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Form 8-K KEMET CORP For: Jul 28

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July 28, 2015 8:18 AM EDT


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 8-K
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (date of earliest event reported): July 28, 2015
 
KEMET Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-15491
 
57-0923789
(State of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
2835 KEMET Way, Simpsonville, SC
 
29681
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code:  (864) 963-6300
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02 Results of Operations and Financial Condition
 
On July 28, 2015, KEMET Corporation (the “Company”) issued a News Release announcing the preliminary consolidated results for the first fiscal quarter ended June 30, 2015.
 
A copy of this News Release is furnished as Exhibit 99.1 to this Form 8-K.
 
Item 7.01 Regulation FD Disclosure
 
On July 28, 2015, the Company will host a conference call to discuss financial results for its first fiscal quarter ended June 30, 2015.  The slide package prepared for use by executive management for this presentation is attached hereto as Exhibit 99.2.  All of the information in the presentation is presented as of July 28, 2015, and the Company does not assume any obligation to update such information in the future.
 
The information included in this Form 8-K, as well as the exhibits referenced herein, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.
 
Item 9.01 Financial Statements and Exhibits
 
(a)                              Not Applicable
 
(b)                              Not Applicable
 
(c)                               Not Applicable
 
(d)                              Exhibits
 
Exhibit No.
 
Description of Exhibit
 
 
 
99.1

 
News Release, dated July 28, 2015 issued by the Company.
 
 
 
99.2

 
Slide Package prepared for use in connection with the Company’s first fiscal quarter earnings conference call to be held on July 28, 2015.





Signatures
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
Date: July 28, 2015
KEMET Corporation
 
 
 
 
By:
/s/ WILLIAM M. LOWE, JR.
 
William M. Lowe, Jr.
 
Executive Vice President and
 
Chief Financial Officer



        

Exhibit 99.1
 
News Release
 
 
FOR IMMEDIATE RELEASE
 
Contact:
William M. Lowe, Jr.
Richard J. Vatinelle
 
Executive Vice President and
Vice President and
 
Chief Financial Officer
Treasurer
 
 
864-963-6484
954-766-2838
 
KEMET REPORTS PRELIMINARY FISCAL 2016 FIRST QUARTER RESULTS
 
 
Greenville, South Carolina (July 28, 2015) - KEMET Corporation (the “Company”) (NYSE: KEM), a leading global supplier of electronic components, today reported preliminary results for our first quarter fiscal year 2016 ended June 30, 2015.
 
Net sales of $187.6 million for the quarter ended June 30, 2015 decreased 3.2% from net sales of $193.7 million for the prior quarter ended March 31, 2015 and decreased 11.9% compared to net sales of $212.9 million for the quarter ended June 30, 2014.

The U.S. GAAP net loss was $37.1 million or $0.81 per basic and diluted share for the quarter ended June 30, 2015, which includes a non-cash charge of $29.2 million or $0.64 per basic and diluted share corresponding to the change in value of the NEC TOKIN option. This compares to a net loss of $19.8 million or $0.44 per basic and diluted share for the quarter ended March 31, 2015, which included a non-cash charge of $11.1 million or $0.24 per basic and diluted share related to the change in value of the NEC TOKIN option. For the quarter ended June 30, 2014, the Company reported a net loss of $3.5 million or $0.08 per basic and diluted share which, for comparison purposes, included a non-cash gain of $4.1 million or $0.09 per basic and diluted share related to the change in value of the NEC TOKIN option.

Non-U.S. GAAP adjusted net income of $0.7 million or $0.01 per basic and diluted share for the quarter ended June 30, 2015, improved by $2.3 million compared to a non-U.S. GAAP adjusted net loss of $1.6 million or $0.04 per basic and diluted share in the quarter ended March 31, 2015. For the quarter ended June 30, 2014, the Company reported a non-U.S. GAAP adjusted net loss of $1.9 million or $0.04 per basic and diluted share.
 
