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 December 31, 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: February 10, 1999
Title of Each Class Number of Shares
Outstanding
- --------------------------------------------------------------------------------
Common Stock, $.01 Par Value 38,134,966
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>
December 31, March 31,
1998 1998
----------- ---------
(unaudited)
ASSETS
<S>
<C> <C>
Current
assets:
Cash
$ 2,723 $ 1,801
Notes and accounts receivable (less allowances of $5,829 and $6,612
at December 31, 1998 and March 31, 1998,
respectively) 38,102 62,040
Inventories:
Raw materials and
supplies
54,753 37,275
Work in
process
56,275 48,068 Finished
goods
28,210 29,340
-------- --------
Total
inventories
139,238 114,683
Prepaid
expenses
2,519 2,915
Deferred income
taxes
11,955 13,581
-------- --------
Total current
assets
194,537 195,020
Property and equipment (less accumulated depreciation of $213,330 and
$179,566 at December 31, 1998 and March 31, 1998,
respectively) 409,120 393,551
Intangible assets (less accumulated amortization of $15,103 and
$13,893 at December 31, 1998 and March 31, 1998,
respectively) 45,606 46,816
Other
assets
7,770 6,722
-------- --------
Total
assets
$657,033 $642,109
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
debt $
- - $ 20,000
Accounts payable,
trade
70,662 88,711
Accrued
expenses
33,971 36,669
Income
taxes
3,945 868
-------- --------
Total current
liabilities
108,578 146,248
Long-term debt, excluding current
installments 152,000
104,000
Other non-current
obligations
69,354 69,145
Deferred income
taxes
16,207 16,456
-------- --------
Total
liabilities
346,139 335,849
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000 shares, issued
and outstanding 38,127,683 and 38,064,069 shares at December 31, 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 December 31, 1998 and March 31,
1998 11 11
Additional paid-in
capital
145,199 144,299
Retained
earnings
165,351 161,577
Accumulated other comprehensive
income (48)
(8)
-------- --------
Total stockholders'
equity 310,894
306,260
-------- --------
Total liabilities and stockholders'
equity $657,033 $642,109
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share
Data)
<TABLE>
<CAPTION>
Three months
ended Nine months ended
December
31, December 31,
- ------------------------ -----------------------
1998
1997 1998 1997
--------
- -------- -------- --------
(unaudited)
(unaudited) (unaudited) (unaudited)
<S> <C>
<C> <C> <C>
Net Sales $ 141,914 $
170,359 $ 422,118 $ 497,041
Operating costs and expenses:
Cost of goods sold, exclusive of depreciation 106,863
116,807 319,678 342,570
Selling, general and administrative expenses 12,361
12,185 36,451 36,577
Research, development and engineering 4,673
6,484 16,407 17,535
Depreciation and amortization 11,829
10,216 34,243 28,960
Restructuring charge -
10,500 - 10,500
--------
- -------- -------- --------
Total operating costs and expenses 135,726
156,193 406,779 436,142
Operating income 6,188
14,167 15,339 60,899
Other expense:
Interest expense, net 2,394
1,964 6,589 5,260
Other 1,072
1,492 3,200 3,926
--------
- -------- -------- --------
Total other expense 3,466
3,456 9,789 9,186
Earnings before income taxes 2,722
10,711 5,550 51,713
Income tax expense 871
3,154 1,776 15,904
--------
- -------- -------- --------
Net earnings $ 1,851 $
7,557 $ 3,774 $ 35,809
========
======== ========= =========
Per Common Share Information:
Net earnings per share:
Basic $ 0.05 $
0.19 $ 0.10 $ 0.92
Diluted $ 0.05 $
0.19 $ 0.10 $ 0.91
Weighted average shares outstanding:
Basic 39,220,367
39,092,517 39,203,081 38,996,448
Diluted 39,368,977
39,424,840 39,370,124 39,424,797
</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>
Nine months ended
December 31,
--------------------------
1998 1997
-------- --------
(unaudited) (unaudited)
<S>
<C> <C>
Sources (uses) of cash:
Net cash from operating
activities $ 21,591 $
64,313
Investing activities:
Additions to property and
equipment (49,823)
(88,755) Proceeds from disposals of
property
294 1
Other
(40) 7
-------- --------
Net cash used by investing
activities (49,569)
(88,747)
Financing activities:
Proceeds from employees savings
plan 768
902
Proceeds from exercise of stock options including related tax
benefit 132 3,221
Repayment of long-term
debt
- - (72)
Net proceeds/(repayments) from revolving/swingline
loan 28,000 23,450
-------- --------
