1 A Technology and Material Science Company B. Riley & Co. 17th Annual Investor Conference May 26, 2016 Presenter: William Lowe – EVP & CFO
2 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 the 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) possible acquisition of NEC TOKIN may not achieve all of the anticipated results; (xi) acquisitions and other strategic transactions expose us to a variety of risks; (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 A global company – A historic brand Simpsonville Ciudad Victoria, Monterrey (2) & Matamoros (2), Mexico Evora, Portugal Pontecchio, Italy Landsberg, Germany Kyustendil, Bulgaria Anting-Shanghai, China KnoxvilleCarson City, NV Batam, Indonesia Chicago Suomussalmi, FinlandGranna & Farjestaden, Sweden Suzhou, China (2) Skopje, Macedonia Founded in 1919 19 Manufacturing Plants 8800 Employees EASY TO BUY FROM 1,145 Components shipped per second Weymouth, UK
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6 Where do we Play?
7 Where do we Play? 5 year CAAGR Fastest Growth Sectors: 2015-2020 Cloud Infrastructure Consumer Industrial Automotive PC Communication Infrastructure SSD Microserver High Speed Interconnect LED Lighting Wearables Home Automation 2-in-1 PC Industrial Robots Renewables EV ADAS 4G Small Cells 12% 22% 22% 7% 30%+ 14% 12% PV= 8% 12% 18% 20% 20%+Connected Car = 25%
8 Where do we Play? Internet of Things
9 Where do we Play? AUTOMOTIVE
10 Where do we Play: Military Electronics Growth Rate: 3% Systems of interest • Radar Land Sea Air • Communication gear • Unmanned Arial Vehicles (drones) • F35 Multirole fighter jets • Ballistic Missile Defense System • Patriot Missile System
11 Orion space capsuleWhere Do we Play: SPACE
12 Where do we Play: Medical-In Your Body
13 Where do we Play: Industrial Growth Rate = 5% Systems of interest • Renewable Energy Wind Solar Tidal • Connected Home • Industrial Robots • LED Lighting • Down Hole Drilling • Meters Water Electric • Motor Drives • Industry 4.0
14 OEM Distribution EMS PRODUCT CHANNEL GEOGRAPHY SEGMENT Balanced Approach
15 Sales Summary – Q4 FY2016
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17 How Do we Sell? Differentiators
18 NEC TOKIN Acquisition Update
19 NEC TOKIN Inductors, Relays, Piezo, Sensors and EMI solutions
20 • NEC TOKIN Products • Capacitors Tantalum Supercapacitors • Electro-magnetic materials and devices Inductors, Filters, Flex Suppression Sheets • Piezoelectric components • Electro-mechanical devices Signal Relays Power Relays NEC TOKIN Overview • On February 1, 2013 KEMET acquired a 34% economic interest with a 51% voting interest in NEC TOKIN Corporation (“NEC TOKIN”) • NEC TOKIN manufactures tantalum and other capacitors, electro-magnetic materials, piezoelectric components, electro-mechanical devices and access devices • Manufacturing locations in Japan, China, Vietnam, Philippines and Thailand 20
21 NEC TOKIN Financial Highlights J-GAAP (amounts in 100M JPY) Jun 2015 Sep 2015 Dec 2015 Mar 2016 2016 2015 Balance Sheet Highlights: Cash ¥121.9 ¥118.0 ¥123.7 ¥117.3 ¥117.3 ¥122.1 Total Debt 293.2 289.8 289.2 284.9 284.9 295.2 Income Statement Highlights: Net Sales 138.7 144.0 135.4 135.2 553.2 535.7 Operating Income ¥5.3 ¥6.4 ¥5.8 ¥7.9 ¥25.4 ¥14.8 Non-GAAP Measures: Adjusted EBITDA * ¥19.5 ¥21.0 ¥20.1 ¥22.0 ¥82.6 ¥66.9 * Excludes legal fees and accruals for antitrust issue Quarter Ended Fiscal Year
22 Acquisition update Since the beginning of the equity investment KEMET has had the intention of acquiring the remaining interest for a 100% stake. Beginning in March 2014, NT was notified that it was being investigated by numerous government authorities for alleged antitrust violations dating back as early as 2002. The uncertain impact of the investigations and related civil litigation on NT’s financial results has caused a delay in KEMET’s completion of the NT acquisition. Recent NT settlements with regulators and class-action plaintiffs have provided clarity and removed significant obstacles to the completion of the transaction. KEMET and NEC remain in discussion concerning the terms of the acquisition. The final structure and mechanics of this transaction will be announced with the completion of a definitive agreement. It may vary from the existing agreement between the parties. Current expectation is for closing by the end of KEMET’s current fiscal year. The total accrual for both civil and governmental fines is approximately $86 million as of March 31, 2016. An amount of $2.3 million was paid to the U.S. government before March 31.