“We entered this fiscal year focused on reaping the benefits of our efforts to lower our cost base and generate higher operating margins,” stated Per Loof, KEMET’s Chief Executive Officer. “Despite the ongoing currency headwinds and inventory corrections in the distribution channel we are seeing significant improvement in our Film and Electrolytic segment and sustained quality margins in the Solid Capacity Group. We believe we are well positioned to see an improved year-over-year comparison of our bottom line financial results. NEC TOKIN continues to perform well and it should be noted that if we were to include our share of their net income into our Non-GAAP results as we do our GAAP results the Non-GAAP earnings per share would increase to $0.05 cents per basic share and $0.04 cents per diluted share this quarter,” continued Loof.

The net loss for the quarters ended June 30, 2015 and 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 October 1, 2015, 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

2


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.

3


KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)

 
Quarters Ended June 30,
 
2015
 
2014
Net sales
$
187,590

 
$
212,881

Operating costs and expenses:
 

 
 

Cost of sales
147,877

 
179,924

Selling, general and administrative expenses
30,430

 
24,779

Research and development
6,274

 
6,589

Restructuring charges
1,824

 
1,830

Net (gain) loss on sales and disposals of assets
(58
)
 
365

Total operating costs and expenses
186,347

 
213,487

Operating income (loss)
1,243

 
(606
)
Non-operating (income) expense:
 

 
 

Interest income
(3
)
 
(3
)
Interest expense
10,013

 
10,456

Other (income) expense, net
30,116

 
(3,533
)
Income (loss) from continuing operations before income taxes and equity income (loss) from NEC TOKIN
(38,883
)
 
(7,526
)
Income tax expense (benefit)
(248
)
 
1,282

Income (loss) from continuing operations before equity income (loss) from NEC TOKIN
(38,635
)
 
(8,808
)
Equity income (loss) from NEC TOKIN
1,585

 
(1,675
)
Income (loss) from continuing operations
(37,050
)
 
(10,483
)
Income (loss) from discontinued operations, net of income tax expense (benefit) of $0 and $918, respectively
—

 
6,943

Net income (loss)
$
(37,050
)
 
$
(3,540
)
Net income (loss) per basic and diluted share:
 

 
 

Net income (loss) from continuing operations
$
(0.81
)
 
$
(0.23
)
Net income (loss) from discontinued operations
$
—

 
$
0.15

Net income (loss)
$
(0.81
)
 
$
(0.08
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 

 
 

Basic
45,552

 
45,274

Diluted
45,552

 
45,274



4


KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
 
 
June 30, 2015
 
March 31, 2015
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
31,059

 
$
56,362

Accounts receivable, net
96,068

 
90,857

Inventories, net
183,484

 
171,843

Prepaid expenses and other
45,957

 
41,503

Deferred income taxes
9,382

 
10,762

Total current assets
365,950

 
371,327

Property, plant and equipment, net of accumulated depreciation of $813,954 and $804,286 as of June 30, 2015 and March 31, 2015, respectively
250,681

 
249,641

Goodwill
40,294

 
35,584

Intangible assets, net
34,859

 
33,282

Investment in NEC TOKIN
45,668

 
45,016

Restricted cash
1,846

 
1,775

Deferred income taxes
5,489

 
5,111

Other assets
5,008

 
11,056

Total assets
$
749,795

 
$
752,792

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Current portion of long-term debt
$
6,000

 
$
962

Accounts payable
76,805

 
69,785

Accrued expenses
56,531

 
60,456

Income taxes payable and deferred income taxes
21

 
1,017

Total current liabilities
139,357

 
132,220

Long-term debt, less current portion
390,261

 
390,409

Other non-current obligations
82,290

 
57,131

Deferred income taxes
7,362

 
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 June 30, 2015 and March 31, 2015
465

 
465

Additional paid-in capital
453,143

 
461,191

Retained deficit
(282,931
)
 
(245,881
)
Accumulated other comprehensive income
(26,683
)
 
