KEMET Reports Second Quarter Fiscal Year 2013 Results

GREENVILLE, S.C., Nov. 1, 2012 /PRNewswire/ -- KEMET Corporation (the "Company") (NYSE: KEM), a leading manufacturer of tantalum, ceramic, aluminum, film, paper and electrolytic capacitors, today reported preliminary results for the second fiscal quarter ended September 30, 2012. 

Net sales for the quarter ended September 30, 2012 were $216.0 million and on a U.S. GAAP basis, the net loss was $24.9 million, or $(0.55) loss per basic and diluted share for the second quarter of fiscal year 2013 compared to net income of $14.3 million or a $0.27 per diluted share for the same quarter last year. The net loss for the quarters ended September 30, 2012 and 2011 include various items affecting comparability as denoted in the U.S. GAAP to Non-U.S. GAAP reconciliation below.

Non-U.S. GAAP adjusted net loss was $6.2 million or $(0.14) loss per basic and diluted share for the second quarter of fiscal year 2013 compared to a $22.4 million Non-U.S. GAAP adjusted net income or $0.43 per diluted share for the same quarter last year.  Non-U.S. GAAP adjusted gross margin increased to 16.3% compared to 15.2% in the prior quarter.

"Revenue for this quarter came in about as we expected, more or less flat to slightly down from our first quarter, with a higher consolidated operating margin resulting in some improvement in our bottom line from a Non-GAAP basis over our first quarter as we forecasted.   As with other technology companies the global economic conditions, primarily in Europe, will continue to provide headwinds into the next quarter for us," said Per Loof, KEMET's Chief Executive Officer.  "We are focused on achieving improvement in our operating margins and bottom line even if revenues continue to decline in the near- term.  Actions we have already implemented, and continue to implement, over the next two months will substantially change our cost structure in our fourth fiscal quarter ending March 31 and into our next fiscal year beginning in April. Our efforts are focused on improving our bottom line and returning to profitability as we enter our next fiscal year even under these tough economic conditions," continued Loof.

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, 2013, 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) adverse economic conditions could cause the write down of long-lived assets or goodwill; (iii) an increase in the cost or a decrease in the availability of our principal raw materials; (iv) changes in the competitive environment; (v) uncertainty of the timing of customer product qualifications in heavily regulated industries; (vi) economic, political, or regulatory changes in the countries in which we operate; (vii) difficulties, delays or unexpected costs in completing the restructuring plan; (viii) equity method investments expose us to a variety of risks; (ix) acquisitions and other strategic transactions expose us to a variety of risks; (x)  the inability to attract, train and retain effective employees and management; (xi) the inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xii) exposure to claims alleging product defects; (xiii) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xiv) subject to international laws relating to trade, export controls and foreign corrupt practices; (xv) volatility of financial and credit markets affecting our access to capital; (xvi) the need to reduce the total costs of our products to remain competitive; (xvii) potential limitation on the use of net operating losses to offset possible future taxable income; (xviii) restrictions in our debt agreements that limit our flexibility in operating our business; and (xix) additional exercise of the warrant by K Equity, LLC 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 September 30,


Six Months Ended September 30, 










2012


2011


2012


2011

















Net sales


$ 215,991


$ 265,514


$ 439,623


$ 555,370

















Operating costs and expenses:












Cost of sales


183,053


203,319


374,374


413,823


Selling, general and administrative expenses


27,983


28,355


55,238


58,631


Research and development


6,833


7,362


14,566


14,448


Restructuring charges


8,522


1,605


9,786


2,630


Goodwill impairment


1,092


-


1,092


-


Write down of long-lived assets


4,234


-


4,234


-


Settlement gain on benefit plan


(1,675)


-


(1,675)


-


Net (gain) loss on sales and disposals of assets


(31)


(40)


73


83



Total operating costs and expenses


230,011


240,601


457,688


489,615




Operating income (loss)


(14,020)


24,913


(18,065)


65,755

















Other (income) expense:












Interest income


(26)


(31)


(57)


(74)


Interest expense


10,136


7,282


20,593


14,682


Other (income) expense, net


(996)


1,297


515


1,202



Income (loss) before income taxes


(23,134)


16,365


(39,116)


49,945

Income tax expense


1,787


2,047


3,558


3,778




Net income (loss)


$ (24,921)


$   14,318


$ (42,674)


$   46,167

















Net income (loss) per share:











   Basic


$     (0.55)


$       0.32


$     (0.95)


