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 September 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: November 8, 1999
Title of Each Class Number of Shares
Outstanding
- --------------------------------------------------------------------------------
Common Stock, $.01 Par Value 38,660,479
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)
September 30, March 31,
1999 1999
------- --------
(unaudited)
ASSETS
Current
assets:
Cash
$ 6,917 $ 3,914
Accounts receivable (less allowances of $9,079 and $6,225
September 30, 1999, and March 31, 1999,
respectively) 64,463 57,784
Inventories:
Raw materials and
supplies
52,276 45,288
Work in
process
53,093 52,225 Finished
goods
22,622 28,306
-------- --------
Total inventories
127,991 125,819
Prepaid
expenses
3,255 2,951
Income taxes
receivable
1,855 1,855
Deferred income
taxes
14,427 10,899
-------- --------
Total current
assets
218,908 203,222
Property and equipment (less accumulated depreciation of $255,166 and
$229,055 at September 30, 1999, and March 31, 1999,
respectively) 408,655 406,735
Intangible assets (less accumulated amortization of $16,416 and
$15,584 at September 30, 1999, and March 31, 1999,
respectively) 47,425 46,268
Other
assets
7,492 7,465
-------- --------
Total
assets
$682,480 $663,690
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term
debt $ 15,000 $20,000
Accounts payable,
trade
82,223 64,750
Accrued
expenses
34,704 28,101
Income
taxes
6,457 -
-------- --------
Total current
liabilities
138,384 112,851
Long-term debt, excluding current
installments 120,000
144,000
Other non-current
obligations
69,351 69,394
Deferred income
taxes
24,152 23,771
-------- --------
Total
liabilities
351,887 350,016
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000 shares, issued
and outstanding 38,374,949 and 38,158,290 shares at September 30, 1999
and
March 31, 1999,
respectively
384 382
Non-voting common stock, par value $.01, authorized 12,000,000 shares,
issued and outstanding 1,096,610 at September 30, 1999, and March 31,
1999, 11 11
respectively
Additional paid-in
capital
148,524 145,482
Retained
earnings
181,620 167,727
Accumulated other comprehensive
income 54
72
-------- --------
Total stockholders'
equity 330,593
313,674
-------- --------
Total liabilities and stockholders'
equity $682,480 $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 Six months ended
September
30, September 30,
- ------------------------ -----------------------
1999
1998 1999 1998
--------
- -------- -------- --------
(unaudited)
(unaudited) (unaudited) (unaudited)
Net Sales $186,187
$137,733 $348,836 $280,204
Operating costs and expenses:
Cost of goods sold, exclusive of depreciation 136,394
105,549 259,378 212,815
Selling, general and administrative expenses 11,947
11,911 22,891 24,090
Research and development and engineering 5,189
5,582 9,577 11,735
Depreciation and amortization 13,822
11,535 26,862 22,413
--------
- -------- -------- --------
Total operating costs and expenses 167,352
134,577 318,708 271,053
Operating income 18,835
3,156 30,128 9,151
Other expense:
Interest expense, net 2,508
1,701 5,243 4,195
Other 2,799
829 4,455 2,128
--------
- -------- -------- --------
Total other expense 5,307
2,530 9,698 6,323
Earnings before income taxes 13,528
626 20,430 2,828
Income tax expense 4,329
200 6,538 905
--------
- -------- -------- --------
Net earnings $ 9,199 $
426 $13,892 $ 1,923
========
======== ======== ========
Per Common Share Information:
Net earnings per share:
Basic $ 0.23 $
0.01 $ 0.35 $ 0.05
Diluted $ 0.23 $
0.01 $ 0.35 $ 0.05
Weighted average shares outstanding:
Basic 39,411,498
39,203,606 39,337,087 39,194,679
Diluted 40,307,399
39,348,334 40,128,141 39,371,041
See accompanying notes to consolidated financial statements.
4
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Six Months ended
September 30,
--------------------------
1999 1998
-------- --------
(unaudited) (unaudited)
Sources (uses) of cash:
Net cash from operating
activities $60,103
$ 4,829
Investing activities:
Additions to property and
equipment (31,126)
(41,634) Proceeds from disposals of
property
- - (4)
Other
(18) (41)
-------- --------
Net cash used by investing
activities (31,144)
(41,679)
Financing activities:
Proceeds from employee savings
plan 467
590
Proceeds from exercise of stock options including related tax
benefit 2,576 133
Net repayments of revolving/swingline
loan (29,000) (63,700)
Proceeds from Senior
Notes
- - 100,000
-------- --------
Net cash provided (used) by financing
activities (25,956) 37,023
-------- --------
Net increase in
cash
3,003 173
Cash at beginning of
period
3,914 1,801
-------- --------
Cash at end of
period
$6,917 $1,974
======== ========
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 six months ended September 30, 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
September 30,
1999 1998
----------------------------------------
- -----------------------------------
Per Per
Income Shares Share
Income Shares Share
(numerator) (denominator) Amount
(numerator) (denominator) Amount
---------- ------------ -------
- ---------- ------------ -------
Basic EPS $ 9,199 39,411,498 $ 0.23 $
426 39,203,606 $0.01
Effect of dilutive
securities
Stock Options - 895,901 -
- - 144,728 -
---------- ------------ -------
- ---------- ------------ -------
Diluted EPS $ 9,199 40,307,399 $ 0.23 $
426 39,348,334 $0.01
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 amended with a new
exercise price of $12.00 per share with vesting dates ranging from October
1999 to April 2000.