(28,796
)
Treasury stock, at cost (785 and 1,057 shares at June 30, 2015 and March 31, 2015, respectively)
(13,469
)
 
(22,297
)
Total stockholders’ equity
130,525

 
164,682

Total liabilities and stockholders’ equity
$
749,795

 
$
752,792



5


KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
 
Quarters Ended June 30,
 
2015
 
2014
Net income (loss)
$
(37,050
)
 
$
(3,540
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 

 
 

Gain on sale of discontinued operations
—

 
(7,374
)
Net cash provided by (used in) operating activities of discontinued operations
—

 
(905
)
Depreciation and amortization
9,917

 
10,797

Equity (income) loss from NEC TOKIN
(1,585
)
 
1,675

Amortization of debt and financing costs
220

 
665

Stock-based compensation expense
1,279

 
994

Long-term receivable write down
—

 
59

Change in value of NEC TOKIN options
29,200

 
(4,100
)
Net (gain) loss on sales and disposals of assets
(58
)
 
365

Pension and other post-retirement benefits
127

 
8

Change in deferred income taxes
(934
)
 
156

Change in operating assets
(20,201
)
 
(6,887
)
Change in operating liabilities
(2,673
)
 
(2,974
)
Other
234

 
(1,084
)
Net cash provided by (used in) operating activities
(21,524
)
 
(12,145
)
Investing activities:
 

 
 

Capital expenditures
(5,773
)
 
(5,182
)
Acquisitions, net of cash received
(2,892
)
 
—

Proceeds from sale of assets
—

 
2,446

Change in restricted cash
—

 
302

Proceeds from sale of discontinued operations
—

 
10,125

Net cash provided by (used in) investing activities
(8,665
)
 
7,691

Financing activities:
 

 
 

Proceeds from revolving line of credit
8,000

 
7,500

Payments on revolving line of credit
(2,500
)
 
—

Deferred acquisition payments
—

 
(296
)
Payments on long-term debt
(481
)
 
(2,205
)
Purchase of treasury stock
(544
)
 
—

Proceeds from exercise of stock options
—

 
11

Net cash provided by (used in) financing activities
4,475

 
5,010

Net increase (decrease) in cash and cash equivalents
(25,714
)
 
556

Effect of foreign currency fluctuations on cash
411

 
(63
)
Cash and cash equivalents at beginning of fiscal period
56,362

 
57,929

Cash and cash equivalents at end of fiscal period
$
31,059

 
$
58,422


6


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 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.
 
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)
 
June 30, 2015
 
March 31, 2015
 
June 30, 2014
Net sales
$
187,590

 
$
193,708

 
$
212,881

Cost of sales
147,877

 
157,379

 
179,924

Gross margin
39,713

 
36,329

 
32,957

Gross margin as a % of net sales
21.2
%
 
18.8
%
 
15.5
%
Non-U.S. GAAP adjustments:
 
 
 
 
 
Plant start-up costs
195

 
651

 
1,647

Stock-based compensation expense
413

 
465

 
346

Plant shut-down costs
—

 
—

 
889

Inventory revaluation
—

 
(927
)
 
2,676

Adjusted gross margin
$
40,321

 
$
36,518

 
$
38,515

Adjusted gross margin as a % of net sales
21.5
%
 
18.9
%
 
18.1
%
 
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.


7


Adjusted operating income (loss) is calculated as follows (amounts in thousands):
 
Quarters Ended
 
(Unaudited)
 
June 30, 2015
 
March 31, 2015
 
June 30, 2014
Operating income (loss)
$
1,243

 
$
912

 
$
(606
)
Adjustments:
 

 
 

 
 

Restructuring charges
1,824

 
3,437

 
1,830

Inventory revaluation
—

 
(927
)
 
2,676

Net (gain) loss on sales and disposals of assets
(58
)
 
538

 
365

Stock-based compensation expense
1,279

 
1,328

 
994

ERP integration/IT transition costs
4,369

 
1,273

 
895

Legal expenses related to antitrust class actions
718

 
435

 
—

Plant start-up costs
195

 
651

 
1,647

Plant shut-down costs
—

 
—

 
889

Pension plan adjustment
312

 
—

 
—

NEC TOKIN investment-related expenses
224

 
226

 
580

Adjusted operating income (loss)
$
10,106

 
$
7,873

 
$
9,270

 
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.

