KEMET CEO Discusses F3Q2011 Results - Earnings Call Transcript

| About: Kemet Corporation (KEM)

KEMET Corporation (NYSE:KEM)

F3Q2011 (Qtr End 12/31/2010) Earnings Call

February 03, 2011 09:00 am ET

Executives

Dean Dimke – Director of Corporate and Investor Communications

Per Loof – CEO

Bill Lowe – EVP and CFO

Analysts

Wamsi Mohan - Bank of America Merrill Lynch

Sherin Grydnel – Deutsche Bank

Hamed Khorsand - BWS Financial

Anthony Cure – KeyBanc Securities

Ana Goshko - Bank of America-Merrill Lynch.

Operator

Good morning. My name is Shanelle and I ‘ll be your conference operator today. At this time, I would like to welcome everyone to the Kemet Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you, Mr. Dimke, you may begin your conference.

Dean Dimke

Thank you Shanelle. This is Dean Dinke, Director of corporate and investor communication. Good morning and welcome to Kemet’s conference call to discuss our financial results for the third quarter ending December 31st fiscal year 2011. On the call with me today are, Per Loof, our Chief Executive Officer and Bill Lowe, our Executive Vice President and Chief Financial Officer.

As a reminder to you, our presentation is available on our website and as Shanelle be follow on the financial portion of our presentation this morning. Please go to kemet.com and click on the investor relations tab in the top right portion of our front page. Once there, please click on the third quarter conference call link. That will bring you a few a slides that we will call to your attention when we are covering those topics.

Before we begin, we would like to advise you that all statements address expectations or projections about the future are forward looking statements. Some of these statements include words such as expect, anticipate, plan, intend, project and indicate. Although they reflect our current expectations, these statements are not guarantees of future performance but involve a number of risks, uncertainties and assumptions. Please refer to our 10K 10Q and recent registration segment filing for additional information on risks and uncertainties. And now I’ll turn the call over to Per.

Per-Olof Loof – Chief Executive Officer

Thank you Dean and good morning everyone. Our December quarter was an extremely strong quarter for us which actually exceeded our own expectations. Total sales reaching approximately $265 million, a ten year high.

As Bill will review with you shortly, our margins remained strong at 27.4% and our EBITDA performance was $53.1 million for the quarter. Our success and these financial results are the combination of efforts by many within the KEMET organization over the past several years.

Furthermore and as anticipated, our stock holders did approve an amendment to the company’s status [ph] Rift General Corporation [ph] in order to facilitate a reverse stock slip at a special meeting of stockholders in early November.

Following the meeting the company filed a stiff kind of amendment [ph] to restrain a certificate of incorporation to affect the stock split at a ratio of 1:3 with the stock slip the coming effective for trading purposes as the market opened on November 8, 2010.

The success of the real stock split stocks enabled our return to the New York stock exchange under our previous trading symbol KEM. And let me tell you it feels really good to be back.

These actions in turn allowed us to facilitate a successful secondary stock offering for one of our largest takeovers, which has broadened our institutional function. This increased visibility on the company to the marketplace has also led to several new analysts following the company. And we’re pleased to see that Vancy Morgan of the Bank of America. Sherry Schreizer [ph] at Deutsche Bank and Tony Cure [ph] at Keybanc have initiated coverage on the company.

We believe the KEMET story is somewhat remarkable. Two years ago this March we found ourselves in the middle of the global recession. Our stock traded an all-time low of $0.24 on the split adjusted basis which at the time was $0.08. Our revenues had fallen to $136 million for the quarter. I’m not sure if it was at the last company removed from the New York Stock Exchange before this exchange with temporary safe parts in place to keep other companies from suffering a similar fate but we were certainly very close to the last.

Our cash reserves were hovering around the $30 million mark which greatly limited our ability to do anything other than focus on the finals. We clearly understood that you may be able run a company at a loss for sometime but you can only run out of cash, once.

