Form 8-K KEMET CORP For: May 03

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May 3, 2016 7:46 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): May 3, 2016
 
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 May 3, 2016, KEMET Corporation (the “Company”) issued a News Release announcing the preliminary consolidated results for the fourth fiscal quarter and fiscal year ended March 31, 2016.
 
A copy of this News Release is furnished as Exhibit 99.1 to this Form 8-K.
 
Item 7.01 Regulation FD Disclosure
 
On May 3, 2016, the Company will host a conference call to discuss financial results for its fourth fiscal quarter and fiscal year ended March 31, 2016.  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 May 3, 2016, 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 May 3, 2016 issued by the Company.
 
 
 
99.2

 
Slide Package prepared for use in connection with the Company’s fourth fiscal quarter and fiscal year earnings conference call to be held on May 3, 2016.





Signature
 
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Date: May 3, 2015
KEMET Corporation
 
 
 
 
 
/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
954-766-2800
 
KEMET REPORTS PRELIMINARY FOURTH QUARTER AND FISCAL YEAR 2016 RESULTS
 
•
Net sales for the quarter up 3.8% to $183.9 million compared to the prior quarter ended December 31, 2015.
•
Gross margin for fiscal year 2016 of 22.2% compared to 19.4% for the prior fiscal year 2015.
•
Cash Balance as of March 31, 2016 of $65.0 million up $21.8 million from December 31, 2015
•
Board authorizes debt repurchase plan for Fiscal Year 2017

Greenville, South Carolina (May 3, 2016) - KEMET Corporation (the “Company”) (NYSE: KEM), a leading global supplier of electronic components, today reported preliminary results for the fourth quarter and fiscal year ended March 31, 2016.
 
“We ended the year on a solid note with a strong finish with our cash flow exceeding our earlier forecasts,” stated Per Loof, KEMET’s Chief Executive Officer. “Overall, in a challenging economic environment, our operational excellence continued to improve margins and meet or exceed customer expectations. Finishing the fiscal year in this position has allowed our Board of Directors to authorize a debt repurchase plan, initially up to $20 million over the course of our Fiscal Year 2017 that began April 1, 2016, to facilitate lower interest payments and position the Company to accomplish our strategic objectives,” continued Loof.

Net sales of $183.9 million for the quarter ended March 31, 2016 increased 3.8% from net sales of $177.2 million for the prior quarter ended December 31, 2015, and decreased 5.0% compared to net sales of $193.7 million for the quarter ended March 31, 2015. For the fiscal year ended March 31, 2016 net sales were $734.8 million compared to $823.2 million for the fiscal year ended March 31, 2015.

U.S. GAAP net loss from continuing operations before the equity loss from NEC TOKIN for the quarter ended March 31, 2016 was $3.5 million or $0.08 per basic and diluted share, compared to a net loss from continuing operations before equity loss from NEC TOKIN of $17.8 million or $0.39 for the quarter ended March 31, 2015 which included a non-cash loss of $11.1 million or $0.24 per basic and diluted share corresponding to the change in value of the NEC TOKIN option. The total U.S. GAAP net loss, including the equity loss from NEC TOKIN, for the quarter ended March 31, 2016 was $15.2 million, or $0.33 loss per basic and diluted share, compared to a net loss for the quarter ended March 31, 2015 of $19.8 million or $0.44 loss per basic and diluted share.

Non-U.S. GAAP Adjusted net income for the quarter ended March 31, 2016 was $1.8 million or $0.04 per basic and diluted share, compared to a non-U.S. GAAP Adjusted net loss of $1.6 million or $0.04 per basic and diluted share for the quarter ended March 31, 2015.

U.S. GAAP net loss from continuing operations before equity loss from NEC TOKIN for the fiscal year ended March 31, 2016 was $37.2 million or $0.81 per basic and diluted share which includes a non-cash loss of $26.3 million or $0.57 per basic and diluted share corresponding to the change in value of the NEC TOKIN option, compared to a net loss from continuing operations before equity loss from NEC TOKIN of $17.4 million or $0.38 per basic and diluted share which includes a non-cash gain of $2.1 million or $0.05 per basic and diluted share related to the change in value of the NEC TOKIN option for the fiscal year ended March 31, 2015. The total U.S. GAAP loss, including the equity loss from NEC TOKIN, for the fiscal year ended March 31, 2016 was $53.6 million,

        

or $1.17 loss per basic and diluted share compared to a net loss of $14.1 million, or $0.31 loss per basic and diluted share for the fiscal year ended March 31, 2015.
 
For the fiscal year ended March 31, 2016, the non-U.S. GAAP Adjusted net income was $8.9 million, or $0.17 per diluted share compared to non-U.S. GAAP Adjusted net income of $7.0 million, or $0.13 per diluted share for the fiscal year ended March 31, 2015.

Net income (loss) for the fiscal quarters and years ended March 31, 2016 and 2015 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 July 1, 2016, we will observe a quiet period during which the information provided in this news release and annual report on Form 10-K will no longer constitute our current expectations. During the quiet period, this information should be considered to be historical, applying prior to the quiet period only and not subject to update by management. The quiet period will extend until the day when our next quarterly earnings release is published.
 
