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KEMET Corporation (NYSE:KEM)

F4Q08 Earnings Call

May 13, 2008 9:00 am ET

Executives

Dave Gable - Chief Financial Officer

Per Loof - Chief Executive Officer

Analysts

Ingrid Aja – Merrill Lynch

Matt Sheerin - Thomas Weisel Partners

Yuri Krapivin - Lehman Brothers

Shawn Harrison - Longbow Research

Jim Suva – Citigroup

[Chris Cook – Zedove]

Operator

(Operator Instructions) At this time I would like to welcome everyone to the KEMET Corporation Earnings Call to discuss fiscal 2008 results. I would now like to turn the call over to Mr. Dave Gable, Executive Vice President and Chief Financial Officer.

Dave Gable

Welcome to KEMET’s conference call to discuss our fiscal 2008 and fourth quarter results. I’m Dave Gable, Chief Financial Officer and with me this morning is Per Loof, Chief Executive Officer. During this conference call the company will be discussing matters which may be considered forward looking statements that involve risks and uncertainties and consequently actual results may differ. Current global economic conditions make it particularly difficult at present to predict product demand and other related matters.

In addition, as a part of our normal year end review we are engaged in the analysis of our business in order to determine whether any impairment charges should be taken. This analysis is ongoing and not yet completed. These items may be discussed in detail in the company’s filings with the Securities and Exchange Commission. Now I would like to turn the call over to Per.

Per Loof

I would like to extend my welcome to all of you to our conference call as we review the results of our fiscal year 2008 and also the results for our March quarter. First let’s begin with the results for the fiscal year. Revenue for the year was $850 million which is a 29% increase over fiscal 2007. By business group the Tantalum group was $423 million, Ceramics $226 million, Evox Rifa $115 million and finally Arcotronics $86 million.

This growth is primarily the result of our acquisition strategy. We as a company are now near our sales objective of $1 billion annually as outlined in our strategy plan three years ago. We continue to believe that size and scale is critical in order to be competitive in this industry. This first step in our gross strategy begins with additional scale and that will provide us with the ability to leverage our fixed costs.

Net income for the fiscal year was $0.24 a share on a non-GAAP basis before special charges, although not where we want to be but still the second best year for the company since fiscal 2001. By business group Tantalum contributed $0.25 a share, Ceramics $0.04 a share, the newly acquired Evox Rifa $0.08, and Arcotronics $-0.13 a share. However, while the top line is in line with our gross targets the bottom line is clearly not.

The first two quarters of our fiscal year were on track with expectations but the last two quarters even though we hit our revenue target the bottom line performance has definitely been a disappointment. I will discuss the specific reasons for the earnings decline and the actions we’re taking to address this later in the call.

In regards to the March quarter revenue was $241 million up 5% over the December quarter. Increased shipments particularly to the US and European markets were the primary drivers. The net loss for the quarter was $0.02 a share on a non-GAAP basis before special charges as margins experienced increased pressure based on first, macro economic factors, second, integration delays, and third Tantalum manufacturing performance issues primarily in our China facility. Each of these I will discuss in more detail.

In the quarter we saw healthy end market demand and a positive book to bill ratio. One to 108 at quarter end and one to 118 this morning. The computer and consumer segments which together account for 26% of our demand remained surprisingly stable even with the usual post holiday softening. Much of this is accounted for in the mobile segment where demand for new devices are coming on stream and where our leading technology products are primarily used.

Automotive which accounts for 14% of our demand held its own given the strength of the European auto industry somewhat offset by the woes of the US auto industry. Industrial and lighting now at 29% is a strong market for us and should remain so given the highly specialty/engineering focus of the products that support this revenue stream. Almost all brought to us through the Evox Rifa and Arcotronics acquisitions.

In addition, the increase globally in green and power application initiatives and our ability now to participate in this important area will I believe continue to support solid growth and bottom line performance going forward. The communications segment, in particular the infrastructure portion remained flat, however increased participation in handheld applications supported the increase in sales in the quarter. Military, medical and aerospace continue to strengthen somewhat showing a slight increase in the quarter and we look for them to be stable or slightly up in the near term.

The market segment breakdown was as follows. Computer 16%, consumer 10%, communications 21%, industrial and lighting 29%, automotive 14%, military 5% and medical and other specialty 5%. We believe this to be representative of what we expect in the future. Our end market balance and customer based balance are important to our strategy and stability moving forward. Also, our specialty business continues to grow and is now above 25% of our total business a lot brought to us through acquisition strategy.