We faced many obstacles and it would have been understandably easy to be discouraged. Instead, we focused on what we needed to do to ensure that we would not only survive the economic storm or come out stronger at the other end with a clear specific targets around four primary objectives.

First, increase sales; second, lower our breakeven point; third, improve gross margins; and finally, restructure our debt and strengthen our balance sheet.

The increase in sales revenue was achieved and at a much more accelerated rate than anticipated. As I said, revenues growth of $265 million this quarter and revenue has not grown for seven straight quarters.

Reducing our cost structure was key to achieving profitability. We substantially decreased our breakeven point by approximately $68 million per quarter.

Our third objective, margin. Eliminating cost and subsequently lowering our breakeven point, of cash as you all can see a significant impact on our results.

Product mix enrichment and a clear focus on growing market in specialty and emerging markets were also key to the improved result.

Approximately three years ago, we announced a shift in our strategics direction to move resources away from more commoditized products and place a greater focus on growing market share in the higher margin specialty products. Nowhere is this success better illustrated than in our Ceramics business group. We’ve seen excellent and increasing margin.

Our final prime objective was to strengthen our balance sheet. Today we have $128 million in cash. Our debt has been reduced not only in total but restructure with over 80% of our total debt not due until 2018. We believe the current sale of Kemet validates our strategy. The can do attitude that the entire team displayed during this period has brought confidence that we are all committed to building a strong and growing company.

But there were also lessons learnt and these experiences will serve us well as we continue to expand in the globalized marketplace.

With that, I’ll turn over to Bill to review the detail of our financial for the quarter. Bill?

William Lowe Jr

Thanks Per and good morning everyone. We’ll begin our review on slide 3, if you are following it on our website which is titled income statement highlights. Net sales exceeded our forecast for the quarter and were up 6.5% to $264.7 million compared to $248.6 million with the prior quarter end September 30th but up 32.4% over last year same quarter $199.9 million in sales.

Sales remained strong driven by automotive, industrial and our consumer segments, all three our geographic regions remained stronger during the quarter. Gross margin declined slightly to 27.4% compared to 28% in the prior quarter. The margins were impacted by both the mix of products in our Tantalum business as well as the cost of raw material.

We shared with you on our last call in October that rising Tantalum powder prices would impact our margins in both this quarter and next and we’ll give you an idea of our margin forecast for the next quarter a bit later.

Our SG&A expenses were $27.5 million, up slightly over last quarter and running about 10.4% of revenue. SG&A expenses were up from a combination of expenses related to selling commissions, performance in centers and expenses related to our recent secondary offering. Our GAAP net income was $27.2 million or $0.96 per basic share or $0.52 per diluted share for the quarter.

And as noted on slide 4, our non GAAP adjusted net income is $33.1 million or $1.17 per basic share, which is $0.64 per diluted share for the quarter; slightly up over our prior quarter ended September 30th of $0.62 for diluted share as well.

Our Non GAAP adjusted operating income which can be found on slide 5 was $40.1 million in line with last quarter of $39.2 million and up $31.5 million from $8.6 million one year ago in December 2009.

During the quarter we spent approximately $1.1 million on restructuring charges and we spent $5.2 million fiscal year to date on our ongoing realignment and restructuring of our Albany [ph] business group.

Adjusted EBITDA on slide 6 was $53.1 million for the quarter down slightly from $53.4 in the September quarter and significantly up from a year ago of $22.2 million.

Turning you now to the balance sheet, which is on slide 7. We continue to build cash in the quarter. Our unrestricted cash increased to $127.8 million which is up $10.3 million from the $117.5 million at the end of September.

Cash generated from operations on the cash flow statement for the quarter was $18.7 million and $75.1 million year to date. On the liability side of the balance sheet we did move approximately $38 million from long term debt to short term to account for the November 2011 put that underlies our convertible bonds.

