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 June 30, 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: August 10, 1999
Title of Each Class Number of Shares
Outstanding
- --------------------------------------------------------------------------------
Common Stock, $.01 Par Value 38,252,448
Non-Voting Common Stock, $.01 Par Value 1,096,610
2
Part I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Per Share
Data)
June 30, March 31,
1999 1999
------- --------
(unaudited)
ASSETS
Current
assets:
Cash
$ 12,974 $ 3,914
Accounts receivable (less allowances of $7,533 and $6,225
June 30, 1999 and March 31, 1999,
respectively) 64,064 57,784
Inventories:
Raw materials and
supplies
52,447 45,288
Work in
process
53,819 52,225 Finished
goods
22,261 28,306
-------- --------
Total inventories
128,527 125,819
Prepaid
expenses
2,909 2,951
Income taxes
receivable
1,856 1,855
Deferred income
taxes
11,094 10,899
-------- --------
Total current
assets
221,424 203,222
Property and equipment (less accumulated depreciation of $242,204 and
$229,055 at June 30, 1999 and March 31, 1999,
respectively) 410,258 406,735
Intangible assets (less accumulated amortization of $15,983 and
$15,584 at June 30, 1999 and March 31, 1999,
respectively) 44,799 46,268
Other
assets
8,549 7,465
-------- --------
Total
assets
$685,030 $663,690
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term
debt $ 20,000 $20,000
Accounts payable,
trade
76,541 64,750
Accrued
expenses
27,894 28,101
Income
taxes
1,580 -
-------- --------
Total current
liabilities
126,015 112,851
Long-term debt, excluding current
installments 146,000
144,000
Other non-current
obligations
69,393 69,394
Deferred income
taxes
24,738 23,771
-------- --------
Total
liabilities
366,146 350,016
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000 shares, issued
and outstanding 38,213,630 and 38,158,290 shares at June 30, 1999 and
March 31, 1999,
respectively
382 382
Non-voting common stock, par value $.01, authorized 12,000,000 shares,
issued and outstanding 1,096,610 at June 30, 1999 and March 31,
1999 11 11
Additional paid-in
capital
146,018 145,482
Retained
earnings
172,421 167,727
Accumulated other comprehensive
income 52
72
-------- --------
Total stockholders'
equity 318,884
313,674
-------- --------
Total liabilities and stockholders'
equity $685,030 $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
June 30,
----------------------------
1999 1998
-------- --------
(unaudited) (unaudited)
Net
Sales
$162,649 $142,471
Operating costs and expenses:
Cost of goods sold, exclusive of
depreciation 122,984
107,266
Selling, general and administrative
expenses 10,944 12,179
Research, development and
engineering
4,388 6,153
Depreciation and
amortization
13,040 10,878
-------- --------
Total operating costs and
expenses 151,356
136,476
Operating
income
11,293 5,995
Other expense:
Interest
expense
2,734 2,494
Other
1,656 1,299
-------- --------
Total other
expense
4,390 3,793
Earnings before income
taxes
6,903 2,202
Income tax
expense
2,209 705
-------- --------
Net
earnings
$ 4,694 $ 1,497
======== ========
Per Common Share Information:
Net earnings per share:
Basic
$ 0.12 $ 0.04
Diluted
$ 0.12 $ 0.04
Weighted average shares outstanding:
Basic
39,285,558 39,185,382
Diluted
39,889,061 39,390,046
See accompanying notes to consolidated financial statements.
4
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three months ended
June 30,
--------------------------
1999 1998
-------- --------
(unaudited) (unaudited)
Sources (uses) of cash:
Net cash from operating
activities $23,676
(1,893)
Investing activities:
Additions to property and
equipment (17,132)
(27,874) Proceeds from disposals of
property
- - (4)
Other
(20) (51)
-------- --------
Net cash used by investing
activities (17,152)
(27,929)
Financing activities:
Proceeds from employees savings
plan 328
405
Proceeds from exercise of stock options including related tax
benefit 208 126
Net proceeds/(repayments) from revolving/swingline
loan 2,000 (69,850)
Proceeds from Senior
Notes
- - 100,000
-------- --------
Net cash provided by financing
activities 2,536 30,681
-------- --------
Net increase in
cash
9,060 859
Cash at beginning of
period
3,914 1,801
-------- --------
Cash at end of
period
$12,974 $2,660
======== ========
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 three months ended June 30, 1999 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.
