KEMET CORP - FORM 8-K - EX-99.1 - EARNINGS PRESS RELEASE - January 29, 2015

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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
 
williamlowe@kemet.com
richardvatinelle@kemet.com
 
864-963-6484
954-766-2838
 
KEMET REPORTS PRELIMINARY FISCAL 2015 THIRD QUARTER RESULTS
 
 
Greenville, South Carolina (January 29, 2015) - KEMET Corporation (the “Company”) (NYSE: KEM), a leading global supplier of electronic components, today reported preliminary results for our third quarter ended December 31, 2014.
 
Net sales of $201.3 million for the quarter ended December 31, 2014 decreased 2.9% compared to net sales of $207.3 million for the quarter ended December 31, 2013. The U.S. GAAP net income from continuing operations was $3.1 million, or $0.06 per diluted share for the quarter ended December 31, 2014, compared to a net loss from continuing operations of $4.7 million or $0.11 loss per diluted share for the quarter ended December 31, 2013.

Non-U.S. GAAP Adjusted net income improved to $6.5 million or $0.13 per diluted share for the quarter ended December 31, 2014, compared to a non-U.S. GAAP Adjusted net income of $0.9 million or $0.02 income per basic and diluted share for the period ended December 31, 2013.
 
“We believe that this quarter was exceptional in many respects. Despite currency headwinds and inventory adjustments by our distribution partners we delivered increased overall operating margins that enabled us to post solid bottom line financial performance for the quarter,” stated Per Loof, KEMET’s Chief Executive Officer. “We will remain focused on continuing to improve parts of the business that have not yet met our performance standards while at the same time preserving our improvements in supply chain integration and cost improvements to continue to deliver increased shareholder value,” continued Loof.

The net income (loss) for the quarters ended December 31, 2014 and 2013 include various items affecting comparability as denoted in the U.S. GAAP to Non-U.S. GAAP reconciliation table included hereafter. Prior period financial results included in this earnings release have been adjusted to reflect discontinued operations as the Film and Electrolytic business group completed the sale of its machinery division on April 30, 2014.






About KEMET
 
The Company’s common stock is listed on the NYSE under the ticker symbol “KEM” (NYSE: KEM).  At the Investor Relations section of our web site at http://www.kemet.com/IR, users may subscribe to KEMET news releases and find additional information about our Company.  KEMET applies world class service and quality to deliver industry leading, high performance capacitance solutions to its customers around the world and offers the world’s most complete line of surface mount and through hole capacitor technologies across tantalum, ceramic, film, aluminum, electrolytic, and paper dielectrics. Additional information about KEMET can be found at http://www.kemet.com.

QUIET PERIOD
 
Beginning April 1, 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 outcome and results to differ materially from those expressed in, or implied by, these forward-looking statements include, but are not necessarily limited to the following: (i) adverse economic conditions could impact our ability to realize operating plans if the demand for our products declines, and such conditions could adversely affect our liquidity and ability to continue to operate; (ii) continued net losses could impact our ability to realize current operating plans and could materially adversely affect our liquidity and our ability to continue to operate; (iii) adverse economic conditions could cause the write down of long-lived assets or goodwill; (iv) an increase in the cost or a decrease in the availability of our principal or single-sourced purchased materials; (v) changes in the competitive environment; (vi) uncertainty of the timing of customer product qualifications in heavily regulated industries; (vii) economic, political, or regulatory changes in the countries in which we operate; (viii) difficulties, delays or unexpected costs in completing 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) inability to attract, train and retain effective employees and management; (xii) inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xiii) exposure to claims alleging product defects; (xiv) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xv) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xvi) volatility of financial and credit markets affecting our access to capital; (xvii) the need to reduce the total costs of our products to remain competitive; (xviii) potential limitation on the use of net operating losses to offset possible future taxable income; (xix) restrictions in our debt agreements that limit our flexibility in operating our business; and (xx) additional exercise of the warrant by K Equity which could potentially result in the existence of a significant stockholder who could seek to influence our corporate decisions.

