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, 1998.
[ ] 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 14, 1998
Title of Each Class Number of Shares
Outstanding
- - --------------------------------------------------------------------------------
Common Stock, $.01 Par Value 38,103,963
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>
June 30, March 31,
1998 1998
------- --------
(unaudited)
ASSETS
<S>
<C> <C>
Current
Assets:
Cash
$ 2,660 $ 1,801
Notes and accounts receivable (less allowances of $5,897 and $6,612
June 30, 1998 and March 31, 1998,
respectively) 48,126 62,040
Inventories:
Raw materials and
supplies
44,341 37,275
Work in
process
44,568 48,068 Finished
goods
27,615 29,340
-------- --------
Total inventories
116,524 114,683
Prepaid
expenses
4,050 2,915
Deferred income
taxes
13,477 13,581
-------- --------
Total current
assets
184,837 195,020
Property and equipment (less accumulated depreciation of $191,350 and
$179,566 at June 30, 1998 and March 31, 1998,
respectively) 410,555 393,551
Intangible assets (less accumulated amortization of $14,296 and
$13,893 at June 30, 1998 and March 31, 1998,
respectively) 46,413 46,816
Other
assets
7,114 6,722
-------- --------
Total
assets
$648,919 $642,109
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
debt $
15,000 $20,000
Accounts payable,
trade
69,303 88,711
Accrued
expenses
29,103 36,669
Income
taxes
1,880 868
-------- --------
Total current
liabilities
115,286 146,248
Long-term debt, excluding current
installments 139,150
104,000
Other non-current
obligations
69,143 69,145
Deferred income
taxes
17,103 16,456
-------- --------
Total
liabilities
$340,682 $335,849
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000 shares, issued
and outstanding 38,088,772 and 37,806,931 shares at June 30, 1998 and
March 31, 1998,
respectively
381 381
Non-voting common stock, par value $.01, authorized 12,000,000 shares,
issued and outstanding 1,096,610 at June 30, 1998 and March 31,
1998 11 11
Additional paid-in
capital
144,830 144,299
Retained
earnings
163,075 161,577
Accumulated other comprehensive
income (60)
(8)
-------- --------
Total stockholders'
equity 308,237
306,260
-------- --------
Total liabilities and stockholders'
equity $648,919 $642,109
======== ========
</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
June 30,
--------------------------
1998 1997
-------- --------
(unaudited) (unaudited)
<S>
<C> <C>
Net
Sales
$142,471 $161,204
Operating costs and expenses:
Cost of goods sold, exclusive of
depreciation 107,266
110,587
Selling, general and administrative
expenses 12,179 12,136
Research, development and
engineering
6,153 5,628
Depreciation and
amortization
10,878 9,344
-------- --------
Total operating costs and
expenses 136,476
137,695
Operating
income
5,995 23,509
Other expense:
Interest
expense
2,494 1,512
Other
1,299 1,414
-------- --------
Total other
expense
3,793 2,926
Earnings before income
taxes
2,202 20,583
Income tax
expense
705 6,574
-------- --------
Net
earnings
$1,497 $14,009
======== ========
Per Common Share Information:
Net earnings per share:
Basic
$ 0.04 $ 0.36
Diluted
$ 0.04 $ 0.36
Weighted average shares outstanding:
Basic
39,185,382 38,881,448
Diluted
39,390,046 39,393,007
</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>
Three months ended
June 30,
--------------------------
1998 1997
-------- --------
(unaudited) (unaudited)
<S>
<C> <C>
Sources (uses) of cash:
Net cash from operating
activities $(1,893)
$22,948
Investing activities:
Additions to property and
equipment (27,874)
(29,851) Proceeds from disposals of
property
(4) 0
Other
(51) 8
-------- --------
Net cash used by investing
activities (27,929)
(29,843)
Financing activities:
Proceeds from employees savings
plan 405
486
Proceeds from exercise of stock options including related tax
benefit 126 795
Repayment of long-term
debt
- - - (72)
Net proceeds/(repayments) from revolving/swingline
loan (69,850) 8,300
Proceeds from Senior
Notes
100,000 -
-------- --------
Net cash provided by financing
activities 30,681 9,509
-------- --------
Net increase in
cash
859 2,614
Cash at beginning of
period
1,801 2,188
-------- --------