By region, sales to customer in the Americas were 26% of our total sales, to Asia 33%, EMEA 41%. Again, in film and electrolytic impacted these numbers due to its mix of 67% in Europe, 23% in Asia and 10% in the Americas. Our sales into the Americas and Europe were up in the quarter driven primarily by strength in the distribution on OEM channels.

In the Americas demand was solid through the quarter and remains so at this time. Demand through distribution remains strong with an increase in quarter sales. Inventories and turns remain flat with no real weakening in the backlog and a positive book to bill ratio. As mentioned previously the US automotive industry is a weak spot. However, strength in other areas specifically defense and aerospace remain strong with continued government spending and strong commercial demand.

EMS continued to be flat and it’s anticipated to remain this way. The market concerns over energy and raw material price increases, etc. are being expressed by our US customers as we head into the later part of this quarter and into the summer months, however no real surprise to anyone. In EMEA demand was strong through the quarter with a positive book to bill ratio and remains so today. Distribution which primarily addresses the industrial sector was solid with an increase in POS and we have not seen the expected dip in telecom that is typical for the current period.

Our carefully managed positioning consumer has minimized the impact of the increase in Ceramic availability allowing stabilization of pricing for KEMET total. This has also been the result of a concerted focus on mix enrichment. We are also seeing a firming in Tantalum prices as certain products have lead times beyond the norm. To this point we have not seen the seasonal holiday dip in demand. In Asia demand remains solid in all channels but distribution. We saw positive book to bill in both OEM and EMS but again distribution lagged in both shipments and bookings.

Ceramics are no longer and issue in product availability. Lead times are back to normal particularly in High CV ceramics where supply appears to be more than sufficient. However, High CV revenues only about 25% of our total Ceramics and therefore we are somewhat less exposed in this area as compared to some of our competitors. We continue to work on maintaining prices and eliminating low margin business. We will accept some share loss where the strategy dictates in order to improve profitability.

In Tantalum we were seeing lead times continue to stretch out somewhat. Demand for Tantalum capacitors is strong in Asia as our focus continues to be on improving our manufacturing performance to meet customers increasing demands for smaller case sizes and high voltage requirements. In Film and Electrolytic demand remains good with a positive book to bill ratio and a large backlog to fill.

We saw 48% of our net sales to distribution customers 36% to OEM and 16% to EMS. The Evox Rifa business continued to perform well consistently beating our expectations and further strengthening our position in the OEM channel. Overall the Film and Electrolytic business group sold approximately 61% in OEM, 30% to distribution and 9% to EMS. Port of sale at our distribution partners increased in the March quarter and inventory in the channels appears to be in balance. Turns are now in the range of four to five times.

Our lead times in total have increased over the quarter ranging from six to 10 weeks but with a number of products extended beyond this range. We’re working in our production facilities around the world to increase yields with particular emphasis on the high demand parts across each of the business groups. As I mentioned earlier while we are satisfied with the revenue growth for the fiscal year and for the March quarter we’re not pleased with the bottom line results.

Consistent with others in the industry we are seeing margin pressures as a macro economic environment continue to be challenging. We all know this story. Raw material price increases, higher fuel, currency impact all put additional strains on margin. To address margin pressure we initiated a number of cost reduction initiatives during the quarter and we are confident of improvement to our operating performance as a result of these initiatives.

Our Arcotronics business also experienced labor issues that had a negative impact on margins. The unanticipated work stoppage and labor strikes in Italy resulted in a temporary delay to our integration strategy and cost saving opportunities. We did not plan on Prime Minister Prodi stepping down calling for elections and the union/politicians not wanting or choosing not to deal with our situation. Rather using us as a political football before the elections. This curveball threw us back about three months in our integration plan.

Interestingly a much televised signing ceremony between us the unions orchestrated by the regional politicians occurred just one day after the elections. However, I’m pleased to report that we now have an agreement with the unions that will allow us to move forward quickly with our integration activities and the movement of production to lower cost regions as per our original plan albeit a bit late. These planned moves and consolidations will commence in the near future and by fiscal year end we’ll be back on schedule.

We continue to be very pleased with our integration efforts at Evox Rifa which turned in above performance for the entire year. Because Arcotronics has taken longer to integrate we have not been able to achieve the benefits of the plan synergies between Arco and Evox Rifa as quickly as we had projected.

With the labor and union issues concerning the Arcotronics integration finally behind us our current focus is now on cutting costs and achieving the planned synergies. In connection with the resolution of these issues we had several one time charges this quarter relating to the Arcotronics transaction.