2


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

 
Quarters Ended December 31,
 
2014
 
2013
Net sales
$
201,310

 
$
207,339

Operating costs and expenses:
 

 
 

Cost of sales
156,842

 
169,677

Selling, general and administrative expenses
23,374

 
22,431

Research and development
6,303

 
6,027

Restructuring charges
6,063

 
2,194

Write down of long-lived assets
—

 
3,358

Net (gain) loss on sales and disposals of assets
(574
)
 
29

Total operating costs and expenses
192,008

 
203,716

Operating income (loss)
9,302

 
3,623

Non-operating (income) expense:
 

 
 

Interest income
(5
)
 
(7
)
Interest expense
9,938

 
10,349

Other (income) expense, net
(3,701
)
 
(1,351
)
Income (loss) from continuing operations before income taxes and equity income (loss) from NEC TOKIN
3,070

 
(5,368
)
Income tax expense
1,359

 
1,033

Income (loss) from continuing operations before equity income (loss) from NEC TOKIN
1,711

 
(6,401
)
Equity income (loss) from NEC TOKIN
1,367

 
1,657

Income (loss) from continuing operations
3,078

 
(4,744
)
Income (loss) from discontinued operations, net of income tax expense (benefit) of $36 and $67, respectively
(164
)
 
(1,076
)
Net income (loss)
$
2,914

 
$
(5,820
)
Net income (loss) per basic share:
 

 
 

Net income (loss) from continuing operations
$
0.07

 
$
(0.11
)
Net income (loss) from discontinued operations
$
—

 
$
(0.02
)
Net income (loss)
$
0.07

 
$
(0.13
)
 
 
 
 
Net income (loss) per diluted share:
 

 
 

Net income (loss) from continuing operations
$
0.06

 
$
(0.11
)
Net income (loss) from discontinued operations
$
—

 
$
(0.02
)
Net income (loss)
$
0.06

 
$
(0.13
)
 
 
 
 
Weighted-average shares outstanding:
 

 
 

Basic
45,407

 
45,120

Diluted
52,228

 
45,120



3


KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
 
 
December 31, 2014
 
March 31, 2014
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
55,582

 
$
57,929

Accounts receivable, net
92,485

 
98,947

Inventories, net
187,614

 
187,974

Prepaid expenses and other
38,836

 
36,871

Deferred income taxes
6,695

 
6,695

Current assets of discontinued operations
—

 
12,160

Total current assets
381,212

 
400,576

Property, plant and equipment, net of accumulated depreciation of $816,317 and $805,687 as of December 31, 2014 and March 31, 2014, respectively
264,968

 
292,648

Goodwill
35,584

 
35,584

Intangible assets, net
34,595

 
37,184

Investment in NEC TOKIN
52,168

 
46,419

Restricted cash
2,003

 
13,512

Deferred income taxes
6,691

 
6,778

Other assets
22,523

 
10,130

Noncurrent assets of discontinued operations
—

 
836

Total assets
$
799,744

 
$
843,667

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Current portion of long-term debt
$
12,521

 
$
7,297

Accounts payable
62,132

 
74,818

Accrued expenses
58,611

 
76,468

Income taxes payable and deferred income taxes
396

 
980

Current liabilities of discontinued operations
—

 
7,269

Total current liabilities
133,660

 
166,832

Long-term debt, less current portion
392,082

 
391,292

Other non-current obligations
49,963

 
55,864

Deferred income taxes
8,131

 
5,203

Noncurrent liabilities of discontinued operations
—

 
2,592

Stockholders’ equity:
 

 
 

Preferred stock, par value $0.01, authorized 10,000 shares, none issued
—

 
—

Common stock, par value $0.01, authorized 175,000 shares, issued 46,508 shares at December 31, 2014 and March 31, 2014
465

 
465

Additional paid-in capital
462,586

 
465,027

Retained deficit
(226,034
)
 
(231,738
)
Accumulated other comprehensive income
3,857

 
18,184

Treasury stock, at cost (1,080 and 1,301 shares at December 31, 2014 and March 31, 2014, respectively)
(24,966
)
 
(30,054
)
Total stockholders’ equity
215,908

 
221,884

Total liabilities and stockholders’ equity
$
799,744

 
$
843,667



4


KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
 
Nine Month Periods Ended December 31,
 
2014
 
2013
Net income (loss)
$
5,704

 
$
(54,056
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 

 
 

Gain on sale of discontinued operations
(5,644
)
 
—

Net cash provided by (used in) operating activities of discontinued operations
(679
)
 
461

Depreciation and amortization
30,694

 
37,352

Equity (income) loss from NEC TOKIN
76

 
2,963

Amortization of debt and financing costs
1,706

 
2,817

(Gain) loss on early extinguishment of debt
(1,003
)
 
—

Stock-based compensation expense
3,185

 
2,330

Long-term receivable write down
27

 
1,484

Change in value of NEC TOKIN options
(13,200
)
 
(1,334
)
Net (gain) loss on sales and disposals of assets
(759
)
 
