
--- --- -----
Net income (loss) 0.16 (0.81) 0.14
==== ===== ====
Net income (loss) from continuing operations - diluted 0.14 (0.81) 0.15
Income (loss) from discontinued operations - diluted - - (0.03)
--- --- -----
Net income (loss) - diluted 0.14 (0.81) 0.12
==== ===== ====
Non-U.S. GAAP
Net income (loss) $7,194 $(37,050) $6,330
Adjustments:
Restructuring charges 23 1,824 1,687
Equity (income) loss from NEC TOKIN (162) (1,585) (232)
Inventory revaluation - - (821)
Net (gain) loss on sales and disposals of assets (304) (58) (550)
Stock-based compensation expense 1,328 1,279 958
Legal expenses related to antitrust class actions 541 718 -
ERP integration/IT transition costs 282 4,369 409
Change in value of NEC TOKIN options (2,200) 29,200 (6,600)
Plant start-up costs 187 195 1,114
Net foreign exchange (gain) loss (3,171) 1,049 (1,351)
NEC TOKIN investment-related expenses 186 224 487
(Income) loss from discontinued operations - - 1,400
Amortization included in interest expense 217 220 583
Pension plan adjustment - 312 -
Income tax effect of non-GAAP adjustments (1) 153 (37) 51
Adjusted net income (loss) $4,274 $660 $3,465
====== ==== ======
Adjusted net income (loss) per basic share $0.09 $0.01 $0.08
Adjusted net income (loss) per diluted share $0.09 $0.01 $0.07
Weighted average shares outstanding:
Basic 45,767 45,552 45,400
Diluted 50,004 52,276 52,521
(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 represents net income (loss) before net interest expense, income tax expense (benefit), and depreciation and amortization expense, adjusted to exclude certain items which are outlined in the quantitative reconciliation provided herein. We use adjusted EBITDA 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 as a supplemental measure of our performance and ability to service debt. We also present adjusted EBITDA 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 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 are excluded in order to better reflect our continuing operations.
In evaluating adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments noted below. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these types of adjustments. Adjusted EBITDA 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 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 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 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 as supplementary information.
The following table provides a reconciliation from U.S. GAAP net income (loss) to Adjusted EBITDA (amounts in thousands):
For the Quarters Ended
----------------------
(Amounts in thousands) September 30, June 30, September 30,
2015 2014
2015
----
Net income (loss) $7,194 $(37,050) $6,330
Interest expense, net 9,808 10,010 10,284
Income tax expense (benefit) 1,438 (248) 2,583
Depreciation and amortization 9,265 9,917 10,177
----- ----- ------
EBITDA 27,705 (17,371) 29,374
Excluding the following items:
Restructuring charges 23 1,824 1,687
Legal expenses related to antitrust class actions 541 718 -
Equity (income) loss from NEC TOKIN (162) (1,585) (232)
Inventory revaluation - - (821)
Net (gain) loss on sales and disposals of assets (304) (58) (550)
Stock-based compensation expense 1,328 1,279 958
ERP integration/IT transition costs 282 4,369 409
Change in value of NEC TOKIN options (2,200) 29,200 (6,600)
Plant start-up costs 187 195 1,114
Net foreign exchange (gain) loss (3,171) 1,049 (1,351)
NEC TOKIN investment-related expenses 186 224 487
Pension plan adjustment - 312 -
(Income) loss from discontinued operations - - 1,400
Adjusted EBITDA $24,415 $20,156 $25,875
======= ======= =======
Contact: William M. Lowe, Jr.
Executive Vice President and
Chief Financial Officer
williamlowe@kemet.com
864-963-6484
Richard J. Vatinelle
Vice President and
Treasurer
richardvatinelle@kemet.com
954-766-2838
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SOURCE KEMET Corporation
