KEMET Reports 15.4% Rise in Revenue for Second Fiscal Quarter

GREENVILLE, S.C., Oct. 28 /PRNewswire-FirstCall/ --

    --  Net sales for the second quarter of fiscal year 2010 were $173.3 million
        compared to $150.2 million for the first quarter of fiscal year 2010 and
        $136.0 million for the fourth quarter of fiscal year 2009
    --  Gross margin as a percentage of net sales for the second quarter of
        fiscal year 2010 was 14.4% compared to 13.7% for the first quarter of
        fiscal year 2010
    --  Second quarter Non-GAAP adjusted net loss per share of $(0.07) compared
        to $(0.14) for the first quarter of fiscal year 2010

    --  Cash flow from operations for the second quarter of fiscal year 2010 was
        $16.8 million

KEMET Corporation (OTC Bulletin Board: KEME) today reported preliminary results for the second fiscal quarter ended September 30, 2009. Net sales for the quarter ended September 30, 2009, were $173.3 million, which is a 26.2% decrease over the same quarter last fiscal year and a 15.4% increase over the prior fiscal quarter ended June 30, 2009.

On a U.S. GAAP basis, net loss was $93.1 million, or $(1.15) per share for the second quarter of fiscal year 2010 compared to net loss of $85.1 million or $(1.06) per share for the same quarter last year and compared to net income of $25.1 million or $0.31 per share for the prior quarter ended June 30, 2009.

The Non-GAAP adjusted net loss, excluding special charges, was $5.7 million or $(0.07) per share for the current fiscal quarter compared to an adjusted net loss of $3.1 million, or $(0.04) per share for the same quarter last year and compared to an adjusted net loss of $11.1 million, or $(0.14) per share for the prior fiscal quarter ended June 30, 2009.

"Significant actions we took a year ago have paid substantial dividends in generating a positive operating income this quarter, before special charges, slightly exceeding our break-even operating income revenue goals," said Per Loof, KEMET's Chief Executive Officer. "We also continued to generate significant cash flow from operations this quarter that will allow us to optimize our market share during this time of increased demand. While we do not see future quarter-over-quarter revenue increases similar to this quarter, our bookings remain strong and overall supply chain inventories remain in check. We expect increased demand to remain for the near term and we are cautiously optimistic about calendar year 2010," continued Loof.

The current fiscal quarter includes an $81.1 million non-cash charge related to the mark-to-market adjustment for the Platinum Closing Warrants. The accounting for this charge did not result in a change to net equity. On September 29, 2009, the Company borrowed $10.0 million under the Platinum working capital loan facility and, as a result, fixed the exercise price of the Platinum warrants which eliminates the ongoing requirement to mark-to-market the warrants after September 29, 2009. The current fiscal quarter also includes $1.3 million of restructuring charges primarily associated with reductions in force within the Film and Electrolytic Business Group.

In this news release, the Company makes reference to certain Non-GAAP financial measures, including "adjusted net loss" and "adjusted net loss per share." Management believes that investors may find it useful to review the Company's financial results that exclude special items as determined by management. These special items include an increase in value of warrant which relates to the mark-to-market adjustment for the Platinum Closing Warrants, gain/loss on early extinguishment of debt, impairment charges associated with goodwill and long-lived assets, integration costs related to business acquisitions, restructuring charges related primarily to employee severance and equipment moves, certain inventory adjustments, sales or disposals of assets, amortization related to debt issuance costs and debt discount, a non-cash charge related to the cancellation of an employee incentive plan and the write off of capitalized advisor fees. Management believes that these Non-GAAP financial measures are useful to investors in that they provide a supplemental way to possibly better understand the underlying operating performance of the Company. Management uses these Non-GAAP financial measures to evaluate operating performance. However, Non-GAAP financial measures should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP.

