KEMET Reports Second Quarter of Fiscal Year 2011 Results
GREENVILLE, S.C., Oct. 28 /PRNewswire-FirstCall/ --
-- Net sales up 43.5% to $248.6 million compared to $173.3 million for the same quarter last fiscal year -- Gross margin improved to 28.0% compared to 25.0% for the prior quarter ended June 30, 2010 -- Earnings per Share of $0.43 per basic share and $0.23 per diluted share -- Adjusted EBITDA of $53.4 million
KEMET Corporation (NYSE Amex: KEM) today reported preliminary results for the second fiscal quarter ended September 30, 2010. Net sales for the quarter ended September 30, 2010 were $248.6 million, which is a 43.5% increase over the same quarter last fiscal year and a 2.0% increase over the prior fiscal quarter ended June 30, 2010 of $243.8 million.
On a U.S. GAAP basis, net income was $34.9 million, or $0.43 per basic share and $0.23 per diluted share for the second quarter of fiscal year 2011 compared to a net loss of $93.1 million or $(1.15) per basic and diluted share for the same quarter last year and compared to a net loss of $20.1 million or $(0.25) per basic and diluted share for the prior fiscal quarter ended June 30, 2010. The current fiscal quarter includes $2.3 million of restructuring charges primarily associated with the relocation of equipment, a $1.8 million net gain on sales of assets and a $2.0 million gain on licensing of patents. Conversely, the second quarter of fiscal year 2010 included a $81.1 million non-cash charge related to the mark-to-market adjustment for the Platinum Closing Warrant and $1.3 million of restructuring charges.
Non-GAAP Adjusted net income was $34.3 million or $0.42 per basic share and $0.22 per diluted share for the current fiscal quarter compared to a Non-GAAP Adjusted net loss of $5.8 million, or $(0.07) per basic and diluted share for the same quarter last year and compared to a Non-GAAP Adjusted net income of $22.3 million, or $0.28 per basic share and $0.15 per diluted share for the prior fiscal quarter ended June 30, 2010.
"Traditionally, our second fiscal quarter reflects a slowdown related to the effects of European holidays. This year demand remained strong throughout the period while we continued to improve our operating efficiencies, contain our operating expenses, and thus increase operating margins benefiting both our net earnings and our cash generation," said Per Loof KEMET's Chief Executive Officer. "Our financial results today significantly exceed our performance prior to the recession and we remain focused on bringing our shareholders increasing value through continued execution of our strategies and strength in our markets," continued Loof.
The Company's common stock is listed on the NYSE Amex under the ticker symbol 'KEM' (NYSE Amex: 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.
In this news release, the Company makes reference to certain Non-GAAP financial measures, including "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 net income (loss)" and "Adjusted net income (loss) per share" represent net income/loss and net income/loss per share excluding increase in value of warrant, gain/loss on early extinguishment of debt, ERP integration costs, restructuring charges related primarily to equipment moves and employee severance, gain/loss on sales and disposals of assets, amortization related to debt issuance costs and debt discount, cancellation of incentive plan, write off of capitalized advisor fee and gain on licensing of patents. Management believes that these Non-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-GAAP financial measures to evaluate operating performance. 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 income/loss:
Quarters Ended Six Months Ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, 2010 2010 2009 2010 2009 (Unaudited) (Amounts in thousands, except per share data) GAAP Net sales $ 248,588 $ 243,794 $ 173,265 $ 492,382 $ 323,432 Net income (loss) $ 34,911 $ (20,099) $ (93,075) $ 14,812 $ (67,985) Basic net income $ 0.43 $ (0.25) $ (1.15) $ 0.18 $ (0.84) (loss) per share Diluted net income $ 0.23 $ (0.25) $ (1.15) $ 0.10 $ (0.84) (loss) per share Excluding the following items (Non-GAAP) Net income (loss) $ 34,911 $ (20,099) $ (93,075) $ 14,812 $ (67,985) Adjustments: Restructuring 2,303 1,792 1,267 4,095 1,267 charges Amortization 830 1,924 3,319 2,754 5,883 included in interest expense (Gain) loss on early - 38,248 - 38,248 (38,921) extinguishment of debt (Gain) loss on sales (1,770) 335 52 (1,435) 258 and disposals of assets ERP integration 375 280 - 655 - costs Gain on licensing of (2,000) - - (2,000) - patents Cancellation of - - 1,161 - 1,161 incentive plan Increase in value of - - 81,088 - 81,088 warrant Write off of - - 413 - 413 capitalized advisor fee Income tax effect of (364) (155) (67) (632) 671 non-GAAP adjustments (1) Adjusted net income $ 34,285 $ 22,325 $ (5,842) $ 56,497 $ (16,165) (loss) (excluding adjustments) Adjusted net income (loss) per share (excluding adjustments) Basic $ 0.42 $ 0.28 $ (0.07) $ 0.70 $ (0.20) Diluted $ 0.22 $ 0.15 $ (0.07) $ 0.37 $ (0.20) (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.
Beginning January 1, 2011, 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) 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 further reevaluation and the write down of long-lived assets; (iii) an increase in the cost or a decrease in the availability of our principle 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) inability to attract, train and retain effective employees and management; (ix) the inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (x) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xi) volatility of financial and credit markets which would affect our access to capital; (xii) needing to reduce costs of our products to remain competitive; (xiii) potential limitation on use of net operating losses to offset possible future taxable income; and (xiv) exercise of the warrant by K Equity, LLC which could potentially result in the existence of a controlling stockholder.
