1
Greenville, South Carolina (October 20, 2003) - KEMET Corporation (NYSE:KEM)
today reported financial results for the fiscal quarter ended September 30,
2003. Net sales for the quarter were $100.1 million and net loss in the quarter
was $(43.3) million, or $(0.50) per diluted share. Comparisons to prior periods
are as follows:
<Table>
<Caption>
Quarter Ended
- ---------------
Sep 2003
Jun 2003
Sep 2002
- --------
- --------
- --------
(In Millions, Except Per Share Data)
Net Sales
$ 100.1
$ 105.4
$ 113.1
Before special charges (non-GAAP)
Net loss
(13.3)
(3.6)
-
Net loss per diluted share
(0.15)
(0.04)
-
Special after-tax charges
(30.0)
-
(11.1)
Special after-tax charges per diluted share
(0.35)
-
(0.13)
After special charges (GAAP)
Net loss
(43.3)
(3.6)
(11.1)
Net loss per diluted share
$ (0.50)
$ (0.04)
$ (0.13)
</Table>
"Over the past few quarters, the electronics industry experienced the
beginnings of a sustained recovery, with unit volumes increasing and inventory
returning to normalized levels," stated Dr. Jeffrey Graves, President and CEO.
"KEMET's total unit shipments were up 31% in the September quarter, after being
up 14% in the June quarter. Asia was particularly strong, with September unit
shipments to Asia up 54% over the June quarter, which was up 40% over the March
quarter. Unit shipments in the September quarter were approximately 2.5 times
higher than the low point in the industry cycle in the September 2001 quarter.
KEMET's overall capacity utilization rose to approximately 65%. Shipments and
orders in September were strong and remained strong into October. As world
shipments continue to increase, we are seeing extended lead times in innovative
products.
"Early segments to recover have been consumer oriented, such as PCs and cell
phones, therefore KEMET to date has seen more of an increase in smaller case
sizes and ceramic part types. Later in the overall industry recovery, we
anticipate an increase in information technology and telecommunications
infrastructure, which consumes more large case sizes, which for KEMET includes
our more innovative parts, and more tantalum part types, where we lead the
world.
2
"However, due to excess capacity in the global capacitor industry, significant
average selling price declines were experienced in the September quarter. Most
of the price decline was in the first half of the quarter, and price declines
moderated substantially in the second half. These price declines resulted in
lower revenue and an increased net loss before special charges in the September
quarter compared to the June quarter. We anticipate that as unit volumes
continue to increase, average selling prices will moderate, and in certain
areas may increase.
"KEMET continues to position ourselves to benefit from the industry recovery.
Our manufacturing moves are ahead of schedule, and by March 2005 virtually all
of our commodity production should be in low cost regions. Our new plant in
China is shipping product, and initial customer feedback is excellent. We
continue to make significant product advances in high capacitance ceramic
and organic and wet tantalum capacitors. We are enhancing our internal product
development with external acquisitions and investments, including the Sierra KD
and Lamina product lines. With an experienced management team and a strong
balance sheet, I remain confident in KEMET's future."
As of September 30, 2003, KEMET had $302.0 million in cash and short-term
investments, $100.0 million in long-term debt, and $749.0 million in
stockholders' equity.
The company will hold a conference call at 8:30 am ET Tuesday, October 21,
2003, to discuss the earnings release. The call will last approximately one
hour, and after an initial presentation, questions will be taken as time
permits. To access the call, participants in the United States should dial
1-800-416-8033, and participants outside the United States should dial
1-706-643-0979. Participants should reference "KEMET Corporation" and the
Conference ID #: 3123653. An archived replay of the conference call will be
available through midnight on November 21, 2003, by calling 1-800-642-1687
inside the United States and 1-706-645-9291 internationally, and referencing
the Conference ID #.
KEMET's common stock is listed on The New York Stock Exchange under the
symbol KEM. At the Investor Relations portion of the company's web site at
http://www.KEMET.com/IR, users can subscribe to KEMET news releases and can
find additional company information.
BUSINESS OUTLOOK
The following statements are based on current expectations. These statements
are forward-looking, and actual results may differ materially. Current negative
trends in global economic conditions make it particularly difficult at present
to predict product demand and other related matters.
* Sales of surface-mount capacitors were 80%, and sales of leaded parts were
20% of total sales for the September 2003 quarter.
* By region, 47% percent of total sales for the September 2003 quarter were to
customers in North America, 35% were to Asia, 17% were to Europe, and 1% to
the rest of the world.
3
* Average selling prices for the September 2003 quarter decreased approximately
12% from average selling prices for the June 2003 quarter. Most of the price
decline was in the first half of the quarter, and price declines moderated
substantially in the second half. As industry unit volumes increase due to
improving end demand, the decline in average selling prices should moderate
to more normal annual declines of 6% to 8% per year.
* On July 2, 2003, KEMET announced the reorganization of its operations around
the world over the next two years. KEMET estimates it will incur special
charges of approximately $35 million over the period of the reorganization
related to movement of manufacturing operations. When the reorganization is
complete, the company estimates this will yield an approximate one-year
payback based on fiscal 2004 unit volumes, and a $50-60 million savings with
volume recovery by fiscal 2006 if unit growth continues as it has in recent
quarters.
