1
Greenville, South Carolina (January 19, 2004) - KEMET Corporation (NYSE:KEM)
today reported financial results for the fiscal quarter ended December 31,
2003. Net sales for the quarter were $111.3 million and net loss before special
charges was $(7.3) million, or $(0.08) per diluted share. Comparisons to prior
periods are as follows:
<Table>
<Caption>
Quarter Ended
- ---------------
Dec 2003
Sep 2003
Dec 2002
- --------
- --------
- --------
(In Millions, Except Per Share Data)
Net Sales
$ 111.3
$ 100.1
$ 103.7
Before special charges (non-GAAP)
Net loss
( 7.3)
(13.3)
(3.6)
Net loss per diluted share
(0.08)
(0.15)
(0.04)
Special after-tax charges
(5.8)
(30.0)
(28.1)
Special after-tax charges per diluted share
(0.07)
(0.35)
(0.33)
After special charges (GAAP)
Net loss
(13.1)
(43.3)
(31.7)
Net loss per diluted share
$ (0.15)
$ (0.50)
$ (0.37)
</Table>
"KEMET is beginning to benefit from a sustained recovery in the electronics
industry," stated Dr. Jeffrey Graves, Chief Executive Officer. "For the first
time since December 2000, quarterly revenue increased over revenue from the
same quarter in the prior year. Unit shipments continued to increase, with
KEMET's capacity utilization reaching approximately 75%. We believe industry
wide capacity utilization is higher, and, as a result, mix adjusted average
selling prices rose 3% in the December 2003 quarter compared to steep declines
in prior quarters.
"KEMET's total unit shipments were up 8% sequentially in the December quarter,
after being up 31% in the September quarter. While unit shipments to Asia
moderated, there was significant unit growth in North America and Europe with
distribution and Electronic Manufacturing Services customers. We believe that
the renewed growth in these regions reflects the early stages of improvement in
IT infrastructure spending, combined with continued strength in the industrial,
military and automotive sectors. We are encouraged by media reports of
continued growth forecasted for these sectors in calendar 2004, as this would
improve shipments of large case size parts, which for KEMET includes our more
innovative parts, and more tantalum part types, where we lead the world. Our
expectation in the coming quarters is that, based on the assumption of continue
economic recovery, unit shipment growth will continue, but at a more modest
pace, and product mix will shift toward larger case sizes and a stronger
percentage growth in tantalum products.
2
"Our manufacturing moves to low cost locations remain ahead of schedule, and by
March 2005 virtually all of our commodity production will be in low cost
regions. Our new plant in China is shipping product, and initial customer
feedback is excellent. A second China facility will be operational in the fall
of 2004. 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, Lamina, and FELCO product lines. With an experienced management
team and a strong balance sheet, I remain confident in KEMET's future."
As of December 31, 2003, KEMET had $301 million in cash and short and long-term
investments in marketable securities, $100 million in long-term debt, and $735
million in stockholders' equity.
The company will hold a conference call at 8:30 am ET Tuesday, January 20,
2004, 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 February 20, 2004, 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 global
economic conditions make it particularly difficult at present to predict
product demand and other related matters.
* Sales of surface-mount capacitors were 84%, and sales of leaded parts were
16% of total sales for the December 2003 quarter.
* By region, 43% percent of total sales for the December 2003 quarter were
to customers in North America, 37% were to Asia, 19% were to Europe, and 1%
to the rest of the world.
* By channel, 50% percent of total sales for the December 2003 quarter were
to distribution customers, 26% were to Electronic Manufacturing Services
customers, and 24% were to Original Equipment Manufacturing customers.
* Average selling prices for the December 2003 quarter, adjusted for changes
in product mix, increased approximately 3% from average selling prices for
the September 2003 quarter.
3
* On July 2, 2003, KEMET announced the reorganization of its operations around
the world resulting in the location of virtually all of commodity production in
low cost regions to be completed by March 2005. 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 unit volumes at the time of the
announcement, 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 have occurred in
accordance with, or faster than, the anticipated time line. Charges related to
movement of manufacturing operations in the December 2003 and September 2003
quarters were $10 million and $12 million, respectively. The balance of the
$35 million is expected to be realized ratably over the next five 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.
* 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 restructured its solid aluminum capacitor business line and
recognized a $22.3 million non-cash special charge in the September 2003
quarter related to the estimated impairment of assets and inventory write offs.