KEMET CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited - Amounts in thousands except per share data) Quarters Ended September Six Months Ended September 30, 30, 2010 2009 2010 2009 Net sales $ 248,588 $ 173,265 $ 492,382 $ 323,432 Operating costs and expenses: Cost of sales 178,870 148,751 361,756 278,412 Selling, general and administrative expenses 24,999 20,513 49,214 38,535 Research and development 6,224 5,569 12,255 10,348 Restructuring charges 2,303 1,267 4,095 1,267 Net (gain) loss on sales and disposals of assets (1,770) 52 (1,435) 258 Total operating costs and expenses 210,626 176,152 425,885 328,820 Operating income (loss) 37,962 (2,887) 66,497 (5,388) Other (income) expense: Interest income (84) (102) (105) (133) Interest expense 7,334 6,491 14,792 12,310 Increase in value of warrant - 81,088 - 81,088 (Gain) loss on early extinguishment of debt - - 38,248 (38,921) Other (income) expense, net (4,792) 999 (3,118) 5,511 Income (loss) before income taxes 35,504 (91,363) 16,680 (65,243) Income tax expense 593 1,712 1,868 2,742 Net income (loss) $ 34,911 $ (93,075) $ 14,812 $ (67,985) Net income (loss) per share (basic) $ 0.43 $ (1.15) $ 0.18 $ (0.84) Net income (loss) per share (diluted) $ 0.23 $ (1.15) $ 0.10 $ (0.84)
KEMET CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Amounts in thousands, except per share data) September 30, 2010 March 31, 2010 ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 117,454 $ 79,199 Accounts receivable, net 154,289 141,795 Inventories, net 183,676 150,508 Prepaid expenses and other 10,749 14,380 Deferred income taxes 3,735 2,129 Total current assets 469,903 388,011 Property and equipment, net of accumulated depreciation of $708,494 and $686,958 as of September 30, 2010 and March 31, 2010, respectively 307,684 319,878 Intangible assets, net 20,501 21,806 Other assets 10,513 11,266 Total assets $ 808,601 $ 740,961 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 5,457 $ 17,880 Accounts payable, trade 82,032 78,829 Accrued expenses 77,608 63,606 Income taxes payable 1,818 1,096 Total current liabilities 166,915 161,411 Long-term debt, less current portion 268,825 231,629 Other non-current obligations 58,874 55,626 Deferred income taxes 9,282 8,023 - - Stockholders' equity: Common stock, par value $0.01, authorized 300,000 shares, issued 88,525 shares at September 30, 2010 and March 31, 2010 885 885 Additional paid-in capital 478,518 479,115 Retained deficit (135,967) (150,789) Accumulated other comprehensive income 17,120 11,990 Treasury stock, at cost (7,250 and 7,390 shares at September 30, 2010 and March 31, 2010, respectively) (55,851) (56,929) Total stockholders' equity 304,705 284,272 - - Total liabilities and stockholders' equity $ 808,601 $ 740,961
KEMET CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Amounts in thousands) (Unaudited) Six Months Ended September 30, 2010 2009 Sources (uses) of cash and cash equivalents Operating activities: Net income (loss) $ 14,812 $ (67,985) Adjustments to reconcile net income (loss) to net cash provided by operating activities: (Gain) loss on early extinguishment of debt 38,248 (38,921) Increase in value of warrant - 81,088 Depreciation and amortization 28,642 25,490 Amortization of debt discount and debt issuance costs 2,754 5,883 Net (gain) loss on sales and disposals of assets (1,435) 258 Stock-based compensation expense 482 1,628 Change in deferred income taxes (418) (13) Change in operating assets (39,109) 11,563 Change in operating liabilities 14,376 2,111 Other (1,907) (346) Net cash provided by operating activities 56,445 20,756 Investing activities: Capital expenditures (13,821) (3,730) Proceeds from sales of assets 5,425 - Net cash used in investing activities (8,396) (3,730) Financing activities: Proceeds from issuance of debt 227,434 57,786 Payments of long-term debt (228,543) (47,719) Net payments under other credit facilities (1,779) (1,346) Debt issuance costs (7,461) (4,206) Debt extinguishment costs (207) (3,605) Net cash provided by (used in) financing activities (10,556) 910 Net increase in cash and cash equivalents 37,493 17,936 Effect of foreign currency fluctuations on cash 762 272 Cash and cash equivalents at beginning of fiscal period 79,199 39,204 Cash and cash equivalents at end of fiscal period $ 117,454 $ 57,412
Adjusted EBITDA-Non-GAAP Financial Measure
Adjusted EBITDA represents net income/loss before income tax expense, interest expense, and depreciation and amortization expense, adjusted to exclude restructuring charges, stock-based compensation expense, gain/loss on sales and disposals of assets, loss on early extinguishment of debt, ERP integration costs, foreign exchange transaction gain/loss and gain on licensing of patents. 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 reconciliation from U.S. GAAP net loss to Adjusted EBITDA (amounts in thousands):
Q1 FY11 Q2 FY11 Net income (loss) $ (20,099) $ 34,911 Income tax expense 1,275 593 Interest expense, net 7,437 7,250 Depreciation and amortization expense 14,510 14,132 Stock-based compensation expense 149 333 (Gain) loss on sales and disposals of assets 335 (1,770) Loss on early extinguishment of debt 38,248 - Foreign exchange transaction (gain) loss 1,272 (2,679) ERP integration costs 280 375 Restructuring charges 1,792 2,303 Gain on licensing of patents - (2,000) Adjusted EBITDA $ 45,199 $ 53,448
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
Released October 28, 2010