KEMET Reports Preliminary Fiscal 2015 First Quarter Results

GREENVILLE, S.C., July 24, 2014 /PRNewswire/ -- KEMET Corporation (the "Company") (NYSE: KEM), a leading global supplier of electronic components, today reported preliminary results for our first quarter ended June 30, 2014.  Results included in this earnings release have been adjusted to reflect discontinued operations as the Film and Electrolytic Business group completed the sale of its machinery division on April 30, 2014. 

Net sales of $212.9 million for the quarter ended June 30, 2014 increased 5.4% compared to net sales of $202.1 million for the quarter ended June 30, 2013.  The U.S. GAAP net loss from continuing operations was $10.5 million, or $0.23 loss per basic and diluted share for the quarter ended June 30, 2014, compared to a net loss from continuing operations of $33.6 million or $0.75 loss per basic and diluted share for the quarter ended June 30, 2013.

Non-U.S. GAAP Adjusted net loss improved to $1.9 million or $0.04 loss per basic and diluted share for the quarter ended June 30, 2014, compared to a non-U.S. GAAP Adjusted net loss of $15.5 million or $0.35 loss per basic and diluted share for the period ended June 30, 2013.

"We were pleased that the financial results for the quarter were consistent with our expectations.  Our operating margins continued to improve even though revenue, in line with our forecast, declined slightly from the prior quarter," stated Per Loof, KEMET's Chief Executive Officer.  "Margins remain our primary focus now that the majority of our restructuring efforts have concluded and we expect to see noteworthy improvement in our operating margins next quarter with continued improvement each quarter throughout this fiscal year driven by our prior cost reduction actions," continued Loof.

The net loss for the quarters ended June 30, 2014 and 2013 include various items affecting comparability as denoted in the U.S. GAAP to Non-U.S. GAAP reconciliation table included hereafter.

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 October 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 investment in NEC TOKIN expose us to a variety of risks; (x) acquisitions and other strategic transactions expose us to a variety of risks; (xi) inability to attract, train and retain effective employees and management; (xii) inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xiii) exposure to claims alleging product defects; (xiv) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xv) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xvi) volatility of financial and credit markets affecting our access to capital; (xvii) the need to reduce the total costs of our products to remain competitive; (xviii) potential limitation on the use of net operating losses to offset possible future taxable income; (xix) restrictions in our debt agreements that limit our flexibility in operating our business; and (xx) additional exercise of the warrant by K Equity which could potentially result in the existence of a significant stockholder who could seek to influence our corporate decisions.

 

KEMET CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Amounts in thousands, except per share data)

(Unaudited)



Quarters Ended June 30,


2014


2013

Net sales

$

212,881



$

202,057


Operating costs and expenses:






Cost of sales

179,924



183,513


Selling, general and administrative expenses

24,779



26,080


Research and development

6,589



6,066


Restructuring charges

1,830



4,610


Net loss on sales and disposals of assets

365




Total operating costs and expenses

213,487



220,269


Operating loss

(606)



(18,212)


Non-operating (income) expense:






Interest income

(3)



(164)


Interest expense

10,456



10,034


Other (income) expense, net

(3,533)



355


Loss from continuing operations before income taxes and equity loss from NEC TOKIN

(7,526)



(28,437)


Income tax expense

1,282



1,816


Loss from continuing operations before equity loss from NEC TOKIN

(8,808)



(30,253)


Equity loss from NEC TOKIN

(1,675)



(3,377)


Loss from continuing operations

(10,483)



(33,630)


Income (loss) from discontinued operations, net of income tax expense (benefit) of $918 and $(236), respectively

6,943



(1,510)


Net loss

$

(3,540)



$

(35,140)


Net income (loss) per basic share:






Loss from continuing operations

$

(0.23)



$

(0.75)


Income (loss) from discontinued operations

$

0.15



$

(0.03)


Net loss

$

(0.08)



$

(0.78)








Net income (loss) per diluted share:






Loss from continuing operations

$

(0.23)



$

(0.75)


Income (loss) from discontinued operations

$

0.15



$

(0.03)


Net loss

$

(0.08)



$

(0.78)








Weighted-average shares outstanding:






Basic

45,274



45,022


Diluted

45,274



45,022


 

 

KEMET CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except per share data)



June 30, 2014


March 31, 2014


(Unaudited)




ASSETS






Current assets:






