<PAGE> 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 September 30, 1997.
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: November 10, 1997
Title of Each Class Number of Shares Outstanding
Common Stock, $.01 Par Value 38,000,226
Non-Voting Common Stock, $.01 Par Value 1,096,610
<PAGE> 2
Part I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,145 $ 2,188
Notes and accounts receivable (less allowances of $9,708 and $6,999 at
September 30, 1997 and March 31, 1997, respectively) 56,447 55,189
Inventories:
Raw materials and supplies 33,740 35,880
Work in process 48,191 39,373
Finished goods 23,122 22,116
-------- --------
Total inventories 105,053 97,369
Prepaid expenses 2,584 2,402
Deferred income taxes 13,029 12,552
-------- --------
Total current assets 180,258 169,700
Property and equipment (less accumulated depreciation of $167,174 and
$145,124 at September 30, 1997 and March 31, 1997, respectively) 359,086 319,509
Intangible assets (less accumulated amortization of $13,085 and
$12,278 at September 30, 1997 and March 31, 1997, respectively) 47,624 48,431
Other assets 5,587 5,604
-------- --------
Total assets $592,555 $543,244
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current installments of long-term debt $ - $ 72
Accounts payable, trade 66,518 62,159
Accrued expenses 34,934 29,310
Income taxes 3,229 15,091
-------- --------
Total current liabilities 104,681 106,632
Long-term debt, excluding current installments 121,000 102,900
Other non-current obligations 67,249 68,848
Deferred income taxes 15,527 12,741
-------- --------
Total liabilities $308,457 $291,121
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000 shares, issued
and outstanding 37,972,281 and 37,717,011 shares at September 30, 1997 and
March 31, 1997, respectively 380 377
Non-voting common stock, par value $.01, authorized 12,000,000 shares,
issued and outstanding 1,096,610 at September 30, 1997 and March 31, 1997 11 11
Additional paid-in capital 143,074 139,352
Retained earnings 140,639 112,387
-------- --------
284,104 252,127
Equity adjustments from foreign currency translation (6) (4)
-------- --------
Total stockholders' equity 284,098 252,123
-------- --------
Total liabilities and stockholders' equity $592,555 $543,244
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>3
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------------- ------------------
1997 1996 1997 1996
----- ----- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Sales $165,477 $130,192 $326,681 $255,918
Operating costs and expenses:
Cost of goods sold, exclusive of depreciation 115,177 87,155 225,764 171,996
Selling, general and administrative expenses 12,256 11,846 24,392 23,047
Research, development and engineering 5,423 5,677 11,051 10,458
Depreciation and amortization 9,400 8,220 18,744 16,198
Early retirement costs - 15,407 - 15,407
-------- -------- -------- --------
142,256 128,305 279,951 237,106
Operating income 23,221 1,887 46,730 18,812
Other expense:
Interest expense 1,785 1,545 3,296 2,799
Other 1,018 272 2,432 631
-------- -------- -------- --------
Earnings before income taxes 20,418 70 41,002 15,382
Income tax expense (benefit) 6,176 (203) 12,750 5,384
-------- -------- -------- --------
Net earnings available for common shareholders $14,242 $ 273 28,252 $ 9,998
======== ======== ======== ========
Per Common Share Information:
Net earnings per common share $0.36 $0.01 $0.72 $ 0.26
======== ======== ======== ========
Weighted average shares outstanding 39,486,926 39,169,234 39,425,461 39,190,136
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>4
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended
September 30,
---------------------------
1997 1996
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Sources (uses) of cash:
Net cash from operating activities $38,307 $ (342)
Investing activities:
Additions to property and equipment (59,101) (47,397)
Proceeds from disposals of property - 67
Other (2) (2)
-------- --------
Net cash used by investing activities (59,103) (47,332)
Financing activities:
Proceeds from employees savings plan 676 757
Proceeds from exercise of stock options including related tax benefit 3,049 844
Repayment of long-term debt (72) (132)
Net proceeds from revolving/swingline loan 18,100 44,725
-------- --------
Net cash provided by financing activities 21,753 46,194
-------- --------
Net increase (decrease) in cash 957 (1,480)
Cash at beginning of period 2,188 3,408
------- --------
Cash at end of period $3,145 $1,928
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
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, 1997 Form 10-K. Net sales and operating
results for the six months ended September 30, 1997 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 six months ended September 30, 1997, were $165.5
million and $326.7 million, an increase of $35.3 million or 27% and $70.8
million or 28%, respectively, from the comparable periods of the prior year.
