-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SNH5zeGF0TI65dkq3lVb+gwUeh5v0fUx8J7aOBB5Xfvwc0HfyfHNpSIgJSooUqQB VAfnhBys1higqShfioNt4Q== /in/edgar/work/0000887730-00-000012/0000887730-00-000012.txt : 20001114 0000887730-00-000012.hdr.sgml : 20001114 ACCESSION NUMBER: 0000887730-00-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEMET CORP CENTRAL INDEX KEY: 0000887730 STANDARD INDUSTRIAL CLASSIFICATION: [3670 ] IRS NUMBER: 570923789 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15491 FILM NUMBER: 762309 BUSINESS ADDRESS: STREET 1: 2835 KEMET WAY CITY: SIMPSONVILLE STATE: SC ZIP: 29681 BUSINESS PHONE: 8039636300 MAIL ADDRESS: STREET 1: P O BOX 5928 STREET 2: 2835 KEMET WAY CITY: SIMPSONVILLE STATE: SC ZIP: 29681 10-Q 1 0001.txt 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, 2000. [ ] 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 7, 2000 Title of Each Class Number of Shares Outstanding - -------------------------------------------------------------------------------- Common Stock, $.01 Par Value 87,524,271 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, 2000 2000 ------------- ---------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 83,982 $ 75,735 Short-term investments 161,808 123,687 Accounts receivable (less allowance of $23,755 and $15,779 at September 30, 2000, and March 31, 2000, 140,861 94,127 respectively) Inventories: Raw materials and supplies 63,445 53,532 Work in process 63,978 58,220 Finished goods 28,468 19,207 ---------- ---------- Total inventories 155,891 130,959 Prepaid expenses and other current assets 17,171 4,688 Deferred income taxes 23,448 20,099 ---------- ---------- Total current assets 583,161 449,295 Property and equipment (less accumulated depreciation of $293,233 and $276,841 at September 30, 2000, and March 31, 2000, respectively) 509,170 423,399 Intangible assets (less accumulated amortization of $20,163 and $17,654 at September 30, 2000, and March 31, 2000, respectively) 45,113 46,198 Other assets 8,065 8,364 ---------- ---------- Total assets $ 1,145,509 $ 927,256 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade $ 145,085 $ 123,708 Accrued expenses 40,250 42,045 Income taxes 36,593 23,388 ---------- ---------- Total current liabilities 221,928 189,141 Long-term debt 100,000 100,000 Other non-current obligations 54,754 54,757 Deferred income taxes 37,614 35,902 ----------- ---------- Total liabilities 414,296 379,800 Stockholders' equity: Common stock, par value $.01, authorized 300,000,000 shares, issued and outstanding 87,426,830 and 87,025,908 shares at September 30, 2000, and March 31, 2000, respectively 874 870 Additional paid-in capital 316,099 308,724 Retained earnings 414,344 237,846 Accumulated other comprehensive income (loss) (104) 16 ----------- ---------- Total stockholders' equity 731,213 547,456 ----------- ---------- Total liabilities and stockholders' equity $ 1,145,509 $ 927,256 =========== ==========
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, ------------------------ ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (unaudited) (unaudited) (unaudited) (unaudited) Net Sales $364,049 $186,187 $693,218 $348,836 Operating costs and expenses: Cost of goods sold, exclusive of depreciation 176,174 136,394 346,010 259,378 Selling, general and administrative expenses 12,962 11,947 25,824 22,891 Research and development and engineering 6,169 5,189 11,791 9,577 Depreciation and amortization 16,281 13,822 31,545 26,862 -------- -------- -------- -------- Total operating costs and expenses 211,586 167,352 415,170 318,708 Operating income 152,463 18,835 278,048 30,128 Other expense (income): Interest income (3,955) - (6,995) - Interest expense 1,867 2,508 3,703 5,243 Other 26 2,799 3,377 4,455 -------- -------- -------- -------- Total other expense (income) (2,062) 5,307 85 9,698 Earnings before income taxes 154,525 13,528 277,963 20,430 Income tax expense 58,261 4,329 101,465 6,538 -------- -------- -------- -------- Net earnings $ 96,264 $ 9,199 $176,498 $ 13,892 ======== ======== ======== ======== Per Common Share Information: Net earnings per share: Basic $ 1.10 $ 0.12 $ 2.02 $ 0.18 Diluted $ 1.08 $ 0.11 $ 1.99 $ 0.17 Weighted average shares outstanding: Basic 87,414,074 78,822,996 87,276,964 78,674,174 Diluted 88,804,300 80,614,798 88,847,451 80,256,282
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, -------------------------- 2000 1999 -------- -------- (unaudited) (unaudited) Net cash from operating activities $158,381 $60,103 Investing activities: Purchase of short-term investments (185,279) - Proceeds from maturity of short-term investments 147,158 - Additions to property and equipment (119,239) (31,126) Proceeds from disposals of property 1 - Other (151) (18) -------- ------- Net cash used by investing activities (157,510) (31,144) Financing activities: Proceeds from employee savings plan 601 467 Proceeds from exercise of stock options including related tax benefit 6,165 2,577 Net repayments of revolving/swingline loan - (29,000) Proceeds from put option premiums 610 - -------- ------- Net cash provided (used) by financing activities 7,376 (25,956) -------- ------- Net increase in cash and cash equivalents 8,247 3,003 Cash and cash equivalents at beginning of period 75,735 3,914 -------- ------- Cash and cash equivalents at end of period $ 83,982 $ 6,917 ======== =======