Net cash provided by financing
activities 28,900 27,501
-------- --------
Net increase in
cash
922 3,067
Cash at beginning of
period
1,801 2,188
-------- --------
Cash at end of
period $
2,723 $ 5,255
======== ========
</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 nine months ended December 31, 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 nine months
ended December 31,
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 $ 3,774 39,203,081 $ 0.10
$ 35,809 38,996,448 $ 0.92
Effect of diluted
securities
Stock Options - 167,043
- - - 428,349 (0.01)
---------- ---------- ------
- ----------- ------------- ------
Diluted EPS $ 3,774 39,370,124 $ 0.10
$ 35,809 39,424,797 $ .91
</TABLE>
Options to purchase 280,150 shares of common stock at $32.125 per share were
outstanding for the nine months ended December 31, 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 278,030 and 278,525 shares of common stock at $19.25 per
share were outstanding for the nine months ended December 31, 1998 and 1997
respectively, 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 nine months ended December 31, 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 Company 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 Nine months
ended
December 31, December 31,
- ------------------- -----------------
1997
1998 1997 1998
-------
- ------- ------- -------
<S> <C>
<C> <C> <C>
Net earnings $ 1,851 $
7,557 $ 3,774 $35,809
Foreign
currency
translation adjustment (1)
9 (40) (7)
-------
- ------- ------- -------
Comprehensive income $ 1,850 $
7,566 $ 3,734
$35,802
======= ======= ======= =======
</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
Net sales for the quarter and nine months ended December 31, 1998, were $141.9
million and $422.1 million, a decrease of $28.4 million or 17% and $74.9
million or 15%, respectively, from the comparable periods of the prior year.
The decrease in net sales was primarily attributable to a decline in selling
prices due to the imbalance of supply and demand in the industry and slower
sales growth in Asia and Europe. Sales of surface-mount capacitors for the
quarter and nine months ended December 31, 1998, were $117.3 million and
$342.4 million, a decrease of 12% and 10%, respectively, from comparable prior
year periods. Sales of leaded capacitors declined 33% to $24.6 million for
the three months ended December 31, 1998, and decreased 31% to $79.7 million
for the nine months ended December 31, 1998. Sales also decreased in both the
domestic and export markets for the quarter and nine months ended December 31,
1998, compared to the comparable prior year periods. Domestic sales decreased
26% and 21% to $71.0 million and $221.8 million, respectively, and export
sales decreased 5% and 7% to $70.9 million and $200.3 million, respectively.
<PAGE> 7
Cost of sales, exclusive of depreciation for the quarter and nine months ended
December 31, 1998, were $106.9 million and $319.7 million, respectively, as
compared to $116.8 million and $342.6 million for the quarter and nine months
ended December 31, 1997. As a percentage of net sales, cost of sales,
exclusive of depreciation was 75% and 76% for the quarter and nine months
ended December 31, 1998, as compared to 69% for both of the comparable periods
of the prior year. The increase in cost of sales as a percentage of sales is
primarily
the result of depressed selling prices, lower unit volume and the increased
cost of palladium.
Selling, general and administrative expenses for the quarter and nine months
ended December 31, 1998 were $12.4 million and $36.5 million, respectively, as
compared to $12.2 million and $36.6 million for the comparable periods of the
prior year. Selling, general and administrative expenses as a percent of
sales increased from 7% for the prior year quarter to 9% this quarter
primarily as a result of depressed selling prices and unit volume.
Research, development and engineering expenses for the quarter and nine months
ended December 31, 1998, were $4.7 million and $16.4 million, respectively, as
compared to $6.5 million and $17.5 million for the prior comparable periods.
Depreciation and amortization expense for the quarter and nine months ended
December 31, 1998, were $11.8 million and $34.2 million, respectively, as
compared to $10.2 million and $29.0 million for the prior comparable periods.
This increase was primarily due to the increase in capital expenditures over
the past fiscal year.