The following table provides reconciliation from GAAP net income (loss) to Non-GAAP adjusted net loss:


    GAAP to Non-GAAP Reconciliation
    (Unaudited)                   Quarters Ended          Six Months Ended
                          ----------------------------- ---------------------
                          Sept. 30,  June 30, Sept. 30, Sept. 30,  Sept. 30,
                            2009      2009      2008      2009       2008
                            ----      ----  (As Adjusted) ----   (As Adjusted)
                                                 (1)                  (1)
                                             -----------          -----------
                               (Amounts in millions, except per share data)

    Including special
     items (GAAP)
    Net sales               $173.3    $150.2    $234.8    $323.4    $477.7

    Net loss                $(93.1)    $25.1    $(85.1)   $(68.0)  $(274.4)
    Basic and diluted net
     loss per share         $(1.15)    $0.31    $(1.06)   $(0.84)   $(3.41)

      Excluding special
       items (Non-GAAP)

    Net loss                $(93.1)    $25.1    $(85.1)   $(68.0) $ (274.4)
      Special items
       (after tax):
        Restructuring
         charges               1.3         -      17.4       1.3      23.9
        Goodwill impairment      -         -      85.7         -     174.3
        Amortization
         included in
         interest expense      3.3       2.5       2.4       5.8       4.9
        (Gain) loss on
         early extinguishment
         of debt                 -     (38.9)      2.2     (38.9)      2.2
        Increase in value
         of warrant           81.1         -         -      81.1         -
        Write down of long
         lived assets            -         -       1.0         -      64.9
        Net (gain) loss on
         disposal of assets    0.1       0.2     (28.4)      0.3     (28.2)
        Charge related to
         cancellation of an
         incentive plan        1.2         -         -       1.2         -
        Write off of
         capitalized advisor
         fees                  0.4         -         -       0.4         -
        Inventory adjustment     -         -         -         -       8.6
        Acquisitions
         integration costs       -         -       1.7         -       3.9
                            ------    ------    ------    ------    ------
    Adjusted net loss
     (excluding special
     items)                  $(5.7)   $(11.1)    $(3.1)   $(16.8)   $(19.9)
    Adjusted net loss per
     basic and diluted
     shares (excluding
     special items)         $(0.07)   $(0.14)   $(0.04)   $(0.21)   $(0.25)

    (1) Net income for the quarter and six month period ended September 30,
        2008 includes a reduction of $2.1 million and $4.1 million
        respectively related to a required retrospective change in accounting
        for convertible debt.  In addition, the Company recorded $1.1 million
        and $3.4 million, respectively, in non-cash interest expense related
        to the adoption of FSP APB 14-1, primarily codified in FASB ASC 470,
        in the quarter and six month period ended September 30, 2009.

KEMET's common stock is listed on the OTC Bulletin Board and on the Pink OTC Markets, Inc., Pink Quote System under the symbol, "KEME". 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.

QUIET PERIOD

Beginning January 1, 2010, we will observe a quiet period during which the information provided in this news release and our 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 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 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) generally adverse economic and industry conditions, including a decline in demand for the Company's products; (ii) the ability to maintain sufficient liquidity to realize current operating plans; (iii) the effect of receiving a going concern statement in our auditor's report on our 2009 audited financial statements; (iv) adverse economic conditions could cause further reevaluation of the fair value of our reporting segments and the write down of long-lived assets; (v) the cost and availability of raw materials; (vi) changes in the competitive environment of the Company; (vii) economic, political, or regulatory changes in the countries in which the Company operates; (viii) the ability to successfully integrate the operations of acquired businesses; (ix) the ability to attract, train and retain effective employees and management; (x) the ability to develop innovative products to maintain customer relationships; (xi) the impact of environmental issues, laws, and regulations; (xii) the Company's ability to finance and achieve the expected benefits of its manufacturing relocation plan or other restructuring plans; (xiii) volatility of financial and credit markets which would affect access to capital for the Company; (xiv) increased difficulty or expense in accessing capital because of the Company's delisting of common stock from the New York Stock Exchange; (xv) exposure to foreign exchange (gains) and losses; (xvi) need to reduce costs to offset downward price trends; (xvii) potential limitation on use of net operating losses to offset possible future taxable income; (xviii) dilution as a result of the issuance of a warrant to K Financing, LLC; and (xix) exercise of the warrant by K Equity, LLC may result in the existence of a controlling shareholder. Other risks and uncertainties may be described from time to time in the Company's other reports and filings with the Securities and Exchange Commission.



