KEMET Reports Third Quarter Fiscal Year 2013 Results
GREENVILLE, S.C., Jan. 31, 2013 /PRNewswire/ — KEMET Corporation (the “Company”) (NYSE: KEM), a leading manufacturer of tantalum, ceramic, aluminum, film, paper and electrolytic capacitors, today reported preliminary results for the third fiscal quarter ended December 31, 2012.
Net sales for the third quarter of fiscal year 2013 were $200.3 million and, on a U.S. GAAP basis, the net loss was $14.3 million, or $0.32 loss per basic and diluted share for the third quarter of fiscal year 2013 compared to a net loss of $27.8 million or $0.62 loss per basic and diluted share for the third quarter of fiscal year 2012. The net loss for the third quarters of fiscal year 2013 and 2012 include various items affecting comparability as denoted in the U.S. GAAP to Non-U.S. GAAP reconciliation below.
Non-U.S. GAAP adjusted net loss was $2.2 million or $0.05 loss per basic and diluted share for the third quarter of fiscal year 2013 compared to a $6.2 million or $0.14 loss per diluted share for the second quarter of fiscal year 2013. Non-U.S. GAAP adjusted net income was $2.0 million or $0.04 per basic and diluted share for the third quarter of fiscal year 2012. Consolidated Non-U.S. GAAP gross margin increased to 18.0% in the third quarter of fiscal year 2013 from 16.3% in the second quarter of fiscal year 2013.
“Revenue for this quarter was in our forecasted range, but more importantly our operating results clearly reflect that our cost reduction actions are taking hold as consolidated non-GAAP gross margins for this quarter rose 1.7% to 18.0% on less revenue compared to the September quarter,” said Per Loof KEMET’s Chief Executive Officer. “Our vertical integration efforts within our tantalum business unit are clearly working and reducing our cost of raw materials and we expect additional benefits in the next several quarters as we produce more tantalum powder internally. We are cautiously optimistic that we are at or nearing the bottom of this cycle and we remain focused on a profitable bottom line even if economic conditions do not improve,” continued Loof.
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.
Beginning April 1, 2013, we will observe a quiet period during which the information provided in this news release and quarterly report on Form 10-Q will no longer constitute our current expectations. During the quiet period, this information should be considered to be historical, applying prior to the quiet period only and not subject to update by management. The quiet period will extend until the day when our next quarterly earnings release is published.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about the Company’s financial condition and results of operations that are based on management’s current expectations, estimates and projections about the markets, in which the Company operates, as well as management’s beliefs and assumptions. Words such as “expects,” “anticipates,” “believes,” “estimates,” variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s judgment only as of the date hereof. The Company undertakes no obligation to update publicly any of these forward-looking statements to reflect new information, future events or otherwise.
Factors that may cause actual outcome and results to differ materially from those expressed in, or implied by, these forward-looking statements include, but are not necessarily limited to the following:
(i) adverse economic conditions could impact our ability to realize operating plans if the demand for our products declines, and such conditions could adversely affect our liquidity and ability to continue to operate; (ii) adverse economic conditions could cause the write down of long-lived assets or goodwill; (iii) an increase in the cost or a decrease in the availability of our principal raw materials; (iv) changes in the competitive environment; (v) uncertainty of the timing of customer product qualifications in heavily regulated industries; (vi) economic, political, or regulatory changes in the countries in which we operate; (vii) difficulties, delays or unexpected costs in completing the restructuring plan; (viii) equity method investments expose us to a variety of risks; (ix) acquisitions and other strategic transactions expose us to a variety of risks; (x) the inability to attract, train and retain effective employees and management; (xi) the inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xii) exposure to claims alleging product defects; (xiii) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xiv) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xv) volatility of financial and credit markets affecting our access to capital; (xvi) the need to reduce the total costs of our products to remain competitive; (xvii) potential limitation on the use of net operating losses to offset possible future taxable income; (xviii) restrictions in our debt agreements that limit our flexibility in operating our business; and (xix) additional exercise of the warrant by K Equity, LLC which could potentially result in the existence of a significant stockholder who could seek to influence our corporate decisions.