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
 
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about the Company’s financial condition and results of operations that are based on management’s current expectations, estimates and projections about the markets, in which the Company operates, as well as management’s beliefs and assumptions. Words such as “expects,” “anticipates,” “believes,” “estimates,” variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s judgment only as of the date hereof. The Company undertakes no obligation to update publicly any of these forward-looking statements to reflect new information, future events or otherwise.
 
Factors that may cause actual outcomes and results to differ materially from those expressed in, or implied by, these forward-looking statements include, but are not necessarily limited to, the following: (i) adverse economic conditions could impact our ability to realize operating plans if the demand for our products declines, and such conditions could adversely affect our liquidity and ability to continue to operate; (ii) continued net losses could impact our ability to realize current operating plans and could materially adversely affect our liquidity and our ability to continue to operate; (iii) adverse economic conditions could cause the write down of long-lived assets or goodwill; (iv) an increase in the cost or a decrease in the availability of our principal or single-sourced purchased materials; (v) changes in the competitive environment; (vi) uncertainty of the timing of customer product qualifications in heavily regulated industries; (vii) economic, political, or regulatory changes in the countries in which we operate; (viii) difficulties, delays or unexpected costs in completing the restructuring plans; (ix) equity method investment in NEC TOKIN exposes us to a variety of risks; (x) acquisitions and other strategic transactions expose us to a variety of risks; (xi) possible acquisition of NEC TOKIN may not achieve all of the anticipated results; (xii) our business could be negatively impacted by increased regulatory scrutiny and litigation; (xiii) inability to attract, train and retain effective employees and management; (xiv) inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xv) exposure to claims alleging product defects; (xvi) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xvii) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xviii) volatility of financial and credit markets affecting our access to capital; (xix) the need to reduce the total costs of our products to remain competitive; (xx) potential limitation on the use of net operating losses to offset possible future taxable income; (xxi) restrictions in our debt agreements that limit our flexibility in operating our business; (xxii) failure of our information technology systems to function properly or our failure to control unauthorized access to our systems may cause business disruptions; (xxiii) additional exercise of the warrant by K Equity which could potentially result in the existence of a significant stockholder who could seek to influence our corporate decisions; and (xxiv) fluctuation in distributor sales could adversely affect our results of operations.




3


KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
 
Quarters Ended March 31,
 
Fiscal Year Ended
 
2016
 
2015
 
2016
 
2015
Net sales
$
183,926

 
$
193,708

 
$
734,823

 
$
823,192

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of sales
141,913

 
157,379

 
571,543

 
663,683

Selling, general and administrative expenses
25,790

 
24,870

 
101,446

 
98,533

Research and development
6,395

 
6,572

 
24,955

 
25,802

Restructuring charges
617

 
3,437

 
4,178

 
13,017

Net (gain) loss on sales and disposals of assets
608

 
538

 
375

 
(221
)
Total operating costs and expenses
175,323

 
192,796

 
702,497

 
800,814

Operating income (loss)
8,603

 
912

 
32,326

 
22,378

Other (income) expense:
 
 
 
 
 

 
 

Interest income
(4
)
 
(4
)
 
(14
)
 
(15
)
Interest expense
9,929

 
10,020

 
39,605

 
40,701

Change in value of NEC TOKIN options
—

 
11,100

 
26,300

 
(2,100
)
Other income (expense), net
147

 
(2,453
)
 
(2,348
)
 
(4,082
)
Income (loss) from continuing operations before income taxes and equity income (loss) from NEC TOKIN
(1,469
)
 
(17,751
)
 
(31,217
)
 
(12,126
)
Income tax expense (benefit)
2,056

 
3

 
6,006

 
5,227

Income (loss) from continuing operations before equity income (loss) from NEC TOKIN
(3,525
)
 
(17,754
)
 
(37,223
)
 
(17,353
)
Equity income (loss) from NEC TOKIN
(11,648
)
 
(2,093
)
 
(16,406
)
 
(2,169
)
Income (loss) from continuing operations
(15,173
)
 
(19,847
)
 
(53,629
)
 
(19,522
)
Income (loss) from discontinued operations
—

 
—

 
—

 
5,379

Net income (loss)
$
(15,173
)
 
$
(19,847
)
 
$
(53,629
)
 
$
(14,143
)
Net income (loss) per basic share:
 

 
 

 
 

 
 

Income (loss) from continuing operations
$
(0.33
)
 
$
(0.44
)
 
$
(1.17
)
 
$
(0.43
)
Income (loss) from discontinued operations
$
—

 
$
—

 
$
—

 
$
0.12

Net income (loss)
$
(0.33
)
 
$
(0.44
)
 
$
(1.17
)
 
$
(0.31
)
 
 
 
 
 
 
 
 
Net income (loss) per diluted share:
 

 
 

 
 

 
 

Income (loss) from continuing operations
$
(0.33
)
 
$
(0.44
)
 
$
(1.17
)
 
$
(0.43
)
Income (loss) from discontinued operations
$
—

 
$
—

 
$
—

 
$
0.12

Net income (loss)
$
(0.33
)
 
$
(0.44
)
 
$
(1.17
)
 
$
(0.31
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 

 
 

 
 

 
 