As I mentioned earlier we also experienced an issues with our Tantalum business related to the final transfer of our polymer production to China which did impact the first two months of the quarter. We’ve taken steps to correct this issue and we are confident that this business group will be back to its normal performance very soon. We do believe that we have addressed the challenges presented during this quarter effectively and we will be relentless in our focus to improve the operating performance of our company.

Let me now review some of the financial highlight for our fiscal fourth quarter. Tantalum business group revenues increased 4% from $103 million to $107 million driven by higher unit demand and a stronger region mix. The Ceramic business group revenue increased 7% from $54 million to $58 million driven by increased volumes in the Americas and in Europe. The Film and Electrolytic business group revenue increased to $76.5 million a 6% increase over $72 million in the third quarter driven by increased industrial demand in Europe plus a full quarter of revenue for Arcotronics.

Our capacity utilization continues to be around 90%, similar to levels reported elsewhere in our industry. As I noted we’re focusing our efforts on efficiency within our existing structure. We intend to meet higher volume requirements through our ongoing lean manufacturing initiatives. Average selling prices in the quarter was basically flat on a mix adjusted basis however we did see some continued ASP erosion in the High CV Ceramics area.

We do not foresee any dramatic changes in the near term pricing environment. However, we do believe that it is possible to selectively increase prices in some of our products where we believe opportunities do exist.

Moving down the income statement, our gross margin percent decreased from 17.5% last quarter to 16.5% this quarter driven by, as I just said, macro economic conditions, delays in the Arcotronics integration and Tantalum manufacturing move issues. In the Ceramic business group we actually saw a rebound to gross margin over 20% but this may be difficult to maintain in the June quarter. The Evox Rifa business unit gross margin was again over 20% in the quarter but was offset by the lower Arcotronics gross margin as I mentioned.

As you can expect we’re not satisfied with this performance and we are moving quickly to improve the situation. We must continue to calibrate the business to the operating levels needed to manage our business and continue to move quickly to achieve the synergy opportunities stemming from our recent acquisition. We remain committed to operating expense levels of less than 15% going forward as we do streamline our infrastructure and find additional synergies.

Our operating income for the quarter dropped to 1% from 2% in the previous quarter and EBITDA was $14 million. On the bottom line our net loss before special charges was $2 million or $0.02 a share. On a GAAP basis net loss for the quarter was $21 million, special charges for the quarter totaled $18.7 million and were comprised of $2 million in foreign impairment charge, $11 million for reduction in core initiatives previously announced, $3 million for manufacturing relocations and $2.7 million for acquisition and integration costs.

Total cash and cash equivalents were $94 million the decrease over the previous quarter was attributed to $18 million for a stock buy back, $16 million for restructuring and severance costs and $9 million for capital expenditures. We expect fiscal 2009 CapEx to be between $40 and $45 million. Our strategic plan calls for a strengthening of our balance sheet over the next three years and we are pleased to report today that we have reached a preliminary agreement to swap out 95 million Euros of current debt to a six year term loan at favorable market rates.

We are in the process of finalizing the details and we’ll provide the specifics shortly. Our plan calls for the pay down of debt of over $140 million over the next three years.

In closing we remain cautiously optimistic that demand will continue to move in the positive direction. That said we and are customers are vigilant in watching the drivers of demand and we will react quickly to changes as and when required. As I mentioned we’re not pleased with our profitability. We have just completed our three year strategic plan; we have a roadmap to success how to achieve our timeless model.

As you might expect we have for the time being closed our M&A activities. Our focus is to integrate what we have. In a year and a half we’ve acquired three companies and our task now is to ensure that these business investments pay off. We need now to execute. I am confident we are able to and that we will. The macro economic environment has created and may continue to create some new challenges and with it experience some delays in our integration and operational plans.

While I do believe we shall see improvement in our operational performance as a result of the steps I outlined previously the impact of items we cannot control may offset some of the benefits in the June quarter. The demand picture still continues to be somewhat volatile but based on the information we have today we remain cautiously optimistic about the next several quarters. This concludes my comments and we would now like to open up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Ingrid Aja – Merrill Lynch.

Ingrid Aja – Merrill Lynch

I was wondering if you could quantify the impact on gross margins by each of the items, the macro, the delay in Arcotronics and then panel and the issue that you had.