23 NT Antitrust Investigation Update - Governments • US – NT settlement with DOJ announced September 2 • $13.8 million, payable in 6 installments over 5 years • Decision finalized by court on January 21 • First payment of $2.3 million paid • Taiwan – Fine has been set at $18.58 million • Payments over an 8 year time frame • Japan – Received decision on March 29 - $1.06 million • EU, South Korea, China, Brazil, Singapore – Pending
24 NT U.S. Antitrust Litigation Update - Civil NT is involved in civil cases filed in California for both direct purchasers and indirect purchasers A settlement in principle was made with DPP’s and IPP’s on May 2, 2016 for $37.25 million payable over time through May 2019. Total accrual for both civil and governmental fines is $86.6 million as of March 31, 2016. An amount of $2.3 million was paid to the U.S. government before March 31.
25 KEMET Summary Financial Information
26 Annual FY 2015 and 2016 Comparison U.S. GAAP (in thousands, except EPS) FY2015 FY2016 Net sales 823,192$ 734,823$ Cost of sales 663,683 571,543 Gross margin 159,509 163,280 Gross margin % 19.4% 22.2% SG&A 98,533 101,446 R&D 25,802 24,955 Restructuring 13,017 4,178 Net (gain) loss on sales and disposals of assets (221) 375 Operating income 22,378 32,326 Operating income as a % of net sales 2.7% 4.4% Other (income) / expense, net (6,182) 23,952 Interest (income) / expense, net 40,686 39,591 Income (loss) before income taxes and equity loss from NEC TOKIN (12,126) (31,217) Income tax expense 5,227 6,006 Income (loss) before equity loss from NEC TOKIN (17,353) (37,223) Equity loss from NEC TOKIN (2,169) (16,406) Income (loss) from continuing operations (19,522) (53,629) Income (loss) from discontinued operations, net of tax 5,379 - Net income (loss) (14,143)$ (53,629)$ Earnings per share - basic (0.31)$ (1.17)$ Earnings per share - diluted (0.31)$ (1.17)$ Weighted avg. shares - basic 45,381 46,004 Weighted avg. shares - diluted 45,381 46,004
27 FY15 Q4 & FY16 Q4 Comparison U.S. GAAP (Unaudited) Margin trends continue to improve Quarter Ended ($ in millions) Mar 2015 Mar 2016 Net Sales 193.7$ 183.9$ Cost of sales 157.4 141.9 Gross Margin 36.3 42.0 % Margin 18.7% 22.8% SG&A Expenses 24.9 25.8 Operating Income 0.9 8.6 % Margin 0.5% 4.7% Net Income (Loss) (19.8)$ (15.2)$
28 Annual FY 2015 and 2016 Comparison Non-GAAP * Total debt – cash, restricted cash, and cash equivalents ** Annual interest expense for FY15 and FY16 was $38.9 million and $38.7 million, respectively ($ in millions) 2015 2016 Net Sales 823.2$ 734.8$ Adjusted Gross Margin 166.5 165.9 % Margin 20.2% 22.6% Adjusted SG&A Expenses 90.0 88.4 Adjusted Operating Income 51.0 52.8 % Margin 6.2% 7.2% Adjusted Net Income 7.0$ 8.9$ Adjusted EBITDA 91.7$ 91.1$ % Margin 11.1% 12.4% Supplemental Data: Total Debt $391.4 $390.6 LTM Adjusted EBITDA $91.7 $91.1 Net Leverage * $333.3 $325.6 Quarterly Interest Expense** $38.9 $38.7 Fiscal Year
29 FY15 Q4 & FY16 Q4 Comparison Non-GAAP Quarter Ended ($ in millions) Mar 2015 Mar 2016 Net Sales 193.7$ 183.9$ Adjusted Gross Margin 36.5 42.8 % Margin 18.9% 23.2% Adjusted SG&A Expenses 22.1 23.5 Adjusted Operating Income 7.9 12.9 % Margin 4.1% 7.0% Adjusted Net Income (Loss) (1.6)$ 1.8$ Adjusted EBITDA 18.2$ 23.0$ % Margin 9.4% 12.5%