KEMET CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Amounts in thousands, except per share data) (Unaudited) Quarters Ended Nine Months Ended December 31, December 31, ------------ ------------ 2012 2011 2012 2011 ---- ---- ---- ---- Net sales $200,297 $218,795 $639,920 $774,165 Operating costs and expenses: Cost of sales 166,117 178,305 540,491 592,128 Selling, general and administrative expenses 25,411 24,737 80,649 83,368 Research and development 6,698 7,172 21,264 21,620 Restructuring charges 3,886 10,748 13,672 13,378 Goodwill impairment - - 1,092 - Write down of long-lived assets 3,084 15,786 7,318 15,786 Net curtailment and settlement (gain) loss on benefit plans 587 - (1,088) - Net (gain) loss on sales and disposals of assets (196) 9 (123) 92 Total operating costs and expenses 205,587 236,757 663,275 726,372 ------- ------- ------- ------- Operating income (loss) (5,290) (17,962) (23,355) 47,793 Other (income) expense: Interest income (54) (62) (111) (136) Interest expense 10,247 7,036 30,840 21,718 Other (income) expense, net (1,641) 716 (1,126) 1,918 Income (loss) before income taxes (13,842) (25,652) (52,958) 24,293 Income tax expense 415 2,119 3,973 5,897 Net income (loss) $(14,257) $(27,771) $(56,931) $18,396 ======== ======== ======== ======= Net income (loss) per share: Basic $(0.32) $(0.62) $(1.27) $0.43 Diluted $(0.32) $(0.62) $(1.27) $0.35 Weighted-average shares outstanding: Basic 44,918 44,644 44,879 42,834 Diluted 44,918 44,644 44,879 52,302
KEMET CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Amounts in thousands, except share data) December 31, 2012 March 31, 2012 ----------------- -------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $137,559 $210,521 Accounts receivable, net 96,648 104,950 Inventories, net 221,360 212,234 Prepaid expenses and other 36,509 32,259 Deferred income taxes 5,383 6,370 Total current assets 497,459 566,334 Property and equipment, net of accumulated depreciation of $777,780 and $761,522 as of December 31, 2012 and March 31, 2012, respectively 312,911 315,848 Goodwill 35,584 36,676 Intangible assets, net 39,750 41,527 Restricted cash 26,177 2,204 Other assets 14,459 12,963 Total assets $926,340 $975,552 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $7,908 $1,951 Accounts payable 61,593 74,404 Accrued expenses 85,077 89,079 Income taxes payable 1,104 2,256 Total current liabilities 155,682 167,690 Long-term debt, less current portion 375,587 345,380 Other non-current obligations 86,455 101,229 Deferred income taxes 4,805 2,257 Stockholders' equity: Preferred stock, par value $0.01, authorized 10,000 shares, none issued - - Common stock, par value $0.01, authorized 175,000 shares, issued 46,508 shares at December 31, 2012 and March 31, 2012 465 465 Additional paid-in capital 467,708 470,059 Retained deficit (137,984) (81,053) Accumulated other comprehensive income 10,320 12,020 Treasury stock, at cost (1,588 and 1,839 shares at December 31, 2012 and March 31, 2012, respectively) (36,698) (42,495) Total stockholders' equity 303,811 358,996 ------- ------- Total liabilities and stockholders' equity $926,340 $975,552 ======== ========
KEMET CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Amounts in thousands) (Unaudited) Nine Months Ended December 31, ------------------------------ 2012 2011 ---- ---- Net income (loss) $(56,931) $18,396 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 33,679 33,384 Amortization of debt discount and debt issuance costs 3,046 2,903 Net (gain) loss on sales and disposals of assets (123) 92 Stock-based compensation expense 3,584 1,378 Goodwill impairment 1,092 - Write down of long-lived assets 7,318 15,786 Settlement gain on benefit plan (1,088) - Change in deferred income taxes 1,517 909 Change in operating assets (5,576) 46,330 Change in operating liabilities (28,173) (48,116) Other 33 841 Net cash provided by (used in) operating activities (41,622) 71,903 ------- ------ Investing activities: Capital expenditures (38,349) (31,793) Change in restricted cash (24,000) - Acquisition, net