71

Pension and other post-retirement benefits
87

 
24

Write down of long-lived assets
—

 
3,358

Change in deferred income taxes
1,276

 
(2,496
)
Change in operating assets
(208
)
 
8,579

Change in operating liabilities
(24,732
)
 
(28,296
)
Other
200

 
431

Net cash provided by (used in) operating activities
(3,270
)
 
(26,312
)
Investing activities:
 

 
 

Capital expenditures
(17,474
)
 
(24,993
)
Proceeds from sale of assets
4,540

 
—

Change in restricted cash
11,509

 
3,532

Proceeds from sale of discontinued operations
9,564

 
—

Net cash provided by (used in) investing activities
8,139

 
(21,461
)
Financing activities:
 

 
 

Proceeds from revolving line of credit
42,340

 
21,000

Payments on revolving line of credit
(14,342
)
 
—

Deferred acquisition payments
(11,899
)
 
(11,703
)
Payments on long-term debt
(21,733
)
 
(2,858
)
Proceeds from exercise of stock options
24

 
86

Net cash provided by (used in) financing activities
(5,610
)
 
6,525

Net increase (decrease) in cash and cash equivalents
(741
)
 
(41,248
)
Effect of foreign currency fluctuations on cash
(1,606
)
 
864

Cash and cash equivalents at beginning of fiscal period
57,929

 
95,978

Cash and cash equivalents at end of fiscal period
$
55,582

 
$
55,594


5


Non-U.S. GAAP Financial Measures
 
In this news release, the Company makes reference to certain Non-U.S. GAAP financial measures, including "Adjusted gross margin", “Adjusted net 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)
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
Net sales
$
201,310

 
$
215,293

 
$
207,339

Cost of sales
156,842

 
169,538

 
169,677

Gross margin
44,468

 
45,755

 
37,662

Non-U.S. GAAP-adjustments:
 
 
 
 
 
Plant start-up costs
1,144

 
1,114

 
485

Stock-based compensation expense
424

 
341

 
278

Inventory revaluation
(927
)
 
(821
)
 
—

Adjusted gross margin
$
45,109

 
$
46,389

 
$
38,425

Adjusted gross margin as a % of net sales
22.4
%
 
21.5
%
 
18.5
%
 
Adjusted Operating Income (Loss)

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


6


Adjusted operating income (loss) is calculated as follows (amounts in thousands):
 
Quarters Ended
 
(Unaudited)
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
Operating income (loss)
$
9,302

 
$
12,770

 
$
3,623

Adjustments:
 

 
 

 
 

Restructuring charges
6,063

 
1,687

 
2,194

Inventory revaluation
(927
)
 
(821
)
 
—

Net (gain) loss on sales and disposals of assets
(574
)
 
(550
)
 
29

Stock-based compensation expense
1,232

 
958

 
702

ERP integration costs
671

 
409

 
994

Plant start-up costs
1,144

 
1,114

 
485

Write down of long-lived assets
—

 
—

 
3,358

NEC TOKIN investment-related expenses
485

 
487

 
249

Adjusted operating income (loss)
$
17,396

 
$
16,054

 
$
11,634

 
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.

7


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
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
 
(Unaudited)
U.S. GAAP
 

 
 

 
 

Net sales
$
201,310

 
$
215,293

 
$
207,339

Net income (loss) from continuing operations
3,078

 
7,730

 
(4,744
)
Income (loss) from discontinued operations
(164
)
 
(1,400
)
 
(1,076
)
Net income (loss)
$
2,914

 
$
6,330

 
$
(5,820
)
Net income (loss) from continuing operations - basic
0.07

 
0.17

 
(0.11
)
Income (loss) from discontinued operations - basic
—

 
(0.03
)
 
(0.02
)
Net income (loss) - basic
0.07

 
0.14

 
(0.13
)
Net income (loss) from continuing operations - diluted
0.06

 
0.15

 
(0.11
)
Income (loss) from discontinued operations - diluted
—

 
(0.03
)
 
(0.02
)
Net income (loss) - diluted
0.06

 
0.12

 
(0.13
)
Non-U.S. GAAP
 

 
 

 
 

Net income (loss)
$
2,914

 
$
6,330

 
$
(5,820
)
Adjustments:
 
 
 
 
 
Restructuring charges
6,063

 
1,687

 
2,194

Equity (income) loss from NEC TOKIN
(1,367
)
 
(232
)
 
(1,657
)
Inventory revaluation
(927
)
 
(821
)
 
—

Net (gain) loss on sales and disposals of assets
(574
)
 
(550
)
 