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, 2000, Form 10-K. Net sales and operating results for the six months ended September 30, 2000, 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, 2000 1999 -------------------------------------- -------------------------------- Per Per Income Shares Share Income Shares Share (numerator) (denominator) Amount (numerator) (denominator) Amount ---------- ------------ ------- ---------- ------------ ------- Basic EPS $96,264 87,414,074 $1.10 $ 9,199 78,822,996 $ 0.12 Effect of dilutive securities: Stock Options - 1,390,226 (.02) - 1,791,802 (.01) ---------- ------------ ------- --------- ------------ ------ Diluted EPS $96,264 88,804,300 $1.08 $ 9,199 80,614,798 $ 0.11
6
For the six months ended September 30, 2000 1999 -------------------------------------- --------------------------------- Per Per Income Shares Share Income Shares Share (numerator) (denominator) Amount (numerator) (denominator) Amount ---------- ------------ ------- ---------- ------------ ------- Basic EPS $176,498 87,276,964 $2.02 $13,892 78,674,174 $0.18 Effect of dilutive securities: Stock Options - 1,570,487 ( .03) - 1,582,108 (0.01) ---------- ------------ ------- --------- ------------ ------ Diluted EPS $176,498 88,847,451 $1.99 $13,892 80,256,282 $0.17
Note 3. Forward Foreign Exchange Contracts At September 30, 2000, the Company had outstanding forward foreign exchange contracts to purchase Mexican pesos with notional amounts totaling $76.5 million. The carrying value and fair value of the contracts is an asset of $3.1 million. All contracts mature within one year. Note 4. Put Options During the second quarter of fiscal year 2001, the Company sold 200,000 common equity put options on the Company's own stock at a premium of $610,000. The options expire in February 2001. The proceeds of the put premium were recorded as additional paid-in capital. If the stock price of the Company decreases below the put strike price of $26.10, the Company has a liability to purchase the shares at the put strike price. The Company sold the put options in connection with its previously announced stock repurchase program of up to 4.0 million shares of its common stock. Note 5. New Accounting Standards The Company will adopt the Securities and Exchange Commission's Staff Accounting Bulletin No. 101 regarding revenue recognition on January 1, 2001. The Company anticipates that there will be no significant impact on its financial statements. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138. This standard requires an entity to recognize all derivative instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company has adopted this statement on October 1, 2000. Following is the impact of the adoption of the standard. 7 Mexican Peso forward exchange contracts - These contracts are derivatives that qualify as cash flow hedges. This will allow the Company to reduce exchange rate volatility in the statement of earnings. There was no transition adjustment related to these contracts upon adoption of the standard. Purchase and sale contracts - Most of the Company's purchase and sales contracts qualify for the normal purchases and normal sales exclusion under the standard, however, certain palladium purchase contracts are derivative instruments. The transition adjustment related to these contracts was not significant. 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, 2000, increased 95% and 99%, respectively, to $364.0 million and $693.2 million as compared to the same periods last year. The increase in net sales was attributable to increased unit volume and average selling prices as demand for tantalum and ceramic capacitors exceeded industry capacity. Sales of surface-mount capacitors for the quarter and six months ended September 30, 2000, were $325.8 million and $619.9 million, an increase of 104% and 111%, respectively, from the prior-year periods, as demand increased across all market segments, particularly in the telecommunications, internet infrastructure, and automotive industries. Domestic sales for the same periods increased 85% and 81% to $174.6 million and $328.9 million, respectively. Export sales, led by increased shipments in both Europe and Asia, increased 107% and 118% to $189.4 million and $364.3 million for the quarter and six months ended September 30, 2000, respectively. Cost of sales, exclusive of depreciation, for the quarter and six months ended September 30, 2000, was $176.2 million and $346.0 million, respectively, as compared to $136.4 million and $259.4 million for the quarter and six months ended September 30, 1999. As a percentage of net sales, cost of sales, exclusive of depreciation, was 48% and 50% for the quarter and six months ended September 30, 2000, respectively, as compared to 73% and 74% for the prior-year periods. The decrease in cost of sales as a percentage of sales is primarily the result of higher unit volume, increases in average selling prices, 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, 2000, were $13.0 million, or 3.6% of sales, and $25.8 million, or 3.7% of sales, respectively, as compared to $11.9 million, or 6.4% of sales, and $22.9 million, or 6.6% of sales, for the prior-year periods. Selling, general and administrative expenses as a percent of sales decreased from the prior-year periods primarily due to increased sales and the Company's continued efforts to control overhead expenses. 