Operating income for the quarter and nine months ended December 31, 1998, was
$6.2 million and $15.3 million, respectively, compared to $14.2 million and
$60.9 million for the comparable periods in the prior year. The decrease in
operating income resulted primarily from a combination of the reduced sales
levels and the higher cost of sales as discussed above.
Interest expense, net for the three months ended December 31, 1998, was $2.4
million compared to $2.0 million for the three months ended December 31,
1997. Interest expense for the quarter includes $0.3 million of interest
income from the IRS for tax refunds on prior years' amended returns. Without
this interest income, interest expense for the quarter would have been $2.7
million, or $0.7 million higher than the prior year's third quarter. This
increase is attributable to higher debt levels, resulting from increased
capital expenditures and lower sales, and a higher interest rate resulting
from the issuance of the 6.66% Senior Notes.
Income tax expense totaled $0.9 million for the quarter ended December 31,
1998, compared to $3.2 million for the quarter ended December 31, 1997.
Income tax expense for the nine months ended December 31, 1998, was $1.8
million or 32.0% of earnings as compared to $15.9 million or 31% of earnings
for the comparable period of the prior year. The increase in the effective
rate for the nine months ended December 31, 1998, was primarily the result of
decreased foreign sales corporation benefits expected in fiscal year 1999.
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.
<PAGE> 8
Cash flows from operating activities for the nine months ended December 31,
1998 amounted to a surplus of $21.6 million compared with a surplus of $64.3
million
for the nine months ended December 31, 1997. The decrease in cash flow was
primarily a result of the decline 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.
For the quarter ended December 31, 1998 the Company expended $0.5 million in
cash charges against the restructuring liability for severance and
outplacement costs. This final $0.5 million closes the $10.5 million restructuri
ng liability established in the third quarter of fiscal year 1997 with all
$10.5 million having been expended.
Capital expenditures were $49.8 million for the nine months ended December 31,
1998 compared to $88.8 million for the nine months ended December 31, 1997.
While the Company continues to invest in capital to support its long-term
growth objectives, the current reduction in capital expenditures is due to
over capacity in the industry. The Company estimates its capital expenditures
for fiscal year 1999 to be approximately $60.0 million.
During the nine months ended December 31, 1998 the Company increased its
indebtedness (long-term debt and current portion of long-term debt) by $28.0
million which consisted primarily of the financing of capital expenditures.
The Company had unused availability under its revolving credit facility as of
December 31, 1998 of approximately $108.0 million.
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
Notes were used to repay existing indebtedness and for general corporate
purposes.
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 is scheduled to be completed by June 1999.
The Company's plan to resolve the Year 2000 issue includes the process of
inventory, assessment, remediation, testing, and implementation. As of
December 31, 1998, the Company had completed 100% of the inventory, 100% of
assessment, and 93% of the remediation, testing, and implementation work. The
completion of this final phase is expected on or before June 30, 1999.
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 is estimated at $6.4 million and will
be funded through operating cash flows. As of December 31, 1998, the Company
had expended $6.1 million related to the Year 2000 Readiness Program.
<PAGE> 9
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 is currently developing a contingency plan with respect to the
Year 2000 risks and expects to have this completed in the near future.
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.
Item 3. Defaults Upon Senior Securities.
None.
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.
10.1 Fourth Amendment to Credit Agreement between KEMET Corporation, Wachovia
Bank, N.A. as Agent, and the Banks named in the Credit Agreement dated as of
December 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: February 12, 1999
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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 2723
<SECURITIES> 0
<RECEIVABLES> 43931
<ALLOWANCES> 5829
<INVENTORY> 139238
<CURRENT-ASSETS> 194537
<PP&E> 622450
<DEPRECIATION> 213330
<TOTAL-ASSETS> 657033
<CURRENT-LIABILITIES> 108578
<BONDS> 0
0
0
<COMMON> 381
<OTHER-SE> 310513
<TOTAL-LIABILITY-AND-EQUITY> 657033
<SALES> 422118
<TOTAL-REVENUES> 422118
<CGS> 319678
<TOTAL-COSTS> 406779
<OTHER-EXPENSES> 9789
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6589
<INCOME-PRETAX> 5550
<INCOME-TAX> 1776
<INCOME-CONTINUING> 3774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3774
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made as
of the 31 st day of December, 1998, 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 listed
on the signature pages hereto.
