1
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, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the period from to
Commission File Number: 0-20289
KEMET CORPORATION
Exact name of registrant as specified in its charter
DELAWARE 57-0923789
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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 6, 1997
Title of Each Class Number of Shares Outstanding
Common Stock, $.01 Par Value 37,694,402
Non-Voting Common Stock, $.01 Par Value 1,096,610
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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,
1996 1996
(unaudited)
------------ ------------
ASSETS
Current assets:
Cash $4,470 $3,408
Accounts receivable (less allowances of $5,594 and $10,376 at
December 31, 1996 and March 31, 1996, respectively) 44,645 52,069
Inventories:
Raw materials and supplies 37,217 31,981
Work in process 40,104 27,748
Finished goods 17,813 23,992
------------ ------------
Total inventories 95,134 83,721
Prepaid expenses 2,292 2,077
Deferred income taxes 10,992 13,973
------------ ------------
Total current assets 157,534 155,248
Property and equipment (less accumulated depreciation of
$138,291 and $116,021 at December 31, 1996
and March 31, 1996, respectively) 307,108 267,541
Intangible assets (less accumulated amortization of
$11,874 and $10,566 at December 31, 1996
and March 31, 1996, respectively) 48,834 63,533
Other assets 3,383 3,506
------------ ------------
Total assets $516,859 $489,828
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $142 $270
Accounts payable, trade 53,410 73,030
Accrued expenses 36,671 35,063
Income taxes 7,662 13,877
------------ ------------
Total current liabilities 97,885 122,240
Long-term debt, excluding current installments 103,000 78,072
Other non-current obligations 64,301 49,524
Deferred income taxes 15,249 28,052
------------ ------------
Total liabilities $280,435 $277,888
------------ ------------
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000 shares, issued
and outstanding 37,677,440 shares as of December 31, 1996 and
37,514,393 shares as of March 31, 1996 377 375
Non-voting common stock, par value $.01, authorized 12,000,000 shares
as of December 31, 1996. Issued and outstanding 1,096,610 shares as
of December 31, 1996 and March 31, 1996 11 11
Additional paid-in capital 138,740 136,344
Retained earnings 97,299 75,218
------------ ------------
236,426 211,948
Equity adjustments from foreign currency translation (3) (8)
------------ ------------
Total stockholders' equity 236,424 211,940
------------ ------------
Total liabilities and stockholders' equity $516,859 $489,828
============ ============
See accompanying notes to consolidated financial statements.
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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,
1996 1995 1996 1995
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
Net Sales $143,626 $160,126 $399,544 $473,344
Operating costs and expenses:
Cost of goods sold, exclusive of depreciation 99,076 106,641 271,072 321,464
Selling, general and administrative expenses 11,676 10,183 34,723 31,132
Research and development 4,986 4,864 15,445 13,958
Depreciation and amortization 8,565 7,879 24,764 23,936
Early retirement costs - - 15,407 -
----------- ----------- ----------- -----------
124,303 129,567 361,411 390,490
Operating income 19,323 30,559 38,133 82,854
Other expense:
Interest expense 1,407 1,175 4,205 3,696
Other 654 1,824 1,284 6,518
----------- ----------- ----------- -----------
Earnings before income taxes 17,262 27,560 32,644 72,640
Income tax expense 5,179 10,321 10,563 27,712
Net earnings available for common shareholders $12,083 $17,239 $22,081 $44,928
=========== =========== =========== ===========
Per Common Share Information:
Net earnings per common share $0.31 $0.44 $0.56 $1.15
=========== =========== =========== ===========
Weighted average shares outstanding 39,291,629 39,172,293 39,255,064 39,115,486
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
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ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Thousands
Nine months ended
December 31,
1996 1995
(unaudited) (unaudited)
------------- -------------
Sources (uses) of cash:
Net cash from operating activities $36,913 $86,795
Investing transactions:
Additions to property and equipment (63,124) (87,992)
Proceeds from sale of property and equipment 70 28
Other 5 (20)
------------- -------------
Net cash from (used by) investing transactions (63,049) (87,984)
Financing transactions:
Proceeds from sale of common stock to
Employee Savings Plan 967 638
Proceeds from exercise of stock options including
related tax benefit 1,431 2,888
Repayment of debt (200) (3,282)
Net proceeds from revolving/swingline loan 25,000 0
------------- -------------
Net cash from financing transactions 27,198 244
Net increase (decrease) in cash 1,062 (945)
Cash at beginning of period 3,408 4,181
------------- -------------
Cash at end of period $4,470 $3,236
============= =============
See accompanying notes to consolidated financial statements.