$       1.10

   Diluted


$     (0.55)


$       0.27


$     (0.95)


$       0.88

















Weighted-average shares outstanding:










   Basic


44,911


44,370


44,860


41,924

   Diluted


44,911


52,230


44,860


52,307


 

KEMET CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except per share data)

 
























September 30,

2012


March 31,

2012

ASSETS








 (Unaudited) 



Current assets:











Cash and cash equivalents


$         160,495


$        210,521


Accounts receivable, net


99,160


104,950


Inventories, net


224,773


212,234


Prepaid expenses and other


41,041


32,259


Deferred income taxes


5,658


6,370



Total current assets


531,127


566,334


Property and equipment, net of accumulated depreciation of $773,184






  and $761,522 as of September 30, 2012 and March 31, 2012, respectively


316,182


315,848


Goodwill


35,584


36,676


Intangible assets, net


40,102


41,527


Other assets


17,802


15,167

Total assets


$         940,797


$        975,552














LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:











Current portion of long-term debt


$             1,576


$            1,951


Accounts payable


82,156


74,404


Accrued expenses


88,623


89,079


Income taxes payable


622


2,256



Total current liabilities


172,977


167,690


Long-term debt, less current portion


359,621


345,380


Other non-current obligations


90,098


101,229


Deferred income taxes


4,788


2,257














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, 2012 and March 31, 2012


465


465


Additional paid-in capital


466,906


470,059


Retained deficit


(123,727)


(81,053)


Accumulated other comprehensive income


6,658


12,020


Treasury stock, at cost (1,600 and 1,839 shares at September 30, 2012 and 






   March 31, 2012, respectively)


(36,989)


(42,495)

Total stockholders' equity


313,313


358,996

Total liabilities and stockholders' equity


$         940,797


$        975,552














 

KEMET CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)








































Six Months Ended September 30,












2012


2011



Net income (loss)


$         (42,674)


$           46,167



Adjustments to reconcile net income (loss) to net cash








provided by (used in) operating activities:









Depreciation and amortization


23,177


$           23,011




Amortization of debt discount and debt issuance costs


1,924


2,056




Net (gain) loss on sales and disposals of assets


(31)


83




Stock-based compensation expense


2,506


2,175




Goodwill impairment


1,092


-




Write down of long-lived assets


4,234


-




Settlement gain on benefit plan


(1,675)


-




Change in deferred income taxes


838


379




Change in operating assets


(18,656)


18,438




Change in operating liabilities


2,520


(42,517)




Other


121


1,197





Net cash provided by (used in) operating activities


(26,624)


50,989
















Investing activities:











Capital expenditures


(30,343)


(20,105)



Acquisition, net of cash received


-


(11,584)





Net cash used in investing activities


(30,343)


(31,689)
















Financing activities:











Proceeds from issuance of debt


15,825


-



Deferred acquisition payments


(6,617)


-



Payments of long-term debt


(1,576)


(4,084)



Net borrowings (payments) under other credit facilities


-


(3,153)



Proceeds from exercise of stock options


42


159



Debt issuance costs


(275)


(29)



Change in restricted cash


-


(36,497)





Net cash provided by (used in) financing activities


7,399


(43,604)






Net decrease in cash and cash equivalents


(49,568)


(24,304)


Effect of foreign currency fluctuations on cash


(458)


(584)


Cash and cash equivalents at beginning of fiscal period


210,521


152,051


Cash and cash equivalents at end of fiscal period


$        160,495


$         127,163

 

Non-U.S. GAAP Financial Measures

In this news release, the Company makes reference to certain Non-U.S. GAAP financial measures, including "Adjusted net income (loss)", "Adjusted net income (loss) per share", "Adjusted EBITDA" and "Adjusted gross margin".  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 Net Income (Loss) and Adjusted Net Income (Loss) Per Share

"Adjusted net income (loss)" and "Adjusted net income (loss) per share" represent net income (loss) and net income (loss) per share excluding restructuring charges related primarily to equipment moves and employee severance,  write down of long-lived assets, ERP integration costs, plant start-up costs,  stock-based compensation expense, goodwill impairment, amortization related to debt issuance costs and debt discount/premium, acquisition related fees, settlement gain on benefit plan, net foreign exchange gain/loss, net gain/loss on sales and disposals of assets, registration related fees and income tax effect on Non-U.S. GAAP adjustments.  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):

U.S. GAAP to Non-U.S.GAAP Reconciliation







Quarters Ended



September 30, 2012


June 30, 2012


September 30, 2011



(Unaudited) (Amounts in thousands, except per share data)