Per Loof

If we take the Arco effect we had in our plan for the two quarters we thought we would be at a $0.03 to $0.04 negative performance for Arcotronics and we actually missed that by $0.09 or $0.10 so we’re about $8 million off target. Of that $2.5 million are raw material improvements that we did not see and I would move that to integration activities we couldn’t do and also the macro economic environment.

We were also not able to move on some of the SG&A costs and selling expenses that we had planned because of the issues with our Italian unions and we weren’t really able to do anything until we had this agreement that was signed three weeks ago. That accounted for about $1 million. The rest of the Arco miss really is in the labor and some of the strikes we had and our inability to move on these integration efforts. Current effects for Arco was about a negative $1.2 million.

The other issues we had was in the Tantalum business and that was about $5 million miss and some we had to charge we had to take due to the issues we had operationally as we moved the final Tantalum business over to Asia. Those were primarily in the first two months of the quarter and we saw a rebound already in March. Really maybe we had been so successful in moving and maybe we were just a little too quick in doing some of these things as we changed some of the processes while we also moved it and I think that was a little too quick on our end. That basically accounts for the difference.

Ingrid Aja – Merrill Lynch

On the impact on coming quarters how much do you think the savings you’re going to be able to achieve off the 16.5% and how much improvement do you see going forward.

Per Loof

What happened was we had hoped we would be able to get started on the Arco transition and then of course it set us back about three months. I don’t think you’ll see a lot of those coming in, in the June quarter. I think the Tantalum performance will improve. We’ll see some of Arco improve but not what we had hoped as we put our plan together.

We are basically three months behind schedule but also we believe that by the end of this fiscal we will be back on schedule with the moves that we now have outlined. The unions we were able to get to what we need to get to but of course we were a bit late. The Prodi Berlusconi thing threw us back about a quarter.

Ingrid Aja – Merrill Lynch

In terms of the SG&A where in dollars do you think you’re going to be? Are you going to be back to where you were more in the December quarter?

Per Loof

Yes.

Ingrid Aja – Merrill Lynch

In terms of if demand was more challenging what kind of contingency plans do you have that you’d be able to react to so you don’t have this kind of obviously a lot of these factors were related to Arcotronics but if demand wasn’t as good as it has been what kind of contingency plans do you have?

Per Loof

Right now demand, we’re actually even if you look at the month of April we were actually in the core business 10% ahead of where we were April a year ago and continue to be at par with the last quarter. If demand were to slack then of course we will take the normal measures of slowing down production ensuring that our costs stay in line, slowing down investments and other things that we will look as we need. Clearly, like everybody I would expect in this industry have specific actions that it would take if demand were to slow significantly.

Operator

Your next question comes from Matt Sheerin - Thomas Weisel Partners.

Matt Sheerin - Thomas Weisel Partners

Your commentary seems to be a little bit contradicting where you talk about relatively good demand in North America and Europe book to bill sounds like its very high and inventories are in good shape but distribution, etc. yet you keep talking about macro economic environment and uncertain demand. Obviously there’s not a lot of visibility for everybody within the supply chain but I’m just trying to, particularly when you talk about competitive pressures aside from the raw materials.

I would think with strong book to bill sounds like past utilization rates are high that you would maybe have some leverage there with customers.

Per Loof

I’m sounding a bit cautious because there are things we can’t see. If you look at our two businesses we do have significant market share meaning that the Film industrial and also the Tantalum business I do believe that there is an opportunity to correct some of the price increases that we have experienced lately and ensure that eventually customers will have to pick up the bill for this. We are reviewing that and looking at that I think there is an opportunity.

Having said that I think in the High CV Ceramic space which again I alluded to in my prepared remarks is only about 25% of our total Ceramic business. There is clearly a lot of supply there brought on by primarily the Japanese but also by the Koreans. That has ensured that right now there is ample supply and the opportunity to improve the pricing environment is probably not there.

What we are doing of course is ensuring that the business we go for focuses on the specialty targets and also if we need to we will strategically decline some market deals just to ensure that the pricing environment seems reasonable. I’d say in two of our segments we have an opportunity in one I don’t see it. The reason I’m sounding cautious is because it’s somewhat hard to predict.

There’s a lot of discussion in the media and elsewhere about coming issues but when we look to our order books and backlogs and the discussions with our customers we don’t see it other than they also mentioned the same cautious views as I mentioned.

Matt Sheerin - Thomas Weisel Partners

On Arcotronics I know that that’s been delayed and obviously the issues you talked about but at what point do you expect to be break even there. Is it going to take two or three quarters?

