SOURCE: KEMET Corporation

KEMET Corporation

February 02, 2017 08:00 ET

KEMET Reports Preliminary Fiscal 2017 Third Quarter Results

GREENVILLE, SC--(Marketwired - February 02, 2017) - KEMET Corporation (the "Company") (NYSE: KEM), a leading global supplier of passive electronic components, today reported preliminary results for our third fiscal quarter ended December 31, 2016.

Net sales of $188.0 million for the quarter ended December 31, 2016 increased 0.4% from net sales of $187.3 million for the prior quarter ended September 30, 2016 and increased 6.1% from net sales of $177.2 million for the quarter ended December 31, 2015.

U.S. GAAP net income was $12.3 million or $0.22 per diluted share for the quarter ended December 31, 2016. This compares to a net loss of $5.0 million or $0.11 per basic and diluted share for the quarter ended September 30, 2016. For the quarter ended December 31, 2015, the Company reported net loss of $8.6 million or $0.19 per basic and diluted share.

Non-U.S. GAAP adjusted net income was $5.8 million or $0.11 per diluted share for the quarter ended December 31, 2016, as compared to non-U.S. GAAP adjusted net income of $7.0 million or $0.13 per diluted share in the quarter ended September 30, 2016. For the quarter ended December 31, 2015, the Company reported non-U.S. GAAP adjusted net income of $2.2 million or $0.04 per diluted share.

"This quarter is the fourth quarter of sequential growth and the highest revenue since our first quarter in fiscal 2016," stated Per Loof KEMET's Chief Executive Officer. "Global initiatives in the sales development process that targeted specific segments and product technologies supported this growth. These initiatives, coupled with a defined strategy and a target market that was shared across Sales, Business Groups and Technical Marketing boosted the overall quarter performance," continued Loof.

Net income (loss) for the quarters ended December 31, 2016, September 30, 2016 and December 31, 2015 includes 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, 2017, 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) acquisitions and other strategic transactions expose us to a variety of risks; (xi) possible acquisition of NEC TOKIN may not achieve all of the anticipated results; (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; (xxiv) fluctuation in distributor sales could adversely affect our results of operations; and (xxv) changes impacting international trade and corporate tax provisions may have an adverse effect on our financial condition and results of operations.

 
KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
 
   Quarters Ended December 31,
   2016  2015
Net sales  $ 188,029    $ 177,184  
Operating costs and expenses:        
 Cost of sales   140,692     138,436  
 Selling, general and administrative expenses   26,665     22,278  
 Research and development   7,059     6,134  
 Restructuring charges   (369 )   1,714  
 Net (gain) loss on sales and disposals of assets   132     129  
 Total operating costs and expenses   174,179     168,691  
 Operating income (loss)   13,850     8,493  
Non-operating (income) expense:        
 Interest income   (5 )   (4 )
 Interest expense   9,918     9,852  
 Change in value of NEC TOKIN option   (6,900 )   (700 )
 Other (income) expense, net   (3,384 )   (1,320 )
   Income (loss) before income taxes and equity income (loss) from NEC TOKIN   14,221     665  
 Income tax expense (benefit)   1,810     2,760  
   Income (loss) before equity income (loss) from NEC TOKIN   12,411     (2,095 )
Equity income (loss) from NEC TOKIN   (133 )   (6,505 )
   Net income (loss)  $ 12,278    $ (8,600 )
         
Net income (loss) per basic share  $ 0.26    $ (0.19 )
         
Net income (loss) per diluted share  $ 0.22    $ (0.19 )
         
Weighted-average shares outstanding:        
Basic   46,606     46,081  
Diluted   55,296     46,081  
         