Basic
46,160

 
45,443

 
46,004

 
45,381

Diluted
46,160

 
45,443

 
46,004

 
45,381



4


KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
 
 
March 31, 2016
 
March 31, 2015
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
65,004

 
$
56,362

Accounts receivable, net
93,168

 
90,857

Inventories, net
168,879

 
171,843

Prepaid expenses and other
25,496

 
41,503

Total current assets
352,547

 
360,565

Property plant and equipment net of accumulated depreciation of $815,338 and $804,286 as of March 31, 2016 and March 31, 2015, respectively
241,839

 
249,641

Goodwill
40,294

 
35,584

Intangible assets, net
33,301

 
33,282

Investment in NEC TOKIN
20,334

 
45,016

Deferred income taxes
8,397

 
9,774

Other assets
5,832

 
12,831

Total assets
$
702,544

 
$
746,693

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Current portion of long-term debt
$
—

 
$
962

Accounts payable
70,981

 
69,785

Accrued expenses
50,320

 
60,456

Income taxes payable
453

 
884

Total current liabilities
121,754

 
132,087

Long-term debt, less current portion
390,597

 
390,409

Other non-current obligations
74,892

 
57,131

Deferred income taxes
2,820

 
2,384

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 March 31, 2016 and 2015
465

 
465

Additional paid-in capital
452,821

 
461,191

Retained deficit
(299,510
)
 
(245,881
)
Accumulated other comprehensive income
(31,425
)
 
(28,796
)
Treasury stock, at cost (611 and 1,056 shares at March 31, 2016 and 2015, respectively)
(9,870
)
 
(22,297
)
Total stockholders’ equity
112,481

 
164,682

Total liabilities and stockholders’ equity
$
702,544

 
$
746,693



5


KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
 
 
Fiscal Years Ended March 31,
 
 
2016
 
2015
Net income (loss)
 
$
(53,629
)
 
$
(14,143
)
Adjustments to reconcile net 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
 
39,016

 
40,768

Non-cash debt and financing costs
 
859

 
2,032

Gain on early extinguishment of debt
 
—

 
(1,003
)
Equity income (loss) from NEC TOKIN
 
16,406

 
2,169

Change in value of NEC TOKIN options
 
26,300

 
(2,100
)
Net (gain) loss on sales and disposals of assets
 
375

 
(221
)
Stock-based compensation expense
 
4,774

 
4,512

Pension and other post-retirement benefits
 
719

 
(13,283
)
Deferred income tax expense (benefit)
 
657

 
(2,084
)
Write down of receivables
 
24

 
52

Other, net
 
306

 
(7
)
Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
(2,346
)
 
8,220

Inventories
 
3,338

 
8,559

Prepaid expenses and other current assets
 
13,103

 
(8,404
)
Accounts payable
 
(5,982
)
 
(2,879
)
Accrued income taxes
 
280

 
(383
)
Other operating liabilities
 
(11,835
)
 
8,920

Net cash provided by (used in) operating activities
 
32,365

 
24,402

Investing activities:
 
 

 
 

Capital expenditures
 
(20,469
)
 
(22,232
)
Acquisitions, net of cash received
 
(2,892
)
 
—

Change in restricted cash
 
1,802

 
11,509

Proceeds from sale of discontinued operations
 
—

 
9,564

Proceeds from sale of assets
 
971

 
4,788

Net cash provided by (used in) investing activities
 
(20,588
)
 
3,629

Financing activities:
 
 

 
 

Proceeds from revolving line of credit
 
10,000

 
42,340

Payments of revolving line of credit
 
(9,600
)
 
(27,342
)
Deferred acquisition payments
 
(3,000
)
 
(19,527
)
Payments of long-term debt
 
(481
)
 
(21,733
)
Proceeds from exercise of stock options
 
—

 
24

Purchase of treasury stock
 
(722
)
 
(630
)
Net cash provided by (used in) financing activities
 
(3,803
)
 
(26,868
)
Net increase (decrease) in cash and cash equivalents
 
7,974

 
1,163

Effect of foreign currency fluctuations on cash
 
668

 
(2,730
)
Cash and cash equivalents at beginning of fiscal period
 
56,362

 
57,929

Cash and cash equivalents at end of fiscal period
 
$
65,004

 
$
56,362


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", “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 a reconciliation from U.S. GAAP Gross margin to Non-U.S. GAAP Adjusted gross margin (amounts in thousands):
 
 
Quarters Ended
 
Fiscal Years Ended
 
March 31, 2016

December 31, 2015

March 31, 2015

March 31, 2016

March 31, 2015
 
 
 
(Unaudited)
 
 
 
 
Net sales
$
183,926


$
177,184


$
193,708


$
734,823


$
823,192

Gross Margin
42,013


38,748


36,329


163,280


159,509

Gross margin as a % of net sales
22.8
%
 
21.9
%
 
18.8
%
 
22.2
%
 
19.4
%
Non-U.S. GAAP-adjustments:
 
 
 
 
 
 
 
 
 
Plant shut-down costs
141


231


—


372


889

Plant start-up costs
319


160


651


861


4,556

Stock-based compensation expense
278


268


465


1,418


1,576

Inventory Revaluation
—


—


(928
)

—


—

Adjusted gross margin
$
42,751


$
39,407


$
36,517


$
165,931


$
166,530

Adjusted gross margin as a % of net sales
23.2
%

22.2
%

18.9
%

22.6
%

20.2
%
 

7


Adjusted Operating Income (Loss)