The increase in net sales was primarily attributable to increased demand for
surface-mount products and the ability to broaden sales distribution channels
throughout the world. This demand was achieved by continued manufacturing
capacity expansion efforts. Sales of surface-mount capacitors for the quarter
and six months ended September 30,1997, were $128.1 million and $247.5 million,
a increase of 40% and 39%, respectively, from comparable prior year periods and
sales of leaded capacitors declined 3% to $37.4 million for the three months
ended September 30, 1997, and increased 2% to $79.2 million for the six months
ended September 30, 1997. Sales also increased in both the domestic and export
markets for the quarter and six months ended September 30, 1997, compared to the
comparable prior year's periods with domestic sales increasing 24% and 25% to
$94.8 million and $186.8 million, respectively, and export sales increasing by
32% in both periods to $70.7 million and $139.9 million.
Cost of sales, exclusive of depreciation for the quarter and six months ended
September 30, 1997, were $115.2 million and $225.8 million, respectively, as
compared to $87.2 million and $172.0 million for the quarter and six months
ended September 30, 1996. As a percentage of net sales, cost of sales,
exclusive of depreciation was 70% and 69% for the quarter and six months ended
September 30, 1997, as compared to 67% for both the comparable periods of the
prior year. The increase in cost of sales as a percentage of sales is primarily
<PAGE> 6
a result of a decline in selling prices due to aggressive, competitive pricing
coupled with an unfavorable currency exchange impact. This was partially offset
by improvements in manufacturing efficiencies and continued efforts to reduce
manufacturing costs.
Selling, general and administrative expenses for the quarter and six months
ended September 30, 1997 were $12.3 million and $24.4 million (both 7% of net
sales), respectively, as compared to $11.8 million and $23.0 million (both 9% of
net sales) for the comparable periods of the prior year. Selling, general and
administrative expenses as a percent of sales decreased primarily as a result of
efficiencies associated with the increased sales volume.
Research, development and engineering expenses for the quarter and six months
ended September 30, 1997, were $5.4 million and $11.1 million, respectively, as
compared to $5.7 million and $10.5 million for the prior comparable periods.
The increase reflects the Company's continued development of new products such
as the Tantalum T510 and the Ceramic 1632 array and engineering expenditures
focused on manufacturing efficiencies.
Depreciation and amortization expense for the quarter and six months ended
September 30, 1997, were $9.4 million and $18.7 million, respectively, as
compared to $8.2 million and $16.2 million for the prior comparable periods.
The increase resulted primarily from increased capital expenditures over the
past fiscal years.
The Company recorded a pretax charge of $15.4 million ($9.9 million after tax)
in its prior fiscal quarter ended September 30, 1996, in connection with an
early retirement incentive program.
Operating income for the quarter and six months ended September 30, 1997, was
$23.2 million and $46.7 million, respectively, compared to $1.9 million and
$18.8 million for the comparable periods in the prior year. The increase in
operating income for the current year resulted primarily from the increase in
net sales. Also, prior year's operating income was effected by the early
retirement incentive program as discussed above.
Income tax expense totaled $6.2 million for the quarter ended September 30,
1997, compared to an income tax benefit of $0.2 million for the quarter ended
September 30, 1996. Income tax expense for the six months ended September 30,
1997, was $12.8 million or 31.0% of earnings as compared to $5.4 million or 35%
of earnings for the comparable period of the prior year. The decrease in the
effective rate for the six months ended September 30, 1997, was primarily the
result of increased foreign sales corporation benefits and various state tax
savings strategies, which were put in place late in fiscal year 1997.
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, and borrowings under its credit facilities.
<PAGE> 7
Additional liquidity is generated by the Company through its accounts receivable
discounting arrangements. On August 26, 1996, KEMET Electronics, S.A., a wholly
owned subsidiary of the Company, renewed its discounting agreement with Swiss
Bank Corporation through September 30, 1997. The Company is currently in
discussions with Swiss Bank to extend this accounts receivable discounting
arrangement through March 31, 1998. The Company is also in discussions with
other banks to replace this financing arrangement. In the event that the
arrangement with Swiss Bank is not continued and a new bank or banks do not
replace this financing arrangement, the Company intends to use a portion of its
unused revolving credit facility to finance its liquidity needs abroad.
Cash flows from operating activities for the six months ended September 30,
1997, amounted to a surplus of $38.3 million compared with a $0.3 million
deficit for the six months ended September 30, 1996. The increase in cash flows
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 invested to support current and long-term growth were $59.1
million for the six months ended September 30, 1997 compared to $47.4 million
for the six months ended September 30, 1996. The Company continues to invest in
capital that will support KEMET's long-term growth objectives. The Company
plans to invest approximately $80 million in fiscal year 1998 in tantalum and
ceramic surface-mount manufacturing capacity.
