UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the period ended September 30, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 0-20289
KEMET CORPORATION
Exact name of registrant as specified in its charter
DELAWARE 57-0923789
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or organization)
2835 KEMET WAY, SIMPSONVILLE, SOUTH CAROLINA 29681
------------------------------------------------------------------------------
(Address of principal executive offices, zip code)
864-963-6300
-------------------------------
(Registrant's telephone number, including area code)
Former name, former address and former fiscal year, if changed since last
report: N/A
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Common Stock Outstanding at: November 7, 2000
Title of Each Class Number of Shares Outstanding
--------------------------------------------------------------------------------
Common Stock, $.01 Par Value 87,524,271
<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,
2000 2000
------------- ----------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 83,982 $ 75,735
Short-term investments 161,808 123,687
Accounts receivable (less allowance of $23,755 and
$15,779 at September 30, 2000, and March 31, 2000, 140,861 94,127
respectively)
Inventories:
Raw materials and supplies 63,445 53,532
Work in process 63,978 58,220
Finished goods 28,468 19,207
---------- ----------
Total inventories 155,891 130,959
Prepaid expenses and other current assets 17,171 4,688
Deferred income taxes 23,448 20,099
---------- ----------
Total current assets 583,161 449,295
Property and equipment (less accumulated depreciation
of $293,233 and $276,841 at September 30, 2000, and
March 31, 2000, respectively) 509,170 423,399
Intangible assets (less accumulated amortization of
$20,163 and $17,654 at September 30, 2000, and March 31,
2000, respectively) 45,113 46,198
Other assets 8,065 8,364
---------- ----------
Total assets $ 1,145,509 $ 927,256
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 145,085 $ 123,708
Accrued expenses 40,250 42,045
Income taxes 36,593 23,388
---------- ----------
Total current liabilities 221,928 189,141
Long-term debt 100,000 100,000
Other non-current obligations 54,754 54,757
Deferred income taxes 37,614 35,902
----------- ----------
Total liabilities 414,296 379,800
Stockholders' equity:
Common stock, par value $.01, authorized 300,000,000
shares, issued and outstanding 87,426,830 and 87,025,908
shares at September 30, 2000, and March 31, 2000,
respectively 874 870
Additional paid-in capital 316,099 308,724
Retained earnings 414,344 237,846
Accumulated other comprehensive income (loss) (104) 16
----------- ----------
Total stockholders' equity 731,213 547,456
----------- ----------
Total liabilities and stockholders' equity $ 1,145,509 $ 927,256
=========== ==========
</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 Six months ended
September 30, September 30,
------------------------ -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Sales $364,049 $186,187 $693,218 $348,836
Operating costs and expenses:
Cost of goods sold, exclusive of depreciation 176,174 136,394 346,010 259,378
Selling, general and administrative expenses 12,962 11,947 25,824 22,891
Research and development and engineering 6,169 5,189 11,791 9,577
Depreciation and amortization 16,281 13,822 31,545 26,862
-------- -------- -------- --------
Total operating costs and expenses 211,586 167,352 415,170 318,708
Operating income 152,463 18,835 278,048 30,128
Other expense (income):
Interest income (3,955) - (6,995) -
Interest expense 1,867 2,508 3,703 5,243
Other 26 2,799 3,377 4,455
-------- -------- -------- --------
Total other expense (income) (2,062) 5,307 85 9,698
Earnings before income taxes 154,525 13,528 277,963 20,430
Income tax expense 58,261 4,329 101,465 6,538
-------- -------- -------- --------
Net earnings $ 96,264 $ 9,199 $176,498 $ 13,892
======== ======== ======== ========
Per Common Share Information:
Net earnings per share:
Basic $ 1.10 $ 0.12 $ 2.02 $ 0.18
Diluted $ 1.08 $ 0.11 $ 1.99 $ 0.17
Weighted average shares outstanding: Basic 87,414,074 78,822,996 87,276,964 78,674,174
Diluted 88,804,300 80,614,798 88,847,451 80,256,282
</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,
--------------------------
2000 1999
-------- --------
(unaudited) (unaudited)
<S> <C> <C>
Net cash from operating activities $158,381 $60,103
Investing activities:
Purchase of short-term investments (185,279) -
Proceeds from maturity of short-term investments 147,158 -
Additions to property and equipment (119,239) (31,126)
Proceeds from disposals of property 1 -
Other (151) (18)
-------- -------
Net cash used by investing activities (157,510) (31,144)
Financing activities:
Proceeds from employee savings plan 601 467
Proceeds from exercise of stock options including related tax benefit 6,165 2,577
Net repayments of revolving/swingline loan - (29,000)
Proceeds from put option premiums 610 -
-------- -------
Net cash provided (used) by financing activities 7,376 (25,956)
-------- -------
Net increase in cash and cash equivalents 8,247 3,003
Cash and cash equivalents at beginning of period 75,735 3,914
-------- -------
Cash and cash equivalents at end of period $ 83,982 $ 6,917
======== =======
</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, 2000, Form 10-K. Net sales and operating results for
the six months ended September 30, 2000, are not necessarily indicative of
the results to be expected for the full year.