Adjusted operating income represents operating income (loss), excluding adjustments which are outlined in the quantitative reconciliation provided below. We use Adjusted operating income 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 income (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
 
Fiscal Year Ended
 
 
March 31, 2016

December 31, 2015

March 31, 2015
 
March 31, 2016
 
March 31, 2015
 
 
(Unaudited)
Operating income (loss)
 
$
8,603


$
8,493


$
912

 
$
32,326

 
$
22,378

Adjustments:
 
 

 
 

 
 

 
 
 
 
ERP integration costs/IT transition costs
 
859


167


1,273

 
5,677

 
3,248

Stock-based compensation expense
 
1,013


1,154


1,328

 
4,774

 
4,512

Restructuring charges
 
617


1,714


3,437

 
4,178

 
13,017

Legal expenses related to antitrust class actions
 
482

 
1,300

 
435

 
3,041


844

NEC TOKIN investment related expenses
 
265


225


226

 
900

 
1,778

Plant start-up costs
 
319


160


651

 
861

 
4,556

Net (gain) loss on sales and disposals of assets
 
608


129


538

 
375

 
(221
)
Plant shut-down costs
 
141


231


—

 
372

 
889

Pension plan adjustment
 
—

 
—

 
—

 
312

 
—

Inventory Revaluation
 
—

 
—

 
(928
)
 
—

 
—

Adjusted operating income (loss)
 
$
12,907


$
13,573


$
7,872

 
$
52,816

 
$
51,001



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 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):

U.S. GAAP to Non- U.S. GAAP Reconciliation
 
 
Quarters Ended
 
Fiscal Year Ended
 
 
March 31, 2016

December 31, 2015

March 31, 2015
 
March 31, 2016
 
March 31, 2015
 
 
(Unaudited, Amounts in thousands, except per share data)
U.S. GAAP
 
 

 
 

 
 

 
 
 
 
Net sales
 
$
183,926


$
177,184


$
193,708

 
$
734,823

 
$
823,192

Net income (loss) from continuing operations
 
(15,173
)

(8,600
)

(19,847
)
 
(53,629
)
 
(19,522
)
Income (loss) from discontinued operations
 
—


—


—

 
—

 
5,379

Net income (loss)
 
$
(15,173
)

$
(8,600
)

$
(19,847
)
 
$
(53,629
)
 
$
(14,143
)
Net income (loss) per basic and diluted share:
 
 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
$
(0.33
)
 
$
(0.19
)
 
$
(0.44
)
 
$
(1.17
)
 
$
(0.43
)
Net income (loss) from discontinued operations
 
$
—

 
$
—

 
$
—

 
$
—

 
$
0.12

Net income (loss)
 
$
(0.33
)
 
$
(0.19
)
 
$
(0.44
)
 
$
(1.17
)
 
$
(0.31
)
Non-U.S. GAAP
 
 

 
 

 
 

 
 

 
 
Net income (loss)
 
(15,173
)
 
(8,600
)
 
(19,847
)
 
(53,629
)
 
(14,143
)
Adjustments:
 
 
 
 
 
 
 
 
 
 
Change in value of NEC TOKIN options
 
—

 
(700
)
 
11,100

 
26,300

 
(2,100
)
Equity (gain) loss from NEC TOKIN
 
11,648

 
6,505

 
2,093

 
16,406

 
2,169

Restructuring charges
 
617

 
1,714

 
3,437

 
4,178

 
13,017

ERP integration costs/IT transition costs
 
859

 
167

 
1,273

 
5,677

 
3,248

Stock-based compensation
 
1,013

 
1,154

 
1,328

 
4,774

 
4,512

Legal expenses related to antitrust class actions
 
482

 
1,300

 
435

 
3,041

 
844

Net foreign exchange (gain) loss
 
122

 
(1,036
)
 
(2,168
)
 
(3,036
)
 
(4,249
)
NEC TOKIN investment related expenses
 
265

 
225

 
226

 
900

 
1,778

Income tax effect of pension curtailment
 
155

 
720

 
—

 
875

 
—

Plant start-up costs
 
319

 
160

 
651

 
861

 
4,556

Amortization included in interest expense
 
210

 
212

 
244

 
859

 
1,814

(Gain) loss on sales and disposals of assets
 
608

 
129

 
538

 
375

 
(221
)
Plant shut-down costs
 
141

 
231

 
—

 
372

 
889

Pension plan adjustment
 
—


—

 
—

 
312

 
—

Income tax effect of non-GAAP adjustments (1)
 
546

 
(10
)
 
20

 
652

 
84

(Income) loss from discontinued operations
 
—

 
—

 
—

 
—

 
(5,379
)
(Gain) loss on early extinguishment of debt
 
—

 
—

 
—

 
—

 
(1,003
)
Professional fees related to financing activities
 
—

 
—

 
—

 
—

 
1,142

Inventory Revaluation
 
—

 
—

 
(928
)
 
—

 
—

Adjusted net income (loss)
 
$
1,812

 
$
2,171

 
$
(1,598
)
 
$
8,917

 
$
6,958

Adjusted net income (loss) per basic share
 
$
0.04

 
$
0.05

 
$
(0.04
)
 
$
0.19

 
$
0.15

Adjusted net income (loss) per diluted share
 
$
0.04

 
$
0.04

 
$
(0.04
)
 
$
0.17

 
$
0.13

Weighted average shares outstanding:
 


 


 


 
 
 
 
Basic
 
46,160

 
46,081

 
45,443

 
46,004

 
45,381

Diluted (2)
 
50,056

 
51,865

 
45,443

 
51,436

 
52,588

(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.
(2) Used to calculate adjusted net income (loss) per diluted share.