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 June
30,
1999 1998
----------------------------------------
- -----------------------------------
Per Per
Income Shares Share
Income Shares Share
(numerator) (denominator) Amount
(numerator) (denominator) Amount
---------- ------------ -------
- ---------- ------------ -------
Basic EPS
Income available to
common stockholders $ 4,694 39,285,558 $ 0.12 $
1,497 39,185,382 $ 0.04
Effect of diluted
securities
Stock Options - 603,503 -
- - 204,664 -
---------- ------------ -------
- --------- ------------ -------
Diluted EPS
Income available to
common stockholders
plus assumed
conversions $ 4,694 39,889,061 $ 0.12 $
1,497 39,390,046 $ 0.04
6
Note 3. Stock Options
In fiscal 1999, the Company's Board of Directors approved an option re-price
program for the Executive Stock Option Plan effective April 1, 1999. Under
this program, options to purchase 396,000 shares of the Company's Common Stock
at prices ranging from $19.25 to $32.13 per share were canceled and reissued
at $12.00 per share with vesting dates ranging from October 1999 to April
2000.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Three Month Period Ended June 30, 1999 and Three Month Period Ended June 30,
1998
Net sales for the three months ended June 30, 1999 increased 14% to $162.6
million from $142.5 million for the three months ended June 30, 1998. The
increase in net sales resulted from higher demand for surface-mount tantalum
and multilayer ceramic capacitors. Sales of surface-mount capacitors were
$134.2 million for the first quarter of fiscal 1999, an increase of 18% from
$113.5 million in the prior year's first quarter. Globally, domestic sales
increased 14% to $87.4 million during the quarter. Export sales, led by an
increase in sales in Asia of 48%, increased 15% to $75.2 million as compared
to the prior year's first quarter.
Cost of sales, exclusive of depreciation, for the three months ended June 30,
1999 was $123.0 million compared to $107.3 million for the three months ended
June 30, 1998. As a percentage of net sales, cost of sales, exclusive of
depreciation, increased slightly to 76% compared to 75% for the prior year
quarter.
Selling, general and administrative expenses for the three months ended June
30, 1999 were $10.9 million, or 7% of net sales, as compared to $12.2 million,
or 9% of net sales, for the three months ended June 30, 1998. Selling,
general and administrative expenses as a percent of sales decreased primarily
as a result of increased sales volume and the Company's continued cost
reduction activities.
Depreciation and amortization expense was $13.0 million for the three months
ended June 30, 1999, as compared to $10.9 million from the prior year's first
quarter and resulted primarily from increased capital expenditures over the
past fiscal years.
Operating income for the three months ended June 30, 1999 was $11.3 million
compared to $6.0 million for the three months ended June 30, 1998. The
increase resulted primarily from the increase in net sales as discussed above.
Income tax expense was 32.0% of earnings for the three month periods ended
June 30, 1999 and 1998. The difference from the statutory income tax rate was
primarily the result of increased foreign sales corporation benefits and the
implementation of various state tax savings strategies.
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.
7
Cash flows from operating activities for the three months ended June 30, 1999
amounted to a surplus of $23.7 million compared to a deficit of $1.9 million
for the three months ended June 30, 1998. The increase in cash flow was
primarily a result of the increase in 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 $17.1 million for the three months ended June 30,
1999 compared to $27.9 million for the three months ended June 30, 1998. The
first quarter's expenditures reflect the completion of projects initiated
during fiscal year 1999. The Company estimates its capital expenditures for
fiscal year 2000 to be approximately $60.0 million.
During the three months ended June 30, 1999 the Company increased its
indebtedness (long-term debt and current portion of long-term debt) by $2.0
million which consisted primarily of the financing of capital expenditures.
As of June 30, 1999, the Company had unused availability under its revolving
credit facility and swingline loan of approximately $104.0 million and $10.0
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 has a Year 2000 Readiness Program that began in December 1996.
The scope of the program includes all business-critical operations in all
locations worldwide. Areas assessed include business applications, technical
infrastructure, facilities, end-user computing, manufacturing, and suppliers.
Overall, the Readiness Program was completed by July 15, 1999.
The Company's plan to resolve the Year 2000 issue includes the process of
inventory, assessment, remediation, testing, and implementation. As of July
15, 1999, the Company had completed 100% of the inventory, assessment,
remediation, testing, and implementation work.
The Company's Readiness Program is 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 $6.5 million and
will be funded through operating cash flows. As of June 30, 1999, the Company
had expended $6.3 million related to the Year 2000 Readiness Program.
8
Suppliers that are not prepared for the Year 2000 issues could have an impact
on the Company's ability to meet customer requirements. To reduce this risk,
the Company has conducted a survey of key suppliers to determine potential
exposure to Year 2000 issues. Suppliers not in compliance will be expected to
be in
compliance before the issue could affect delivery. Date-sensitive equipment
and software are required to be Year 2000 ready before being approved for
purchase.
The Company has developed for our internal systems and suppliers a
comprehensive contingency plan with respect to year 2000. To ensure worldwide
consistency, standard formats were designed for risk assessment and
contingency plans. A database was created to develop, approve and maintain
these documents and monitor the project. The Company's comprehensive
contingency plan was completed July 1999.
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 1999 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.
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.
On July 21, 1999, at the Company's annual meeting, shareholders re-elected
E. Erwin Maddrey, II as Director of the Company to serve a three-year term.
The Company's shareholders also approved the appointment of KPMG LLP as
independent public accountants for the fiscal year ending March 31, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Fifth Amendment to Credit Agreement between KEMET Corporation, Wachovia
Bank, N.A. as Agent, and the Banks named in the Credit Agreement dated as of
June 30, 1999.
(b) Reports on Form 8-K.
None.
9
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: August 13, 1999
KEMET Corporation
/S/ D.R. Cash
--------------------------
D.R. Cash
Senior Vice President of Administration,
Treasurer and Assistant Secretary
(Principal Accounting and
Financial Officer)