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Item 1. Financial Statements
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 ended March 31, 1996 Form 10-K. Net sales and operating
results for the nine months ended December 31, 1996 are not necessarily
indicative of the results to be expected for the full year.
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, 1996, were $143.6
million and $399.5 million, a decrease of $16.5 million or 10% and $73.8 million
or 16%, respectively, from the comparable periods of the prior year. The
decrease in net sales was primarily attributable to the favorable average
selling price experienced in fiscal year 1996 as compared to fiscal year 1997
during which prices returned to the historical rate of decline and the reduced
sales volume due to the industry-wide inventory correction. Sales of surface-
mount capacitors for the quarter and nine months ended December 31, 1996, were
$107.4 million and $285.7 million, a decline of 8% and 13%, respectively, from
comparable prior year periods and sales of leaded capacitors declined 16% and
22% to $36.2 million and $113.8 million. The sales decline was experienced in
both domestic and export markets for the quarter and nine months ended December
31, 1996, compared to the comparable prior years periods with domestic sales
declining 11% and 16% to $83.3 million and $233.3 million, respectively, and
export sales declining 9% and 16% to $60.3 million and $166.2 million.
Sales of $143.6 million were up sequentially for the quarter ended December 31,
1996, as compared to $130.2 million for the prior quarter ended September 30,
1996. Sales of surface-mount capacitors were $107.4 million for the third
quarter of fiscal year 1997, up 17% from $91.6 million reported for the second
quarter of fiscal year 1997, while sales of leaded capacitors were $36.2 million
versus $38.6 million for the prior quarter. Sales did increase sequentially in
both the domestic and export markets with domestic sales improving 9% to $83.3
million and export sales increasing 12% to $60.3 million for the quarter ended
December 31, 1996 as compared with the quarter ended September 30, 1996.
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Cost of sales, exclusive of depreciation for the quarter and nine months ended
December 31, 1996, were $99.1 million and $271.1 million, respectively, as
compared to $106.6 million and $321.5 million for the quarter and nine months
ended December 31, 1995. As a percentage of net sales, cost of sales, exclusive
of depreciation was 69% and 68% for the quarter and nine months ended December
31, 1996, respectively, as compared to 67% and 68% for the comparable periods of
the prior year. The increase in cost of sales as a percentage of sales was
attributable to a decline in average selling price from fiscal year 1996 to
fiscal year 1997 as discussed above and production inefficiencies associated
with reduced capacity utilization rates. The effect of the decline in prices
and production inefficiencies was partially offset by the benefits realized from
the movement of certain production operations to lower cost manufacturing
facilities in Mexico and cost containment actions implemented in the prior
quarters, including the savings associated with the early retirement incentive
program which was effective August 1, 1996.
Selling, general and administrative expenses for the quarter and nine months
ended December 31, 1996 were $11.7 million and $34.7 million (8% and 9% of net
sales), respectively, as compared to $10.2 million and $31.1 million (7% and 6%
of net sales) for the comparable periods of the prior year. The increase in
selling, general and administrative expenses is primarily due to increased
marketing expenses.
Research, development and engineering expenses for the quarter and nine months
ended December 31, 1996, were $5.0 million and $15.4 million, respectively, as
compared to $4.9 million and $14.0 million for the prior comparable periods.