Cash and cash equivalents

$

58,422



$

57,929


Accounts receivable, net

100,551



98,947


Inventories, net

189,405



187,974


Prepaid expenses and other

41,886



36,871


Deferred income taxes

6,664



6,695


Current assets of discontinued operations



12,160


Total current assets

396,928



400,576


Property, plant and equipment, net of accumulated depreciation of $810,224 and $805,687 as of June 30, 2014 and March 31, 2014, respectively

290,572



292,648


Goodwill

35,584



35,584


Intangible assets, net

36,567



37,184


Investment in NEC TOKIN

45,235



46,419


Restricted cash

13,210



13,512


Deferred income taxes

6,659



6,778


Other assets

13,888



10,130


Noncurrent assets of discontinued operations



836


Total assets

$

838,643



$

843,667


LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities:






Current portion of long-term debt

$

19,910



$

7,297


Accounts payable

83,623



74,818


Accrued expenses

70,372



76,468


Income taxes payable and deferred income taxes

612



980


Current liabilities of discontinued operations



7,269


Total current liabilities

174,517



166,832


Long-term debt, less current portion

383,927



391,292


Other non-current obligations

55,978



55,864


Deferred income taxes

5,970



5,203


Noncurrent liabilities of discontinued operations



2,592


Stockholders' equity:






Preferred stock, par value $0.10, authorized 10,000 shares, none issued




Common stock, par value $0.01, authorized 175,000 shares, issued 46,508 shares at June 30, 2014 and March 31, 2014

465



465


Additional paid-in capital

461,216



465,027


Retained deficit

(235,278)



(231,738)


Accumulated other comprehensive income

17,583



18,184


Treasury stock, at cost (1,140 and 1,301 shares at June 30, 2014 and March 31, 2014, respectively)

(25,735)



(30,054)


Total stockholders' equity

218,251



221,884


Total liabilities and stockholders' equity

$

838,643



$

843,667


 


KEMET CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)



Three Month Periods Ended June 30,


2014


2013

Net loss

$

(3,540)



$

(35,140)


Adjustments to reconcile net loss to net cash provided by (used in) operating activities:






Gain on sale of discontinued operations

(7,374)




Net cash provided by operating activities of discontinued operations

(905)



(2,845)


Depreciation and amortization

10,797



13,639


Equity loss from NEC TOKIN

1,675



3,377


Amortization of debt discount and debt issuance costs

665



1,014


Stock-based compensation expense

994



969


Long-term receivable write down

59



1,444


Change in value of NEC TOKIN options

(4,100)




Net (gain) loss on sales and disposals of assets

365




Pension and other post-retirement benefits

8



(42)


Change in deferred income taxes

156



(241)


Change in operating assets

(6,887)



(12,108)


Change in operating liabilities

(1,160)



2,613


Other

(1,085)



(311)


Net cash used in operating activities

(10,332)



(27,631)


Investing activities:






Capital expenditures

(5,182)



(15,481)


Proceeds from sale of assets

632




Change in restricted cash

303



1,591


Proceeds from sale of discontinued operations

10,125




Net cash provided by (used in) investing activities

5,878



(13,890)


Financing activities:






Proceeds from revolving line of credit

7,500




Deferred acquisition payments

(296)



(1,204)


Payments of long-term debt

(2,205)



(306)


Proceeds from exercise of stock options

11



19


Net cash provided by (used in) financing activities

5,010



(1,491)


Net increase (decrease) in cash and cash equivalents

556



(43,012)


Effect of foreign currency fluctuations on cash

(63)



189


Cash and cash equivalents at beginning of fiscal period

57,929



95,978


Cash and cash equivalents at end of fiscal period

$

58,422



$

53,155


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


June 30, 2014


March 31, 2014


June 30, 2013


(Unaudited)

Net sales

$

212,881



$

215,821



$

202,057


Gross margin

32,957



33,619



18,544


Non-U.S. GAAP-adjustments:









Plant start-up costs

1,647



669



1,132


Stock-based compensation expense

346



186



315


Plant shut-down costs

889



2,668




Infrastructure tax



1,079




Inventory revaluation

2,676






Inventory write down





3,886


Adjusted gross margin

$

38,515



$

38,221



$

23,877



18.1

%


17.7

%


11.8

%

 

Adjusted Operating Income

Adjusted operating income (loss) represents operating income, excluding adjustments which are outlined in the quantitative reconciliation provided above. We use Adjusted operating income (loss) to facilitate our analysis and understanding of our business operations and believe that Adjusted operating income (loss) is useful to investors because it provides a supplemental way to understand our underlying operating performance. Adjusted operating loss should not be considered as an alternative to operating income 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