8


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
 
June 30, 2015
 
March 31, 2015
 
June 30, 2014
 
(Unaudited)
U.S. GAAP
 

 
 

 
 

Net sales
$
187,590

 
$
193,708

 
$
212,881

Net income (loss) from continuing operations
(37,050
)
 
(19,847
)
 
(10,483
)
Income (loss) from discontinued operations
—

 
—

 
6,943

Net income (loss)
$
(37,050
)
 
$
(19,847
)
 
$
(3,540
)
Earnings per basic and diluted share:
 
 
 
 
 
Net income (loss) from continuing operations
(0.81
)
 
(0.44
)
 
(0.23
)
Income (loss) from discontinued operations
—

 
—

 
0.15

Net income (loss)
(0.81
)
 
(0.44
)
 
(0.08
)
Non-U.S. GAAP
 

 
 

 
 

Net income (loss)
$
(37,050
)
 
$
(19,847
)
 
$
(3,540
)
Adjustments:
 
 
 
 
 
Restructuring charges
1,824

 
3,437

 
1,830

Equity (income) loss from NEC TOKIN
(1,585
)
 
2,094

 
1,675

Inventory revaluation
—

 
(927
)
 
2,676

Net (gain) loss on sales and disposals of assets
(58
)
 
538

 
365

Stock-based compensation expense
1,279

 
1,328

 
994

Legal expenses related to antitrust class actions
718

 
435

 
—

ERP integration/IT transition costs
4,369

 
1,273

 
895

Change in value of NEC TOKIN options
29,200

 
11,100

 
(4,100
)
Plant start-up costs
195

 
651

 
1,647

Plant shut-down costs
—

 
—

 
889

Net foreign exchange (gain) loss
1,049

 
(2,168
)
 
527

NEC TOKIN investment-related expenses
224

 
226

 
580

(Income) loss from discontinued operations
—

 
—

 
(6,943
)
Amortization included in interest expense
220

 
244

 
665

Pension plan adjustment
312

 
—

 
—

Income tax effect of non-GAAP adjustments (1)
(37
)
 
19

 
(24
)
Adjusted net income (loss)
$
660

 
$
(1,597
)
 
$
(1,864
)
Adjusted net income (loss) per basic share
$
0.01

 
$
(0.04
)
 
$
(0.04
)
Adjusted net income (loss) per diluted share
$
0.01

 
$
(0.04
)
 
$
(0.04
)
Weighted average shares outstanding:
 
 
 
 
 
Basic
45,552

 
45,443

 
45,274

Diluted
52,276

 
45,443

 
45,274

 
(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.

9


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.







10


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

 
For the Quarters Ended
(Amounts in thousands)
June 30, 2015
 
March 31, 2015
 
June 30, 2014
Net income (loss)
$
(37,050
)
 
$
(19,847
)
 
$
(3,540
)
Interest expense, net
10,010

 
10,016

 
10,453

Income tax expense (benefit)
(248
)
 
3

 
1,282

Depreciation and amortization
9,917

 
10,074

 
10,797

EBITDA
(17,371
)
 
246

 
18,992

Excluding the following items:
 
 
 
 
 
Restructuring charges
1,824

 
3,437

 
1,830

Legal expenses related to antitrust class actions
718

 
435

 
—

Equity (income) loss from NEC TOKIN
(1,585
)
 
2,094

 
1,675

Inventory revaluation
—

 
(927
)
 
2,676

Net (gain) loss on sales and disposals of assets
(58
)
 
