UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange
Act of 1934.
For the period ended December 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
`
Commission File Number: 0-20289
KEMET CORPORATION
Exact name of registrant as specified in its charter
DELAWARE 57-0923789
(State or other (IRS Employer
jurisdiction of Identification
No.)
incorporation or organization)
2835 KEMET WAY, SIMPSONVILLE, SOUTH CAROLINA 29681
- ------------------------------------------------------------------------------
(Address of principal executive offices, zip code)
864-963-6300
-------------------------------
(Registrant's telephone number, including area code)
Former name, former address and former fiscal year, if changed since last
report: N/A
Indicate by check mark whether the registrant (1) has filed all reports
required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934
during
the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Common Stock Outstanding at: February 8, 2000
Title of Each Class Number of Shares
Outstanding
- --------------------------------------------------------------------------------
Common Stock, $.01 Par Value 43,430,776
2
Part I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Per Share
Data)
December 31, March 31,
1999 1999
----------- ---------
(unaudited)
ASSETS
Current
assets:
Cash
$ 9,775 $ 3,914
Accounts receivable (less allowances of $11,259 and $6,225
at December 31, 1999 and March 31, 1999,
respectively) 65,923 57,784
Inventories:
Raw materials and
supplies
60,182 45,288
Work in
process
50,794 52,225 Finished
goods
20,951 28,306
-------- --------
Total inventories
131,927 125,819
Prepaid
expenses
1,732 2,951
Income taxes
receivable
- - 1,855
Deferred income
taxes
16,390 10,899
-------- --------
Total current
assets
225,747 203,222
Property and equipment (less accumulated depreciation of $268,918 and
$229,055 at December 31, 1999 and March 31, 1999,
respectively) 410,744 406,735
Intangible assets (less accumulated amortization of $17,059 and
$15,584 at December 31, 1999 and March 31, 1999,
respectively) 46,783 46,268
Other
assets
7,688 7,465
-------- --------
Total
assets
$690,962 $663,690
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installment of long-term
debt $ - $
20,000
Accounts payable,
trade
94,288 64,750
Accrued
expenses
39,102 28,101
Income taxes
3,955 -
-------- --------
Total current
liabilities
137,345 112,851
Long-term debt, excluding current
installments 112,400
144,000
Other non-current
obligations
45,370 69,394
Deferred income
taxes
36,867 23,771
-------- --------
Total
liabilities
331,982 350,016
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000 shares, issued
and outstanding 38,921,286 and 38,158,290 shares at December 31, 1999 and
March 31, 1999,
respectively
389 382
Non-voting common stock, par value $.01, authorized 12,000,000 shares,
issued and outstanding 1,096,610 at December 31, 1999 and March 31,
1999 11 11
Additional paid-in
capital
158,763 145,482
Retained
earnings
199,780 167,727
Accumulated other comprehensive
income 37
72
-------- --------
Total stockholders'
equity 358,980
313,674
-------- --------
Total liabilities and stockholders'
equity $690,962 $663,690
======== ========
See accompanying notes to consolidated financial statements.
3
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share
Data)
Three months
ended Nine months ended
December
31, December 31,
- ------------------------ -----------------------
1999
1998 1999 1998
--------
- -------- -------- --------
(unaudited)
(unaudited) (unaudited) (unaudited)
Net Sales $ 215,139 $
141,914 $ 563,976 $ 422,118
Operating costs and expenses:
Cost of goods sold, exclusive of depreciation 149,638
106,863 409,016 319,678
Selling, general and administrative expenses 12,388
12,361 35,280 36,451
Research and development 6,234
4,673 15,811 16,407
Depreciation and amortization 14,419
11,829 41,280 34,243
--------
- -------- -------- --------
Total operating costs and expenses 182,679
135,726 501,387 406,779
Operating income 32,460
6,188 62,589 15,339
Other expense:
Interest expense, net 2,295
2,394 7,538 6,589
Other expense 3,459
1,072 7,914 3,200
--------
- -------- -------- --------
Total other expense 5,754
3,466 15,452 9,789
Earnings before income taxes 26,706
2,722 47,137 5,550
Income tax expense 8,546
871 15,084 1,776
--------
- -------- -------- --------
Net earnings $ 18,160 $
1,851 $ 32,053 $ 3,774
========
======== ========= =========
Net earnings per share:
Basic $ 0.46 $
0.05 $ 0.81 $ 0.10
Diluted $ 0.45 $
0.05 $ 0.79 $ 0.10
Weighted average shares outstanding:
Basic 39,856,585 39,220,367
39,508,041 39,203,081
Diluted 40,599,524
39,368,977 40,353,493 39,370,124
See accompanying notes to consolidated financial statements.