of cash received - (11,584) Net cash used in investing activities (62,349) (43,377) ------- ------- Financing activities: Proceeds from issuance of debt 39,825 - Deferred acquisition payments (6,617) - Payments of long-term debt (1,901) (40,581) Net borrowings (payments) under other credit facilities - (3,153) Proceeds from exercise of stock options 58 225 Debt issuance costs (275) (36) Change in restricted cash - - Net cash provided by (used in) financing activities 31,090 (43,545) ------ ------- Net decrease in cash and cash equivalents (72,881) (15,019) Effect of foreign currency fluctuations on cash (81) (983) Cash and cash equivalents at beginning of fiscal period 210,521 152,051 Cash and cash equivalents at end of fiscal period $137,559 $136,049 ======== ========
Non-U.S. GAAP Financial Measures
In this news release, the Company makes reference to certain Non-U.S. GAAP financial measures, including “Adjusted net income (loss)”, “Adjusted net income (loss) per share”, “Adjusted EBITDA” and “Adjusted gross margin”. Management believes that investors may find it useful to review the Company’s financial results as adjusted to exclude certain items as determined by management.
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share
“Adjusted net income (loss)” and “Adjusted net income (loss) per share” represent net income (loss) and net income (loss) per share excluding: restructuring charges related primarily to equipment moves and employee severance, write down of long-lived assets, ERP integration costs, plant start-up costs, stock-based compensation expense, goodwill impairment, amortization included in interest expense, acquisition related fees, net curtailment and settlement (gain) loss on benefit plans, net foreign exchange gain/loss, net gain/loss on sales and disposals of assets and income tax impact of Non-U.S. GAAP adjustments. Management believes that these Non-U.S. GAAP financial measures are useful to investors because they provide a supplemental way to understand the underlying operating performance of the Company. Management uses these Non-U.S. GAAP financial measures to evaluate operating performance. Non-U.S. GAAP financial measures should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with U.S. GAAP.
The following table provides reconciliation from U.S. GAAP net income (loss) to Non-U.S. GAAP adjusted net income (loss):
U.S. GAAP to Non- U.S.GAAP Reconciliation Quarters Ended -------------- December 31, 2012 September 30, 2012 December 31, 2011 ----------------- ------------------ ----------------- (Unaudited) (Amounts in thousands, except per share data) U.S. GAAP Net sales $200,297 $215,991 $218,795 Net loss $(14,257) $(24,921) $(27,771) Basic net loss per share $(0.32) $(0.55) $(0.62) Diluted net loss per share $(0.32) $(0.55) $(0.62) Excluding the following items (Non-U.S. GAAP) Net loss $(14,257) $(24,921) $(27,771) Adjustments: Restructuring charges 3,886 8,522 10,748 Write down of long-lived assets 3,084 4,234 15,786 ERP integration costs 1,458 2,099 1,812 Plant start-up costs 1,524 1,930 666 Stock-based compensation expense 1,078 1,242 (797) Goodwill impairment - 1,092 - Amortization included in interest expense 1,122 954 847 Acquisition related fees 164 866 - Net curtailment and settlement (gain) loss on benefit plans 587 (1,675) - Net foreign exchange (gain) loss (464) (442) 303 Net (gain) loss on sales and disposals of assets (196) (31) 9 Income tax impact of non-U.S. GAAP adjustments (1) (228) (90) 398 ---- --- --- Adjusted net income (loss)(excluding adjustments) $(2,242) $(6,220) $2,001 ======= ======= ====== Adjusted net income (loss) per share (excluding adjustments) Basic $(0.05) $(0.14) $0.04 Diluted $(0.05) $(0.14) $0.04 ____________________________ (1) The income tax effect of the excluded items is calculated by applying the applicable jurisdictional income tax rate, considering the deferred tax valuation for each applicable jurisdiction, and includes the income tax affect of law changes related to the utilization of net operating loss carryforwards.