Capital expenditures during the quarter were $5.7 million and a $19.6 million year to date. We expect to spend another $10 million to $15 million and our last quarter, the fiscal year, ending this coming March. In addition to CapEx, other major uses of cash this quarter was a payment of our interest on our bonds of $12.3 million and a build of inventory. The inventory increased $24 million this quarter primarily in Tantalum related to both the higher cost of material and our desired purchase material as early as possible as the prices were rising.

We expect that inventories will decline slightly during the March quarter. We continue to maintain a balance of DSO days and the receivables and payables. With the DSO for receivables now at a historical low of 47 days and payables at 43 days calculated by annualizing the current quarter’s net sales. Our bank revolver remains undrawn at this time.

Now looking forward to the next quarter which ends March 31, we see revenues declining between 5% to may be 8%. We have been expecting a slight pull back in revenue and we do believe we’ll see in this next quarter in combination with the seasonality that usually comes with the first calendar quarter.

A component of next quarter’s revenue decline is our machine product line. As most of you know, we are building our own equipment for our U.S. expansion under our Department of Energy grant. Of course, we also have third-party sales, the shipments that take place at various times during the year that are not consistent quarter-to-quarter even though overall annual revenue may be growing.

About two percentage points of the decline is related to these sales. So the change in component revenue, we expect is 3% to 6%.

Our overall consolidated gross margin will soften as a result of the higher Tantalum raw material prices and our mix of products to a range of 23.5% to 25.5%. It will not be until the first quarter of next fiscal year which begins in April before we are able to mitigate some of the price impact that we’ve seen today.

One final comment. Today, the company has or will file a Form 8-K indicating that Platinum Equity through K equity LOC has requested to becoming register the remain shares represented by the underlying warrant sale hold [ph]. While we cannot speak for K equity as our understanding that this registration is for a matter of future convenience and does not indicate a current desire to sell these shares in the near term.

With that I’ll turn the call back over to Per for his final comments.

Per-Olof Loof

Okay, Bill, thank you very much. And let’s now take a look at our business results by three businesses. Ceramics and Tantalum and Film and Electrolytics as well as the three sales regions Americas, Europe and Asia.

I’ll start with Film and Electrolytic business. Revenue this quarter was $89 million with a gross margin of 19.4%. Revenue increased sharply in Q3 versus Q2 across all product lines and geographies with a total increase of $21 million or 31%.

This increase is in part associated with the return to normal business levels in Q3 after a traditional summer slowdown in Q2. Manufacturing margins continue to improve driven by actions to optimize product pricing fully dilute fixed cost with higher volume as well as our continued focus on mixed optimization and overall cost reductions.

Also as Bill mentioned, we do have a machinery group which makes equipment of us but also makes equipment that it sells. This past quarter the machining group was quite busy with external bills. And this coming quarter they will focus much more on completing the tools we need to ramp up in the U.S. and in China.

Even though this business is not large on the margin you note, the machining drop in itself allowed a $6 million negative impact on the top line in Q4. While we achieved the highest sales in our current fiscal year for Atheny [ph] in Q3 our book-to-bill ratio on a 30 day weighted average basis is now 0.97. However, orders are expected to remain stable through Q4 in all of our facilities are currently fully loaded to the next six months.

In our Ceramics business the third quarter revenue declined by 11.8% over the previous quarter to $50.1 million. Due to some softness in our Asia Pacific business as well as from inventory corrections within our distribution channel primarily in the U.S.

Q3 gross margin or operating income both finished strong at 32.3% and 16.7% respectively. On the lower revenue our focus continues on product mix optimization and manufacturing cost initiatives.

The thirty day weighted average book to bill ratio currently stands at $0.90 and the backlog remains stable. We are however as we see, seeing the order rates pick up even in Asia. Capacity utilization also remains stable at approximately 75% in Q3.

On the Tantalum side of our business, we ended our Q3 at $125.3 million which is a ten year high; slightly above the $123.9 million from the previous quarter. As Asia slowed slightly during the quarter, the Americas and EMEA remained strong bolstering revenue.