4
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Nine months ended
December 31,
--------------------------
1999 1998
-------- --------
(unaudited) (unaudited)
Sources (uses) of cash:
Net cash from operating
activities $ 93,615 $
21,591
Investing activities:
Additions to property and
equipment (49,543)
(49,823) Proceeds from disposals of
property
137 294
Other
(36) (40)
-------- --------
Net cash used by investing
activities (49,442)
(49,569)
Financing activities:
Proceeds from employees savings
plan 590
768
Proceeds from exercise of stock options including related tax
benefit 12,698 132
Net proceeds/(repayments) from revolving/swingline
loan (51,600) 28,000
-------- --------
Net cash provided (used) by financing
activities (38,312) 28,900
-------- --------
Net increase in
cash
5,861 922
Cash at beginning of
period
3,914 1,801
-------- --------
Cash at end of
period $
9,775 $ 2,723
======== ========
See accompanying notes to consolidated financial statements.
5
Note 1. Basis of Financial Statement Preparation
The consolidated financial statements contained herein are unaudited and have
been prepared from the books and records of KEMET Corporation and Subsidiaries
(KEMET or the Company). In the opinion of management, the consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
the interim periods. The consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Although the Company believes that
the disclosures are adequate to make the information presented not misleading,
it is suggested that these consolidated financial statements be read in
conjunction with the audited financial statements and notes thereto included
in the Company's fiscal year ending March 31, 1999, Form 10-K. Net sales and
operating results for the nine months ended December 31, 1999, are not
necessarily indicative of the results to be expected for the full year.
Note 2. Reconciliation of basic earnings per common share to diluted earnings
per common share.
In accordance with FASB Statement No. 128, the Company has included the
following table presenting a reconciliation of basic EPS to diluted EPS fully
displaying the effect of dilutive securities.
Computation of Basic And Diluted
Earnings Per Share
(Dollars in Thousands Except Per
Share Data)
For the three months ended
December 31,
1999 1998
------------------------------
- --------------------------------
Earnings Shares EPS
Earnings Shares EPS
-------- ---------- ------
- -------- ---------- ------
Basic EPS $ 18,160 39,856,585 $ 0.46 $
1,851 39,220,367 $ 0.05
Effect of dilutive securities:
Stock Options - 742,939 0.01
- - 148,610 -
-------- ---------- ------
- ------- ---------- ------
Diluted EPS $ 18,160 40,599,524 $ 0.45 $
1,851 39,368,977 $ 0.05
For the nine months ended
December 31,
1999 1998
------------------------------
- --------------------------------
Earnings Shares EPS
Earnings Shares EPS
-------- ---------- ------
- -------- ---------- ------
Basic EPS $ 32,053 39,508,041 $ 0.81 $
3,774 39,203,081 $ 0.10
Effect of dilutive securities:
Stock Options - 845,452 0.02
- - 167,043 -
-------- ---------- ------
- -------- ---------- ------
Diluted EPS $ 32,053 40,353,493 $ 0.79 $
3,774 39,370,124 $ 0.10
6
Note 3. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting of Comprehensive Income," as of the beginning of fiscal year 1999.