30 Cost Rationalization Drives Margin Improvement U.S. GAAP 1.2% 1.9% 2.7% 3.0% 3.3% 3.3% 4.4% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 LTM Operating Income Margins
31 10.6% 11.2% 11.1% 11.5% 11.8% 11.6% 12.4% 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0% Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 LTM Adjusted EBITDA Margins Cost Rationalization Drives Margin Improvement Non-GAAP
32 Quarterly Financial Summary $215 $201 $194 $188 $186 $177 $184 $- $50 $100 $150 $200 $250 Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 Revenue $26 $28 $18 $20 $24 $24 $23 $- $5 $10 $15 $20 $25 $30 Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 Adjusted EBITDA
33 Annual Financial Summary Revenue and Adjusted EBITDA Margins Adjusted EBITDA Capital Expenditures (Adjusted EBITDA – CapEx) CAPEX As a % of Revenue 3.9% 2.7% 2.8% Note: Amounts shown remove effects of machining business $ In millions $ In millions $ In millions$ In millions $834 $823 $735 8.5% 11.1% 12.4% $0 $200 $400 $600 $800 $1,000 FY 2014 FY 2015 FY 2016 $71 $92 $91 $0 $50 $100 $150 FY 2014 FY 2015 FY 2016 $39 $70 $71 $0 $20 $40 $60 $80 FY 2014 FY 2015 FY 2016 $32 $22 $20 $0 $5 $10 $15 $20 $25 $30 $35 FY 2014 FY 2015 FY 2016
34 Financial Highlights (1) Includes $1.8M of restricted cash for Mar 2015 and Dec 2015 and $0.0M for Mar 2016 (2) Calculated as accounts receivable, net, plus inventories, net, less accounts payable. (3) Calculated by annualizing the current quarter’s Net sales divided by current quarter's accounts receivable. (4) Calculated by annualizing the current quarter's Cost of sales divided by current quarter's accounts payable. (Amounts in millions, except DSO and DPO) Mar 2015 Dec 2015 Mar 2016 Cash and cash equivalents (1) $ 58.1 $ 45.0 $ 65.0 Capital expenditures $ 4.8 $ 4.9 $ 6.3 Short-term debt $ 1.0 $ 5.0 $ 2.0 Long-term debt 388.0 388.0 388.0 Debt premium 2.4 1.9 0.6 Total debt $ 391.4 $ 394.9 $ 390.6 Equity 164.7 124.4 112.5 Net working capital (2) 192.9 200.7 191.1 Days in receivables (DSO) (3) 43 46 46 Days in payables (DPO) (4) 41 42 46
35 Financial Trends Cash and Cash Equivalents (in millions) $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 Q1 Q2 Q3 Q4 FY2016 FY2017 * FY2017 cash balances reflect the Company’s most recent estimates and exclude any impact of debt repurchases authorized by the Board. Actual operating results may vary. *
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37 Appendix
38 Adjusted Gross Margin Non-GAAP (Amounts in thousands, except percentages) Mar 2015 Mar 2016 2015 2016 Net Sales $ 193,708 $ 183,926 $ 823,192 $ 734,823 Gross margin $ 36,329 $ 42,013 $ 159,509 $ 163,280 Gross margin as a percentage of net sales 18.8% 22.8% 19.4% 22.2% Adjustments: Plant start-up costs 651 319 4,556 861 Plant shut-down costs - 141 889 372 Stock-based compensation expense 465 278 1,576 1,418 Inventory revaluation (928) - - - Adjusted gross margin $ 36,517 $ 42,751 $ 166,530 $ 165,931 Adjusted gross margin as a percentage of net sales 18.9% 23.2% 20.2% 22.6% Quarter Ended Fiscal Year
