SOURCE: KEMET Corporation

KEMET Corporation

January 28, 2016 08:00 ET

KEMET Reports Preliminary Fiscal 2016 Third Quarter Results

GREENVILLE, SC--(Marketwired - January 28, 2016) - KEMET Corporation (the "Company") (NYSE: KEM), a leading global supplier of electronic components, today reported preliminary results for our third fiscal quarter ended December 31, 2015.

Net sales of $177.2 million for the quarter ended December 31, 2015 decreased 4.8% from net sales of $186.1 million for the prior quarter ended September 30, 2015 and decreased 12.0% from net sales of $201.3 million for the quarter ended December 31, 2014. 

The U.S. GAAP net loss was $8.6 million or $0.19 per basic and diluted share for the quarter ended December 31, 2015, which included a non-cash gain of $0.7 million or $0.02 per basic and diluted share related to the change in value of the NEC TOKIN options. This compares to net income of $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 options. For the quarter ended December 31, 2014, the Company reported net income of $2.9 million or $0.06 per diluted share which, for comparison purposes, included a non-cash gain of $2.5 million or $0.05 per diluted share related to the change in value of the NEC TOKIN options.

Non-U.S. GAAP adjusted net income of $2.2 million or $0.04 per diluted share for the quarter ended December 31, 2015 decreased by $2.1 million compared to non-U.S. GAAP adjusted net income of $4.3 million or $0.09 per diluted share in the quarter ended September 30, 2015. For the quarter ended December 31, 2014, the Company reported non-U.S. GAAP adjusted net income of $7.0 million or $0.13 per diluted share.

"Even though the distribution channel continued its inventory correction our OEM and EMS channels remained steady with our adjusted gross margin continuing strong this quarter at 22.2%," stated Per Loof, KEMET's Chief Executive Officer. "We believe the distributor inventory correction is over as bookings are up early this quarter compared to the same time last quarter. Longer term demand will be driven by market innovation by the key customers we serve and we are well positioned to provide creative solutions across multiple end markets with a cost structure that will provide increasing value to our shareholders," continued Loof.

The net income (loss) for the quarters ended December 31, 2015, September 30, 2015 and December 31, 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 April 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 December 31,
    2015   2014
Net sales   $ 177,184     $ 201,310  
Operating costs and expenses:            
  Cost of sales     138,436       156,842  
  Selling, general and administrative expenses     22,278       23,374  
  Research and development     6,134       6,303  
  Restructuring charges     1,714       6,063  
  Net (gain) loss on sales and disposals of assets     129       (574 )
  Total operating costs and expenses     168,691       192,008  
  Operating income (loss)     8,493       9,302  
  Non-operating (income) expense:            
  Interest income     (4 )     (5 )
  Interest expense     9,852       9,938  
  Change in value of NEC TOKIN options     (700 )     (2,500 )
  Other (income) expense, net     (1,320 )     (1,201 )
  Income (loss) from continuing operations before income taxes and equity income (loss) from NEC TOKIN     665       3,070  
  Income tax expense (benefit)     2,760       1,359  
    Income (loss) from continuing operations before equity income (loss) from NEC TOKIN     (2,095 )     1,711  
  Equity income (loss) from NEC TOKIN     (6,505 )     1,367  
    Income (loss) from continuing operations     (8,600 )     3,078  
  Income (loss) from discontinued operations, net of income tax expense (benefit) of $0 and $1,976, respectively     -       (164 )
    Net income (loss)   $ (8,600 )   $ 2,914  
Net income (loss) per basic share:            
Net income (loss) from continuing operations   $ (0.19 )   $ 0.07  
Net income (loss) from discontinued operations   $ -     $ -  
Net income (loss)   $ (0.19 )   $ 0.07  
             
Net income (loss) per diluted share:            
Net income (loss) from continuing operations   $ (0.19 )   $ 0.06  
Net income (loss) from discontinued operations   $ -     $ -  
Net income (loss)   $ (0.19 )   $ 0.06  
             
Weighted-average shares outstanding:            
Basic     46,081       45,407  
Diluted     46,081       52,228  
                 
                 
 
KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
 
    December 31, 2015   March 31, 2015
ASSETS            
Current assets:            
  Cash and cash equivalents   $ 43,158     $ 56,362  
  Accounts receivable, net     89,285       90,857  
  Inventories, net     175,078       171,843  
  Prepaid expenses and other     31,051       41,503  
  Deferred income taxes     9,734       10,762  
      Total current assets     348,306       371,327  
  Property, plant and equipment, net of accumulated depreciation of $810,373 and $804,286 as of December 31, 2015 and March 31, 2015, respectively     236,347       249,641  
  Goodwill     40,294       35,584  
  Intangible assets, net     33,571       33,282  
  Investment in NEC TOKIN     35,795       45,016  
  Deferred income taxes     4,398       5,111  
  Other assets     8,264       12,831  
Total assets   $ 706,975     $ 752,792  
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
  Current portion of long-term debt   $ 5,000     $ 962  
  Accounts payable     63,665       69,785  
  Accrued expenses     44,529       60,456  
  Income taxes payable and deferred income taxes     856       1,017  
      Total current liabilities     114,050       132,220  
  Long-term debt, less current portion     389,887       390,409  
  Other non-current obligations     70,921       57,131  
  Deferred income taxes     7,707       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 December 31, 2015 and March 31, 2015     465       465  
  Additional paid-in capital     452,764       461,191  
  Retained deficit     (284,337 )     (245,881 )
  Accumulated other comprehensive income     (33,687 )     (28,796 )
  Treasury stock, at cost (648 and 1,056 shares at December 31, 2015 and March 31, 2015, respectively)     (10,795 )     (22,297 )
      Total stockholders' equity     124,410       164,682  
Total liabilities and stockholders' equity   $ 706,975     $ 752,792  
                 
                 
 
KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
 
    Nine Month Periods Ended December 31,
    2015   2014
Net income (loss)   $ (38,456 )   $ 5,704  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:            
  Gain on sale of discontinued operations     -       (5,644 )
  Net cash provided by (used in) operating activities of discontinued operations     -       (679 )
  Depreciation and amortization     28,856       30,694  
  Equity (income) loss from NEC TOKIN     4,758       76  
  Non-cash debt and financing costs     649       1,570  
  (Gain) loss on early extinguishment of debt     -       (1,003 )
  Stock-based compensation expense     3,761       3,185  
  Long-term receivable write down     24       27  
  Change in value of NEC TOKIN options     26,300       (13,200 )
  Net (gain) loss on sales and disposals of assets     (233 )     (759 )
  Pension and other post-retirement benefits     652       87  
  Change in deferred income taxes     735       1,276  
  Change in operating assets     4,762       (208 )
  Change in operating liabilities     (32,891 )     (24,732 )
  Other     526       336  
    Net cash provided by (used in) operating activities     (557 )     (3,270 )
Investing activities:            
  Capital expenditures     (14,120 )     (17,474 )
  Acquisitions, net of cash received     (2,892 )     -  
  Proceeds from sale of assets     898       4,540  
  Change in restricted cash     -       11,509  
  Proceeds from sale of discontinued operations     -       9,564  
    Net cash provided by (used in) investing activities     (16,114 )     8,139  
Financing activities:            
  Proceeds from revolving line of credit     10,000       42,340  
  Payments on revolving line of credit     (5,500 )     (14,342 )
  Deferred acquisition payments     -       (11,899 )
  Payments on long-term debt     (481 )     (21,733 )
  Purchase of treasury stock     (691 )     -  
  Proceeds from exercise of stock options     -       24  
    Net cash provided by (used in) financing activities     3,328       (5,610 )
      Net increase (decrease) in cash and cash equivalents     (13,343 )     (741 )
Effect of foreign currency fluctuations on cash     139       (1,606 )
Cash and cash equivalents at beginning of fiscal period     56,362       57,929  
Cash and cash equivalents at end of fiscal period   $ 43,158     $ 55,582  
                 
                 

Non-U.S. GAAP Financial Measures

The Company utilizes 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 as further described below.

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)
    December 31, 2015   September 30, 2015   December 31, 2014
Net sales   $ 177,184     $ 186,123     $ 201,310  
Cost of sales     138,436       143,317       156,842  
Gross margin     38,748       42,806       44,468  
Gross margin as a % of net sales     21.9 %     23.0 %     22.1 %
Non-U.S. GAAP adjustments:                  
Plant start-up costs     160       187       1,144  
Stock-based compensation expense     268       459       424  
Plant shut-down costs     231       -       -  
Inventory revaluation     -       -       (927 )
  Adjusted gross margin   $ 39,407     $ 43,452     $ 45,109  
Adjusted gross margin as a % of net sales     22.2 %     23.3 %     22.4 %
                         