Various parts of KEMET's announced move of production to low cost locations
around the world have occurred in accordance with, or faster than, the
anticipated time line. In the September 2003 quarter, $12 million of charges
related to movement of manufacturing operations were recognized. The balance
of the $35 million is expected to be realized ratably over the next six
quarters. The timing of the special charges is dependent on the timing of
operational decisions, some of which have not been finalized, and on
operational activities yet to occur.
* KEMET has a supply agreement to acquire tantalum powder and tantalum wire
products through 2006 with Cabot Corporation (NYSE:CBT). In accordance with
generally accepted accounting principles, KEMET records inventory at the
lower of cost or market. The company estimated that the commitment under
the long-term supply agreement, net of prior charges, exceeded tantalum
market prices by approximately $12 million at the end of the quarter, which
KEMET recognized as a special charge in the September 2003 quarter. This
charge is in addition to the $41 million special charge taken in December
2002 in relation to the tantalum supply agreement.
* In 1999, KEMET announced its entry into the market for solid aluminum
capacitors. Since that time, KEMET has made significant technology advances
in both high-capacitance MLCCs and organic tantalum capacitors, limiting the
applications for which solid aluminum capacitors are now superior solutions.
As a result, KEMET is discontinuing its solid aluminum capacitor business
line and recognized a $22.3 million non-cash special charge in the September
2003 quarter related to the impairment of assets and inventory write offs.
This should result in realized cash savings of approximately $10 million
annually once the restructuring is complete.
* KEMET previously announced there may be a special charge of approximately
$15 million reflecting the write-down of US manufacturing facilities to
their residual value. The timing of the special charges is dependent on the
timing of operational decisions, some of which have not been finalized yet,
and on operational activities yet to occur. In the September 2003 quarter,
the $22.3 million special charge related to the discontinuance of the solid
aluminum product line included $1 million related to the write-down of the
facility that supported that product line. The remaining $14 million would
be recognized when decisions are made to vacate the remaining facilities.
4
Summary of special charges in the September 2003 and 2002 quarters
Sep-03
Sep-02
- ------
- ------
(In Millions)
Manufacturing relocation and employee termination costs
$ 11.9
$ 9.1
Lower of cost or market valuation of tantalum supply agreement
12.4
-
Impairment of solid aluminum capacitor business line
22.3
-
Impaired assets associated with closing manufacturing facilities
-
4.6
Inventory charges associated with closing facilities
-
3.3
- ---------
- ---------
Special charges
46.6
17.0
Income tax expense
(16.6)
(5.9)
- --------
- --------
Special charges net of taxes
30.0
11.1
</Table>
* For fiscal 2004, KEMET anticipates maintaining our investments in key
customer relationships through our direct sales and customer service
professionals, as well as our investments in research and development,
to maintain our competitive position in the capacitor industry.
Fiscal Year Ended
Fiscal Quarter Ended
- --------------------------------------------------
- ---------------------------------------
1999
2000
2001
2002
2003
Dec 2002
Mar 2002
Jun 2003
Sep 2003
- ----
- ----
- ----
- ----
- ----
- --------
- --------
- --------
- --------
(In Millions)
SG&A
$52.7
$55.2
$62.3
$54.4
$54.4
$13.8
$13.4
$13.5
$13.0
R&D
$22.1
$24.9
$27.2
$26.3
$25.3
$ 5.6
$ 5.9
$ 6.0
$ 5.9
</Table>
5
* Capital expenditures for the September 2003 quarter were $5 million.
"Production capacity" is equipment that can be added incrementally during
the year as market demand dictates. "Facilities and cost reduction" are
long-term investments that maintain KEMET's ability to be cost competitive
and to add space for new equipment lines as needed to respond to market
demands.
Fiscal Year Ended March
Fiscal Quarter Ended
- --------------------------------------------------------
- --------------------------------------------
1999
2000
2001
2002
2003
Dec 2002
Mar 2003
Jun 2003
Sep 2003
- ----
- ----
- ----
- ----
- ----
- --------
- --------
- --------
- --------
(In Millions)
Production capacity
$ 35
$ 61
$ 135
$ 47
$ 18
$ 4
$ 4
$ 3
$ 3
Facilities & Cost reduction
24
21
76
31
4
2
1
-
2
$ 59
$ 82
$ 211
$ 78
$ 22
$ 6
$ 5
$ 3
$ 5
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=====
</Table>
* During the September 2003 quarter, inventories decreased $29 million to $139
million from $168 million at June 30, 2003. Raw materials and supplies
decreased $11 million in the September 2003 quarter, and finished goods and
work in process decreased $18 million.