39 Adjusted Selling, General, and Administrative Expenses Non-GAAP (Amounts in thousands, except percentages) Mar 2015 Mar 2016 2015 2016 Net Sales $ 193,708 $ 183,926 $ 823,192 $ 734,823 Selling, general, and administrative expenses $ 24,870 $ 25,790 $ 98,533 $ 101,446 Adjustments: ERP integration costs / IT transition costs 1,273 859 3,248 5,677 Stock-based compensation expense 838 685 2,641 3,162 Legal expenses related to antitrust class actions 435 482 844 3,041 NEC TOKIN investment-related expenses 226 265 1,778 900 Pension plan adjustment - - - 312 Adjusted selling, general, and administrative expenses $ 22,098 $ 23,499 $ 90,022 $ 88,354 Adjusted selling, general, and administrative expenses as a percentage of net sales 11.4% 12.8% 10.9% 12.0% Quarter Ended Fiscal Year
40 Adjusted Operating Income Non-GAAP (Amounts in thousands, except percentages) Mar 2015 Mar 2016 2015 2016 Operating income $ 912 $ 8,603 $ 22,378 $ 32,326 Adjustments: ERP integration costs / IT transition costs 1,273 859 3,248 5,677 Stock-based compensation expense 1,328 1,013 4,512 4,774 Restructuring charges 3,437 617 13,017 4,178 Legal expenses related to antitrust class actions 435 482 844 3,041 NEC TOKIN investment-related expenses 226 265 1,778 900 Plant start-up costs 651 319 4,556 861 Plant shut-down costs - 141 889 372 Net (gain) loss on sales and disposals of assets 538 608 (221) 375 ension plan adjustment - - - 312 Inventory revaluation (928) - - - Adjusted operating income $ 7,872 $ 12,907 $ 51,001 $ 52,816 Adjusted operating income as a percentage of net sales 4.1% 7.0% 6.2% 7.2% Quarter Ended Fiscal Year
41 (Amounts in thousands, except percentages) Mar 2015 Mar 2016 2015 2016 Net income (loss) $ (19,847) $ (15,173) $ (14,143) $ (53,629) Adjustments: Change in value of NEC TOKIN options 11,100 - (2,100) 26,300 Equity (gain) loss from NEC TOKIN 2,093 11,648 2,169 16,406 Restructuring charges 3,437 617 13,017 4,178 ERP integration costs / IT transition costs 1,273 859 3,248 5,677 Stock-based compensation expense 1,328 1,013 4,512 4,774 Legal expenses related to antitrust class actions 435 482 844 3,041 Net foreign exchange (gain) loss (2,168) 122 (4,249) (3,036) NEC TOKIN investment-related expenses 226 265 1,778 900 Income tax effect of pension curtailment - 155 - 875 Plant start-up costs 651 319 4,556 861 Plant shut-down costs - 141 889 372 Amortization included in interest expense 244 210 1,814 859 Net (gain) loss on sales and disposals of assets 538 608 (221) 375 Pension plan adjustment - - - 312 Income tax effect of Non-GAAP adjustments 20 546 84 652 (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) $ (1,598) $ 1,812 $ 6,958 $ 8,917 Adjusted net income (loss) as a percentage of net sales -0.8% 1.0% 0.8% 1.2% Adjusted net income (loss) per share - basic $ (0.04) $ 0.04 $ 0.15 $ 0.19 Adjusted net income (loss) per share - diluted $ (0.04) $ 0.04 $ 0.13 $ 0.17 Weighted avg. shares - basic 45,443 46,160 45,381 46,004 Weighted avg. shares - diluted 45,443 50,056 52,588 51,436 Quarter Ended Fiscal Year Adjusted Net Income (Loss) Non-GAAP