Inventories in our distributive channels now appear to be at a good level. Of particular note the automotive, mobile, computing and industrial segments continue to show strength. The thirty day weighted average book to bill ratio currently stands at 0.95 and the backlog remains healthy at five month level.

I do think we will see the book to bill return to more than one in the near term as we are able to deliver on our current orders.

After the business by region. In Asia-Pacific, revenue for Q3 was $93 million; about the same as in Q2. Market conditions remained strong in the areas of green projects, industrial applications and power management. We saw some seasonal softness in the consumer segment as well as customer caution due to some lingering economic uncertainties.

We are also however seeing distributors making inventory corrections but the thirty weighted average book to bill currently stands at 1.04.

We are projecting similar sale revenues for Asia in Q4 as business and consumer demand will be ramping up after the Chinese New Year. The strengthening of the book-to-bill started already in mid December.

The European market continued to be strong in Q3 across all channels and business groups. Revenue grew by almost 18% compared to the previous quarter. The growth was evident in all business groups and customer fulfillment channels.

The European distributor channel continues to show strong performance and channel inventories still in doubt. Point of sale numbers for the month of January has been positive. However, there is some evidence that the European market is beginning to level off.

Some Ceramic products shows slightly negative book-to-bill during the quarter.However, Q4 has started very strongly in Europe and we do expect -- we do expect to see a small pull back in the fund of revenue this quarter as market inventory levels are balanced.

A 30-day weighted average book-to-bill currently stands at 0.95. The Americas, we did deliver another strong quarter about the same as in Q2, driven by improving end demand and continued replenishment of the supply chain. Sales were particularly strong for the automotive and telecommunication segments.

Sales through our distribution channel were also robust as they continued to replenish inventory.ASPs continued to increase in the quarter and our backlog remains healthy. The 30-day weighted book-to-bill ratio currently stands at 0.77.

However, when looking at our global book-to-bill, one needs to consider the channel makeup. Both our OEM and EMS channels book-to-bill of January 31 were above 1.1. Book-to-bill in distribution is at 0.78 globally, which is and at least the primary driver for the book-to-bill and are back to business. We have expected this change and that this channel as they balance our inventories.

Going forward, we expect end demand to remain strong as the recovery continues to gain traction. In conclusion, in the short term we continue to see fairly neutral to strength in demand across the businesses with some growth returning in the June quarter. Bill described a slight pull back of revenues for this quarter, but even mid term we believe we will see growth in the markets we serve.

We aim to be and hopefully our shareholders will agree, a long term play. Capacitors are not going away and the surge in demand for our Film and Electrolytic business in particular is driven by new green technologies.

It is important to look beyond just the next ninety days. Many experts and pundits tend to agree that even though it has taken time to emerge from the recession, we should now be looking at several years of robust end demand as we all come out of the downturn. On data and what we are surveying -- observing in the global marketplace seem to progress this issue.

I also said that even though some capacity has been and will be brought on to handle the expansion in demand it will be carefully matched certainly by us. We have positioned Kemet to be balanced in the market, geographies and the segments we serve as well as the products we deliver to our customers.

We’ll focus more than ever on the growth of our business and our focus will remain steady for specialty capabilities. In terms of the segments, we see growth and opportunity pretty much across the board.

For example, both U.S. and European automotive markets should remain strong as safety driven electric electronic content continues to be a key driver. In addition, as we collectively continue to develop in the electric vehicle infrastructure the broad capacitance requirements play well into the offering of the capacitor company.

And while the jury is still out with regards to cuts in the U.S. military budget, the push responded systems should continue to benefit over the short and long term. And of course, the graying of society in the developed countries will drive the need for new technologies that provide device portability and mobile monitoring.

Over the long term we expect the demands of the smart grain [ph] deal continue to benefit to KEMET as we supply the capacitor need at large and developed segment.

Incidentally during the quarter we delivered over 1300 new and first to market products, and these products in the underlying technologies position us well for future growth.