Cash at end of
period
$2,660 $4,802
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 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, 1998 Form 10-K. Net sales and
operating results for the three months ended June 30, 1998 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)
<TABLE>
<CAPTION> For the three months ended June
30,
1998 1997
----------------------------------------
- - -----------------------------------
Per Per
Income Shares Share
Income Shares Share
(numerator) (denominator) Amount
(numerator) (denominator) Amount
---------- ------------ -------
- - ---------- ------------ -------
<S> <C> <C> <C>
<C> <C> <C>
Basic EPS
Income available to
common stockholders $ 1,497 39,185,382 $ .04 $
14,009 38,881,448 $0.36
Effect of diluted
securities
Stock Options - 204,664 -
- - - 511,559 -
---------- ------------ -------
- - ---------- ------------ -------
Diluted EPS
Income available to $ 1,497 39,390,046 $ .04 $
14,009 39,393,007 $0.36
common stockholders
plus assumed
conversions
</TABLE>
Options to purchase 280,150 shares of common stock at $32.125 per share were
outstanding for the three months ended June 30, 1998 and 1997, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of common shares. The options
expire on October 23, 2005.
<PAGE> 6
Options to purchase 278,525 shares of common stock at $19.25 per share were
outstanding for the three months ended June 30, 1998 and 1997, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of common shares. The options
expire on October 24, 2006.
Options to purchase 308,445 shares of common stock at $25.75 per share were
outstanding for the three months ended June 30, 1998, but were not included in
the computation of diluted EPS because the options' exercise price was greater
than the average market price of common shares. The options expire on October
22, 2007.
Note 3. Comprehensive Income
The Corporation adopted Statement of Financial Accounting Standards No. 130,
"Reporting of Comprehensive Income", as of the beginning of fiscal year 1999.
Total comprehensive income and its components are as follows:
<TABLE>
<CAPTION>
Three months
ended June
30,
- - --------------------------
1998
1997
--------
- - --------
<S> <C> <C>
Net Earnings $1,497
$14,009
Foreign currency translation adjustment (52) (8)
-------- --------
Comprehensive income $1,445
$14,001
========
======== </TABLE>
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
Three Month Period Ended June 30, 1998 and Three Month Period Ended June 30,
1997
Net sales for the three months ended June 30, 1998 were $142.5 million, a
decrease of 12% from net sales of $161.2 million for the three months ended
June 30, 1997. The decrease in net sales resulted from a combination of an
industry- wide inventory correction and slower sales growth in Asia of end-use
consumer products. Sales of surface-mount capacitors were $113.5 million for
the first quarter of fiscal 1999, a decrease of 5% from $119.4 million in the
prior year's first quarter. Sales of leaded capacitors were $29.0 million,
down from $41.8 million in the prior period. Globally, domestic sales
decreased 16% to $77.0 million and export sales, led by a decline in sales in
Asia of 21% decreased 5% to $65.5 million as compared to the prior year's
first quarter.
<PAGE> 7
Cost of sales, exclusive of depreciation, for the three months ended June 30,
1998 was $107.3 million compared to $110.6 million for the three months ended
June 30, 1997. As a percentage of net sales, cost of sales, exclusive of
depreciation, increased to 75% from 69% primarily as a result of depressed
selling prices, and the increased cost of palladium. The Company announced a
reduction in workforce during the quarter and expects the favorable impact on
cost of goods sold to begin during the second fiscal quarter.
Selling, general and administrative expenses for the three months ended June
30, 1998 were $12.2 million, or 9% of net sales, as compared to $12.1 million,
or 8% of net sales, for the three months ended June 30, 1997. Selling,
general and administrative expenses as a percent of sales increased primarily
as a result of depressed selling prices.