June 30, 2014


March 31, 2014


June 30, 2013


(Unaudited)

Operating loss

$

(606)



$

(5,207)



$

(18,212)


Adjustments:









Restructuring charges

1,830



5,954



4,610


Write down long-lived assets



1,118




Stock-based compensation expense

994



579



969


ERP integration costs

895



837



978


Plant start-up costs

1,647



669



1,132


Plant shut-down costs

889



2,668




NEC TOKIN investment-related expenses

580



618



1,308


Infrastructure tax



1,079




Inventory write down





3,886


Net (gain) loss on sales and disposals of assets

365



(39)




Inventory revaluation

2,676






Adjusted operating income (loss)

$

9,270



$

8,276



$

(5,329)


 

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


June 30, 2014


March 31, 2014


June 30, 2013


(Unaudited)

U.S. GAAP









Net sales

$

212,881



$

215,821



$

202,057


Net loss from continuing operations

(10,483)



(14,550)



(33,630)


Income (loss) from discontinued operations

6,943



103



(1,510)


Net loss

$

(3,540)



$

(14,447)



$

(35,140)


Net loss from continuing operations - basic and diluted

$

(0.23)



$

(0.32)



$

(0.75)


Income (loss) from discontinued operations - basic and diluted

$

0.15



$



$

(0.03)


Net loss - basic and diluted

$

(0.08)



$

(0.32)



$

(0.78)


Non-U.S. GAAP









Net loss

(3,540)



(14,447)



(35,140)


Adjustments:









Restructuring charges

1,830



5,954



4,610


Equity loss from NEC TOKIN

1,675



4,127



3,377


Inventory revaluation

2,676






Net (gain) loss on sales and disposals of assets

365



(39)




Write down long-lived assets



1,118




Stock-based compensation expense

994



579



969


ERP integration costs

895



837



978


Change in value of NEC TOKIN options

(4,100)



(1,777)




Plant start-up costs

1,647



669



1,132


Plant shut-down costs

889



2,668




Net foreign exchange (gain) loss

527



(449)



(577)


NEC TOKIN investment-related expenses

580



618



1,308


Infrastructure tax



1,079




Inventory write down





3,886


Long-term receivable write down





1,444


(Income) loss from discontinued operations

(6,943)



(103)



1,510


Amortization included in interest expense

665



779



1,013


Income tax effect of non-GAAP adjustments

(24)



100



(56)


Adjusted net income (loss)

$

(1,864)



$

1,713



$

(15,546)


Adjusted net income (loss) per basic share

$

(0.04)



$

0.04



$

(0.35)


Adjusted net income (loss) per diluted share

$

(0.04)



$

0.03



$

(0.35)


Weighted average shares outstanding:









Basic

45,274



45,174



45,022


Diluted

45,274



52,524



45,022











(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 to Adjusted EBITDA from continuing operations (amounts in thousands):

 


For the Quarters Ended

(Amounts in thousands)

June 30, 2014


March 31, 2014


June 30, 2013

U.S. GAAP









Net loss

$

(3,540)



$

(14,447)



$

(35,140)


Interest expense, net

10,453



10,658



9,870


Income tax expense (benefit)

1,282



(2,811)



1,816


Depreciation and amortization

10,797



12,175



13,639


EBITDA

18,992



5,575



(9,815)


Excluding the following items (non-GAAP):









Restructuring charges

1,830



5,954



4,610


Equity loss from NEC TOKIN

1,675



4,127



3,377


Inventory revaluation

2,676






Net (gain) loss on sales and disposals of assets

365



(39)




Goodwill impairment






Write down long-lived assets



1,118




Stock-based compensation expense

994



579



969


ERP integration costs

895



837



978


Change in value of NEC TOKIN options

(4,100)



(1,777)




Plant start-up costs

1,647



669



1,132


Plant shut-down costs

889



2,668




Net foreign exchange (gain) loss

527



(449)



(577)


NEC TOKIN investment-related expenses

580



618



1,308


Infrastructure tax



1,079




Inventory write down





3,886


Long-term receivable write down





1,444


(Income) loss from discontinued operations

(6,943)



(103)



1,510


Adjusted EBITDA

$

20,027



$

20,856



$

8,822











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
954-766-2800

SOURCE KEMET Corporation



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