9


Adjusted EBITDA
 
Adjusted EBITDA represents net income (loss) before net interest expense, income tax expense, and depreciation and amortization expense, adjusted to exclude certain item which are outlined in the quantitative reconciliation provided below.  We use Adjusted EBITDA 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 only supplementally.



















10


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

 
Fiscal Year 2016
 
Q1
Q2
Q3
Q4
Total
Net income (loss)
$
(37,050
)
$
7,194

$
(8,600
)
$
(15,173
)
$
(53,629
)
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
Income tax expense (benefit)
(248
)
1,438

2,760

2,056

6,006

Interest expense, net
10,010

9,808

9,848

9,925

39,591

Depreciation and amortization
9,917

9,265

9,674

10,160

39,016

Change in value of NEC TOKIN options
29,200

(2,200
)
(700
)
—

26,300

Equity (gain) loss from NEC TOKIN
(1,585
)
(162
)
6,505

11,648

16,406

ERP integration costs/IT transition costs
4,369

282

167

859

5,677

Stock-based compensation
1,279

1,328

1,154

1,013

4,774

Restructuring charges
1,824

23

1,714

617

4,178

Legal expenses related to antitrust class actions
718

541

1,300

482

3,041

Net foreign exchange (gain) loss
1,049

(3,171
)
(1,036
)
122

(3,036
)
NEC TOKIN investment-related expenses
224

186

225

265

900

Plant start-up costs
195

187

160

319

861

(Gain) loss on sales and disposals of assets
(58
)
(304
)
129

608

375

Plant shut-down costs
—

—

231

141

372

Pension plan adjustment
312

—

—

—

312

Adjusted EBITDA
$
20,156

$
24,415

$
23,531

$
23,042

$
91,144

 
 
 
 
 
 
 
Fiscal Year 2015
 
Q1
Q2
Q3
Q4
Total
Net income (loss)
$
(3,540
)
$
6,330

$
2,914

$
(19,847
)
$
(14,143
)
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
Income tax expense (benefit)
1,282

2,583

1,359

3

5,227

Interest expense, net
10,453

10,284

9,933

10,016

40,686

Depreciation and amortization
10,797

10,177

9,720

10,074

40,768

Change in value of NEC TOKIN options
(4,100
)
(6,600
)
(2,500
)
11,100

(2,100
)
Equity (gain) loss from NEC TOKIN
1,675

(232
)
(1,367
)
2,093

2,169

ERP integration costs/IT transition costs
895

409

671

1,273

3,248

Stock-based compensation
994

958

1,232

1,328

4,512

Restructuring charges
1,830

1,687

6,063

3,437

13,017

Legal expenses related to antitrust class actions
—

—

409

435

844

Net foreign exchange (gain) loss
527

(1,351
)
(1,257
)
(2,168
)
(4,249
)
NEC TOKIN investment-related expenses
580

487

485

226

1,778

Plant start-up costs
1,647

1,114

1,144

651

4,556

(Gain) loss on sales and disposals of assets
365

(550
)
(574
)
538

(221
)
Plant shut-down costs
889

—

—

—

889

(Income) loss from discontinued operations
(6,943
)
1,400

164

—

(5,379
)
(Gain) loss on early extinguishment of debt
—

—

(1,003
)
—

(1,003
)
Professional fees related to financing activities
—

—

1,142

—

1,142

Inventory revaluation
2,676

(821
)
(927
)
(928
)
—

Adjusted EBITDA
$
20,027

$
25,875

$
27,608

$
18,231

$
91,741


11
Earnings Conference Call May 3, 2016 Quarter Ended March 31, 2016

 
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) acquisitions and other strategic transactions expose us to a variety of risks; (xi) possible acquisition of NEC TOKIN may not achieve all of the anticipated results; (xii) our business could be negatively impacted by increased regulatory scrutiny and litigation; (xiii) inability to attract, train and retain effective employees and management; (xiv) inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xv) exposure to claims alleging product defects; (xvi) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xvii) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xviii) volatility of financial and credit markets affecting our access to capital; (xix) the need to reduce the total costs of our products to remain competitive; (xx) potential limitation on the use of net operating losses to offset possible future taxable income; (xxi) restrictions in our debt agreements that limit our flexibility in operating our business; (xxii) failure of our information technology systems to function properly or our failure to control unauthorized access to our systems may cause business disruptions; (xxiii) additional exercise of the warrant by K Equity which could potentially result in the existence of a significant stockholder who could seek to influence our corporate decisions; and (xxiv) fluctuation in distributor sales could adversely affect our results of operations. 2