Mar 1999
Mar 2000
Mar 2001
Mar 2002
Dec 2002
Mar 2003
Jun 2003
Sep 2003
- --------
- --------
- --------
- --------
- --------
- --------
- --------
- --------
(In Millions)
Raw materials and supplies
$ 45
$ 53
$ 115
$ 118
$ 102
$ 91
$ 81
$ 70
Work in process and finished goods
81
78
149
141
108
93
87
69
- ------
- ------
- ------
- ------
- ------
- ------
- ------
- ------
$ 126
$ 131
$ 264
$ 259
$ 210
$ 184
$ 168
$ 139
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* Cash and short-term investments during the September 2003 quarter increased
$5 million to $302 million from $297 million at June 30, 2003.
6
QUIET PERIOD
Beginning January 1, 2004, KEMET will observe a Quiet Period during which the
Business Outlook as provided in this news release and the company's quarterly
report on Form 10-Q will no longer constitute the company's current
expectations. During the Quiet Period, the Business Outlook in these documents
should be considered to be historical, applying prior to the Quiet Period only
and not subject to update by the company. During the Quiet Period, KEMET
representatives will not comment concerning the Business Outlook or KEMET's
financial results or expectations. The Quiet Period will extend until the day
when KEMET's next quarterly earnings release is published.
This release contains certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. We intend that
these forward-looking statements be subject to the safe harbor created by that
provision. These forward-looking statements involve risks and uncertainties and
include, but are not limited to, statements regarding future events and our
plans, goals, and objectives. Our actual results may differ materially from
these statements. These risks, trends, and uncertainties, which in some
instances are beyond our control, include: risks associated with the cyclical
nature of the electronics industry, the requirement to continue to reduce the
cost of our products, the competitiveness of our industry, an increase in the
cost of our raw materials, the location of several of our plants in Mexico, and
the possible loss of key employees. Although we believe that the assumptions
underlying the forward-looking statements are reasonable, any of the
assumptions could prove to be inaccurate. Therefore, we can give no assurance
that the results contemplated in these forward-looking statements will be
realized. The inclusion of this forward-looking information should not be
regarded as a representation by our company or any person that the future
events, plans, or expectations contemplated by our company will be achieved.
Furthermore, past performance in operations and share price is not necessarily
predictive of future performance.
7
<Caption>
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Data)
Unaudited
Three months ended
Six months ended
September 30,
September 30,
- ------------------------------
- ------------------------------
2003
2002
2003
2002
-------------
- -------------
- --------------
- -------------
Income Statement Data:
Net Sales
$ 100,084
$ 113,055
$ 205,446
$ 237,100
Cost of goods sold
112,500
99,978
208,497
200,931
Loss on long-term supply contract
12,355
-
12,355
-
Selling, general and administrative expenses
13,030
13,293
26,576
27,150
Research and development
5,907
6,936
11,870
13,715
Restructuring and impairment charges
28,549
13,696
28,841
13,696
-----------
-----------
-----------
-----------
Operating loss
(72,257)
20,848
(82,693)
(18,392)
Interest expense
1,348
553
2,920
2,100
Interest income
(886)
(1,013)
(1,646)
(1,951)
Other income
(479)
(3,496)
(1,863)
(6,834)
Income tax expense (benefit)
(28,960)
(5,743)
(35,253)
(3,980)
-----------
-----------
-----------
-----------
Net loss
$ (43,280)
$ (11,149)
$ (46,851)
$ (7,727)
===========
===========
===========
===========
Loss Per Share Data:
Net loss per share:
Basic
$ (0.50)
$ 0.13
$ (0.54)
$ 0.09
Diluted
$ (0.50)
$ 0.13
$ (0.54)
$ 0.09
Weight-average shares outstanding:
Basic
86,403,086
86,163,766
86,376,086
86,120,855
Diluted
86,403,086
86,163,766
86,376,086
86,120,855
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KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(Dollars in Thousands)
Unaudited
September 30, 2003 2003
June 30, 2003
------------------
----------------
ASSETS
Cash and cash equivalents
$ 267,577
$ 291,498
Short-term investments
34,428
5,198
Accounts receivable, net
55,903
50,013
Inventories
139,311
167,988
Prepaid expenses and other current assets
7,878
8,299
Deferred income taxes
30,933
22,103
- ------------
- ------------
Total current assets
536,030
545,099
Property, plant and equipment, net
442,060
469,996
Intangible assets, net
43,216
43,460
Other assets
29,885
26,789
- ------------
- ------------
Total assets
$ 1,051,191
$ 1,085,344
============
============
Liabilities and Stockholders' Equity
Accounts payable trade
$ 30,217
$ 23,407
Accrued expenses
47,813
30,303
Income taxes payable
17,838
23,739
- ------------
- ------------
Total current liabilities
95,868
77,449
Long-term debt
100,000
100,000
Other non-current obligations
64,177
57,617
Deferred income taxes
42,118
58,158
- ------------
- ------------
Total liabilities
302,163
293,224
Common stock
879
879
Additional paid-in capital
317,421
317,981
Retained earnings
460,064
503,344
Accumulated other comprehensive loss
(1,574)
(1,574)
Treasury stock, at cost
(27,762)
(28,510)
- ------------
- ------------
Total stockholders' equity
749,028
792,120
Total liabilities and stockholders' equity
$ 1,051,191
$ 1,085,344
============
============