42 Adjusted EBITDA Reconciliation Non-GAAP Quarter Ended LTM (Amounts in thousands, except percentages) Dec 2013 Mar 2014 Jun 2014 Sep 2014 Sep 2014 Net Sales $ 207,339 $ 215,821 $ 212,881 $ 215,293 $ 851,334 Net income (loss) (5,820) (14,447) (3,540) 6,330 (17,477) Income tax expense (benefit) 1,033 (2,811) 1,282 2,583 2,087 Interest expense, net 10,342 10,658 10,453 10,284 41,737 Depreciation and amortization 11,762 12,175 10,797 10,177 44,911 EBITDA 17,317 5,575 18,992 29,374 71,258 Excluding the following items (Non-GAAP): Change in value of NEC TOKIN options (1,716) (1,777) (4,100) (6,600) (14,193) Equity (gain) loss from NEC TOKIN (1,657) 4,127 1,675 (232) 3,913 Restructuring charges 2,194 5,954 1,830 1,687 11,665 ERP integration costs / IT transition costs 994 837 895 409 3,135 Stock-based compensation expense 702 579 994 958 3,233 Net foreign exchange (gain) loss 207 (449) 527 (1,351) (1,066) NEC TOKIN investment-related expenses 249 618 580 487 1,934 Plant start-up costs 485 669 1,647 1,114 3,915 Plant shut-down costs - 2,668 889 - 3,557 Net (gain) loss on sales and disposals of assets 29 (39) 365 (550) (195) (Income) loss from discontinued operations 1,076 (103) (6,943) 1,400 (4,570) Inventory revaluation - - 2,676 (821) 1,855 Write down of long-lived assets 3,358 1,118 - - 4,476 Infrastructure tax - 1,079 - - 1,079 Adjusted EBITDA $ 23,238 $ 20,856 $ 20,027 $ 25,875 $ 89,996 Adjusted EBITDA Margin 11.2% 9.7% 9.4% 12.0% 10.6%
43 Adjusted EBITDA Reconciliation Non-GAAP Quarter Ended LTM (Amounts in thousands, except percentages) Mar 2014 Jun 2014 Sep 2014 Dec 2014 Dec 2014 Net Sales $ 215,821 $ 212,881 $ 215,293 $ 201,310 $ 845,305 Net income (loss) (14,447) (3,540) 6,330 2,914 (8,743) Income tax expense (benefit) (2,811) 1,282 2,583 1,359 2,413 Interest expense, net 10,658 10,453 10,284 9,933 41,328 Depreciation and amortization 12,175 10,797 10,177 9,720 42,869 EBITDA 5,575 18,992 29,374 23,926 77,867 Excluding the following items (Non-GAAP): Change in value of NEC TOKIN options (1,777) (4,100) (6,600) (2,500) (14,977) Equity (gain) loss from NEC TOKIN 4,127 1,675 (232) (1,367) 4,203 Restructuring charges 5,954 1,830 1,687 6,063 15,534 ERP integration costs / IT transition costs 837 895 409 671 2,812 Stock-based compensation expense 579 994 958 1,232 3,763 Legal expenses related to antitrust class actions - - - 409 409 Net foreign exchange (gain) loss (449) 527 (1,351) (1,257) (2,530) NEC TOKIN investment-related expenses 618 580 487 485 2,170 Plant start-up costs 669 1,647 1,114 1,144 4,574 Plant shut-down costs 2,668 889 - - 3,557 Net (gain) loss on sales and disposals of assets (39) 365 (550) (574) (798) (Income) loss from discontinued operations (103) (6,943) 1,400 164 (5,482) (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 Write down of long-lived assets 1,118 - - - 1,118 Infrastructure tax 1,079 - - - 1,079 Adjusted EBITDA $ 20,856 $ 20,027 $ 25,875 $ 27,608 $ 94,366 Adjusted EBITDA Margin 9.7% 9.4% 12.0% 13.7% 11.2%