Note 2. Reconciliation of basic earnings per common share to diluted
earnings per common share.
In accordance with FASB Statement No. 128, the Company has included the
following table presenting a reconciliation of basic EPS to diluted EPS
fully displaying the effect of dilutive securities.
<TABLE>
<CAPTION>
Computation Of Basic and Diluted Earnings Per Share
(Dollars in Thousands Except Per Share Data)
For the three months ended September 30,
2000 1999
-------------------------------------- --------------------------------
Per Per
Income Shares Share Income Shares Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
---------- ------------ ------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $96,264 87,414,074 $1.10 $ 9,199 78,822,996 $ 0.12
Effect of dilutive
securities:
Stock Options - 1,390,226 (.02) - 1,791,802 (.01)
---------- ------------ ------- --------- ------------ ------
Diluted EPS $96,264 88,804,300 $1.08 $ 9,199 80,614,798 $ 0.11
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION> For the six months ended September 30,
2000 1999
-------------------------------------- ---------------------------------
Per Per
Income Shares Share Income Shares Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
---------- ------------ ------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $176,498 87,276,964 $2.02 $13,892 78,674,174 $0.18
Effect of dilutive
securities:
Stock Options - 1,570,487 ( .03) - 1,582,108 (0.01)
---------- ------------ ------- --------- ------------ ------
Diluted EPS $176,498 88,847,451 $1.99 $13,892 80,256,282 $0.17
</TABLE>
Note 3. Forward Foreign Exchange Contracts
At September 30, 2000, the Company had outstanding forward foreign exchange
contracts to purchase Mexican pesos with notional amounts totaling
$76.5 million. The carrying value and fair value of the contracts is an
asset of $3.1 million. All contracts mature within one year.
Note 4. Put Options
During the second quarter of fiscal year 2001, the Company sold 200,000
common equity put options on the Company's own stock at a premium of
$610,000. The options expire in February 2001. The proceeds of the put
premium were recorded as additional paid-in capital. If the stock price of
the Company decreases below the put strike price of $26.10, the Company has
a liability to purchase the shares at the put strike price. The Company
sold the put options in connection with its previously announced stock
repurchase program of up to 4.0 million shares of its common stock.
Note 5. New Accounting Standards
The Company will adopt the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 regarding revenue recognition on January 1,
2001. The Company anticipates that there will be no significant impact on
its financial statements.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 138. This standard
requires an entity to recognize all derivative instruments as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. The Company has adopted this statement on
October 1, 2000. Following is the impact of the adoption of the standard.
<PAGE> 7
Mexican Peso forward exchange contracts - These contracts are derivatives
that qualify as cash flow hedges. This will allow the Company to reduce
exchange rate volatility in the statement of earnings. There was no
transition adjustment related to these contracts upon adoption of the
standard.
Purchase and sale contracts - Most of the Company's purchase and sales
contracts qualify for the normal purchases and normal sales exclusion under
the standard, however, certain palladium purchase contracts are derivative
instruments. The transition adjustment related to these contracts was not
significant.