U.S. GAAP







Net sales


$             215,991


$             223,632


$                  265,514








Net income (loss)


$              (24,921)


$              (17,753)


$                    14,318








Basic net income (loss) per share


$                  (0.55)


$                  (0.40)


$                        0.32

Diluted net income (loss) per share


$                  (0.55)


$                  (0.40)


$                        0.27








 Excluding the following items (Non-U.S. GAAP) 














Net income (loss)


$              (24,921)


$              (17,753)


$                    14,318

    Adjustments: 







        Restructuring charges  


8,522


1,264


1,605

        Write down of long-lived assets


4,234


-


-

        ERP integration costs


2,099


1,676


1,918

        Plant start-up costs  


1,930


1,361


718

        Stock-based compensation expense


1,242


1,264


984

        Goodwill impairment


1,092


-


-

        Amortization included in interest expense


954


971


1,012

        Acquisition related fees


866


542


-

        Settlement gain on benefit plan


(1,675)


-


-

        Net foreign exchange (gain) loss


(442)


1,789


1,391

        Net (gain) loss on sales and disposals of assets


(31)


104


(40)

        Registration related fees


-


20


77

        Income tax effect of non-U.S. GAAP adjustments (1) 


(90)


4


406

 Adjusted net income (loss)(excluding adjustments) 


$                (6,220)


$                (8,758)


$                    22,389








 Adjusted net income (loss) per share (excluding adjustments) 







                  Basic


$                  (0.14)


$                  (0.20)


$                        0.50

                  Diluted


$                  (0.14)


$                  (0.20)


$                        0.43








(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, and includes the income tax affect of law changes related to the utilization of net operating loss carryforwards.

Adjusted EBITDA

"Adjusted EBITDA" represents net income (loss) before net interest expense, income tax expense, and depreciation and amortization expense, adjusted to exclude: restructuring charges, write down of long-lived assets, ERP integration costs, plant start-up costs, stock-based compensation expense, goodwill impairment, acquisition related fees, settlement gain on benefit plan, net foreign exchange gain/loss, net loss on sales and disposals of assets, and registration related fees.  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 items excluded from "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.

"Adjusted EBITDA" measure has limitations as an analytical tool, and you should not consider it 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" only supplementally.

The following table provides a reconciliation from U.S. GAAP net income (loss) to Adjusted EBITDA (amounts in thousands): 










Quarters Ended



September 30,

2012


June 30,

2012


September 30,

2011

U.S. GAAP







Net income (loss)


$         (24,921)


$ (17,753)


$           14,318

Interest expense, net


10,110


10,426


7,251

Income tax expense


1,787


1,771


2,047

Depreciation and amortization


11,521


11,656


11,852

   EBITDA


(1,503)


6,100


35,468

Excluding the following items (Non-U.S. GAAP):






Restructuring charges


8,522


1,264


1,605

Write down of long-lived assets


4,234


-


-

ERP integration costs


2,099


1,676


1,918

Plant start-up costs


1,930


1,361


718

Stock-based compensation expense


1,242


1,264


984

Goodwill impairment


1,092


-


-

Acquisition related fees


866


542


-

Settlement gain on benefit plan


(1,675)


-


-

Net foreign exchange (gain) loss


(442)


1,789


1,391

Net (gain) loss on sales and disposals of assets


(31)


104


(40)

Registration related fees


-


20


77








Adjusted EBITDA


$           16,334


$  14,120


$           42,121








 

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 a reconciliation from U.S. GAAP gross margin to Adjusted gross margin (amounts in thousands): 

 



Quarters Ended



September 30,

2012


June 30,

2012


September 30,

2011

U.S. GAAP







Net sales


$         215,991


$223,632


$         265,514








Gross margin


$           32,938


$  32,311


$           62,195








Excluding the following items (Non-U.S. GAAP):







Plant start-up costs


1,930


1,361


718

Stock-based compensation expense


423


401


206

Adjusted gross margin


$           35,291


$  34,073


$           63,119

Adjusted gross margin as a percentage of net sales


16.3%


15.2%


23.8%

 

Contact:

Dean W. Dimke
Senior Director of Marketing 
Communications & Investor Relations
deandimke@kemet.com 
954-766-2800

William M. Lowe, Jr.              
Executive Vice President and Chief Financial Officer                       
williamlowe@kemet.com       
864-963-6484                         

 

SOURCE KEMET Corporation



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