 
KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
 
   December 31, 2016  March 31, 2016
ASSETS        
Current assets:        
 Cash and cash equivalents  $ 87,356    $ 65,004  
 Accounts receivable, net   82,519     93,168  
 Inventories, net   154,519     168,879  
 Prepaid expenses and other   24,035     25,496  
   Total current assets   348,429     352,547  
 Property, plant and equipment, net of accumulated depreciation of $817,605 and $815,338 as of December 31, 2016 and March 31, 2016, respectively   211,927     241,839  
 Goodwill   40,294     40,294  
 Intangible assets, net   30,204     33,301  
 Investment in NEC TOKIN   21,202     20,334  
 Deferred income taxes   7,768     8,397  
 Other assets (1)   2,712     3,068  
Total assets (1)  $ 662,536    $ 699,780  
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
 Current portion of long-term debt  $ -    $ 2,000  
 Accounts payable   62,347     70,981  
 Accrued expenses   46,418     50,320  
 Income taxes payable   1,068     453  
   Total current liabilities   109,833     123,754  
 Long-term debt, less current portion (1)   386,226     385,833  
 Other non-current obligations   72,704     74,892  
 Deferred income taxes   3,326     2,820  
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, 2016 and March 31, 2016   465     465  
 Additional paid-in capital   445,950     452,821  
 Retained deficit   (304,565 )   (299,510 )
 Accumulated other comprehensive income   (51,024 )   (31,425 )
 Treasury stock, at cost (67 and 611 shares at December 31, 2016 and March 31, 2016, respectively)   (379 )   (9,870 )
   Total stockholders' equity   90,447     112,481  
Total liabilities and stockholders' equity (1)  $ 662,536    $ 699,780  
         
(1) March 31, 2016 adjusted due to the adoption of Accounting Standards Update ("ASU") No. 2015-03, Interest - Imputation of Interest
   
 
KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
 
   Nine-Month Periods Ended
December 31,
   2016  2015
Net income (loss)  $ (4,925 )  $ (38,456 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:        
 Depreciation and amortization   27,971     28,856  
 Equity (income) loss from NEC TOKIN   (271 )   4,758  
 Non-cash debt and financing costs   561     649  
 Stock-based compensation expense   3,471     3,761  
 Receivable write down   64     24  
 Change in value of NEC TOKIN option   3,500     26,300  
 Net (gain) loss on sales and disposals of assets   307     (233 )
 Write down of long-lived assets   6,193     -  
 Pension and other post-retirement benefits   2,096     652  
 Change in deferred income taxes   819     735  
 Change in operating assets   21,459     4,762  
 Change in operating liabilities   (18,918 )   (32,891 )
 Other   (183 )   526  
  Net cash provided by (used in) operating activities   42,144     (557 )
Investing activities:        
 Capital expenditures   (15,011 )   (14,120 )
 Acquisitions, net of cash received   -     (2,892 )
 Proceeds from sale of assets   -     898  
  Net cash provided by (used in) investing activities   (15,011 )   (16,114 )
Financing activities:        
 Proceeds from revolving line of credit   -     10,000  
 Payments on revolving line of credit   -     (5,500 )
 Payments on long-term obligations   (2,428 )   (481 )
 Purchase of treasury stock   (1,052 )   (691 )
 Proceeds from exercise of stock options   69     -  
  Net cash provided by (used in) financing activities   (3,411 )   3,328  
   Net increase (decrease) in cash and cash equivalents   23,722     (13,343 )
Effect of foreign currency fluctuations on cash   (1,370 )   139  
Cash and cash equivalents at beginning of fiscal period   65,004     56,362  
Cash and cash equivalents at end of fiscal period  $ 87,356    $ 43,158  
         

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 by excluding the items outlined in the quantitative reconciliation provided below which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations. The Company 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, 2016  September 30, 2016  December 31, 2015
Net sales  $ 188,029    $ 187,308    $ 177,184  
Cost of sales   140,692     140,895     138,436  
Gross margin (U.S. GAAP)   47,337     46,413     38,748  
Gross margin as a % of net sales   25.2 %   24.8 %   21.9 %
Non-U.S. GAAP adjustments:            
Stock-based compensation expense   308     301     268  
Plant start-up costs   -     119     160  
Plant shut-down costs   -     -     231  
 Adjusted gross margin (non-U.S. GAAP)  $ 47,645    $ 46,833    $ 39,407  
Adjusted gross margin as a % of net sales   25.3 %   25.0 %   22.2 %
             

Adjusted Operating Income (Loss)