Per Loof

We had anticipated being break even after a full year. By the September quarter we would be break even. I’d say that’s probably delayed by another quarter maybe even two quarters. I think by the end of the fiscal year we’ll be back to where we thought we would be in October. That will be fine that should be good business going forward and we’ll be able to get to the synergies between Evox and Arco that we haven’t before been able to get to.

Matt Sheerin - Thomas Weisel Partners

Do you have any near term operating margin goals over the next few quarters?

Per Loof

Of course we do. We put out our timeless model and I also said that we would have a strategic plan that calls for us to achieve that at the end of that plan period.

Matt Sheerin - Thomas Weisel Partners

Obviously you’re well behind that plan so has that been pushed out then?

Per Loof

Yes, it’s been pushed out a little bit as a result. We thought we would do much better on the margin side this year and we didn’t so we’re now taking the remedies ensuring that some of these things. Some of these were in our control and some of these were not. I’d say it’s about half and half. I don’t know if you watch the Stanley Cup but half of them were own goals and half of them was stuff we couldn’t actually deal with, sort of macro economic effects.

Operator

Your next question comes from Yuri Krapivin - Lehman Brothers.

Yuri Krapivin - Lehman Brothers

My first question is regarding your operating cash flow in the quarter, do you happen to have the number for operating cash flow?

Dave Gable

We generated, these are prelim right now but as far as operating without all the restructuring activity we generated $6 million of cash during the quarter.

Yuri Krapivin - Lehman Brothers

As you commented you bought back some stock $18 million worth of stock in the quarter. Given that your cash flow generation remains sort of relatively poor I understand that your stock price may seem cheap but do you think it’s a good time to be spending cash on stock buybacks?

Per Loof

We’re not buying back any additional stock at this time.

Yuri Krapivin - Lehman Brothers

On Arcotronics I just want you to clarify so are talking about achieving break even by the end of fiscal ’09 on the operating income line. If you look at gross margin is it about zero right now for the business?

Per Loof

No, it’s in the low teens, mid to low teens. The plan for the year is that’s going to move up several percentage points quarter by quarter. It’s not zero, of course not. When I gave you $0.13 loss in Arcotronics for the two quarters that’s a fully loaded having them take all the charges for whatever and interest rates and taxes and all the rest of that so that’s a fully loaded number.

Yuri Krapivin - Lehman Brothers

In the last quarter you talked about your strategy of refocusing on North America and European markets and sort of deemphasizing the Asian market a little bit. Your sales in Asia dropped to about 33% of total from 40% in the prior quarter. Are you happy with your Asian exposure at this point?

Per Loof

We’re happy with the Asian exposure and I think some of it was also some of the other businesses being brought on board. Clearly we had a specific focus to ensure that we could balance our business a little differently and having more of our exposure in the European and the US environments. Which is more specialty, more industrial focused and less consumer focused which I think is good for our company to do.

Yuri Krapivin - Lehman Brothers

Finally, you talked about rising raw material costs obviously many metal prices went up substantially. I want to ask you about the price for Tantalum powder because obviously the price of Tantalum has been low for quite some time and there has been some chance of that Tantalum might go up as well. Are you seeing any upward pressure on Tantalum at this point?

Dave Gable

We continue to talk with our Tantalum suppliers obviously from their side the cost of digging deeper puts on more costs from their perspective and so you hear talk of the availability of Tantalum powder though we still believe is out there we continue to work with our existing suppliers and looking for alternative suppliers.

We’ve got a contract with our Tantalum suppliers, we don’t see anything in the near term but obviously we have annual contracts with them that will come up later at the end of this year.

Per Loof

We don’t see anything for fiscal ’09.

Operator

Your next question comes from Shawn Harrison - Longbow Research.

Shawn Harrison - Longbow Research

Back on the gross margin question I was wondering if you could comment on whether the gross margin was at Evox this past quarter I think it was 25% in third quarter.

Per Loof

It was 22% this quarter.

Shawn Harrison - Longbow Research

In the 13% range at Arcotronics?

Per Loof

Something like that, yes.

Shawn Harrison - Longbow Research

Second question, I think you mentioned in your prepared remarks weakness in Asia distribution during the March quarter if you could just expand upon that a little bit what happened there. What are you seeing in distribution in Asia right now in the June quarter?

Per Loof

Some of the distribution weakness that we’ve seen or the change in the distribution business in Asia has been the additional availability of High CV products. I think a lot of traders or distributors in Asia took advantage of the year ago extending into several quarters of our last fiscal year the fact that there was the scarcity of supply and therefore took advantage of that.