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

                                       Quarters Ended      Six Months Ended
                                        September 30,        September 30,
                                     ------------------- --------------------
                                                 2008                 2008
                                            (As Adjusted)        (As Adjusted)
                                       2009       (1)      2009        (1)
                                       ----   ----------   ----   -----------
    Net sales                        $173,265  $234,819  $323,432   $477,663

    Operating costs and expenses:
      Cost of sales                   148,397   206,822   277,997    432,411
      Selling, general and
       administrative expenses         20,867    23,799    38,950     52,018
      Research and development          5,569     7,048    10,348     17,144
      Restructuring charges             1,267    18,210     1,267     25,007
      Goodwill impairment                   -    85,680         -    174,327
      Write down of long-lived
       assets                               -     1,227         -     65,155
      Net (gain) loss on sales and
       disposals of assets                 52   (28,489)      258    (28,290)
                                     --------  --------  --------   --------
        Total operating costs and
         expenses                     176,152   314,297   328,820    737,772
                                     --------  --------  --------   --------
          Operating loss               (2,887)  (79,478)   (5,388)  (260,109)

    Other (income) expense:
      Interest income                    (102)     (178)     (133)      (416)
      Interest expense and
       amortization of debt discount    6,491     7,583    12,310     15,312
      Increase in value of warrant     81,088         -    81,088          -
      (Gain) loss on early
       extinguishment of debt               -     2,212   (38,921)     2,212
      Other expense (income), net         999    (5,232)    5,511     (3,899)
                                     --------  --------  --------   --------
        Loss before income taxes      (91,363)  (83,863)  (65,243)  (273,318)
    Income tax expense                  1,712     1,205     2,742      1,125
                                     --------  --------  --------   --------
          Net loss                   $(93,075) $(85,068) $(67,985) $(274,443)
                                     ========  ========  ========   ========
    Net loss per share:
      Basic and diluted                $(1.15)   $(1.06)   $(0.84)    $(3.41)

    (1) Results are adjusted for retrospective application of changes in
        accounting for convertible notes.  See table: "Changes in Accounting
        for Convertible Notes."


                           KEMET CORPORATION AND SUBSIDIARIES
                          Condensed Consolidated Balance Sheets
                     (Amounts in thousands, except per share data)
                                      (Unaudited)
                                                               March 31, 2009
                                                                (As Adjusted)
                                                Sept. 30, 2009       (1)
                                                -------------- --------------
    ASSETS
    Current assets:
      Cash and cash equivalents                        $57,412        $39,204
      Accounts receivable, net                         128,478        120,139
      Inventories                                      146,937        154,981
      Prepaid expenses and other current assets         11,729         11,245
      Deferred income taxes                              3,092            151
                                                     ---------      ---------
        Total current assets                           347,648        325,720
      Property and equipment, net of accumulated
       depreciation of $665.2 million and $623.0
       million as of September 30, 2009 and
       March 31, 2009, respectively                    351,509        357,977
      Intangible assets, net                            24,326         24,094
      Other assets                                      17,272          6,360
                                                     ---------      ---------
    Total assets                                      $740,755       $714,151
                                                     =========      =========
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
      Current portion of long-term debt                $25,408        $25,994
      Accounts payable, trade                           56,430         52,332
      Accrued expenses                                  54,952         51,125
      Income taxes payable                               1,200          1,127
                                                     ---------      ---------
        Total current liabilities                      137,990        130,578
      Long-term debt, less current portion             233,307        280,752
      Other non-current obligations                     65,815         57,316
      Deferred income taxes                              9,000          5,466

    Stockholders' equity:
      Common stock, par value $0.01, authorized
       300,000 shares, issued 88,525 and 88,525
       shares at September 30, 2009 and March 31,
       2009, respectively                                  885            885
      Additional paid-in capital                       480,937        367,257
      Retained deficit                                (149,327)       (81,342)
      Accumulated other comprehensive income            21,137         12,663
      Treasury stock, at cost (7,658 and 7,714
       shares at September 30, 2009 and March 31,
       2009, respectively)                             (58,989)       (59,424)
                                                     ---------      ---------
    Total stockholders' equity                         294,643        240,039
                                                     ---------      ---------
    Total liabilities and stockholders' equity        $740,755       $714,151
                                                     =========      =========

    (1) Results are adjusted for retrospective application of changes in
        accounting for convertible notes.  See table: "Changes in Accounting
        for Convertible Notes."