Background:
The Borrower, the Agent and the Banks have entered into a certain Credit
Agreement dated as of October 18, 1996, as amended by a First Amendment to
Credit Agreement dated as of August 30, 1997, as further amended by a Second
Amendment to Credit Agreement dated as of March 31, 1998 and as further
amended by a Third Amendment to Credit Agreement dated as of September 9, 1998
(as amended, the "Credit Agreement").
The Borrower, the Agent and the Banks wish to further 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. Amendments. The Credit Agreement is hereby amended as follows:
SECTION 2.1. Amendment to Definitions. The definitions in Section 1.01 are
hereby amended by deleting the definition of "Commitment" in its entirety and
inserting in place thereof the following:
"Commitment" means, with respect to each Bank, (i) the amount set forth
opposite the name of such Bank on the signature pages of that certain Fourth
Amendment to Credit Agreement dated as of December 31, 1998 among the
Borrower, the Agent and the Banks listed on the signature pages thereof, or
(ii) as to any Bank which enters into an Assignment and Acceptance (whether as
transferor Bank or as Assignee thereunder), the amount of such Bank's
Commitment after giving effect to such Assignment and Acceptance, in each case
as such amount may be reduced from time to time pursuant to Sections 2.08 and
2.09.
SECTION 2.2. Amendment to Section 2.06. Section 2.06(a) is hereby amended
and restated in its entirety to read as follows:
(a) "Applicable Margin" shall be determined quarterly based upon (i) the
ratio of Earnings Before Interest, Leases and Taxes to Consolidated Fixed
Charges (calculated as of the last day of each Fiscal Quarter beginning with
the Fiscal Quarter ending December 31, 1998 and in the manner set forth in
Section 5.05) and (ii) the ratio of Consolidated Funded Debt to Consolidated
Total Capital (calculated as of the last day of each Fiscal Quarter beginning
with the Fiscal Quarter ending December 31, 1998 and in the manner set forth
in Section 5.03), as follows:
<PAGE 2>
If the ratio of Earnings Before Interest, Leases and Taxes to
Consolidated Fixed Charges is greater than or equal to 3.00 to 1.00, then the
Applicable Margin shall be determined as follows:
Ratio of Consolidated Funded Base
Rate Euro-Dollar
Debt to Consolidated Total Capital
Loans Loans
Greater than or equal to
.40
0% .55%
Greater than or equal to .25
but less than
.40
0% .45%
Less than
.25
0% .325%
If the ratio of Earnings Before Interest, Leases and Taxes to
Consolidated Fixed Charges is less than 3.00 to 1.00, then the Applicable
Margin shall be determined as follows:
Ratio of Consolidated Funded Base
Rate Euro-Dollar
Debt to Consolidated Total Capital
Loans Loans
Greater than or equal to
.40
0% 1.00%
Greater than or equal to .25
but less than
.40
0% .70%
Less than .25
0% .475%
The Applicable Margin shall be determined effective as of the date (herein,
the "Rate Determination Date") which is 45 days after the last day of the
Fiscal Quarter as of the end of which the foregoing ratio is being determined,
based on the quarterly financial statements for such Fiscal Quarter, and the
Applicable Margin so determined shall remain effective from such Rate
Determination Date until the date which is 45 days after the last day of the
Fiscal Quarter in which such Rate Determination Date falls (which latter date
shall be a new Rate Determination Date); provided that (i) for the period from
and including the Closing Date to but excluding the Rate Determination Date
next following the Fiscal Quarter ending December 31, 1996, the Applicable
Margin shall be (A) 0% for Base Rate Loans, and (B) .20% for Euro-Dollar
Loans, (ii) in the case of each Applicable Margin determined on the Rate
Determination Date which is 45 days after the fourth and final Fiscal Quarter
of a Fiscal Year, such Applicable Margin shall be redetermined based upon the
annual audited financial statements for the Fiscal Year ended on the last day
of such final Fiscal Quarter and if such Applicable Margin (as so
redetermined) shall be different from the Applicable Margin determined on the
related Rate Determination Date, such Applicable Margin (as so redetermined)
shall be effective retroactive to the related Rate Determination Date, and
(iii) if on any Rate Determination Date the Borrower shall have failed to
deliver to the Banks the financial statements required to be delivered
pursuant to Section 5.01(b) with respect to the Fiscal Quarter most recently
ended prior to such Rate Determination Date, then for the period beginning on
such Rate Determination Date and ending on the earlier of (A) the date on
which the Borrower shall deliver to the Banks the financial statements
required to be delivered pursuant to Section 5.01(b) with respect to such
Fiscal Quarter or any subsequent Fiscal Quarter, or (B) the date on which the
Borrower shall deliver to the Banks annual financial statements required to be
delivered pursuant to Section 5.01(a) with respect to the Fiscal Year which
includes such Fiscal Quarter or any subsequent Fiscal Year, the Applicable
Margin shall be determined as if the ratio of Earnings Before Interest, Leases
and Taxes to
<PAGE 3>
Consolidated Fixed Charges was less than 3.00 to 1.00 and the ratio of
Consolidated Funded Debt to Consolidated Total Capital was greater than or
equal to .40 at all times during such period. Any change in the Applicable
Margin on any Rate Determination Date shall result in a corresponding change,
effective on and as of such Rate Determination Date, in the interest rate
applicable to each Syndicated Loan outstanding on such Rate Determination
Date.