Total comprehensive income and its components are as follows:
Three months
ended Nine months
ended
December 31, December 31,
- ------------------- -----------------
1999
1998 1999 1998
-------
- ------- ------- -------
Comprehensive income:
Net earnings $18,160 $
1,851 $32,053 $ 3,774
Foreign currency translation adjustment (17)
(1) (35) (40)
-------
- ------- ------- -------
Total Comprehensive income $18,143 $
1,850 $32,018 $
3,734
======= ======= ======= =======
Note 4. Common Stock
On January 20, 2000, the Company issued 3,250,000 shares of common stock in a
public offering that resulted in net proceeds of $143,162,500 after
underwriters' discount. The net proceeds will be used to fund capital
expenditures, to repay debt outstanding under the revolving credit facility,
and to repay amounts outstanding under the short-term credit facility. The effe
ct on reported diluted earnings per share for the three and nine months ended
December 31, 1999 had these shares been outstanding the entire period would be
($.04) and ($.05), respectively.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. In consolidation, all significant
intercompany amounts and transactions have been eliminated.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Net sales for the quarter and nine months ended December 31, 1999, were $215.1
million and $564.0 million, an increase of $73.2 million or 52% and $141.9
million or 34%, respectively, from the comparable periods of the prior year.
The increase in net sales was primarily attributable to a growing demand in
the industry, as well as average selling prices returning to more normal
levels. Sales of surface-mount capacitors for the quarter and nine months
ended December 31, 1999, were $188.1 million and $482.1 million, an increase
of 60% and 41%, respectively, from comparable prior year periods. Sales of
leaded capacitors increased 10% to $27.1 million for the three months ended
December 31, 1999, and 3% to $81.9 million for the nine months ended December
31, 1999. Sales also increased in both the domestic and export markets for
the quarter and nine months ended December 31, 1999, compared to the
comparable prior year periods. Domestic sales increased 47% and 29% to $104.1
million and $286.1 million, respectively, and export sales increased 57% and
38% to $111.0 million and $277.9 million, respectively.
7
Cost of sales, exclusive of depreciation for the quarter and nine months ended
December 31, 1999, were $149.6 million and $409.0 million, respectively, as
compared to $106.9 million and $319.7 million for the quarter and nine months
ended December 31, 1998. As a percentage of net sales, cost of sales,
exclusive of depreciation was 70% and 73% for the quarter and nine months
ended December 31, 1999, as compared to 75% and 76% for the comparable periods
of the prior year. The decrease in cost of sales as a percentage of sales is
primarily
the result of the average selling price returning to more normal levels and
higher unit volumes.
Selling, general and administrative expenses for the quarter and nine months
ended December 31, 1999, were $12.4 million and $35.3 million, respectively,
as compared to $12.4 million and $36.5 million for the comparable periods of
the prior year. Selling, general and administrative expenses as a percent of
sales decreased from 9% for the prior year quarter to 6% this quarter
primarily as a result of the average selling price returning to more normal
levels and higher unit volumes.
Research and development expenses for the quarter and nine months ended
December 31, 1999, were $6.2 million and $15.8 million, respectively, as
compared to $4.7 million and $16.4 million for the prior comparable periods.
Depreciation and amortization expense for the quarter and nine months ended
December 31, 1999, were $14.4 million and $41.3 million, respectively, as
compared to $11.8 million and $34.2 million for the prior comparable periods.
This increase was primarily due to the increase in capital expenditures over
the past fiscal year.
Operating income for the quarter and nine months ended December 31, 1999, was
$32.5 million and $62.6 million, respectively, compared to $6.2 million and
$15.3 million for the comparable periods in the prior year. The increase in
operating income resulted primarily from a combination of higher sales levels
and improved manufacturing margins.
Interest expense, net for the three months ended December 31, 1999, was $2.3
million compared to $2.4 million for the three months ended December 31,
1998. Interest expense for the nine months ended December 31, 1999, was $7.5
million compared to $6.6 million for the comparable period in the prior year.
The $6.6 million in the prior period included $1.4 million of interest income
from the IRS for tax refunds on prior years' amended returns. Without this
interest income, interest expense would have been $8.0 million for the prior
year period. The decrease in interest expense is due to lower debt levels,
resulting from improved sales and operating income.
Income tax expense totaled $8.5 million for the quarter ended December 31,
1999, compared to $0.9 million for the quarter ended December 31, 1998.
Income tax expense for the nine months ended December 31, 1999, was $15.1
million or 32.0% of earnings as compared to $1.8 million or 32.0% of earnings
for the comparable period of the prior year.
