Kemet Reports Preliminary Fiscal 2016 Third Quarter Results
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GREENVILLE, SC -- (Marketwired) -- 01/28/16 -- 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, March 31,
2015 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, September 30, December 31,
2015 2015 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, September 30, December 31,
2015 2015 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, September December 31,
2015 30, 2015 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, September 30, December 31,
2015 2015 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
============= ============= =============
Contact: William M. Lowe, Jr. Executive Vice President and Chief Financial Officer [email protected] 864-963-6484 Richard J. VatinelleVice President and Treasurer [email protected]
Source: KEMET Corporation
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