 
Income Statement Highlights U.S. GAAP (Unaudited) 3 For the Quarters Ended (Amounts in thousands, except percentages and per share data) Mar 2016 Dec 2015 Mar 2015 Net sales $ 183,926 $ 177,184 $ 193,708 Gross margin $ 42,013 $ 38,748 $ 36,329 Gross margin as a percentage of net sales 22.8 % 21.9 % 18.8 % Selling, general and administrative $ 25,790 $ 22,278 $ 24,870 SG&A as a percentage of net sales 14.0 % 12.6 % 12.8 % Operating income (loss) $ 8,603 $ 8,493 $ 912 Net income (loss) from continuing operations $ (15,173 ) $ (8,600 ) $ (19,847 ) Net income (loss) from discontinued operations — — — Net income (loss) $ (15,173 ) $ (8,600 ) $ (19,847 ) Per share data: Net income (loss) from continuing operations - basic $ (0.33 ) $ (0.19 ) $ (0.44 ) Net income (loss) from discontinued operations - basic $ — $ — $ — Net income (loss) - basic $ (0.33 ) $ (0.19 ) $ (0.44 ) Net income (loss) from continuing operations - diluted $ (0.33 ) $ (0.19 ) $ (0.44 ) Net income (loss) from discontinued operations - diluted $ — $ — $ — Net income (loss) - diluted $ (0.33 ) $ (0.19 ) $ (0.44 ) Weighted avg. shares - basic 46,160 46,081 45,443 Weighted avg. shares - diluted 46,160 46,081 45,443

 
Income Statement Highlights Non-GAAP (Unaudited) 4 For the Quarters Ended (Amounts in thousands, except percentages and per share data) Mar 2016 Dec 2015 Mar 2015 Net sales $ 183,926 $ 177,184 $ 193,708 Adjusted gross margin $ 42,751 $ 39,407 $ 36,517 Gross margin as a percentage of net sales 23.2 % 22.2 % 18.9 % Adjusted selling, general and administrative $ 23,499 $ 19,761 $ 22,098 Adjusted SG&A as a percentage of net sales 12.8 % 11.2 % 11.4 % Adjusted operating income (loss) $ 12,907 $ 13,573 $ 7,872 Adjusted net income (loss) from continuing operations $ 1,812 $ 2,171 $ (1,598 ) Adjusted net income (loss) from discontinued operations — — — Adjusted net income (loss) $ 1,812 $ 2,171 $ (1,598 ) Adjusted EBITDA $ 23,042 $ 23,531 $ 18,231 Per share data: Adjusted net income (loss) from continuing operations - basic $ 0.04 $ 0.05 $ (0.04 ) Adjusted net income (loss) from discontinued operations - basic — — — Adjusted net income (loss) - basic $ 0.04 $ 0.05 $ (0.04 ) Adjusted net income (loss) from continuing operations - diluted $ 0.04 $ 0.04 $ (0.04 ) Adjusted net income (loss) from discontinued operations - diluted — — — Adjusted net income (loss) - diluted $ 0.04 $ 0.04 $ (0.04 ) Weighted avg. shares - basic 46,160 46,081 45,443 Weighted avg. shares - diluted 50,056 51,865 45,443

 
Income Statement Highlights U.S. GAAP (Unaudited) 5 (Amounts in thousands, except percentages and per share data) FY 2016 FY 2015 Net sales $ 734,823 $ 823,192 Gross margin $ 163,280 $ 159,509 Gross margin as a percentage of net sales 22.2 % 19.4 % Selling, general and administrative $ 101,446 $ 98,533 SG&A as a percentage of net sales 13.8 % 12.0 % Operating income (loss) $ 32,326 $ 22,378 Net income (loss) from continuing operations $ (53,629 ) $ (19,522 ) Income (loss) from discontinued operations — 5,379 Net income (loss) $ (53,629 ) $ (14,143 ) Per share data: Adjusted net income (loss) from continuing operations - basic $ (1.17 ) $ (0.43 ) Adjusted net income (loss) from discontinued operations - basic — 0.12 Adjusted net income (loss) - basic (1.17 ) (0.31 ) Adjusted net income (loss) from continuing operations - diluted (1.17 ) (0.43 ) Adjusted net income (loss) from discontinued operations - diluted — 0.12 Adjusted net income (loss) - diluted $ (1.17 ) $ (0.31 ) Weighted avg. shares - basic 46,004 45,381 Weighted avg. shares - diluted 46,004 45,381

 
Income Statement Highlights Non-GAAP (Unaudited) 6 (Amounts in thousands, except percentages and per share data) FY 2016 FY 2015 Net sales $ 734,823 $ 823,192 Gross margin $ 165,931 $ 166,530 Gross margin as a percentage of net sales 22.6 % 20.2 % Selling, general and administrative $ 88,354 $ 90,022 SG&A as a percentage of net sales 12.0 % 10.9 % Operating income (loss) $ 52,816 $ 51,001 Net income (loss) from continuing operations $ 8,917 $ 6,958 Income (loss) from discontinued operations — — Net income (loss) $ 8,917 $ 6,958 Adjusted EBITDA $ 91,144 $ 91,741 Per share data: Adjusted net income (loss) from continuing operations - basic $ 0.19 $ 0.15 Adjusted net income (loss) from discontinued operations - basic — — Adjusted net income (loss) - basic 0.19 0.15 Adjusted net income (loss) from continuing operations - diluted 0.17 0.13 Adjusted net income (loss) from discontinued operations - diluted — — Adjusted net income (loss) - diluted $ 0.17 $ 0.13 Weighted avg. shares - basic 46,004 45,381 Weighted avg. shares - diluted 51,436 52,588