538

 
365

Stock-based compensation expense
1,279

 
1,328

 
994

ERP integration/IT transition costs
4,369

 
1,273

 
895

Change in value of NEC TOKIN options
29,200

 
11,100

 
(4,100
)
Plant start-up costs
195

 
651

 
1,647

Plant shut-down costs
—

 
—

 
889

Net foreign exchange (gain) loss
1,049

 
(2,168
)
 
527

NEC TOKIN investment-related expenses
224

 
226

 
580

Pension plan adjustment
312

 
—

 
—

(Income) loss from discontinued operations
—

 
—

 
(6,943
)
Adjusted EBITDA
$
20,156

 
$
18,233

 
$
20,027

 
 
 
 
 
 

11
Earnings Conference Call July 28, 2015 Quarter Ended June 30, 2015

 
Cautionary Statement Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about KEMET Corporation's (the "Company") 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. 2

 
Income Statement Highlights U.S. GAAP 3 For the Quarters Ended (Amounts in thousands, except percentages and per share data) Jun 2015 Mar 2015 Jun 2014 Net sales $ 187,590 $ 193,708 $ 212,881 Gross margin $ 39,713 $ 36,329 $ 32,957 Gross margin as a percentage of net sales 21.2 % 18.8 % 15.5 % Selling, general and administrative $ 30,430 $ 24,870 $ 24,779 SG&A as a percentage of net sales 16.2 % 12.8 % 11.6 % Operating income (loss) $ 1,243 $ 912 $ (606 ) Net income (loss) from continuing operations $ (37,050 ) $ (19,847 ) $ (10,483 ) Net income (loss) from discontinued operations — — 6,943 Net income (loss) $ (37,050 ) $ (19,847 ) $ (3,540 ) Per basic and diluted share data: Net income (loss) from continuing operations $ (0.81 ) $ (0.44 ) $ (0.23 ) Net income (loss) from discontinued operations — — 0.15 Net income (loss) (0.81 ) (0.44 ) (0.08 ) Weighted avg. shares - basic 45,552 45,443 45,274 Weighted avg. shares - diluted 45,552 45,443 45,274

 
Income Statement Highlights Non-GAAP 4 For the Quarters Ended (Amounts in thousands, except percentages and per share data) Jun 2015 Mar 2015 Jun 2014 Net sales $ 187,590 $ 193,708 $ 212,881 Adjusted gross margin $ 40,321 $ 36,518 $ 38,515 Adjusted gross margin as a percentage of net sales 21.5 % 18.9 % 18.1 % Adjusted selling, general and administrative $ 23,964 $ 22,098 $ 22,722 Adjusted SG&A as a percentage of net sales 12.8 % 11.4 % 10.7 % Adjusted operating income (loss) $ 10,106 $ 7,873 $ 9,270 Adjusted net income (loss) from continuing operations $ 660 $ (1,597 ) $ (1,864 ) Adjusted EBITDA $ 20,156 $ 18,233 $ 20,027 Per share data: Adjusted net income (loss) - basic $ 0.01 $ (0.04 ) $ (0.04 ) Adjusted net income (loss) - diluted $ 0.01 $ (0.04 ) $ (0.04 ) Weighted avg. shares - basic 45,552 45,443 45,274 Weighted avg. shares - diluted 52,276 45,443 45,274

 
Adjusted Gross Margin & Operating Income (Loss) - Non-GAAP Solid Capacitors 5 For the Quarters Ended (Amounts in thousands) Jun 2015 Mar 2015 Jun 2014 Net sales $ 139,677 $ 145,680 $ 159,790 Adjusted gross margin 36,273 37,570 37,178 Adjusted gross margin as a percentage of net sales 26.0 % 25.8 % 23.3 % Adjusted operating income (loss) $ 30,842 $ 32,010 $ 32,227