6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Net sales for the quarter and six months ended September 30, 1999, increased
35% and 24%, respectively, to $186.2 million and $348.8 million from the
comparable periods of the prior year. The increase in net sales was
attributable to higher demand for tantalum and ceramic surface-mount
capacitors as a result of the strong growth in the telecommunications and
computer industries, along with improvement in the Asian economy. Sales of
surface-mount capacitors for the quarter and six months ended September
30,1999, were $159.8 million and $294.0 million, an increase of 43% and 31%,
respectively, from comparable prior-year periods. Sales of leaded capacitors
were stable at $26.4 million for the three months ended September 30, 1999,
and $54.8 million for the six months ended September 30, 1999. Domestic sales
for the same periods increased 28% and 21% to $94.6 million and $182.0
million, respectively. Export sales, led by increased shipments to Asia,
increased 43% and 29% to $91.6 million and $166.8 million for the quarter and
six months ended September 30, 1999, respectively.
Cost of sales, exclusive of depreciation, for the quarter and six months ended
September 30, 1999, were $136.4 million and $259.4 million, respectively, as
compared to $105.5 million and $212.8 million for the quarter and six months
ended September 30, 1998. As a percentage of net sales, cost of sales,
exclusive of depreciation was 73% and 74% for the quarter and six months ended
September 30, 1999, respectively, as compared to 77% 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 higher unit volume and improved
manufacturing margins achieved through operating efficiencies and cost
reduction programs.
Selling, general and administrative expenses for the quarter and six months
ended September 30, 1999, were $11.9 million (6.4% of net sales) and $22.9
million (6.6% of net sales), respectively, as compared to $11.9 million (8.6%
of net sales) and $24.1 million (8.6% of net sales)for the comparable periods
of the prior year. Selling, general and administrative expenses as a percent
of sales decreased from the comparable periods primarily due to increased
sales and the Company's continued efforts to control overhead expenses.
Research, development and engineering expenses for the quarter and six months
ended September 30, 1999, were $5.2 million and $9.6 million, respectively, as
compared to $5.6 million and $11.7 million for the prior comparable periods.
The Company continued to invest in the development of new products and
technologies as shown by the Company's announcement to enter the organic
tantalum and solid aluminum capacitor businesses.
Depreciation and amortization expense for the quarter and six months ended
September 30, 1999, were $13.8 million and $26.9 million, respectively, as
compared to $11.5 million and $22.4 million for the prior comparable periods.
This increase was primarily due to the increase in capital expenditures over
the past fiscal years as the Company continued to invest in additional
capacity to support existing and new product lines.
Operating income for the quarter and six months ended September 30, 1999, was
$18.8 million and $30.1 million, respectively, compared to $3.2 million and
$9.2 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.
7
Interest expense, net for the quarter and six months ended September 30, 1999,
was $2.5 million and $5.2 million, respectively, compared to $1.7 million and
$4.2 million for the prior-year periods. The increase in interest expense
over the prior period was attributable to lower interest expense in the prior
year periods as a result of $1.1 million of interest income received from the
IRS during the period for tax refunds on prior years' amended returns.
Without this interest income, interest expense for the quarter and six months
ended September 30, 1998, would have been $2.8 million and $5.3 million,
respectively.
Income tax expense totaled $4.3 million and $6.5 million for the quarter and
six month periods ended September 30, 1999, compared to $0.2 million and $0.9
million for the comparable periods ended September 30, 1998. The increase in
income taxes is the result of higher net earnings from the increased sales and
improved manufacturing margins.
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.
Cash flows from operating activities for the six months ended September 30,
1999, amounted to a surplus of $60.1 million compared with a surplus of $4.8
million for the six months ended September 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 $31.1 million for the six months ended September 30,
1999, compared to $41.6 million for the six months ended September 30, 1998.
The Company continues to invest in capital to support the growing capacity
requirements of the industry, along with additional new products and
technologies. The Company estimates its capital expenditures for fiscal year
2000 to be approximately $70.0 million.
During the six months ended September 30, 1999, the Company decreased its
indebtedness (long-term debt and current portion of long-term debt) by $29.0
million which was generated primarily from operating activities. As of
September 30, 1999, the Company had unused availability under its revolving
credit facility and swingline loan of approximately $130.0 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.
8
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 processes 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 $6.8 million and
will be funded through operating cash flows. As of September 30, 1999, the
Company had expended $6.6 million related to the Year 2000 Readiness Program.
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.
9
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting of Stockholders on July 22, 1998.
(b) Proxies for the meeting were solicited pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended. There was no solicitation in
opposition to management's nominees for directors as listed in the definitive
proxy statement of the Company dated as of June 22, 1998, and such nominees
were elected.
(c) Briefly described below is each matter voted upon at the Annual Meeting
of Stockholders.
(i) Election of Directors of the Company.
The proxy nominee for director as listed in the proxy statement was elected
for a three year term with the following vote:
Broker
Nominee In Favor Against Abstained Non-Votes
-------- ----------- ---------- --------- -----------
E. Erwin Maddrey, II. 30,181,619 0 122,307 0
(ii) The ratification of the appointment of KPMG LLP, independent certified
public accountants, to examine the financial statements of the Company for the
fiscal year ending March 31, 2000:
Broker
In Favor Against Abstained Non-Votes
---------- -------- --------- ----------
30,265,110 13,326 25,490 -0-
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Sixth Amendment to Credit Agreement between KEMET Corporation, Wachovia
Bank, N.A. as Agent, and the Banks named in the Credit Agreement dated as of
July 1,1999.
(b) Reports on Form 8-K.
On July 1, 1999, Form 8-K was filed by the Company announcing that Charles M.
Culbertson II had been named President and Chief Operating Officer of the
Company. The Company also announced additional organizational changes.
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: November 15, 1999
KEMET Corporation
/S/ D.R. Cash
--------------------------
D.R. Cash
Senior Vice President of Administration,
Treasurer and Assistant Secretary
(Principal Accounting and
Financial Officer)