Now with supply being, there’s ample supply that business kind of drops off. That’s basically the majority of the drop we’re seeing. Also, since we are ensuring that we supply our OEM and EMS customers first and as we move capability from Asia to Europe as a distribution segment is the one that likely would see the decline in our Asian business. It may be more of KEMET distribution situation rather than an overall market distribution situation.

Shawn Harrison - Longbow Research

Also in your prepared remarks you mentioned some cost savings to offset the higher raw material prices, is there a number you could put to those cost savings that we could model it?

Dave Gable

On the SG&A we had restructuring that we announced last quarter and so we’ll start seeing that in the June quarter. We didn’t see any of that in the March quarter just because of the timing of some of the reductions that were later in the quarter. Those are scheduled still we estimate to be about $12 million a year.

That’s associated with the $11 million of reduction. I would say of that savings 50% of it is in SG&A and the other 50% is up in COGS and on the material side we’re continuing to negotiate where we can and get 4% to 5% reductions on raw material costs but right now in this environment continues to be a day to day battle.

Shawn Harrison - Longbow Research

What should we use as a tax rate for 2009?

Dave Gable

I would use 15%.

Shawn Harrison - Longbow Research

Options expense I know you typically have something that hits in the June quarter on the SG&A line what type of magnitude should we expect there in terms of dollars?

Dave Gable

The June quarter is typically a little bit higher than the rest of the quarters and June I would expect that to be in the $1 million in the June quarter and it will taper off through the rest of the year.

Shawn Harrison - Longbow Research

Maybe $0.5 million after that?

Dave Gable

Yes, we’re estimating about $2.5 to $3 million total for the year.

Operator

Your next question comes from Jim Suva – Citigroup.

Jim Suva – Citigroup

I wanted to ask a question about your quarter is about half way through now can you give us some indication about how the quarter is progressing maybe the linearity versus normalcies now. In your prepared remarks you made a lot of comments about strong book to bill in North America and Europe and little bit of distribution challenges in Asia. Can you give us some more clarity about how the quarter is progressing and what we should look for?

Per Loof

I said what the book to bill was today. If I look at the April results they were above where they were a year ago and pretty much on par with January. We continue to see a good demand picture in particular for Tantalum and Film and Electrolytic.

Jim Suva – Citigroup

A little more granularity as we sit here in mid May have things kind of been stable in the last few weeks or have they deteriorated or how should we think about that with the book to bill.

Per Loof

They have not deteriorated yet if they’re supposed to. We haven’t seen deterioration yet.

Jim Suva – Citigroup

Can you give us an indication of what your High CV ASPs have been doing?

Per Loof

High CV ASP for the year has declined together with the market so far more supply [inaudible] impact.

Jim Suva – Citigroup

As far as the rate, can you give us a rate?

Per Loof

The High CV deline 25% or 30% something like that, like everybody else has experienced.

Jim Suva – Citigroup

What’s your view on additional supply coming on board shouldn’t that continue to be under pressure even accelerate downward as the Japanese ramp even higher yields.

Per Loof

They have stated publicly that they are not putting on a lot more supply and they’re waiting for the demand picture and the demand supply situation to stabilize. We see that most of that is over and it will be more stable environment albeit for the time being and still a good supply situation. As more gadgetry comes on stream that supply will be eaten up by the demand situation.

Jim Suva – Citigroup

Can you remind us again your top couple raw materials as far as importance for impact so we can kind of monitor those going forward?

Per Loof

Tantalum of course, silver, some in platinum, a little bit in nickel is another one we use, of course aluminum for the Electrolytic business.

Operator

Your next question comes from [Chris Cook – Zedove].

[Chris Cook – Zedove]

I was just curious as to what working capital costs you guys in the quarter as far as cash flow.

Dave Gable

What the working capital cost was?

[Chris Cook – Zedove]

Yes, what the working capital swing was.

Dave Gable

We did see an increase in inventories during the quarter as a result of some of the demand and the strong backlog we’re seeing particularly in Tantalum. We did take advantage of some raw material pricing dips particularly in silver that we saw so we actually had an increase in inventory. Receivable are basically flat and accounts payable were up in the quarter so we actually increased our non-cash working capital it is about $8 or $9 million in the quarter.

Operator

At this time there are no further questions.

Per Loof

We thank you for joining us this morning and wish you all a great rest of the week and a great afternoon.

Operator

This concludes today’s conference. You may now disconnect.

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Source: KEMET Corporation F4Q08 (Qtr End 03/31/08) Earnings Call Transcript

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