                         KEMET CORPORATION AND SUBSIDIARIES
                   Condensed Consolidated Statements of Cash Flows
                                (Amounts in thousands)
                                     (Unaudited)

                                                Six Months Ended September 30,
                                                ------------------------------
                                                                    2008
                                                       2009   (As Adjusted)(1)
                                                       ----    --------------
    Sources (uses) of cash and cash equivalents
      Operating activities:
        Net loss                                     ($67,985)     ($274,443)
        Adjustments to reconcile net loss to net
         cash provided by (used in) operating
         activities:
          Gain on early extinguishment of debt        (38,921)             -
          Increase in warrant value                    81,088              -
          Depreciation and amortization                25,490         30,360
          Amortization of debt discount and debt
           issuance costs                               5,883          4,894
          Goodwill impairment                               -        174,327
          Write down of long-lived assets                   -         65,155
          Gain on sale of assets                          258        (28,290)
          Stock-based compensation expense              1,628            868
          Change in deferred income taxes                 (13)        (1,138)
          Change in operating assets                   11,563         23,967
          Change in operating liabilities               2,111         (6,764)
          Other                                          (346)           191
                                                     --------       --------
            Net cash provided by (used in)
             operating activities                      20,756        (10,873)
                                                     --------       --------
      Investing activities:
        Capital expenditures                           (3,730)       (22,977)
        Proceeds from sale of assets                        -         34,870
        Acquisitions, net of cash received                  -         (1,000)
                                                     --------       --------
            Net cash provided by (used in)
             investing activities                      (3,730)        10,893
                                                     --------       --------
      Financing activities:
        Proceeds from issuance debt                    59,904         20,496
        Payments of long-term debt                    (51,183)       (65,212)
        Debt extinguishment and issuance costs         (7,811)             -
        Proceeds from sale of common stock to
         employee savings plan                              -            169
                                                     --------       --------
            Net cash provided by (used in)
             financing activities                         910        (44,547)
                                                     --------       --------
              Net increase (decrease) in cash and
               cash equivalents                        17,936        (44,527)
      Effect of foreign currency fluctuations on cash     272           (761)
      Cash and cash equivalents at beginning of
       fiscal period                                   39,204         81,383
                                                     --------       --------
      Cash and cash equivalents at end of fiscal
       period                                         $57,412        $36,095
                                                     --------       --------

    (1) Results are adjusted for retrospective application of changes in
        accounting for convertible notes.  See table: "Changes in Accounting
        for Convertible Notes."


                         KEMET CORPORATION AND SUBSIDIARIES
                     Changes in Accounting for Convertible Notes
                    (Amounts in thousands, except per share data)


                  Condensed Consolidated Statements of Operations

                                          Quarter Ended September 30, 2008
                                    -----------------------------------------
                                                                Following the
                                    As Previously                Adoption of
                                      Presented     Adjustments   APB 14-1
                                    -------------   ----------- -------------
    Interest accretion                     $347        $2,082      $2 ,429
    Net income                          (82,986)       (2,082)     (85,068)

    Net income (loss) per share:
      Basic                              $(1.03)       $(0.03)      $(1.06)
      Diluted                            $(1.03)       $(0.03)      $(1.06)


                                       Six Months Ended September 30, 2008
                                    -----------------------------------------
                                                                Following the
                                    As Previously                Adoption of
                                      Presented     Adjustments   APB 14-1
                                    -------------   ----------- -------------
    Interest accretion                     $729        $4,165       $4,894
    Net income                         (270,278)       (4,165)    (274,443)

    Net income (loss) per share:
      Basic                              $(3.36)       $(0.05)      $(3.41)
      Diluted                            $(3.36)       $(0.05)      $(3.41)



                       Condensed Consolidated Balance Sheets
                                                  March 31, 2009
                                    -----------------------------------------
                                                                Following the
                                    As Previously                Adoption of
                                      Presented     Adjustments   APB 14-1
                                    -------------   ----------- -------------
    Other assets                         $7,010         $(650)       6,360
    Long-term debt                      307,111       (26,359)     280,752
    Total stockholders' equity          214,330        25,709      240,039


    Contact:  Dean W. Dimke
              Director of Corporate and
              Investor Communications
              deandimke@KEMET.com
              954-766-2800

              William M. Lowe, Jr.
              Executive Vice President and
              Chief Financial Officer
              williamlowe@KEMET.com
              864-963-6484

SOURCE KEMET Corporation