8 Research, development and engineering expenses for the quarter and six months ended September 30, 2000, were $6.2 million and $11.8 million, respectively, as compared to $5.2 million and $9.6 million for the prior- year periods. The Company's entrance into the solid aluminum organic capacitor business is an example of the Company's continued objective to invest in the development of new products and technologies. Shipments of this new aluminum product line is scheduled to begin in the third quarter of fiscal year 2001. Depreciation and amortization expense for the quarter and six months ended September 30, 2000, were $16.3 million and $31.5 million, respectively, as compared to $13.8 million and $26.9 million for the same periods last year. This increase was primarily due to the increase in capital expenditures over the past fiscal year as the Company continued to invest in additional capacity to support the increased market demand. Operating income for the quarter and six months ended September 30, 2000, was $152.5 million and $278.0 million, respectively, compared to $18.8 million and $30.1 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 as discussed above. Interest income for the quarter and six months ended September 30, 2000, was $4.0 million and $7.0 million, respectively, compared to $0 for the same periods last year. The increase in interest income is due to the investment of a portion of the proceeds of the Company's public offering of common stock completed in January 2000 and an increase in short-term investments as a result of the positive cash flow generated from operations in excess of the spending on capital investments. Interest expense for the quarter and six months ended September 30, 2000, was $1.9 million and $3.7 million, respectively, compared to $2.5 million and $5.2 million for the prior-year periods. The decrease in interest expense was due to a reduction in long-term debt as the Company paid off its revolving credit facility and swingline loan with the proceeds from the secondary offering in January 2000. Income tax expense totaled $58.3 million and $101.5 million for the quarter and six month periods ended September 30, 2000, compared to $4.3 million and $6.5 million for the comparable periods ended September 30, 1999. 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, short-term investments, borrowings under its revolving credit facility, and amounts advanced under its foreign accounts receivable discounting arrangements. 9 Cash flows from operating activities for the six months ended September 30, 2000, amounted to a surplus of $158.4 million, compared with a surplus of $60.1 million for the six months ended September 30, 1999. 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 receivable, inventories, accounts payable, accrued liabilities and income taxes payable. Capital expenditures were $119.2 million for the six months ended September 30, 2000, compared to $31.1 million for the six months ended September 30, 1999. 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 2001 to be approximately $215.0 million. During the six months ended September 30, 2000, the Company's indebtedness (long-term debt and current portion of long-term debt) did not change. At September 30, 2000 the Company had unused availability under its revolving credit facility and swingline loan of approximately $150.0 million and $10.0 million, respectively. During the six months ended September 30, 2000, the Company's short-term investments increased $38.1 million. This increase is primarily attributable to the net cash generated from operations, offset by the capital spending during the period. 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. 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 2000 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. 10 ITEM 3. Market Risk Market risk disclosure included in the Company's fiscal year ending March 31, 2000, Form 10-K, Part II, Item 7 A, is still applicable as of September 30, 2000, with the exception of the commodity price risk updated below and the updated disclosure concerning the Mexican peso forward foreign exchange contracts, which is included in Note 3 in this Form 10-Q. Commodity Price Risk The Company purchases various precious metals used in the manufacture of capacitors and is therefore exposed to certain commodity price risks. These precious metals consist primarily of palladium and tantalum. Palladium is a precious metal used in the manufacture of multilayer ceramic capacitors and is mined primarily in Russia and South Africa. Currently, the Company uses forward contracts and spot buys to secure the acquisition of palladium and manage the price volatility in the market. There has been a dramatic increase in the price of palladium attributed to delays from the Russian supply of the metal which has caused the price to fluctuate between $376 and $852 per troy ounce over the past year. As a result, the Company is aggressively implementing alternatives to reduce palladium usage in ceramic capacitors and minimize the price risk. Tantalum powder is a metal used in the manufacture of tantalum capacitors and is primarily purchased under annual contracts. Management believes the tantalum needed has generally been available in sufficient quantities to meet manufacturing requirements. However, the recent increase in demand for tantalum capacitors, along with the limited number of tantalum powder suppliers, has led to increases in tantalum prices and impacted availability. Tight supplies of tantalum raw material and some tantalum powders have led to price increases of as much as 60%. As a result, the Company is exploring various alternative sources of supply to ensure a supply of tantalum at reasonable prices. Part II - OTHER INFORMATION Item 1. Legal Proceedings. Other than as reported above and in the Company's fiscal year ending March 31, 2000, 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. 11 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. 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 13, 2000 KEMET Corporation /S/ D.R. Cash -------------------------- D.R. Cash Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----