Liquidity and Capital Resources
The Company's liquidity needs arise primarily from working capital
requirements, capital expenditures and interest payments on its indebtedness.
The Company intends to satisfy its liquidity requirements primarily with funds
provided by
operations, borrowings under its revolving credit facility and amounts
advanced
under its foreign accounts receivable discounting arrangements.
8
Cash flows from operating activities for the nine months ended December 31,
1999 amounted to a surplus of $93.6 million compared with a surplus of $21.6
million
for the nine months ended December 31, 1998. The increase in cash flow was
primarily a result of the growth in net income and the timing of cash flows
from current assets and liabilities such as accounts receivable, inventories,
accounts payable, accrued liabilities and income taxes payable.
Capital expenditures were $49.5 million for the nine months ended December 31,
1999, compared to $49.8 million for the nine months ended December 31, 1998.
The Company continues to invest in capital to support its long-term growth
objectives and to better meet our customers' needs. The Company estimates its
capital expenditures for fiscal year 2000 to be approximately $80.0 million.
During the nine months ended December 31, 1999, the Company decreased its
indebtedness (long-term debt and current portion of long-term debt) by $51.6
million, which was generated primarily from operating activities. As of
December 31, 1999, the Company had unused availability under its Revolving
Credit Facility and Swingline Loan of approximately $140.0 million and $7.6
million, respectively.
In May 1998, the Company sold $100.0 million of its Senior Notes pursuant to
the terms of the Note Purchase Agreement dated as of May 1, 1998, between the
Company and the eleven purchasers of the Senior Notes named therein. These
Senior Notes have a final maturity date of May 4, 2010, with required
principal repayments beginning on May 4, 2006. The Senior Notes bear interest
at a fixed rate of 6.66%, with interest payable semiannually beginning
November 4, 1998. The terms of the Note Purchase Agreement include various
restrictive covenants typical of transactions of this type, and require the
company to meet certain financial tests including a minimum net worth test and
a maximum ratio of debt to total capitalization.
KEMET believes its strong financial position will permit the financing of its
business needs and opportunities in an orderly manner. It is anticipated that
ongoing operations will be financed primarily by internally generated funds.
In addition, the Company has the flexibility to meet short-term working
capital and other temporary requirements through utilization of its borrowings
under its bank credit facilities.
Impact of Year 2000
The Company had a Year 2000 Readiness Program that began in December 1996.
The scope of the program included all business-critical operations in all
locations worldwide. Areas assessed included business applications, technical
infrastructure, facilities, end-user computing, manufacturing, and
suppliers.
The Company's Readiness Program was a combination of both internal and
external resources to reprogram, implement, test, or replace existing hardware
and software. The total cost of the program was approximately $6.8 million
and was funded through operating cash flows. As of December 31, 1999, the
Company had expended $6.8 million related to the Year 2000 Readiness Program.
No additional spending is anticipated for hardware and software in 2000.
9
Through the month of January 2000, the Company has experienced no material
problems associated with Year 2000 issues. The Company believes that its Year
2000 Readiness program was successful and that no further Year 2000 efforts
are necessary.
From time to time, information provided by the Company, including but not
limited to statements in this report or other statements made by or on behalf
of the Company, may contain "forward-looking" information within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934. Such statements involve a number of risks and
uncertainties. The Company's actual results could differ materially from
those discussed in the forward-looking statements. The cautionary statements
set forth in the Company's Registration Statement on Form S-3, on January 19,
1999, under the heading Risk Factors, identify important factors that could
cause actual results to differ materially from those in any forward-looking
statements made by or on behalf of the Company.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Other than as reported above and in the Company's fiscal year ending March 31,
1999 Form 10-K under the caption "Item 3. Legal Proceedings," the Company is
not currently a party to any material pending legal proceedings, other than
routine litigation incidental to the business of the Company.
Item 2. Change in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
10
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: February 14, 2000
KEMET Corporation
/S/ D.R. Cash
--------------------------
D.R. Cash
Senior Vice President of Administration,
Treasurer and Assistant Secretary
(Principal Accounting and
Financial Officer)