44 Adjusted EBITDA Reconciliation Non-GAAP Quarter Ended LTM (Amounts in thousands, except percentages) Sep 2014 Dec 2014 Mar 2015 Jun 2015 Jun 2015 Net Sales $ 215,293 $ 201,310 $ 193,708 $ 187,590 $ 797,901 Net income (loss) 6,330 2,914 (19,847) (37,050) (47,653) Income tax expense (benefit) 2,583 1,359 3 (248) 3,697 Interest expense, net 10,284 9,933 10,016 10,010 40,243 Depreciation and amortization 10,177 9,720 10,074 9,917 39,888 EBITDA 29,374 23,926 246 (17,371) 36,175 Excluding the following items (Non-GAAP): Change in value of NEC TOKIN options (6,600) (2,500) 11,100 29,200 31,200 Equity (gain) loss from NEC TOKIN (232) (1,367) 2,093 (1,585) (1,091) Restructuring charges 1,687 6,063 3,437 1,824 13,011 ERP integration costs / IT transition costs 409 671 1,273 4,369 6,722 Stock-based compensation expense 958 1,232 1,328 1,279 4,797 Legal expenses related to antitrust class actions - 409 435 718 1,562 Net foreign exchange (gain) loss (1,351) (1,257) (2,168) 1,049 (3,727) NEC TOKIN investment-related expenses 487 485 226 224 1,422 Plant start-up costs 1,114 1,144 651 195 3,104 Net (gain) loss on sales and disposals of assets (550) (574) 538 (58) (644) Pension plan adjustment - - - 312 312 (Income) loss from discontinued operations 1,400 164 - - 1,564 (Gain) loss on early extinguishment of debt - (1,003) - - (1,003) Professional fees related to financing activities - 1,142 - - 1,142 Inventory revaluation (821) (927) (928) - (2,676) Adjusted EBITDA $ 25,875 $ 27,608 $ 18,231 $ 20,156 $ 91,870 Adjusted EBITDA Margin 12.0% 13.7% 9.4% 10.7% 11.5%
45 Adjusted EBITDA Reconciliation Non-GAAP Quarter Ended LTM (Amounts in thousands, except percentages) Dec 2014 Mar 2015 Jun 2015 Sep 2015 Sep 2015 Net Sales $ 201,310 $ 193,708 $ 187,590 $ 186,123 $ 768,731 Net income (loss) 2,914 (19,847) (37,050) 7,194 (46,789) Income tax expense (benefit) 1,359 3 (248) 1,438 2,552 Interest expense, net 9,933 10,016 10,010 9,808 39,767 Depreciation and amortization 9,720 10,074 9,917 9,265 38,976 EBITDA 23,926 246 (17,371) 27,705 34,506 Excluding the following items (Non-GAAP): Change in value of NEC TOKIN options (2,500) 11,100 29,200 (2,200) 35,600 Equity (gain) loss from NEC TOKIN (1,367) 2,093 (1,585) (162) (1,021) Restructuring charges 6,063 3,437 1,824 23 11,347 ERP integration costs / IT transition costs 671 1,273 4,369 282 6,595 Stock-based compensation expense 1,232 1,328 1,279 1,328 5,167 Legal expenses related to antitrust class actions 409 435 718 541 2,103 Net foreign exchange (gain) loss (1,257) (2,168) 1,049 (3,171) (5,547) NEC TOKIN investment-related expenses 485 226 224 186 1,121 Plant start-up costs 1,144 651 195 187 2,177 Net (gain) loss on sales and disposals of assets (574) 538 (58) (304) (398) Pension plan adjustment - - 312 - 312 (Income) loss from discontinued operations 164 - - - 164 (Gain) loss on early extinguishment of debt (1,003) - - - (1,003) Professional fees related to financing activities 1,142 - - - 1,142 Inventory revaluation (927) (928) - - (1,855) Adjusted EBITDA $ 27,608 $ 18,231 $ 20,156 $ 24,415 $ 90,410 Adjusted EBITDA Margin 13.7% 9.4% 10.7% 13.1% 11.8%