SECTION 2.3. Amendment to Section 2.07. Section 2.07(a) is hereby
amended and restated in its entirety to read as follows:
(a) The Borrower shall pay to the Agent for the ratable account of
each Bank a facility fee equal to the product of: (i) the aggregate of the
daily average amounts of such Bank's Commitment (irrespective of usage), times
(ii) a per annum percentage equal to the Applicable Facility Fee Rate. Such
facility fee shall accrue from and including the Closing Date to but excluding
the Termination Date. Facility fees shall be payable quarterly in arrears on
the Facility Fee Payment Date next following each Facility Fee Determination
Date and on the Termination Date; provided that should the Commitments be
terminated at any time prior to the Termination Date for any reason, the
entire accrued and unpaid facility fee shall be paid on the date of such
termination. The "Applicable Facility Fee Rate" shall be determined quarterly
based upon (i) the ratio of Earnings Before Interest, Leases and Taxes to
Consolidated Fixed Charges (calculated as of the last day of each Fiscal
Quarter beginning with the Fiscal Quarter ending December 31, 1998 and in the
manner set forth in Section 5.05) and (ii) the ratio of Consolidated Funded
Debt to Consolidated Total Capital (calculated as of the last day of each
Fiscal Quarter beginning with the Fiscal Quarter ending December 31, 1998 and
in the manner set forth in Section 5.03), as follows:
If the ratio of Earnings Before Interest, Leases and Taxes to
Consolidated Fixed Charges is greater than or equal to 3.00 to 1.00, then the
Applicable Facility Fee Rate shall be determined as follows:
Ratio of Consolidated Funded
Applicable Facility
Debt to Consolidated Total Capital
Fee Rate
Greater than or equal to
.40 .20%
Greater than or equal to .25
but less than
.40
.15%
Less than .25
.125%
If the ratio of Earnings Before Interest, Leases and Taxes to
Consolidated Fixed Charges is less than 3.00 to 1.00, then the Applicable
Facility Fee Rate shall be determined as follows:
Ratio of Consolidated Funded
Applicable Facility
Debt to Consolidated Total Capital
Fee Rate
Greater than or equal to
.40 .25%
Greater than or equal to .25
but less than
.40
.175%
Less than
.25
.15%
<PAGE 4>
The Applicable Facility Fee Rate shall be determined effective as of the date
(herein, the "Facility Fee Determination Date") which is 45 days after the
last day of the Fiscal Quarter as of the end of which the foregoing ratio is
being determined, based on the quarterly financial statements for such Fiscal
Quarter, and the Applicable Facility Fee Rate so determined shall remain
effective from such Facility Fee Determination Date until the date which is 45
days after the last day of the Fiscal Quarter in which such Facility Fee
Determination Date falls (which latter date shall be a new Facility Fee
Determination Date); provided that (i) for the period from and including the
Closing Date to but excluding the Facility Fee Determination Date next
following the Fiscal Quarter ending December 31, 1996, the Applicable
Facility Fee Rate shall be .10%; (ii) in the case of each Applicable Facility
Fee Rate determined on the Facility Fee Determination Date which is 45 days
after the fourth and final Fiscal Quarter of a Fiscal Year, such Applicable
Facility Fee Rate shall be redetermined based upon the annual audited
financial statements for the Fiscal Year ended on the last day of such final
Fiscal Quarter and if such Applicable Facility Fee Rate (as so redetermined)
shall be different from the Applicable Facility Fee Rate determined on the
related Facility Fee Determination Date, such Applicable Facility Fee Rate (as
so redetermined) shall be effective retroactive to the related Facility Fee