During the six months ended September 30, 1997, the Company increased its
indebtedness (long-term debt and current portion of long-term debt) by $18.1
million which resulted primarily from the financing of capital expenditures.
The Company had unused availability under its revolving credit facilities as of
September 30, 1997 of approximately $54.0 million.
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.
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, 1997 under the caption "Item 3. Legal Proceedings", the Company is
not currently a party to any material pending legal proceeding, other than
routine litigation incidental to the business of the Company.
Item 2. Change in Securities.
None.
<PAGE> 8
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting of Stockholders on July 23, 1997.
(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 24, 1997, 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.
All of proxy nominees for directors as listed in the proxy statement were
elected for a three year term with the following vote:
Broker
Nominee In Favor Against Abstained Non-Votes
-------- ----------- ---------- --------- -----------
Charles E. Volpe 33,814,865 0 205,730 200
Charles E. Corpening 33,758,262 0 149,127 200
(ii) The ratification of the appointment of KPMG Peat Marwick LLP,
independent certified public accountants, to examine the financial statements of
the Company for the fiscal year ending March 31, 1998:
Broker
In Favor Against Abstained Non-Votes
---------- -------- --------- ----------
33,847,946 22,367 93,679 200
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.1 First Amendment to Credit Agreement among KEMET Corporation, Wachovia
Bank, N.A. as agent, and the Banks named in the Credit Agreement dated as of the
30th day of August 1997.
11.1 Computation of Per Share Earnings.
(b) Reports on Form 8-K.
None.
<PAGE> 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: November 10, 1997
KEMET Corporation
/S/ D.R. Cash
D.R. Cash
Senior Vice President of Administration and
Treasurer
(Principal Accounting and
Financial Officer)
<PAGE> 1
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made as of the
30th day of August, 1997, among KEMET CORPORATION, a Delaware corporation (the
"Borrower"); WACHOVIA BANK, N.A. as Agent (successor by merger to Wachovia Bank
of Georgia, N.A. and hereinafter referred to as the "Agent") under the Credit
Agreement (as herein defined) and the BANKS named in the Credit Agreement.
Background:
The Borrower, the Agent and the Banks have entered into a certain Credit
Agreement dated as of October 18, 1996 (the "Credit Agreement").
The Borrower, the Agent and the Banks wish to amend the Credit Agreement in
certain respects, as hereinafter provided.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. Capitalized terms used herein which are not otherwise
defined herein shall have the respective meanings assigned to them in the Credit
Agreement.
SECTION 2. Amendment. Section 5.07 of the Credit Agreement is hereby amended
by deleting the "and" appearing at the end of clause (c)(ii) of such Section and
by adding at the end of such Section the following: ", and (e) Guarantees of
loans or advances to employees made in the ordinary course of business and
consistent with practices existing on the Closing Date, provided, that the
aggregate outstanding principal amount of loans or advances so Guaranteed plus
the aggregate principal amount of loans or advances outstanding under Section
5.06(i) does not exceed One Million ($1,000,000) at any time".
SECTION 3. No Other Amendment. Except for the amendment set forth above, the
text of the Credit Agreement shall remain unchanged and in full force and
effect. This Amendment is not intended to effect, nor shall it be construed as,
a novation. The Credit Agreement and this Amendment shall be construed together
as a single instrument and any reference to the "Agreement" or any other defined
term for the Credit Agreement in the Credit Agreement, the Notes or any
certificate, instrument or other document delivered pursuant thereto shall mean
the Credit Agreement as amended hereby and as it may be amended, supplemented or
otherwise modified hereafter.
SECTION 4. Representation and Warranties. The Borrower hereby represents and
warrants in favor of the Agent and the Banks as follows:
(a) No Default or Event of Default under the Credit Agreement has occurred and
is continuing on the date hereof;
(b) The Borrower has the corporate power and authority to enter into this
Amendment and to do all acts and things as required or contemplated hereunder to
be done, observed and performed by it;
(c) This Amendment has been duly authorized, validly executed and delivered by
one or more authorized officers of the Borrower and each of this Amendment and
the Credit Agreement, as amended hereby constitutes the legal, valid and binding
obligation of the Borrower enforceable against it in accordance with its terms;
provided, that the enforceability of each of this Amendment and the Credit
Agreement as amended hereby is subject to general principles of equity and to
bankruptcy, insolvency and similar laws affecting the enforcement of creditors'
<PAGE> 2
rights generally; and
(d) The execution and delivery of this Amendment and the Borrower's performance
hereunder and under the Credit Agreement as amended hereby do not and will not
require the consent or approval of any regulatory authority or governmental
authority or agency having jurisdiction over the Borrower other than those which
have already been obtained or given, nor be in contravention of or in conflict
with the Articles of Incorporation or Bylaws of the Borrower, or the provision
of any statute, or any judgment, order or indenture, instrument, agreement or
undertaking, to which to Borrower is a party or by which its assets or
properties are or may become bound.