Research, development and engineering expenses for the three months ended June
30, 1998 were $6.2 million compared to $5.6 million for the three months ended
June 30, 1997. The increase reflects the Company's continued investments in
new products and technologies.
Depreciation and amortization expense was $10.9 million for the three months
ended June 30, 1998, as compared to $9.3 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, 1998 was $6.0 million
compared to $23.5 million for the three months ended June 30, 1997. The
decrease resulted from a combination of the reduced sales levels and the
higher cost of sales as discussed above.
Income tax expense was 32.0% of earnings for the three month periods ended
June 30, 1998 and 1997. The difference from the effective 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.
Cash flows from operating activities for the three months ended June 30, 1998
amounted to a deficit of $1.9 million compared with a surplus of $22.9 million
for the three months ended June 30, 1997. The decrease in cash flow was
primarily a result of the decrease 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.
For the quarter ended June 30, 1998 the Company expended $4.2 million in cash
charges against the restructuring liability for severance and outplacement
costs. The Company expects the remaining $1.5 million in charges to incurred
and completed by the third quarter of fiscal 1999.
Capital expenditures were $27.9 million for the three months ended June 30,
1998 compared to $29.9 million for the three months ended June 30, 1997. The
first quarter's expenditures reflect the completion of projects initiated
during fiscal year 1998. The Company estimates its capital expenditures for
fiscal year 1999 to be approximately $60.0 million.
<PAGE> 8
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. The net proceeds from the
sale of the Notes will be used to repay existing indebtedness and for general
corporate purposes.
During the three months ended June 30, 1998 the Company increased its
indebtedness (long-term debt and current portion of long-term debt) by $30.2
million which consisted primarily of the financing of capital expenditures.
The Company had unused availability under its revolving credit facility as of
June 30, 1998 of approximately $135.9 million.
Management has initiated an aggressive enterprise wide program to prepare the
Company's computer systems and applications for the year 2000. The program is
a combination of remediation efforts both internally and with the Company's
suppliers and the implementation of client server applications. The
acquisition costs of the new software and equipment has and continues to be
capitalized and all other expenses have been charged against operating
income. Amounts incurred for the three months ended June 30, 1998 were not
material and the Company does not expect the amounts required to be expensed
for the remaining activities to have a material effect on its financial
position or results of operations. The Company expects its year 2000 date
conversion projects to be completed on a
timely basis. However, there can be no assurance that other companies'
systems will be converted on a timely basis or that any such failure to
convert by another company would not have an adverse effect on the Company's
systems.
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 1998 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,
1998 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.
<PAGE> 9
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 22, 1998, at the Company's annual meeting, shareholders re-elected
Stewart A. Kohl and David E. Maguire as Directors of the Company to serve
three-year terms. The Company's shareholders also approved the appointment of
KPMG Peat Marwick LLP as independent public accountants for the fiscal year
ending March 31, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Note Purchase agreement, dated as of May 1, 1998 between KEMET
Corporation and the eleven purchasers of the Senior Notes named therein
(incorporated by reference to Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998).
(b) Reports on Form 8-K.
None.
<PAGE> 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: August 14, 1998
KEMET Corporation
/S/ D.R. Cash
--------------------------
D.R. Cash
Senior Vice President of Administration,
Treasurer and Assistant Secretary
(Principal Accounting and
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2660
<SECURITIES> 0
<RECEIVABLES> 54023
<ALLOWANCES> 5897
<INVENTORY> 116524
<CURRENT-ASSETS> 184837
<PP&E> 601905
<DEPRECIATION> 191350
<TOTAL-ASSETS> 648919
<CURRENT-LIABILITIES> 115286
<BONDS> 0
0
0
<COMMON> 381
<OTHER-SE> 307856
<TOTAL-LIABILITY-AND-EQUITY> 648919
<SALES> 142471
<TOTAL-REVENUES> 142471
<CGS> 107266
<TOTAL-COSTS> 136476
<OTHER-EXPENSES> 1299
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2494
<INCOME-PRETAX> 2202
<INCOME-TAX> 705
<INCOME-CONTINUING> 1497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1497
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