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Net sales for the quarter and six months ended September 30, 2000,
increased 95% and 99%, respectively, to $364.0 million and $693.2 million
as compared to the same periods last year. The increase in net sales was
attributable to increased unit volume and average selling prices as demand
for tantalum and ceramic capacitors exceeded industry capacity. Sales of
surface-mount capacitors for the quarter and six months ended September 30,
2000, were $325.8 million and $619.9 million, an increase of 104% and 111%,
respectively, from the prior-year periods, as demand increased across all
market segments, particularly in the telecommunications, internet
infrastructure, and automotive industries. Domestic sales for the same
periods increased 85% and 81% to $174.6 million and $328.9 million,
respectively. Export sales, led by increased shipments in both Europe and
Asia, increased 107% and 118% to $189.4 million and $364.3 million for the
quarter and six months ended September 30, 2000, respectively.
Cost of sales, exclusive of depreciation, for the quarter and six months
ended September 30, 2000, was $176.2 million and $346.0 million,
respectively, as compared to $136.4 million and $259.4 million for the
quarter and six months ended September 30, 1999. As a percentage of net
sales, cost of sales, exclusive of depreciation, was 48% and 50% for the
quarter and six months ended September 30, 2000, respectively, as compared
to 73% and 74% for the prior-year periods. The decrease in cost of sales
as a percentage of sales is primarily the result of higher unit volume,
increases in average selling prices, and improved manufacturing margins
achieved through operating efficiencies and cost reduction programs.
Selling, general and administrative expenses for the quarter and six months
ended September 30, 2000, were $13.0 million, or 3.6% of sales, and $25.8
million, or 3.7% of sales, respectively, as compared to $11.9 million, or
6.4% of sales, and $22.9 million, or 6.6% of sales, for the prior-year
periods. Selling, general and administrative expenses as a percent of
sales decreased from the prior-year periods primarily due to increased
sales and the Company's continued efforts to control overhead expenses.
<PAGE> 8
Research, development and engineering expenses for the quarter and six
months ended September 30, 2000, were $6.2 million and $11.8 million,
respectively, as compared to $5.2 million and $9.6 million for the prior-
year periods. The Company's entrance into the solid aluminum organic
capacitor business is an example of the Company's continued objective to
invest in the development of new products and technologies. Shipments of
this new aluminum product line is scheduled to begin in the third quarter
of fiscal year 2001.
Depreciation and amortization expense for the quarter and six months ended
September 30, 2000, were $16.3 million and $31.5 million, respectively, as
compared to $13.8 million and $26.9 million for the same periods last year.
This increase was primarily due to the increase in capital expenditures
over the past fiscal year as the Company continued to invest in additional
capacity to support the increased market demand.
Operating income for the quarter and six months ended September 30, 2000,
was $152.5 million and $278.0 million, respectively, compared to $18.8
million and $30.1 million for the comparable periods in the prior year.
The increase in operating income resulted primarily from a combination of
higher sales levels and improved manufacturing margins as discussed above.
Interest income for the quarter and six months ended September 30, 2000,
was $4.0 million and $7.0 million, respectively, compared to $0 for the
same periods last year. The increase in interest income is due to the
investment of a portion of the proceeds of the Company's public offering of
common stock completed in January 2000 and an increase in short-term
investments as a result of the positive cash flow generated from operations
in excess of the spending on capital investments.
Interest expense for the quarter and six months ended September 30, 2000,
was $1.9 million and $3.7 million, respectively, compared to $2.5 million
and $5.2 million for the prior-year periods. The decrease in interest
expense was due to a reduction in long-term debt as the Company paid off
its revolving credit facility and swingline loan with the proceeds from the
secondary offering in January 2000.
Income tax expense totaled $58.3 million and $101.5 million for the quarter
and six month periods ended September 30, 2000, compared to $4.3 million
and $6.5 million for the comparable periods ended September 30, 1999. The
increase in income taxes is the result of higher net earnings from the
increased sales and improved manufacturing margins.
Liquidity and Capital Resources
The Company's liquidity needs arise primarily from working capital
requirements, capital expenditures and interest payments on its
indebtedness. The Company intends to satisfy its liquidity requirements
primarily with funds provided by operations, short-term investments,
borrowings under its revolving credit facility, and amounts advanced under
its foreign accounts receivable discounting arrangements.