Determination Date, and (iii) if on any Facility Fee Determination Date the
Borrower shall have failed to deliver to the Banks the financial statements
required to be delivered pursuant to Section 5.01(b) with respect to the
Fiscal Quarter most recently ended prior to such Facility Fee Determination
Date, then for the period beginning on such Facility Fee Determination Date
and ending on the earlier of (A) the date on which the Borrower shall deliver
to the Banks the financial statements required to be delivered pursuant to
Section 5.01(b) with respect to such Fiscal Quarter or any subsequent Fiscal
Quarter, and (B) the date on
which the Borrower shall deliver to the Banks annual financial statements
required to be delivered pursuant to Section 5.01(a) with respect to the
Fiscal Year which includes such Fiscal Quarter or any subsequent Fiscal Year,
the Applicable Facility Fee Rate shall be determined as if the ratio of
Earnings Before Interest, Leases and Taxes to Consolidated Fixed Charges was
less than 3.00 to 1.00 and the ratio of Consolidated Funded Debt to
Consolidated Total Capital was greater than or equal to .40 at all times
during such period.
SECTION 2.4. Amendment to Section 5.03. Section 5.03 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
SECTION 5.03. Ratio of Consolidated Funded Debt to Consolidated Total
Capital. The ratio of Consolidated Funded Debt to Consolidated Total Capital
shall not at any time exceed .45 to 1.00.
SECTION 2.5. Amendment to Section 5.04. Section 5.04 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
SECTION 5.04. Minimum Consolidated Net Worth. Consolidated Net Worth will at
no time be less than the greater of (x) $245,000,000, or (y) 85% of
Consolidated Net Worth as of September 30, 1998, minus the aggregate amount of
Capital Stock repurchased by the Borrower or any Consolidated Subsidiary after
the Closing Date, plus the sum of (i) 50% of the cumulative Reported Net
Income of the Borrower and its Consolidated Subsidiaries during any period
after September 30, 1998 (taken as one accounting period), calculated
quarterly but excluding from such calculations of Reported Net Income for
purposes of this clause (i) any quarter in which the Reported Net Income of
the Borrower and its Consolidated Subsidiaries is negative, and (ii) 50% of
the cumulative Net Proceeds of Capital Stock received during any period after
September 30, 1998, calculated quarterly.
<PAGE 5>
SECTION 2.6. Amendment to Section 5.05. Section 5.05 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
SECTION 5.05. Ratio of Earnings Before Interest, Leases and Taxes to
Consolidated Fixed Charges. At the end of each Fiscal Quarter, the ratio of
Earnings Before Interest, Leases and Taxes for the Fiscal Quarter then ending
and the three Fiscal Quarters immediately preceding the Fiscal Quarter then
ending to Consolidated Fixed Charges for the Fiscal Quarter then ending and
the three Fiscal Quarters immediately preceding the Fiscal Quarter then ending
shall be greater than (a) 3.00 to 1.00 from and including the Fiscal Quarter
ending December 31, 1996 to but excluding the Fiscal Quarter ending September
30, 1998, (b) 2.50 to 1.00 from and including the Fiscal Quarter ending
September 30, 1998 to but excluding the Fiscal Quarter ending December 31,
1998, (c) 2.00 to 1.00 from and including the Fiscal Quarter ending December
31, 1998 to but excluding the Fiscal Quarter ending March 31, 1999, (d) 1.25
to 1.00 from and including the Fiscal Quarter ending March 31, 1999 to but
excluding the Fiscal Quarter ending September 30, 1999,
(e) 1.50 to 1.00 from and including the Fiscal Quarter ending September 30,
1999 to but excluding the Fiscal Quarter ending June 30, 2000, and (f) 1.75 to
1.00 for all Fiscal Quarters ending on or after June 30, 2000.