 
Adjusted Gross Margin & Operating Income (Loss) - Non-GAAP Film & Electrolytics 6 For the Quarters Ended (Amounts in thousands) Jun 2015 Mar 2015 Jun 2014 Net sales $ 47,913 $ 48,026 $ 53,091 Adjusted gross margin 4,047 (1,052 ) 1,338 Adjusted gross margin as a percentage of net sales 8.4 % (2.2 )% 2.5 % Adjusted operating income (loss) $ 1,968 $ (3,161 ) $ (923 )

 
Financial Highlights (1) Calculated as accounts receivable, net, plus inventories, net, less accounts payable. (2) Calculated by annualizing the current quarter’s Net sales divided by current quarter's accounts receivable. (3) Calculated by annualizing the current quarter's Cost of sales divided by current quarter's accounts payable. 7 (Amounts in millions, except DSO and DPO) Jun 2015 Mar 2015 FX Impact Cash, cash equivalents $ 31.1 $ 56.4 $ 0.4 Capital expenditures $ 5.8 $ 4.8 Short-term debt $ 6.0 $ 1.0 Long-term debt 388.0 387.9 Debt premium 2.3 2.5 Total debt $ 396.3 $ 391.4 $ — Equity $ 130.5 $ 164.7 $ 5.9 Net working capital (1) $ 202.7 $ 192.9 $ 2.1 Days in receivables (DSO)(2) 47 43 Days in payables (DPO)(3) 47 40

 
Sales Summary - Q1 FY2016 8

 
Appendix

 
Adjusted Gross Margin Non-GAAP 10 For the Quarters Ended (Amounts in thousands, except percentages) Jun 2015 Mar 2015 Jun 2014 Net Sales $ 187,590 $ 193,708 $ 212,881 Gross Margin $ 39,713 $ 36,329 $ 32,957 Gross margin as a percentage of net sales 21.2 % 18.8 % 15.5 % Adjustments: Plant start-up costs 195 651 1,647 Stock-based compensation expense 413 465 346 Plant shut-down costs — — 889 Inventory revaluation — (927 ) 2,676 Adjusted Gross margin $ 40,321 $ 36,518 $ 38,515 Adjusted gross margin as a percentage of net sales 21.5 % 18.9 % 18.1 %

 
Adjusted Selling, General & Administrative Expenses Non-GAAP 11 For the Quarters Ended (Amounts in thousands, except percentages) Jun 2015 Mar 2015 Jun 2014 Net sales $ 187,590 $ 193,708 $ 212,881 Selling, general and administrative expenses $ 30,430 $ 24,870 $ 24,779 Selling, general, and administrative as a percentage of net sales 16.2 % 12.8 % 11.6 % Less adjustments: ERP integration/IT transition costs 4,369 1,273 895 Legal expenses related to antitrust class actions 718 435 — NEC TOKIN investment-related expenses 224 226 580 Stock-based compensation expense 843 838 582 Pension plan adjustment 312 — — Adjusted selling, general and administrative expenses $ 23,964 $ 22,098 $ 22,722 Adjusted selling, general, and administrative as a percentage of net sales 12.8 % 11.4 % 10.7 %

 
Adjusted Operating Income (Loss) Non-GAAP 12 For the Quarters Ended (Amounts in thousands) Jun 2015 Mar 2015 Jun 2014 Operating income (loss) $ 1,243 $ 912 $ (606 ) Adjustments: Restructuring charges 1,824 3,437 1,830 Stock-based compensation expense 1,279 1,328 994 ERP integration/IT transition costs 4,369 1,273 895 Legal expenses related to antitrust class actions 718 435 — Plant start-up costs 195 651 1,647 Plant shut-down costs — — 889 NEC TOKIN investment-related expenses 224 226 580 Pension plan adjustment 312 — — Net (gain) loss on sales and disposals of assets (58 ) 538 365 Inventory revaluation — (927 ) 2,676 Adjusted operating income (loss) $ 10,106 $ 7,873 $ 9,270