SECTION 5. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute one and the same agreement.
SECTION 6. Governing Law. This Amendment shall be deemed to be made pursuant
to the laws of the State of Georgia with respect to agreements made and to be
performed wholly in the State of Georgia and shall be construed, interpreted,
performed and enforced in accordance therewith.
SECTION 7. Effective Date. This Amendment shall become effective as of August
30, 1997, upon receipt by the Agent from each of the parties hereto of either a
duly executed signature page from a counterpart of the Amendment or a facsimile
transmission of a duly executed Default or Event of Default occurred or would
have occurred under the Credit Agreement because the amendment contained herein
were not yet incorporated in the Credit Agreement, such Defaults or Events of
Default are hereby waived as of August 30, 1997.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to by duly
executed under seal by their respective authorized officers as of the day and
year first above written.
BORROWER:
KEMET CORPORATION
By: /S/ D.R. Cash [SEAL]
Title: Senior Vice President -
Administration & Treasurer
[Remainder of this page intentionally left blank]
<PAGE> 4
WACHOVIA BANK, N.A. (successor by merger
to Wachovia Bank of Georgia, N.A. and Wachovia
Bank of South Carolina, N.A. and formerly known
as Wachovia Bank of North Carolina, N.A.),
as Agent and as a Bank
By: /S/ Suzanne Morrison [SEAL]
Title: Assistant Vice President
[Remainder of this page intentionally left blank]
<PAGE> 5
ABN AMRO BANK N.V. ATLANTA AGENCY, as
Co-Agent and Bank
By: /S/ Linda K. Davis [SEAL]
Title: Vice President
By: /S/ Steven L. Hipsman
Title: Vice President
[Remainder of this page intentionally left blank]
<PAGE> 6
SUNTRUST BANK, ATLANTA
By: /S/ J.P. Owen [Seal]
Title: Banking Officer
By: /S/ Brian K. Peters [Seal]
Title: Vice President
[Remainder of this page intentionally left blank]
<PAGE> 7
FIRST UNION NATIONAL BANK OF SOUTH CAROLINA
By: /S/ Frank R. Wrenn III [SEAL]
Title: Senior Vice President
[Remainder of this page intentionally left blank]
<PAGE> 8
PNC BANK, NATIONAL ASSOCIATION
By: /S/ Rose M. Crump [SEAL]
Title: Vice President
[Remainder of this page intentionally left blank]
<PAGE> 9
BANK OF AMERICAN NT & SA
By: /S/ Laurens F. Schaad, Jr. [SEAL]
Title: Vice President
[Remainder of this page intentionally left blank]
<PAGE> 10
THE SAKURA BANK, LIMITED
By: /S/ Hiroyasu Imanishi [SEAL]
Title: Vice President & Senior Manager
[Remainder of this page intentionally left blank]
<PAGE>1
EXHIBIT 11.1
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
Six months ended
September 30,
------------------
1997 1996
--------- ---------
<S> <C> <C>
Primary:
Net earnings available for common and
common equivalent shares $28,252 $9,998
----------- ----------
Weighted average common and common
equivalent shares outstanding 39,425,461 39,190,136
----------- ----------
Primary earnings per common share $0.72 $0.26
=========== ==========
Fully Diluted:
Net earnings available for common and
common equivalent shares $28,252 $9,998
----------- ----------
Weighted average common and common
equivalent shares outstanding assuming
ending market price 39,483,988 39,190,252
----------- ----------
Fully diluted earnings per common share $0.72 $0.26
=========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 3145
<SECURITIES> 0
<RECEIVABLES> 66155
<ALLOWANCES> 9708
<INVENTORY> 105053
<CURRENT-ASSETS> 180258
<PP&E> 526260
<DEPRECIATION> 167174
<TOTAL-ASSETS> 592555
<CURRENT-LIABILITIES> 104681
<BONDS> 0
0
0
<COMMON> 380
<OTHER-SE> 283718
<TOTAL-LIABILITY-AND-EQUITY> 592555
<SALES> 326681
<TOTAL-REVENUES> 326681
<CGS> 225764
<TOTAL-COSTS> 279951
<OTHER-EXPENSES> 2432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3296
<INCOME-PRETAX> 41002
<INCOME-TAX> 12750
<INCOME-CONTINUING> 28252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28252
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