This should result in realized cash savings of approximately $10 million
annually once the restructuring is complete. In the December 2003 quarter,
a $1.6 million credit to special charges was recognized because the liquidation
proceeds were greater than previously estimated.
* In the September 2003 quarter, $1.2 million of special charges were
recognized related to the write-down of the facility supporting the solid
aluminum product line. Future charges related to the write-down of other US
manufacturing facilities are uncertain at this time because the amount and
timing of the special charges is dependent on operational decisions, some of
which have not been finalized yet, and on operational activities yet to occur.
* Prior to the end of fiscal 2004, KEMET will terminate and liquidate its
defined benefit pension plan and, as a result, will recognize a $35 million
after-tax special charge to be recognized in the March 2004 quarter. The
termination of the pension plan is anticipated to result in future savings of
$6 million per year. KEMET continues to provide other defined contribution
retirement plans to its employees.
* Summary of special charges in the fiscal December 2003 and 2002 periods
(in millions):
4
Quarter
Year-to-Date
Dec-03
Dec-02
Dec-03
Dec-02
- ------
- ------
- ------
- ------
Manufacturing relocation and employee termination costs
$ 10.4
$ -
$ 21.3
$ 9.1
Lower of cost or market valuation of tantalum supply agreement
-
40.8
12.4
40.8
Inventory charges
-
1.8
-
5.1
Impairment of solid aluminum capacitor business line
(1.6)
-
21.9
-
Impaired assets associated with closing facilities
-
-
-
4.6
- ---------
- ---------
- --------
- --------
Special charges
8.8
42.6
55.6
59.6
Income tax expense
(3.0)
(14.5)
(19.6)
(20.3)
- --------
- --------
- --------
- --------
Special charges net of taxes
$ 5.8
$ 28.1
$ 36.0
$ 39.3
=========
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========
</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
Mar 2003
Jun 2003
Sep 2003
Dec 2003
- ----
- ----
- ----
- ----
- ----
- --------
- --------
- --------
- --------
(In Millions)
SG&A
$52.7
$55.2
$62.3
$54.4
$54.4
$13.4
$13.5
$13.0
$11.9
R&D
$22.1
$24.9
$27.2
$26.3
$25.3
$ 5.9
$ 6.0
$ 5.9
$ 6.3
</Table>
* New product announcements during fiscal 2004:
* June 2003?Acquisition of Sierra KD high voltage and high temperature ceramic
capacitor and EMI filter product lines, targeted at military, aerospace, oil
service, oil exploration, medical imaging, power generation, and high voltage
power supply market sectors.
5
? September 2003?Internal development of 125oC rated Polymer Tantalum
capacitor designated the T525 Series, targeted for power management
applications to reduce component counts, eliminate through-hole assembly
by replacing leaded aluminum capacitors, and offer a more cost effective
solution to high-cap ceramic capacitors.
* September 2003?Internal development of wet tantalum capacitors, targeted
at the military, avionics, and oil exploration market segments.
* September 2003?Internal development of newest generation of KO (KEMET
Organic) capacitors and KM (KEMET Multi-Polymer-Anode) capacitors. Large
case size KOs targeted at high-functionality electronic products, such as
notebooks, servers, networks, and mobile phone s. Small case size KOs, which
can be drop in replacements for certain high-capacitance MLCCs, are targeted
at smaller electronic products, such as PDAs, DVDs, mobile phones, and
notebooks.
* September 2003?Investment in and business agreement with Lamina Ceramics to
develop and commercialize high-performance, low-temperature co-fired
ceramic-on-metal ("LTCC-M") solutions for advanced electronic systems,
including RF/microwave assemblies, opto-electronic packages, solid state
light engines and packages, and automotive circuits.
* December 2003?Acquisition of FELCO custom magnetic solutions for customers in
the military, aerospace, and industrial industries.
* December 2003?Internal development of "Open-Mode" ceramic capacitor, targeted
at automotive and power conversion market sectors.
* December 2003?Expansion of Co-manufacturing Agreement with Showa Denko K.K.
regarding solid conductive polymer aluminum surface-mount capacitors
allowing both companies to continue marketing and selling aluminum polymer
capacitors to their respective customers and market areas.
* Capital expenditures for the December 2003 quarter were $5 million.