We cannot be more pleased with the trends we’ve seen in our financial results. And I would have to recognize the effort of the global and I really mean global KEMET team has made to deliver these.results.

And that concludes our prepared comments and we’ll be happy to respond to any of your questions.

Operator

At this time if you would like to ask a question, (Operators Instruction) Your first question comes from the line of Wamsi Mohan for Bank of America Merrill Lynch

Unknown Speaker

Hello Wamsi

Wamsi Mohan - Bank of America Merrill Lynch

Thank you good morning. Can you perhaps talk about your outlook for Tantalum pricing in the near and long term. There has been some capacity which is being brought back on line or is coming online in Australia and if you have any updated views on the DRC capacity for Tantalum.

Dean Dimke

I mean on the - we don’t know that you know the real talent behind the GMI now open and they have said that they will produce somewhere around 700,000 pounds which of course is a nice addition to the global supply. I don’t think that will have a meaningful impact on pricing and there were some different views in terms of the pricing we still believe that we will see some increase in pricing although the—the pricing increase we’ve seen this past year at those levels are probably over.

In terms of the DRC and Africa in general, EIGC is continuing to do it ordered to try and find out if there is a way whereby we can use the capability that is obviously there. And I think the ICC is now more focused on southern part of Congo the Catanga region which is little further removed from the worst from the more volatile sections of the Congo going forward. But that is an ongoing project and I think it would be good for industry and certainly for the country of Congo if these mines and these resources would be able to be utilized.

Our current view is that prices will increase some in the quarter come which is indicated in our margin forecast by Bill. But I don’t expect the prices to be galloping away as they kind of happen in this last fiscal year, last calendar year.

Wamsi Mohan - Bank of America Merrill Lynch

Okay, thank you, that’s helpful. And perhaps you could provide some more details on the FNE restructuring. Most helpful would be if you can tell us how much it contributed to adjusted EBITDA on a quarter-on-quarter basis and if you could comment how much of the total restructuring you are through at this point? Thank you.

William Lowe Jr

We've said that the cost reductions that we can achieve through the FNE restructuring is about $48 million in total over the whole period. And what we said is that we should actually be able to this quarter be able to get to a pretty much of the zero EBITDA performance as a result of that from a negative six to a zero.

Now, we are actually running ahead of our forecast as you can see from our business but that's more related to revenue increase and a better pricing situation. But the restructuring of our business is going on plan and is contributing to the bottom-line in-line with what we have made public in the past. So, if you want to look at that way with the performance this quarter or the next quarter has been probably $6 million, $7 million of the improvement in the quarter compared to a year ago is coming from the restructuring process. And we have another just as much to do over the next 12-15 months I should say.

Wamsi Mohan - Bank of America Merrill Lynch

Okay, very helpful. Thank you very much.

Operator

Your next question comes from the line of Sherin Grydnel with Deutsche Bank

Unidentified Company Representative

Good morning, Sherry

Unidentified Company Representative

Hello Sherry

Sherin Grydnel – Deutsche Bank

Good morning. Thank you taking the question. I just wanted to ask about the revenue guidance. If you exclude the machining business, you were 3% to 6% decline, and I think you competitor AVX was a little more positive I think they got flat to slightly down. So I just wanted to understand what’s different about what you are seeing versus what they are seeing?

Dean Dimke

Well, Per answers well, but I think if you compare their September quarter to December, they were actually down, September to December, and we were up September to December. So, I think you have to look at kind of two quarter situation when you look or when you compare to us. So I think when you do that, I think you get a number that we probably drop a little less than they drop in the two quarters by about a percentage point. So I think is relatively comparable versus not comparable. I think you have to look at the two quarters combined because as you know we went up 6.5% and I think they came down from 4.30 to 4.11 or something like that, four or five maybe. So they dropped quarter-over-quarter already.