29

Stock-based compensation expense
1,232

 
958

 
702

(Gain) loss on early extinguishment of debt
(1,003
)
 
—

 
—

Professional fees related to financing activities
1,142

 
—

 
—

ERP integration costs
671

 
409

 
994

Change in value of NEC TOKIN options
(2,500
)
 
(6,600
)
 
(1,716
)
Plant start-up costs
1,144

 
1,114

 
485

Write down of long-lived assets
—

 
—

 
3,358

Net foreign exchange (gain) loss
(1,257
)
 
(1,351
)
 
207

NEC TOKIN investment-related expenses
485

 
487

 
249

(Income) loss from discontinued operations
164

 
1,400

 
1,076

Amortization included in interest expense
322

 
583

 
858

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

 
51

 
(52
)
Adjusted net income (loss)
$
6,546

 
$
3,465

 
$
907

Adjusted net income (loss) per basic share
$
0.14

 
$
0.08

 
$
0.02

Adjusted net income (loss) per diluted share
$
0.13

 
$
0.07

 
$
0.02

Weighted average shares outstanding:
 
 
 
 
 
Basic
45,407

 
45,400

 
45,120

Diluted
52,227

 
52,521

 
52,494

 
(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.

8


Adjusted EBITDA
 
Adjusted EBITDA from continuing operations represents net income (loss) from continuing operations 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 below.  We use Adjusted EBITDA from continuing operations to monitor and evaluate our operating performance and to facilitate internal and external comparisons of the historical operating performance of our business.  We present Adjusted EBITDA from continuing operations as a supplemental measure of our performance and ability to service debt.  We also present Adjusted EBITDA from continuing operations because we believe such measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.
 
We believe Adjusted EBITDA from continuing operations is an appropriate supplemental measure of debt service capacity, because cash expenditures on interest are, by definition, available to pay interest, and tax expense is inversely correlated to interest expense because tax expense goes down as deductible interest expense goes up; depreciation and amortization are non-cash charges. The other adjustments to arrive at Adjusted EBITDA from continuing operations are excluded in order to better reflect our continuing operations.
 
In evaluating Adjusted EBITDA from continuing operations, you should be aware that in the future we may incur expenses similar to the adjustments noted below.  Our presentation of Adjusted EBITDA from continuing operations should not be construed as an inference that our future results will be unaffected by these types of adjustments.  Adjusted EBITDA from continuing operations is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.
 
Our Adjusted EBITDA from continuing operations measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP.  Some of these limitations are:

•
it does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
•
it does not reflect changes in, or cash requirements for, our working capital needs;
•
it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and our Adjusted EBITDA from continuing operations measure does not reflect any cash requirements for such replacements;
•
it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
•
it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;
•
it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and
•
other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA from continuing operations should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations.  You should compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA from continuing operations as supplementary information.







9


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

 
For the Quarters Ended
(Amounts in thousands)
December 31, 2014
 
September 30, 2014
 
December 31, 2013
U.S. GAAP
 
 
 
 
 
Net income (loss)
$
2,914

 
$
6,330

 
$
(5,820
)
Interest expense, net
9,933

 
10,284

 
10,342

Income tax expense (benefit)
1,359

 
2,583

 
1,033

Depreciation and amortization
9,720

 
10,177

 
11,762

EBITDA
23,926

 
29,374

 
17,317

Excluding the following items (non-GAAP):
 
 
 
 
 
Restructuring charges
6,063

 
1,687

 
2,194

Equity (income) loss from NEC TOKIN
(1,367
)
 
(232
)
 
(1,657
)
Inventory revaluation
(927
)
 
(821
)
 
—

Net (gain) loss on sales and disposals of assets
(574
)
 
(550
)
 
29

Stock-based compensation expense
1,232

 
958

 
702

(Gain) loss on early extinguishment of debt
(1,003
)
 
—

 
—

Professional fees related to financing activities
1,142

 
—

 
—

ERP integration costs
671

 
409

 
994

Change in value of NEC TOKIN options
(2,500
)
 
(6,600
)
 
(1,716
)
Plant start-up costs
1,144

 
1,114

 
485

Write down of long-lived assets
—

 
—

 
3,358

Net foreign exchange (gain) loss
(1,257
)
 
(1,351
)
 
207

NEC TOKIN investment-related expenses
485

 
487

 
249

(Income) loss from discontinued operations
164

 
1,400

 
1,076

Adjusted EBITDA
$
27,199

 
$
25,875

 
$
23,238

 
 
 
 
 
 

10

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