Fiscal Year Ended
Fiscal Quarter Ended
- --------------------------------------
- ----------------------------------------------------------
2001
2002
2003
Mar 2003
Jun 2003
Sep 2003
Dec 2003
- -------
- -------
- -------
- ------------
- ------------
- ------------
- ------------
Additions to property, plant and equipment
$ 287
$ 109
$ 26
$ 6
$ 3
$ 6
$ 5
6
* During the December 2003 quarter, inventories decreased $8 million to $131
million from $139 million at September 30, 2003. Raw materials and supplies
decreased $5 million in the December 2003 quarter, and finished goods and work
in process decreased $3 million.
Mar 1999
Mar 2000
Mar 2001
Mar 2002
Mar 2003
Jun 2003
Sep 2003
Dec 2003
- --------
- --------
- --------
- --------
- --------
- --------
- --------
- --------
(In Millions)
Raw materials and supplies
$ 45
$ 53
$ 115
$ 118
$ 91
$ 81
$ 70
$ 65
Work in process and finished goods
81
78
149
141
93
87
69
66
- ------
- ------
- ------
- ------
- ------
- ------
- ------
- ------
$ 126
$ 131
$ 264
$ 259
$ 184
$ 168
$ 139
$ 131
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======
======
======
======
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* Cash and long and short-term investments in marketable securities during the
December 2003 quarter decreased $1 million to $301 million from $302 million at
September 30, 2003. During the quarter, $73 million of marketable bonds were
purchased which are classified as long-term investments.
QUIET PERIOD
Beginning April 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.
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<Caption>
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Data)
Unaudited
Three months ended
Nine months ended
December 30,
December 30,
- ------------------------------
- ------------------------------
2003
2002
2003
2002
-------------
- -------------
- --------------
- -------------
Income Statement Data:
Net Sales
$ 111,335
$ 103,727
$ 316,781
$ 340,827
Cost of goods sold
103,605
93,956
312,104
294,886
Loss on long-term supply contract
-
40,833
12,355
40,833
Selling, general and administrative expenses
11,919
13,834
38,494
40,984
Research and development
6,297
5,615
18,167
19,330
Restructuring and impairment charges
8,788
-
37,629
13,696
-----------
-----------
-----------
-----------
Operating loss
(19,274)
(50,511)
(101,968)
(68,902)
Interest expense
1,502
1,602
4,740
4,719
Interest income
(1,068)
(1,100)
(2,715)
(3,051)
Other (income) expense
98
(2,945)
(2,083)
(10,796)
Income tax benefit
(6,734)
(16,343)
(41,987)
(20,323)
-----------
-----------
-----------
-----------
Net loss
$ (13,072)
$ (31,725)
$ (59,923)
$ (39,451)
===========
===========
===========
===========
Loss Per Share Data:
Net loss per share:
Basic
$ (0.15)
$ (0.37)
$ (0.69)
$ (0.46)
Diluted
$ (0.15)
$ (0.37)
$ (0.69)
$ (0.46)
Weight-average shares outstanding:
Basic
86,434,209
86,099,656
86,395,460
86,113,737
Diluted
86,434,209
86,099,656
86,395,460
86,113,737
8
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(Dollars in Thousands)
Unaudited
December 30, 2003
September 30, 2003
------------------
----------------
ASSETS
Cash and cash equivalents
$ 219,154
$ 267,577
Short-term investments
9,207
34,428
Accounts receivable, net
55,521
55,903
Inventories
130,601
139,311
Prepaid expenses and other current assets
6,685
7,878
Deferred income taxes
29,716
30,933
- ------------
- ------------
Total current assets
450,884
536,030
Property, plant and equipment, net
428,429
442,060
Long-term investments in marketable securities
72,945
-
Investments in affiliates
3,808
4,176
Intangible assets, net
44,592
43,216
Other assets
25,366
25,709
- ------------
- ------------
Total assets
$ 1,026,024
$ 1,051,191
============
============
Liabilities and Stockholders' Equity
Accounts payable trade
$ 33,945
$ 30,217
Accrued expenses
44,861
47,813
Income taxes payable
19,591
17,838
- ------------
- ------------
Total current liabilities
98,397
95,868
Long-term debt
100,000
100,000
Other non-current obligations
60,843
64,177
Deferred income taxes
32,007
42,118
- ------------
- ------------
Total liabilities
291,247
302,163
Common stock
879
879
Additional paid-in capital
317,579
317,421
Retained earnings
446,992
460,064
Accumulated other comprehensive loss
(2,948)
(1,574)
Treasury stock, at cost
(27,725)
(27,762)
- ------------
- ------------
Total stockholders' equity
734,777
749,028
Total liabilities and stockholders' equity
$ 1,026,024
$ 1,051,191
============
============