Sherin Grydnel – Deutsche Bank

Okay, that’s fair. And then in terms of the gross margin decline, how much is that – how much of the gross margin decline is related to a change in mix versus the revenue decline versus the increased price of the end value [ph]?

Per-Olof Loof

Well, the revenue decline of course, has some stability but I think if you exclude the revenue decline it’s probably half and half mix and material price increase.

Sherin Grydnel – Deutsche Bank

Okay. And then just trying to get a sense of CapEx suggestions, you mentioned there’s been some CapEx addition. Have you seen any capacity added on the Tantalum side, have you added capacity and where do you think the industry is right now.

Dean Dimke

Well I think we have taken, we have started using the equipment we had in the past and we have realigned our capacity with the requirements of the marketplace. We are putting more capacity in play in the polymer marketplace. So we’re adding some capacity, I don’t think there is a whole lot of capacity being added in the channel space and I don’t think—I think capacity adds across the industry is somewhat well managed actually from what we can see and that clearly other friendly competitors will have to weigh in on this as well. But I think that’s kind of what I’m seeing and we are of course adding capability which is really little different from adding capacity although it adds capacity.

Well clearly our focus is on our CapEx is really to add additional technologies and additional capability more than building more of the same. So that sort of of our focus that we’ll build in 2011

William Lowe Jr

I think its sort of well managed to the point.

Sherin Grydnel – Deutsche Bank

Okay, that’s great. How much do you think of your business is how much of the mix is specialty. I heard of something you’ve been focusing on.

Dean Dimke

Yeah it is very positive from groups but I’d see specialty the way we define special and everybody has their own little—own little definition.But in depending on the business group it goes from 25 to 35.

Sherin Grydnel – Deutsche Bank

Okay great thank you very much

Dean Dimke

Okay thank you.

Operator

Your next question comes from the line of Hamed Khorsand with BSW Financial.

Hamed Khorsand - BWS Financial

Yeah good morning, BWS Financial. The question is on your hybrid vehicle the facility that you’re, the equipment that you’re bringing on in April, is that still on track for April?

Dean Dimke

Yes, that’s still our track for April, yes. We talked about this pull back in the machining industry because we need to keep this people building the stuff for our own facilities. So that’s still on track.

Hamed Khorsand - BWS Financial

Okay. Are you starting a book orders for that equipment or not yet?

Dean Dimke

We start to book orders, we start to book, this is early days. So we’re looking at more trial runs.

Per-Olof Loof

It’s going to assist us everything using as a start, it start rather slow, Hameed. So it’s not going to, it’s not a needle mover in the next quarter as we start to see what’s going out the door in the June quarter.

Dean Dimke

While we have a lot of projects –

Per-Olof Loof

There’s over, you think, it’s over 50 discussions currently underway with over 20 OEMs in regards to have the vehicles. So there’s a lot of activity that is going on with the company and various people.

William Lowe Jr

We were optimistic about our ability to do this when we started the project and I think what we’ve seen on our conversations with the end customers over these past six to nine months, we’re even more optimistic at this point.

Per-Olof Loof

And I think it’s important that when we – I think we talked about this with several involved and discussions or may be 13 different programs, may be for a handful of OEMs and as I just said that expanded to over 50 discussions with 20 OEMs. So you can see that that’s growing, the programs are growing and we’re involved in those and they come down the road but they don’t start immediately in April and May we will start with the small production that we start up here.

Dean Dimke

What is nice to see is that we can actually build the facility at home and due to that serving great opportunities with customers as well as thus making money. So that’s a good field.

Hamed Khorsand - BWS Financial

Okay, my other question was regarding your Japanese competitors, have you seen. Have you seen increased pricing pressure or them encroaching in your markets in the past in the quarter and presently?

Dean Dimke

We have actually – there are pretty slow to react typically in my experience, they should have found it out themselves. But in my experience they are pretty slow to react to price increases but we’ve seen from a we can actually train some activity in their space as well. So they will tend to move along and do what we are doing in terms of increasing our prices as the requirements come forward.