<PAGE> 9
Cash flows from operating activities for the six months ended September 30,
2000, amounted to a surplus of $158.4 million, compared with a surplus of
$60.1 million for the six months ended September 30, 1999. The increase in
cash flow was primarily a result of the increase in net income and the
timing of cash flows from current assets and liabilities such as accounts
receivable, inventories, accounts payable, accrued liabilities and income
taxes payable.
Capital expenditures were $119.2 million for the six months ended September
30, 2000, compared to $31.1 million for the six months ended September 30,
1999. The Company continues to invest in capital to support the growing
capacity requirements of the industry, along with additional new products
and technologies. The Company estimates its capital expenditures for
fiscal year 2001 to be approximately $215.0 million.
During the six months ended September 30, 2000, the Company's indebtedness
(long-term debt and current portion of long-term debt) did not change. At
September 30, 2000 the Company had unused availability under its revolving
credit facility and swingline loan of approximately $150.0 million and
$10.0 million, respectively.
During the six months ended September 30, 2000, the Company's short-term
investments increased $38.1 million. This increase is primarily
attributable to the net cash generated from operations, offset by the
capital spending during the period.
KEMET believes its strong financial position will permit the financing of
its business needs and opportunities in an orderly manner. It is
anticipated that ongoing operations will be financed primarily by
internally generated funds. In addition, the Company has the flexibility
to meet short-term working capital and other temporary requirements through
utilization of its borrowings under its bank credit facilities.
From time to time, information provided by the Company, including, but not
limited to, statements in this report or other statements made by or on
behalf of the Company, may contain "forward-looking" information within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities and Exchange Act of 1934. Such statements involve a number of
risks and uncertainties. The Company's actual results could differ
materially from those discussed in the forward-looking statements. The
cautionary statements set forth in the Company's 2000 Annual Report under
the heading Safe Harbor Statement identify important factors that could
cause actual results to differ materially from those in any forward-looking
statements made by or on behalf of the Company.
<PAGE> 10
ITEM 3. Market Risk
Market risk disclosure included in the Company's fiscal year ending March
31, 2000, Form 10-K, Part II, Item 7 A, is still applicable as of September
30, 2000, with the exception of the commodity price risk updated below and
the updated disclosure concerning the Mexican peso forward foreign exchange
contracts, which is included in Note 3 in this Form 10-Q.
Commodity Price Risk
The Company purchases various precious metals used in the manufacture of
capacitors and is therefore exposed to certain commodity price risks.
These precious metals consist primarily of palladium and tantalum.
Palladium is a precious metal used in the manufacture of multilayer ceramic
capacitors and is mined primarily in Russia and South Africa. Currently,
the Company uses forward contracts and spot buys to secure the acquisition
of palladium and manage the price volatility in the market. There has been
a dramatic increase in the price of palladium attributed to delays from the
Russian supply of the metal which has caused the price to fluctuate between
$376 and $852 per troy ounce over the past year. As a result, the Company
is aggressively implementing alternatives to reduce palladium usage in
ceramic capacitors and minimize the price risk.
Tantalum powder is a metal used in the manufacture of tantalum capacitors
and is primarily purchased under annual contracts. Management believes the
tantalum needed has generally been available in sufficient quantities to
meet manufacturing requirements. However, the recent increase in demand for
tantalum capacitors, along with the limited number of tantalum powder
suppliers, has led to increases in tantalum prices and impacted
availability. Tight supplies of tantalum raw material and some tantalum
powders have led to price increases of as much as 60%. As a result, the
Company is exploring various alternative sources of supply to ensure a
supply of tantalum at reasonable prices.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Other than as reported above and in the Company's fiscal year ending March
31, 2000, Form 10-K under the caption "Item 3. Legal Proceedings," the
Company is not currently a party to any material pending legal proceedings,
other than routine litigation incidental to the business of the Company.
Item 2. Change in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
<PAGE> 11
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: November 13, 2000
KEMET Corporation
/S/ D.R. Cash
--------------------------
D.R. Cash
Senior Vice President and
Chief Financial Officer