SECTION 2.7. Amendment to Section 9.05. Section 9.05(a) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
(a) Any provision of this Agreement, the Notes or any other Loan
Documents may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Banks (and, if
the rights or duties of the Agent are affected thereby, by the Agent);
provided that no such amendment or waiver shall, unless signed by all the
Banks, (i) change the Commitment of any Bank or subject any Bank to any
additional obligation (other than as contemplated by Section 2.05(b)), (ii)
change the principal of or reduce the rate of interest on any Loan or reduce
any fees hereunder, (iii) change the date fixed for any payment of principal
of or interest on any Loan or any fees hereunder, (iv) change the amount of
principal, or reduce the rate or amount of interest or fees due on any date
fixed for the payment thereof, (v) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Notes, or the percentage of
Banks, which shall be required for the Banks or any of them to take any action
under this Section or any other provision of this Agreement, (vi) change the
manner of application of any payments made under this Agreement or the Notes,
(vii) release or substitute all or any substantial part of the collateral (if
any) held as security for the Loans, or (viii) release any guaranty given to
support payment of the Loans.
SECTION 2.8. Change in Commitments. The Banks listed on the signature pages
to the Credit Agreement are hereby amended to exclude PNC Bank, N.A., reducing
its Commitment from $15,000,000 to $0. The parties hereto agree that the
outstanding Syndicated Loans made by PNC Bank, N.A. shall be paid in full on
the date hereof, together with all accrued interest and fees payable to PNC
Bank, N.A., and PNC Bank, N.A. shall be released from all the rights, duties
and obligations of a Bank under the Credit Agreement from and after such
payment, provided that PNC Bank, N.A. shall be entitled to compensation
pursuant to Section 8.05 of the Credit Agreement in connection with the
prepayment of the Euro-Dollar Loans made by it, with such compensation to be
paid by the Borrower within five days of request by PNC Bank, N.A.
<PAGE 6>
SECTION 3. Conditions to Effectiveness. The effectiveness of this Amendment
and the obligations of the Banks hereunder are subject to the following
conditions, unless the Banks waive such conditions:
(a) receipt by the Agent from each of the parties hereto of either (i) a duly
executed counterpart of this Amendment signed by such party or (ii) a
facsimile transmission stating that such party has duly executed a counterpart
of this Amendment and sent such counterpart to the Agent;
(b) receipt by the Agent of the amendment fee provided for in Section 8 of
this Amendment;
(c) receipt by the Agent of new Money Market Notes (the "New Notes") for the
account of each Bank listed on the signature pages hereto (other than PNC
Bank, N.A.) in the form of Exhibit A to this Amendment;
(d) no material adverse change shall have occurred in the financial markets
since November 18, 1998; and
(e) the fact that the representations and warranties of the Borrower
contained in Section 5 of this Amendment shall be true in all material
respects on and as of the date hereof.
SECTION 4. 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 5. Representations and Warranties. The Borrower hereby represents
and warrants in favor of the Agent and the Banks as follows:
(a) After giving effect to this Amendment, 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 are required or contemplated
hereunder to be done, observed and performed by it;
(c) This Amendment and the New Notes have been duly authorized, validly
executed and delivered by one or more authorized officers of the Borrower and
each of this Amendment, the New Notes 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, the New Notes 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' rights generally;
(d) The execution and delivery of this Amendment, the New Notes and the
Borrower's performance hereunder and under the Credit Agreement as amended
hereby do not and will not require the consent or
<PAGE 7>
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 the Borrower is a party or by which its assets or properties are or may
become bound; and (e) Since March 31, 1998, there has been no event, act
condition or occurrence having a Material Adverse Effect.
SECTION 6. 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 7. 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 8. Amendment Fee. On the date that this Amendment becomes
effective, the Borrower shall pay to the Agent for the ratable account of each
Bank an amendment fee equal to the product of such Bank's Commitment
(irrespective of usage) as of such date multiplied by .10%.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be 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
and
Treasurer
[Remainder of this page intentionally left blank]<PAGE><PAGE 8>
Commitment: WACHOVIA BANK,
N.A. (successor by merger
$65,000,000 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/ Marshall Meier [SEAL]
Title:
Vice President
[Remainder of this page
intentionally left blank]<PAGE><PAGE 9>
Commitment: ABN AMRO BANK N.V.