The increase reflects the Company's continued development of new products and
processes and the continued enhancement of manufacturing systems.
Depreciation and amortization expense for the quarter and nine months ended
December 31, 1996, were $8.6 million and $24.8 million as compared to $7.9
million and $23.9 million for the comparable periods of the prior year. The
slight increase is due to additional capital expenditures in the current year.
The Company recorded a pretax charge of $15.4 million ($9.9 million after tax)
in the quarter ended September 30, 1996, in connection with an early retirement
incentive program which is included in the nine month period ended December 31,
1996. The program reduced the U.S. hourly and salaried workforce by 409 people,
which is expected to result in an annualized cost savings of approximately $15.0
million.
Operating income for the quarter and nine months ended December 31, 1996, was
$19.3 million and $53.5 million, respectively, compared to $30.6 million and
$82.7 million for the comparable periods in the prior year. The decline
resulted primarily from the decrease in sales and the early retirement incentive
program as discussed above.
Operating income for the quarter ended December 31, 1996, of $19.3 million was
up sequentially from $17.3 million (excluding the early retirement incentive
program costs) reported in the quarter ended September 30, 1996.
Income tax expense totaled $5.2 million and $10.6 million for the quarter and
nine months ended December 31, 1996 (30% and 32% of earnings), respectively,
compared to income tax expense of $10.3 million and $27.7 million (37% and 38%
of earnings) for the quarter and nine months ended
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December 31, 1995. The decrease in the effective rate for the quarter and nine
months ended December 31, 1996, was primarily the result of increased foreign
sales corporation benefits and lower effective state tax rates.
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 credit facilities and amounts advanced under
its foreign accounts receivable discounting arrangements.
Cash flows from operating activities for the nine months ended December 31,
1996, were $36.9 million compared with a $86.8 million for the nine months ended
December 31, 1995. The decline in cash flows was primarily a result of lower
net income and the timing of cash flows from current assets and liabilities such
as accounts receivables, inventories, accounts payables, accrued liabilities and
income taxes payable.
Capital expenditures were $63.1 million for the nine months ended December 31,
1996 compared to $88.0 million for the nine months ended December 31, 1995.
Expenditures were primarily used for expanding production capabilities of the
tantalum and ceramic surface-mount product lines.
During the nine months ended December 31, 1996, the Company increased its
indebtedness (long-term debt and current portion of long-term debt) by $24.8
million which consisted primarily of the financing of capital expenditures. The
Company had unused availability under its revolving credit facilities as of
December 31, 1996, of approximately $72.0 million.
On November 6, 1996, the Company and the Internal Revenue Service (IRS)
finalized a settlement involving adjustments on the Company's consolidated
income tax returns for fiscal years 1989 through 1992. The adjustments to the
consolidated income tax return primarily involved the partial disallowance of
amortization of a non-compete agreement. The total tax including interest
associated with the settlement amounted to approximately $1.7 million. Also, in
relation to the final settlement with the IRS, the Company reduced goodwill and
tax liabilities by approximately $13.4 million for income taxes it had reserved
pending resolution of the audit.
The Company 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 the utilization of borrowings
under its credit facilities.
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
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 1996 Annual Report under the heading Safe Harbor
Statement 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Other than as reported in the Company's Form 10-K for the fiscal year ended
March 31, 1996 under the caption "Item 3. Legal Proceedings" and Form 10-Q for
the quarters ended June 30, 1996 and September 30, 1996, under the caption "Part
II - Other Information", 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.
On January 29, 1997, the Board of Directors of the Company adopted Restated By-
Laws effective January 29, 1997. A copy of the Restated By-Laws is filed as an
exhibit hereto and incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.1 Restated By-Laws
11.1 Computation of Per Share Earnings.
(b) Reports on Form 8-K.
None.
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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 , 1997
KEMET Corporation
/S/ J.J. Jerozal
J.J. Jerozal
Chief Financial Officer and
Treasurer
(Principal Accounting and
Financial Officer)