 
Adjusted Net Income (Loss) From Continuing Operations Non-GAAP For the Quarters Ended (Amounts in thousands) Jun 2015 Mar 2015 Jun 2014 Net income (loss) $ (37,050 ) $ (19,847 ) $ (3,540 ) Adjustments: Restructuring charges 1,824 3,437 1,830 Equity (income) loss from NEC TOKIN (1,585 ) 2,094 1,675 Inventory revaluation — (927 ) 2,676 Net (gain) loss on sales and disposals of assets (58 ) 538 365 Stock-based compensation expense 1,279 1,328 994 Legal expenses related to antitrust class actions 718 435 — ERP integration/IT transition costs 4,369 1,273 895 Change in value of NEC TOKIN options 29,200 11,100 (4,100 ) Plant start-up costs 195 651 1,647 Plant shut-down costs — — 889 Net foreign exchange (gain) loss 1,049 (2,168 ) 527 NEC TOKIN investment-related expenses 224 226 580 (Income) loss from discontinued operations — — (6,943 ) Pension plan adjustment 312 — — Amortization included in interest expense 220 244 665 Income tax effect of non-GAAP adjustments (1) (37 ) 19 (24 ) Adjusted net income (loss) $ 660 $ (1,597 ) $ (1,864 ) Adjusted net income (loss) per share - basic $ 0.01 $ (0.04 ) $ (0.04 ) Adjusted net income (loss) per share - diluted $ 0.01 $ (0.04 ) $ (0.04 ) Weighted avg. shares - basic 45,552 45,443 45,274 Weighted avg. shares - diluted 52,276 45,443 45,274 13 (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 Reconciliation Non-GAAP 14 For the Quarters Ended (Amounts in thousands) Jun 2015 Mar 2015 Jun 2014 Net income (loss) $ (37,050 ) $ (19,847 ) $ (3,540 ) Interest expense, net 10,010 10,016 10,453 Income tax expense (benefit) (248 ) 3 1,282 Depreciation and amortization 9,917 10,074 10,797 EBITDA (17,371 ) 246 18,992 Excluding the following items: Restructuring charges 1,824 3,437 1,830 Legal expenses related to antitrust class actions 718 435 — Equity (income) loss from NEC TOKIN (1,585 ) 2,094 1,675 Inventory revaluation — (927 ) 2,676 Net (gain) loss on sales and disposals of assets (58 ) 538 365 Stock-based compensation expense 1,279 1,328 994 ERP integration/IT transition costs 4,369 1,273 895 Change in value of NEC TOKIN options 29,200 11,100 (4,100 ) Plant start-up costs 195 651 1,647 Plant shut-down costs — — 889 Net foreign exchange (gain) loss 1,049 (2,168 ) 527 NEC TOKIN investment-related expenses 224 226 580 Pension plan adjustment 312 — — (Income) loss from discontinued operations — — (6,943 ) Adjusted EBITDA $ 20,156 $ 18,233 $ 20,027

 
Adjusted Gross Margin-Non-GAAP Solid Capacitors 15 For the Quarters Ended (Amounts in thousands) Jun 2015 Mar 2015 Jun 2014 Net sales $ 139,677 $ 145,680 $ 159,790 Gross margin 35,877 37,201 36,020 Gross margin as a percentage of net sales 25.7 % 25.5 % 22.5 % Adjustments: Inventory revaluation — (238 ) 715 Stock-based compensation expense 359 292 166 Plant start-up costs 37 315 277 Adjusted gross margin $ 36,273 $ 37,570 $ 37,178 Adjusted gross margin as a percentage of net sales 26.0 % 25.8 % 23.3 %

 
Adjusted Gross Margin-Non-GAAP Film & Electrolytics 16 For the Quarters Ended (Amounts in thousands) Jun 2015 Mar 2015 Jun 2014 Net sales $ 47,913 $ 48,026 $ 53,091 Gross margin 3,836 (872 ) (3,034 ) Gross margin as a percentage of net sales 8.0 % (1.8 )% (5.7 )% Adjustments: Inventory revaluation — (689 ) 1,961 Stock-based compensation expense 54 173 152 Plant start-up costs 157 336 1,370 Plant shut-down costs — — 889 Adjusted gross margin $ 4,047 $ (1,052 ) $ 1,338 Adjusted gross margin as a percentage of net sales 8.4 % (2.2 )% 2.5 %