ATLANTA AGENCY,
$30,000,000 as Co-Agent and
Bank
By:
/S/ Larry K. Kelley [SEAL]
Title:
Group Vice President
By:
/S/ Robert A. Budnek [SEAL]
Title:
Vice President
[Remainder of this page intentionally left
blank] <PAGE><PAGE 10>
Commitment: SUNTRUST BANK,
ATLANTA
$15,000,000
By:
/S/ Margaret A. Jaketic [SEAL]
Title:
Vice President
By:
/S/ Mark Preston [SEAL]
Title:
Banking Officer
[Remainder of this page
intentionally left blank]<PAGE><PAGE 11>
Commitment: FIRST UNION
NATIONAL BANK (formally
$25,000,000 known as First
Union National Bank of South Carolina)
By:
/S/ Douglas T. Davis [SEAL]
Title:
Vice President
[Remainder of this page intentionally left
blank]<PAGE><PAGE 12>
Commitment: PNC BANK,
NATIONAL ASSOCIATION
$0.00
By:
/S/ Rose M. Crump [SEAL]
Title:
Vice President
[Remainder of this page intentionally
left blank]<PAGE><PAGE 13>
Commitment: BANK OF AMERICA
NT & SA
$15,000,000
By:
/S/ Kevin Mc Mahon [SEAL]
Title:
Managing Director
[Remainder of this page intentionally
left blank]
<PAGE 14>
EXHIBIT
A
MONEY MARKET NOTE
$150,000,000
Atlanta, Georgia
December 31, 1998
For value received, KEMET CORPORATION, a Delaware corporation (the
"Borrower"), promises to pay to the order of
(the "Bank"), for the account of its Lending Office, the principal sum of One
Hundred Fifty Million and No/100 Dollars ($150,000,000), or such lesser amount
as shall equal the unpaid principal amount of each Money Market Loan made by
the Bank to the Borrower pursuant to the Credit Agreement referred to below,
on the dates and in the amounts provided in the Credit Agreement. The
Borrower promises to pay interest on the unpaid principal amount of this Money
Market Note on the dates and at the rate or rates provided for in the Credit
Agreement. Interest on any overdue principal of and, to the extent permitted
by law, overdue interest on the principal amount hereof shall bear interest at
the Default Rate, as provided for in the Credit Agreement. All such payments
of principal and interest shall be made in lawful money of the United States
in Federal or other immediately available funds at the office of Wachovia Bank
of Georgia, N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303, or such
other address as may be specified from time to time pursuant to the Credit
Agreement.
All Money Market Loans made by the Bank, the respective maturities
thereof, the interest rates from time to time applicable thereto and all
repayments of the principal thereof shall be recorded by the Bank and, prior
to any transfer hereof, endorsed by the Bank on the schedule attached hereto,
or on a continuation of such schedule attached to and made a part hereof;
provided that the failure of the Bank to make, or any error of the Bank in
making, any such recordation or endorsement shall not affect the obligations
of the Borrower hereunder or under the Credit Agreement.
This note is one of the Money Market Notes referred to in the Credit Agreement
dated as of October 18, 1996 among the Borrower, the banks listed on the
signature pages thereof and their successors and assigns and Wachovia Bank of
Georgia, N.A., as Agent, and ABN AMRO Bank N.V. Atlanta Agency, as Co-Agent
(as the same may be amended or modified from time to time, the "Credit
Agreement"). This Note replaces the Money Market Note of the Borrower dated
October 18, 1996 executed and delivered in connection with the original
execution of the Credit Agreement and is one of the "Money Market Notes"
referred to in the Credit Agreement. Terms defined in the Credit Agreement
are used herein with the same meanings. Reference is made to the Credit
Agreement for provisions for the prepayment and the repayment hereof and the
acceleration of the maturity hereof.
The Borrower hereby waives presentment, demand, protest, notice of demand,
protest and nonpayment and any other notice required by law relative hereto,
except to the extent as otherwise may be expressly provided for in the Credit
Agreement.
<PAGE 15>
The Borrower agrees, in the event that this note or any portion hereof is
collected by law or through an attorney at law, to pay all reasonable costs of
collection, including, without limitation, reasonable attorneys' fees.
IN WITNESS WHEREOF, the Borrower has caused this Money Market Note to be duly
executed under seal, by its duly authorized officer as of the day and year
first above written.
KEMET CORPORATION
By: /S/ D. R. Cash
[SEAL]
Title: Senior Vice President
- - Administration
and Treasurer<PAGE>