 
Adjusted Gross Margin Non-GAAP Solid Capacitors 7 For the Quarters Ended (Amounts in thousands) Mar 2016 Dec 2015 Mar 2015 Net sales $ 140,042 $ 135,300 $ 145,680 Gross margin 40,811 37,171 37,184 Adjustments: Inventory revaluation — — (238 ) Stock-based compensation expense 181 147 292 Plant start-up costs — 10 315 Adjusted gross margin $ 40,992 $ 37,328 $ 37,553 Adjusted gross margin as a percentage of net sales 29.3 % 27.6 % 25.8 %

 
Adjusted Gross Margin Non-GAAP Film & Electrolytics 8 For the Quarters Ended (Amounts in thousands) Mar 2016 Dec 2015 Mar 2015 Net sales $ 43,884 $ 41,884 $ 48,026 Gross margin 1,202 1,577 (855 ) Adjustments: Plant shut-down costs 141 231 — Inventory revaluation — — (689 ) Plant start-up costs 319 150 336 Stock-based compensation expense 97 121 173 Adjusted gross margin $ 1,759 $ 2,079 $ (1,035 ) Adjusted gross margin as a percentage of net sales 4.0 % 5.0 % (2.2 )%

 
Adjusted Operating Income (Loss) Non-GAAP Solid Capacitors 9 For the Quarters Ended (Amounts in thousands) Mar 2016 Dec 2015 Mar 2015 Net sales $ 140,042 $ 135,300 $ 145,680 Operating income (loss) 34,538 31,359 29,723 Adjustments: Plant start-up costs — 10 315 Stock-based compensation expense 181 147 292 Restructuring charges 360 753 1,402 Inventory revaluation — — (238 ) NEC TOKIN investment related expenses — — (7 ) Gain on sales and disposals of assets 507 (160 ) 504 Adjusted operating income (loss) $ 35,586 $ 32,109 $ 31,991

 
Adjusted Operating Income (Loss) Non-GAAP Film & Electrolytics 10 For the Quarters Ended (Amounts in thousands) Mar 2016 Dec 2015 Mar 2015 Net sales $ 43,884 $ 41,884 $ 48,026 Operating income (loss) (1,230 ) (1,770 ) (4,555 ) Adjustments: Plant shut-down costs 141 231 — Plant start-up costs 319 150 336 Stock-based compensation expense 97 121 173 Inventory revaluation — — (689 ) Restructuring charges 190 987 1,737 Gain (loss) on sales and disposals of assets 43 252 (144 ) Adjusted operating income (loss) $ (440 ) $ (29 ) $ (3,142 )

 
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 by current quarter's accounts payable 11 (Amounts in millions, except DSO and DPO) Mar 2016 Dec 2015 FX Impact Cash, cash equivalents $ 65.0 $ 43.2 $ 0.5 Capital expenditures $ 6.3 $ 4.9 Short-term debt $ — $ 5.0 Long-term debt 388.9 388.0 Debt premium 1.7 1.9 Total debt $ 390.6 $ 394.9 $ — Equity $ 112.5 $ 124.4 $ 6.6 Net working capital (1) $ 191.1 $ 200.7 $ (1.0 ) Days in receivables (DSO)(2) 46 46 Days in payables (DPO)(3) 46 42

 
Sales Summary - Q4 FY2016 12

 
Sales Summary - FY 2016 13

 
Appendix

 
Adjusted Gross Margin Non-GAAP 15 For the Quarters Ended Fiscal Year (Amounts in thousands, except percentages) Mar 2016 Dec 2015 Mar 2015 2016 2015 Net sales $ 183,926 $ 177,184 $ 193,708 $ 734,823 $ 823,192 Gross margin $ 42,013 $ 38,748 $ 36,329 $ 163,280 $ 159,509 Adjustments: Plant shut-down costs 141 231 — 372 889 Plant start-up costs 319 160 651 861 4,556 Stock-based compensation expense 278 268 465 1,418 1,576 Inventory Revaluation — — (928 ) — — Adjusted gross margin $ 42,751 $ 39,407 $ 36,517 $ 165,931 $ 166,530 Adjusted gross margin as a percentage of net sales 23.2 % 22.2 % 18.9 % 22.6 % 20.2 %

 
Adjusted Selling, General & Administrative Expenses Non-GAAP 16 For the Quarters Ended Fiscal Year (Amounts in thousands, except percentages) Mar 2016 Dec 2015 Mar 2015 2016 2015 Net sales $ 183,926 $ 177,184 $ 193,708 $ 734,823 $ 823,192 Selling, general and administrative expenses $ 25,790 $ 22,278 $ 24,870 $ 101,446 $ 98,533 Less adjustments: ERP integration costs/IT transition costs 859 167 1,273 5,677 3,248 Stock-based compensation expense 685 825 838 3,162 2,641 Legal expenses related to antitrust class actions 482 1,300 435 3,041 844 NEC TOKIN investment related expenses 265 225 226 900 1,778 Pension plan adjustment — — — 312 — Adjusted selling, general and administrative expenses $ 23,499 $ 19,761 $ 22,098 $ 88,354 $ 90,022 Adjusted selling, general, and administrative as a percentage of net sales 12.8 % 11.2 % 11.4 % 12.0 % 10.9 %