 
Adjusted Operating Income (Loss)-Non-GAAP Solid Capacitors 17 For the Quarters Ended (Amounts in thousands) Jun 2015 Mar 2015 Jun 2014 Net sales $ 139,677 $ 145,680 $ 159,790 Operating income (loss) 30,033 29,742 29,734 Adjustments: Inventory revaluation — (238 ) 715 Restructuring charges 232 1,402 1,230 Stock-based compensation expense 359 292 166 Plant start-up costs 37 315 277 NEC TOKIN investment-related expenses 1 (7 ) — (Gain) loss on sales and disposals of assets 180 504 105 Adjusted operating income (loss) $ 30,842 $ 32,010 $ 32,227

 
Adjusted Operating Income (Loss)-Non-GAAP Film & Electrolytics 18 For the Quarters Ended (Amounts in thousands) Jun 2015 Mar 2015 Jun 2014 Net sales $ 47,913 $ 48,026 $ 53,091 Operating income (loss) 712 (4,574 ) (6,047 ) Adjustments: Inventory revaluation — (689 ) 1,961 Restructuring charges 1,286 1,737 489 Stock-based compensation expense 54 173 161 Plant start-up costs 157 336 1,370 Plant shut-down costs — — 889 (Gain) loss on sales and disposals of assets (241 ) (144 ) 254 Adjusted operating income (loss) $ 1,968 $ (3,161 ) $ (923 )

 
Non-GAAP Financial Measures Non-GAAP Financial Measures Included in this presentation are certain non-GAAP financial measures designed to complement the financial information presented in accordance with generally accepted accounting principles in the United States of America because management believes such measures are useful to investors. Adjusted gross margin Adjusted gross margin represents net sales less cost of sales excluding adjustments which are outlined in the quantitative reconciliation provided earlier in this presentation. 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 GAAP. Adjusted selling, general and administrative expenses Adjusted selling, general and administrative expenses represents selling, general and administrative expenses excluding adjustments which are outlined in the quantitative reconciliation provided earlier in this presentation. Management uses Adjusted selling, general and administrative expenses to facilitate our analysis and understanding of our business operations and believes that Adjusted selling, general and administrative expenses is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company. Adjusted selling, general and administrative expenses should not be considered as an alternative to selling, general and administrative expenses or any other performance measure derived in accordance with GAAP. Adjusted operating income (loss) Adjusted operating income (loss) represents operating income (loss), excluding adjustments which are outlined in the quantitative reconciliation provided earlier in this presentation. Management uses Adjusted operating income to facilitate our analysis and understanding of our business operations and believes that Adjusted operating income is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company. Adjusted operating income should not be considered as an alternative to operating loss or any other performance measure derived in accordance with GAAP. 19

 
Non-GAAP Financial Measures Continued Adjusted net income (loss) and Adjusted EPS Adjusted net income (loss) and Adjusted EPS represent net income (loss) and EPS, excluding adjustments which are more specifically outlined in the quantitative reconciliation provided earlier in this presentation. Management uses Adjusted net income (loss) and Adjusted EPS to evaluate the Company's operating performance and believes that Adjusted net income (loss) and Adjusted EPS are useful to investors because they provide a supplemental way to possibly better understand the underlying operating performance of the Company. Adjusted net income (loss) and Adjusted EPS should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP. Adjusted EBITDA Adjusted EBITDA represents net loss before income tax expense (benefit), interest expense, net, and depreciation and amortization expense, excluding adjustments which are more specifically outlined in the quantitative reconciliation provided earlier in this presentation. 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 in this presentation. 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 GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity. 20

 
Non-GAAP Financial Measures Continued Our 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 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 GAAP results and using Adjusted EBITDA only supplementally. 21

 

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