46 Quarter Ended LTM (Amounts in thousands, except percentages) Mar 2015 Jun 2015 Sep 2015 Dec 2015 Dec 2015 Net Sales $ 193,708 $ 187,590 $ 186,123 $ 177,184 $ 744,605 Net income (loss) (19,847) (37,050) 7,194 (8,600) (58,303) Income tax expense (benefit) 3 (248) 1,438 2,760 3,953 Interest expense, net 10,016 10,010 9,808 9,848 39,682 Depreciation and amortization 10,074 9,917 9,265 9,674 38,930 EBITDA 246 (17,371) 27,705 13,682 24,262 Excluding the following items (Non-GAAP): Change in value of NEC TOKIN options 11,100 29,200 (2,200) (700) 37,400 Equity (gain) loss from NEC TOKIN 2,093 (1,585) (162) 6,505 6,851 Restructuring charges 3,437 1,824 23 1,714 6,998 ERP integration costs / IT transition costs 1,273 4,369 282 167 6,091 Stock-based compensation expense 1,328 1,279 1,328 1,154 5,089 Legal expenses related to antitrust class actions 435 718 541 1,300 2,994 Net foreign exchange (gain) loss (2,168) 1,049 (3,171) (1,036) (5,326) NEC TOKIN investment-related expenses 226 224 186 225 861 Plant start-up costs 651 195 187 160 1,193 Plant shut-down costs - - - 231 231 Net (gain) loss on sales and disposals of assets 538 (58) (304) 129 305 Pension plan adjustment - 312 - - 312 Inventory revaluation (928) - - - (928) Adjusted EBITDA $ 18,231 $ 20,156 $ 24,415 $ 23,531 $ 86,333 Adjusted EBITDA Margin 9.4% 10.7% 13.1% 13.3% 11.6% Adjusted EBITDA Reconciliation Non-GAAP
47 Adjusted EBITDA Reconciliation Non-GAAP Quarter Ended (Amounts in thousands, except percentages) Mar 2016 2014 2015 2016 Net Sales $ 183,926 $ 833,666 $ 823,192 $ 734,823 Net income (loss) (15,173) (68,503) (14,143) (53,629) Income tax expense (benefit) 2,056 1,482 5,227 6,006 Interest expense, net 9,925 40,767 40,686 39,591 Depreciation and amortization 10,160 49,527 40,768 39,016 EBITDA 6,968 23,273 72,538 30,984 Excluding the following items (Non-GAAP): Change in value of NEC TOKIN options - (3,111) (2,100) 26,300 Equity (gain) loss from NEC TOKIN 11,648 7,090 2,169 16,406 Restructuring charges 617 14,122 13,017 4,178 ERP integration costs / IT transition costs 859 3,880 3,248 5,677 Stock-based compensation expense 1,013 2,909 4,512 4,774 Legal expenses related to antitrust class actions 482 - 844 3,041 Net foreign exchange (gain) loss 122 (304) (4,249) (3,036) NEC TOKIN investment-related expenses 265 2,299 1,778 900 Plant start-up costs 319 3,336 4,556 861 Plant shut-down costs 141 2,668 889 372 Net (gain) loss on sales and disposals of assets 608 32 (221) 375 Pension plan adjustment - - - 312 (Income) loss from discontinued operations - 3,634 (5,379) - (Gain) loss on early extinguishment of debt - - (1,003) - Professional fees related to financing activities - - 1,142 - Write down of long-lived assets - 4,476 - - Inventory write-downs - 3,886 - - Long-term receivable write down - 1,444 - - Infrastructure tax - 1,079 - - Adjusted EBITDA $ 23,042 $ 70,713 $ 91,741 $ 91,144 Adjusted EBITDA Margin 12.5% 8.5% 11.1% 12.4% Fiscal Year
48 Adjusted EBITDA Reconciliation – NEC TOKIN Non-GAAP (amounts in 100M JPY) Jun 2015 Sep 2015 Dec 2015 Mar 2016 2016 2015 Operating Income (J-GAAP) ¥5.3 ¥6.4 ¥5.8 ¥7.9 ¥25.4 ¥14.8 Depreciation 14.2 14.6 14.3 14.1 57.2 52.1 Adjusted EBITDA ¥19.5 ¥21.0 ¥20.1 ¥22.0 ¥82.6 ¥66.9 Quarter Ended Fiscal Year
49 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 operating income Adjusted operating income represents operating income, 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 income or any other performance measure derived in accordance with GAAP.
50 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 (loss) 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.
51 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.