 
Adjusted Operating Income Non-GAAP 17 For the Quarters Ended Fiscal Year (Amounts in thousands) Mar 2016 Dec 2015 Mar 2015 2016 2015 Operating income (loss) $ 8,603 $ 8,493 $ 912 $ 32,326 $ 22,378 Adjustments: ERP integration costs/IT transition costs 859 167 1,273 5,677 3,248 Stock-based compensation expense 1,013 1,154 1,328 4,774 4,512 Restructuring charges 617 1,714 3,437 4,178 13,017 Legal expenses related to antitrust class actions 482 1,300 435 3,041 844 NEC TOKIN investment related expenses 265 225 226 900 1,778 Plant start-up costs 319 160 651 861 4,556 Net (gain) loss on sales and disposals of assets 608 129 538 375 (221 ) Plant shut-down costs 141 231 — 372 889 Pension plan adjustment — — — 312 — Inventory Revaluation — — (928 ) — — Adjusted operating income (loss) $ 12,907 $ 13,573 $ 7,872 $ 52,816 $ 51,001

 
Adjusted Net Income (Loss) and Adjusted EBITDA Non-GAAP 18 For the Quarters Ended Fiscal Year (Amounts in thousands) Mar 2016 Dec 2015 Mar 2015 2016 2015 Net income (loss) $ (15,173 ) $ (8,600 ) $ (19,847 ) $ (53,629 ) $ (14,143 ) Adjustments: Change in value of NEC TOKIN options — (700 ) 11,100 26,300 (2,100 ) Equity (gain) loss from NEC TOKIN 11,648 6,505 2,093 16,406 2,169 Restructuring charges 617 1,714 3,437 4,178 13,017 ERP integration costs/IT transition costs 859 167 1,273 5,677 3,248 Stock-based compensation 1,013 1,154 1,328 4,774 4,512 Legal expenses related to antitrust class actions 482 1,300 435 3,041 844 Net foreign exchange (gain) loss 122 (1,036 ) (2,168 ) (3,036 ) (4,249 ) NEC TOKIN investment related expenses 265 225 226 900 1,778 Income tax effect of pension curtailment 155 720 — 875 — Plant start-up costs 319 160 651 861 4,556 Amortization included in interest expense 210 212 244 859 1,814 (Gain) loss on sales and disposals of assets 608 129 538 375 (221 ) Plant shut-down costs 141 231 — 372 889 Pension plan adjustment — — — 312 — Income tax effect of non-GAAP adjustments 546 (10 ) 20 652 84 (Income) loss from discontinued operations — — — — (5,379 ) (Gain) loss on early extinguishment of debt — — — — (1,003 ) Professional fees related to financing activities — — — — 1,142 Inventory Revaluation — — (928 ) — — Adjusted net income (loss) $ 1,812 $ 2,171 $ (1,598 ) $ 8,917 $ 6,958 Adjusted net income (loss) per share - basic $ 0.04 $ 0.05 $ (0.04 ) $ 0.19 $ 0.15 Adjusted net income (loss) per share - diluted $ 0.04 $ 0.04 $ (0.04 ) $ 0.17 $ 0.13 Adjusted EBITDA $ 23,042 $ 23,531 $ 18,231 $ 91,144 $ 91,741 Weighted avg. shares - basic 46,160 46,081 45,443 46,004 45,381 Weighted avg. shares - diluted 50,056 51,865 45,443 51,436 52,588

 
Adjusted EBITDA Reconciliation Non-GAAP 19 For the Quarters Ended Fiscal Year (Amounts in thousands) Mar 2016 Dec 2015 Mar 2015 2016 2015 Net income (loss) $ (15,173 ) $ (8,600 ) $ (19,847 ) $ (53,629 ) $ (14,143 ) Income tax expense (benefit) 2,056 2,760 3 6,006 5,227 Interest expense, net 9,925 9,848 10,016 39,591 40,686 Depreciation and amortization 10,160 9,674 10,074 39,016 40,768 EBITDA 6,968 13,682 246 30,984 72,538 Excluding the following items Change in value of NEC TOKIN options — (700 ) 11,100 26,300 (2,100 ) Equity (gain) loss from NEC TOKIN 11,648 6,505 2,093 16,406 2,169 ERP integration costs/IT transition costs 859 167 1,273 5,677 3,248 Stock-based compensation 1,013 1,154 1,328 4,774 4,512 Restructuring charges 617 1,714 3,437 4,178 13,017 Legal expenses related to antitrust class actions 482 1,300 435 3,041 844 Net foreign exchange (gain) loss 122 (1,036 ) (2,168 ) (3,036 ) (4,249 ) NEC TOKIN investment related expenses 265 225 226 900 1,778 Plant start-up costs 319 160 651 861 4,556 (Gain) loss on sales and disposals of assets 608 129 538 375 (221 ) Plant shut-down costs 141 231 — 372 889 Pension plan adjustment — — — 312 — Inventory Revaluation — — (928 ) — — (Income) loss from discontinued operations — — — — (5,379 ) (Gain) loss on early extinguishment of debt — — — — (1,003 ) Professional fees related to financing activities — — — — 1,142 Adjusted EBITDA $ 23,042 $ 23,531 $ 18,231 $ 91,144 $ 91,741

 
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 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. 20

 
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 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. 21

 
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. 22

 

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