Hamed Khorsand - BWS Financial

And just a follow up to that, do you – I am sure they have more capacity available to them than you, do you fear they’ll put some of that to work given the demand in the industry right now?

Dean Dimke

They have more capacity in Ceramics but not -- not in our space.

Per-Olof Loof

I think the point they have a lot of capacity, that capacity if they comes on line is really not the space that we’re playing in. So lot of the commodity product that we are done with we talked about how we’ve changed directions in our Ceramics business. So we are not competing with a lot of that.

William Lowe Jr

And you know if you the big guys, if you take Morades [ph] and also Samsung in Korea they could say they are competing in this space, so we are not really pressed at this point.

Hamed Khorsand - BWS Financial

Okay, great, thank you.

Dean Dimke

Thanks and welcome

Operator

Your next question comes from the line of Anthony Cure with KeyBanc

Dean Dimke

Hi, good morning, Tony

Anthony Cure – KeyBanc Securities

Good morning, guys how are you this morning?

Dean Dimke

Good.

Anthony Cure – KeyBanc Securities

Good. Just, if you could just comment on the maybe overall impact of the – if you can quantify it the overall impact of distributor inventory restocking, I know there are some positives some negatives, but I guess, would you call a net positive during the quarter?

William Lowe Jr

In terms of stocking more or stocking less.

Anthony Cure – KeyBanc Securities

In terms of them restocking, positively impacting the topline.

Dean Dimke

I think, we are coming to the end of the replenishment cycle. We can say and that’s also part of the story for this coming quarter and I think the distributors are now, happy with what they have on the shelves and we are now -- we will continue to replenish as the demand improves. We have seen the positive part of sale, book-to-build, recently in a sense that the great story about the end demand being strong. In my conversations with our distributor partners. They are rather bullish on the year to come.

Anthony Cure – KeyBanc Securities

Would you say, where there is most of restocking like for prior to this quarter with some this quarter, but more to prior?

William Lowe Jr

I think, more was prior and some the end of this quarter. I think the replenishment is over.

Anthony Cure – KeyBanc Securities

Okay, so, does the restocking with sort of minor impact to this quarter's performance.

William Lowe Jr

Yes.

Anthony Cure – KeyBanc Securities

Okay. and then taking another step further, could you just talk about how pricing maybe impacted each segment?

William Lowe Jr

Well, I mean, we continue to work with our customers to ensure that we can -- that they stay competitive and we can be competitive and also that we can make our models work. I think, we have seen the pricing environment to be relatively positive over these last six months and now, relatively stable. I think, that’s kind of way I would describe it. The pricing is stable. I think there are some product groups that have reflected positive to pricing environment at the moment. But on the overall scheme, I think, pricing is going to be -- it's going to be relatively stable.

Anthony Cure – KeyBanc Securities

Okay. and then, does the guidance assume then, that sort of benign pricing environment. You are not going to get a lot of prices should not going to concede a lot of price?

Dean Dimke

We are not going to conceive pricing. We are going to get some but the benefit for the pricing environment of course takes some time. As Bill said, we have some agreements in place where the customers have to how he will manage this and we will see the impact of that after the pricing has set So.

William Lowe Jr

Right, a more impact on recovering some of that to our contracts we're getting on April quarter as I said.

Anthony Cure – KeyBanc Securities

Just a last question on the capacity being brought online so do your take on the market, it sounds to me like you are pretty confident that it’s sort of rational at this point. I guess what do you sort of point to provide that confidence, is this just what you are hearing in the industry or maybe provide a little color there?

Dean Dimke

It’s what I hear from customers is kind of where I take my queues. And having as you may know I have spend a lot time personally with our customers. So I talk to them a lot and that’s sort of what I can gather from what they are saying. So I think it seems pretty rational. I think we are going to see additional demand for Ceramics; the commodity ceramic of course. Then there is capacity and that is going to draw the line but of course that is again that we are now no longer in so it doesn’t really impact us.