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)
    December 31, 2015   September 30, 2015   December 31, 2014
Operating income (loss)   $ 8,493   $ 13,987     $ 9,302  
Adjustments:                  
Restructuring charges     1,714     23       6,063  
Inventory revaluation     -     -       (927 )
Net (gain) loss on sales and disposals of assets     129     (304 )     (574 )
Stock-based compensation expense     1,154     1,328       1,232  
ERP integration/IT transition costs     167     282       671  
Legal expenses related to antitrust class actions     1,300     541       409  
Plant start-up costs     160     187       1,144  
Plant shut-down costs     231     -       -  
NEC TOKIN investment-related expenses     225     186       485  
Adjusted operating income (loss)   $ 13,573   $ 16,230     $ 17,805  
                       

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
    December 31, 2015   September 30, 2015   December 31, 2014
U.S. GAAP     (Unaudited)
Net sales   $ 177,184     $ 186,123     $ 201,310  
Net income (loss) from continuing operations     (8,600 )     7,194       3,078  
    Income (loss) from discontinued operations     -       -       (164 )
Net income (loss)   $ (8,600 )   $ 7,194     $ 2,914  
Earnings per basic and diluted share:                  
Net income (loss) from continuing operations     (0.19 )     0.16       0.07  
Income (loss) from discontinued operations     -       -       -  
Net income (loss)     (0.19 )     0.16       0.07  
Net income (loss) from continuing operations - diluted     (0.19 )     0.14       0.06  
Income (loss) from discontinued operations - diluted     -       -       -  
Net income (loss) - diluted     (0.19 )     0.14       0.06  
  Non-U.S. GAAP                  
    Net income (loss)   $ (8,600 )   $ 7,194     $ 2,914  
    Adjustments:                  
      Restructuring charges     1,714       23       6,063  
      Equity (income) loss from NEC TOKIN     6,505       (162 )     (1,367 )
      Inventory revaluation     -       -       (927 )
      Net (gain) loss on sales and disposals of assets     129       (304 )     (574 )
      (Gain) loss on early extinguishment of debt     -       -       (1,003 )
      Offering Memorandum Fees     -       -       1,142  
      Stock-based compensation expense     1,154       1,328       1,232  
      Legal expenses related to antitrust class actions     1,300       541       409  
      ERP integration/IT transition costs     167       282       671  
      Change in value of NEC TOKIN options     (700 )     (2,200 )     (2,500 )
      Plant start-up costs     160       187       1,144  
      Plant shut-down costs     231       -       -  
      Net foreign exchange (gain) loss     (1,036 )     (3,171 )     (1,257 )
      NEC TOKIN investment-related expenses     225       186       485  
      (Income) loss from discontinued operations     -       -       164  
      Amortization included in interest expense     212       217       322  
      Income tax effect of pension curtailment     720       -       -  
      Income tax effect of non-GAAP adjustments (1)     (10 )     153       37  
Adjusted net income (loss)   $ 2,171     $ 4,274     $ 6,955  
Adjusted net income (loss) per basic share   $ 0.05     $ 0.09     $ 0.15  
Adjusted net income (loss) per diluted share   $ 0.04     $ 0.09     $ 0.13  
Weighted Average Shares-Basic     46,081       45,767       45,407  
Weighted Average Shares-Diluted     51,865       50,004       52,228  
                         

(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
    (Unaudited)
    December 31, 2015   September 30, 2015   December 31, 2014
Net income (loss)   $ (8,600 )   $ 7,194     $ 2,914  
Interest expense, net     9,848       9,808       9,933  
Income tax expense (benefit)     2,760       1,438       1,359  
Depreciation and amortization     9,674       9,265       9,720  
  EBITDA     13,682       27,705       23,926  
Excluding the following items:                  
Restructuring charges     1,714       23       6,063  
Legal expenses related to antitrust class actions     1,300       541       409  
Equity (income) loss from NEC TOKIN     6,505       (162 )     (1,367 )
Inventory revaluation     -       -       (927 )
Net (gain) loss on sales and disposals of assets     129       (304 )     (574 )
(Gain) loss on early extinguishment of debt     -       -       (1,003 )
Offering Memorandum Fees     -       -       1,142  
Stock-based compensation expense     1,154       1,328       1,232  
ERP integration/IT transition costs     167       282       671  
Change in value of NEC TOKIN options     (700 )     (2,200 )     (2,500 )
Plant start-up costs     160       187       1,144  
Plant shut-down costs     231       -       -  
Net foreign exchange (gain) loss     (1,036 )     (3,171 )     (1,257 )
NEC TOKIN investment-related expenses     225       186       485  
(Income) loss from discontinued operations     -       -       164  
  Adjusted EBITDA   $ 23,531     $ 24,415     $ 27,608  
                   

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