Adjusted EBITDA represents net loss before net interest expense, income tax expense/benefit, and depreciation and amortization expense, adjusted to exclude: restructuring charges, write down of long-lived assets, ERP integration costs, plant start-up costs, stock-based compensation expense, goodwill impairment, acquisition related fees, net curtailment and settlement gain/loss on benefit plans, net foreign exchange gain/loss and net loss on sales and disposals of assets. We use Adjusted EBITDA to monitor and evaluate our operating performance and to facilitate internal and external comparisons of the historical operating performance of our business. We present Adjusted EBITDA as a supplemental measure of our performance and ability to service debt. We also present Adjusted EBITDA because we believe such measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.
We believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity, because cash expenditures on interest are, by definition, available to pay interest, and tax expense is inversely correlated to interest expense because tax expense goes down as deductible interest expense goes up; depreciation and amortization are non-cash charges. The other items excluded from Adjusted EBITDA are excluded in order to better reflect our continuing operations.
In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments noted below. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these types of adjustments. Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.
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 U.S. GAAP. Some of these limitations are:
- it does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
- it does not reflect changes in, or cash requirements for, our working capital needs;
- it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;
- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and our Adjusted EBITDA measure does not reflect any cash requirements for such replacements;
- it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
- it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;
- it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and
- other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally.
The following table provides a reconciliation from U.S. GAAP net loss to Adjusted EBITDA (amounts in thousands):
Quarters Ended -------------- December 31, September 30, December 31, 2012 2012 2011 ---- ---- ---- U.S. GAAP Net loss $(14,257) $(24,921) $(27,771) Interest expense, net 10,193 10,110 6,974 Income tax expense 415 1,787 2,119 Depreciation and amortization 10,502 11,521 10,373 ------ ------ ------ EBITDA 6,853 (1,503) (8,305) Excluding the following items (Non-U.S. GAAP): Restructuring charges 3,886 8,522 10,748 Write down of long-lived assets 3,084 4,234 15,786 ERP integration costs 1,458 2,099 1,812 Plant start-up costs 1,524 1,930 666 Stock-based compensation expense 1,078 1,242 (797) Goodwill impairment - 1,092 - Acquisition related fees 164 866 - Net curtailment and settlement (gain) loss on benefit plans 587 (1,675) - Net foreign exchange (gain) loss (464) (442) 303 Net (gain) loss on sales and disposals of assets (196) (31) 9 ---- --- --- Adjusted EBITDA $17,974 $16,334 $20,222 ======= ======= =======
Adjusted gross margin
Adjusted gross margin represents net sales less cost of sales excluding adjustments which are outlined in the quantitative reconciliation provided below. Management uses Adjusted gross margin to facilitate our analysis and understanding of our business operations and believes that Adjusted gross margin is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company. Adjusted gross margin should not be considered as an alternative to gross margin or any other performance measure derived in accordance with U.S. GAAP.
The following table provides a reconciliation from U.S. GAAP gross margin to Adjusted gross margin (amounts in thousands):
Quarters Ended -------------- December 31, September 30, December 31, 2012 2012 2011 ---- ---- ---- U.S. GAAP Net sales $200,297 $215,991 $218,795 Gross margin 34,180 32,938 40,490 Excluding the following items (Non-U.S. GAAP): Plant start-up costs 1,524 1,930 666 Stock-based compensation expense 359 423 (114) Adjusted gross margin $36,063 $35,291 $41,042 ======= ======= ======= Adjusted gross margin as a percentage of net sales 18.0% 16.3% 18.8%
Dean W. Dimke
Senior Director of Corporate and Investor Communications
William M. Lowe, Jr.
Executive Vice President and Chief Financial Officer
SOURCE KEMET Corporation