In terms of Tantalum and the film that was in film in particular. There is still a very, very heated marketplace and not a lot of capacity is available and of course it takes a lot of to bring it on and its not just in our space but also in the raw material side. So I think capacity is being relatively well managed at this point and I feel relatively optimistic that people would be rational in terms of how we add on those capacity. As demand increases, which we of course, are seeing, clearly, you know, you got to build more parts and so more machinery and so, in that case, more capacity will be brought on, but in a rational fashion.

Anthony Cure – KeyBanc Securities

Okay. And so, that’s a sort of beating a dead horse, but in prior periods, was this not as rational and you saw, excess capacity coming online?

William Lowe Jr

I think, this last couple of years when everything almost tipped over. I think, people really got to do some hard thinking. And therefore, I think, people are more rational now, then in the past. We just learned, with, you know, lessons learned, right? To pick things up as we move forward. So that’s --

Hamed Khorsand - BWS Financial

Okay. Thanks a lot. I appreciate that.

Dean Dimke

Thank you.

Operator

Your next question comes from the line of Ana Goshko with Bank of America-Merrill Lynch.

Dean Dimke

Good morning, Ana.

Per-Olof Loof

Hi, Ana.

Ana Goshko - Bank of America-Merrill Lynch.

Hi, good morning. Thanks very much for taking the question. I wanted to touch back on the F&E restructuring. To that you have taken the restructured charges today but from now till the end of the process, what are the -- what's the total restructuring charge that you still expect to take and to the extent that it is different, what's the cash outlay associated with that?

William Lowe Jr

It really hasn’t changed Ana. If you recall, we are just taking back from within fourth quarter of last fiscal year, we made an approval of $5 million or for that restructuring. Most of the charges you have seen in each quarter throughout this fiscal year is relocating equipment. So, that’s period cost When you combine the two at the moment, on both that you would have between the fourth quarter approval to date around $10 million, that would be associated with it. Of that, about half of that is probably is going out the door in cash. The other five will go out the door over the next couple of quarters, related to that accrual. So, that leaves we said originally that we would spend somewhere around $30 million to $35 million in total over the course of the whole project and so that does leave us, through out this next fiscal year, with maybe a $20 million type-of number over the next five to six quarters.

Dean Dimke

My take today, we have actually been able to do -- reallocated what we’ve said, we are going to relocate and we have dealt with the people situations that we said we are going to do. And we have actually done it for a little less than what we had anticipated. So, I expect to remain (Inaudible)

Per-Olof Loof

Might be 30.

Ana Goshko - Bank of America-Merrill Lynch.

Okay, thanks. And then, on the balance sheet, you got to stuff up these comparable notes outstanding that become called over this year and I realized that they are not particular in the sense because the rate is very low on them. But, to the extent that you have cash put to work, is there any thought about cleaning those out.

William Lowe Jr

We may be opportunistic and if we can -- if the price is right, as what I would say, I mean, as we have as you see, we removed the short term because the foot date is November. So, we moved $38 million of that to short-term. Actually, the actual total amount is $41 million, approximately $41 million.The debt discounts associated with that did increase between now and November that we will build that up to $41 million. But I would say, yes, we would be opportunistic if the one with right price.

Ana Goshko - Bank of America-Merrill Lynch.

Okay, great. Thank you very much.

Dean Dimke

Thanks Ana.

Operator

At this time, there are no further questions. Presenters, I hand the call back over to you for closing remarks.

Dean Dimke

Okay. Well, thank you very much. We of course are very pleased with this past quarter and we are cautiously optimistic about how we are going to move forward here. And we feel that the company is in a good place at the moment. I think the capabilities we have in the markets we serve and that we would balance are able to balance our business is going to be very helpful going forward. So, we look forward to working with you all going forward and hopefully continuing to show positive results. So thank you very much for being on the call today and have a great Thursday. Thank you.

Operator

This concludes KEMET’s third quarter earnings call. You may now disconnect.

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