Adjusted operating income (loss) represents operating income (loss), excluding adjustments which are outlined in the quantitative reconciliation provided below. Management uses adjusted operating income (loss) to facilitate our analysis and understanding of our business operations by excluding the items outlined in the quantitative reconciliation provided earlier in this presentation which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations. The Company believes that adjusted operating income (loss) is useful to investors to provide a supplemental way to understand our underlying operating performance and allows investors to monitor and understand changes in our ability to generate income from ongoing business operations. 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, 2016  September 30, 2016  December 31, 2015
Operating income (loss) (U.S. GAAP)  $ 13,850    $ 3,050  $ 8,493
Adjustments:            
ERP integration/IT transition costs   1,734     1,783   167
Stock-based compensation expense   1,139     1,104   1,154
Restructuring charges   (369 )   3,998   1,714
Legal expenses related to antitrust class actions   293     766   1,300
NEC TOKIN investment-related expenses   204     194   225
Net (gain) loss on sales and disposals of assets   132     84   129
Write down of long-lived assets   -     6,193   -
Plant start-up costs   -     119   160
Plant shut-down costs   -     -   231
Adjusted operating income (loss) (non-GAAP)  $ 16,983    $ 17,291  $ 13,573
           

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. The Company 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 and allows investors to monitor and understand changes in our ability to generate income from ongoing business operations. Management uses these Non-U.S. GAAP financial measures to evaluate operating performance by excluding the items outlined in the quantitative reconciliation provided earlier in this presentation which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations. 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, 2016  September 30, 2016  December 31, 2015
U.S. GAAP  (Unaudited)
Net sales  $ 188,029    $ 187,308    $ 177,184  
Net income (loss)  $ 12,278    $ (4,998 )  $ (8,600 )
             
Net income (loss) per basic share   0.26     (0.11 )   (0.19 )
             
Net income (loss) per diluted share   0.22     (0.11 )   (0.19 )
 Non-U.S. GAAP            
  Net income (loss)  $ 12,278    $ (4,998 )  $ (8,600 )
  Adjustments:            
   Change in value of NEC TOKIN option   (6,900 )   (1,600 )   (700 )
   Net foreign exchange (gain) loss   (2,621 )   (724 )   (1,036 )
   ERP integration/IT transition costs   1,734     1,783     167  
   Stock-based compensation expense   1,139     1,104     1,154  
   Restructuring charges   (369 )   3,998     1,714  
   Legal expenses related to antitrust class actions   293     766     1,300  
   NEC TOKIN investment-related expenses   204     194     225  
   Amortization included in interest expense   183     188     212  
   Equity (income) loss from NEC TOKIN   133     (181 )   6,505  
   Net (gain) loss on sales and disposals of assets   132     84     129  
   Write down of long-lived assets   -     6,193     -  
   Plant start-up costs   -     119     160  
   Plant shut-down costs   -     -     231  
   Income tax effect of non-U.S. GAAP adjustments (1)   (396 )   29     710  
Adjusted net income (loss)  $ 5,810    $ 6,955    $ 2,171  
Adjusted net income (loss) per basic share  $ 0.13    $ 0.15    $ 0.05  
Adjusted net income (loss) per diluted share  $ 0.11    $ 0.13    $ 0.04  
Weighted average shares outstanding:            
Weighted Average Shares-Basic   46,606     46,590     46,081  
Weighted Average Shares-Diluted   55,296     53,834     51,865  
             
(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, 2016  September 30, 2016  December 31, 2015
Net income (loss) (U.S. GAAP)  $ 12,278    $ (4,998 )  $ (8,600 )
Interest expense, net   9,913     9,904     9,848  
Income tax expense (benefit)   1,810     830     2,760  
Depreciation and amortization   9,095     9,440     9,674  
 EBITDA (non-GAAP)   33,096     15,176     13,682  
Excluding the following items:            
Change in value of NEC TOKIN option   (6,900 )   (1,600 )   (700 )
Net foreign exchange (gain) loss   (2,621 )   (724 )   (1,036 )
Stock-based compensation expense   1,139     1,104     1,154  
ERP integration/IT transition costs   1,734     1,783     167  
Restructuring charges   (369 )   3,998     1,714  
Legal expenses related to antitrust class actions   293     766     1,300  
NEC TOKIN investment-related expenses   204     194     225  
Equity (income) loss from NEC TOKIN   133     (181 )   6,505  
Net (gain) loss on sales and disposals of assets   132     84     129  
Plant start-up costs   -     119     160  
Plant shut-down costs   -     -     231  
Write down of long-lived assets   -     6,193     -  
 Adjusted EBITDA (non-GAAP)  $ 26,841    $ 26,912    $ 23,531  
              

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