UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2000
Or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the transition period from to
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Commission file Number: 0-20289
KEMET Corporation
(Exact name of registrant as specified in its charter)
Delaware 57-0923789
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2835 KEMET Way, Simpsonville, South Carolina 29681
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (864)963-6300
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of class)
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. [ x ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[X]
Aggregate market value of voting Common Stock held by non-affiliates of the
registrant as of June 7, 2000, computed by reference to the closing sale price
of the registrant's Common Stock was approximately $2,937,053,486.
Number of shares of each class of Common Stock outstanding as of June 7, 2000:
Common Stock, $.01 Par Value 87,409,638
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the definitive Proxy Statement relating to the annual
meeting of Stockholders to be held on July 26, 2000: Part III
PART I
ITEM 1. BUSINESS
General
KEMET Corporation and its subsidiaries ("KEMET" or the "Company")is the
world's largest manufacturer of solid tantalum capacitors and the world's
fourth largest manufacturer of multilayer ceramic capacitors, based on net
sales for the calendar year ending December 31, 1999. According to industry
sources, tantalum and ceramic capacitors are the two fastest growing sectors
of the United States capacitor industry. In fiscal year 2000, KEMET generated
net sales of $822.1 million, up 45% from $565.6 million in fiscal year 1999.
International sales accounted for approximately 50% of the net sales for
fiscal year 2000. During fiscal year 2000, the Company shipped approximately
31.5 billion capacitors, comprised of approximately 35,000 different types of
capacitors.
Capacitors are electronic components that store, filter and regulate
electrical energy and current flow and are one of the essential passive
components used on circuit boards. Virtually all electronic applications and
products contain capacitors. Capacitors alter the relationship of currents
and voltages in a given electrical system, filter or smooth out electrical
signals where required, and retard signals of low frequencies while permitting
signals of higher frequencies to pass with minimal attenuation. Different
types of capacitors are distinguished based on dielectric material,
configuration, capacitance level and tolerance, performance characteristics,
marking and packaging. In addition, capacitors differ based on the method
employed to attach them to the circuit board. Surface-mounting allows
capacitors to be soldered directly to a circuit board, rather than having lead
wires passed through holes to be soldered on the reverse side of a board.
A wide variety of electronic applications utilize KEMET capacitors. These
applications include communication systems, data processing equipment,
personal computers, cellular phones, automotive electronic systems, and
military and aerospace systems.
KEMET utilizes a direct sales force to market its capacitors to a diverse and
growing number of OEMs, Electronic Manufacturing Service providers and
electronics distributors. The Company's largest customers include Alcatel,
Arrow Electronics, Compaq, Dell, Ford, General Motors, Hewlett-Packard, IBM,
Intel, Lucent Technologies, Motorola, Nokia, Qualcomm, SCI Systems, Siemens,
Solectron and TTI.
Since its divestiture from Union Carbide ("UCC") in December 1990, the Company
has pursued one distinct vision: To establish a distinctive competence that
differentiates KEMET as the unquestioned best-in-class supplier. The core
values that support this vision are:
Best trained and motivated people;
Company-wide quality concept (as evidenced by ISO 9000 and QS-9000
registration at all of KEMET's facilities);
An easy-to-buy-from philosophy (supported by the Company's direct sales
force and executed by KEMET's key account teams);
Lowest cost producer (by achieving significant production cost savings
through the focused plant concept and the transfer to and expansion of
manufacturing operations in Mexico where the Company can take advantage
of lower overall costs); and
Leading edge of technology (as evidenced by the Company's continued
increase in expenditures for new product development and the design and
development of new machinery and equipment).
Background of Company
KEMET's operations began in 1919 as a business of UCC to manufacture component
parts for vacuum tubes. As vacuum tubes were gradually replaced by solid-
state transistors, the Company changed its manufacturing focus from vacuum
tube parts to tantalum capacitors, and later added ceramic capacitors to meet
the expected need for capacitors in electronic circuit boards. The Company
entered the market for tantalum capacitors in 1958 as one of approximately 25
United States manufacturers. By 1966, the Company was the United States'
market leader in tantalum capacitors, a position which it still holds in an
industry consisting of four major tantalum capacitor manufacturers. In 1969,
the Company began production of ceramic capacitors as one of approximately 35
United States manufacturers. Within five years, the Company was the second
largest United States manufacturer of ceramic capacitors, a position which it
still holds in a market consisting of five major capacitor manufacturers.
The current Company was formed in 1990 by certain members of the Company's
current management, Citicorp Venture Capital, Ltd. ("CVC"), and other
investors to acquire the outstanding common stock of KEMET Electronics
Corporation from UCC.
Public Offerings and Recapitalization
In October 1992, the Company completed an initial public offering of its
common stock and a related recapitalization to simplify its capital structure.
In June 1993, the Company completed an additional public offering of common
stock and used the net proceeds to reduce outstanding indebtedness.
On January 20, 2000, the Company sold 6,500,000 shares of its common stock in
a public offering for $142.6 million in net cash proceeds after deducting
underwriting fees and offering expenses. Included in the shares sold were
2,193,220 shares of non-voting common stock that were converted into common
stock on a share-for-share basis. The net proceeds were used to repay
outstanding debt under the Company's short-term credit facility and will be
used to fund future capital expenditures.
Stock Splits
On September 6, 1995, the Board of Directors declared a two-for-one stock
split whereby one additional common share, par value $.01, was issued for each
common share outstanding to shareholders of record on September 13, 1995.
On May 15, 2000, the Company's Board of Directors declared a two-for-one stock
split. The record date for the split was May 24, 2000, with distribution of
the additional shares on June 1, 2000. All references in the consolidated
financial statements to number of shares outstanding, price per share, per-
share amounts and stock option plan data have been restated to reflect the
split.
Refinancing of Outstanding Senior Debt
On October 18, 1996, the Company refinanced the entire balance of its
outstanding revolving credit facility and swingline credit facility with new
credit facilities. These new credit facilities, each of which has a term of
five years, include a $150.0 million revolving credit facility and a $10.0
million swingline credit facility. In May 1998, the Company sold $100 million
of its Senior Notes due May 4, 2010.
The Capacitor Industry
The Company estimates that worldwide capacitor consumption was approximately
$16.4 billion in 1999, with tantalum and ceramic capacitors comprising
approximately 40% of the market. According to industry sources, tantalum and
ceramic capacitors accounted for approximately 59% of the $2.9 billion market
for capacitors consumed in the United States in 1999 and constituted the two
fastest growing sectors of the United States capacitor market.
Because of their fundamental nature and widespread application, demand for
capacitors tends to reflect the general demand for electronic products, which
has been growing over the past several years. Growth in the electronics
market and the corresponding growth in the capacitor market has been fueled
by:
the development of new products and applications, such as cellular
phones, personal computers and electronic controls for engines and
machinery;
the increase in the electronic content of existing products, such as home
appliances, medical equipment and automobiles; and
the growth in the number of capacitors required in certain complex
electronic products that use state-of-the-art microprocessors.
The capacitor industry has shifted its manufacturing focus from traditional
leaded capacitors toward surface-mount capacitors in order to increase circuit
board densities, decrease the size of electronic components and more highly
automate production. Surface-mount capacitors are generally smaller than
similar leaded capacitors and can be mounted on both sides of a circuit board.
To meet the increased demand for surface-mount capacitors, the Company has
invested $460.7 million in capital expenditures during the past five years
with a substantial portion spent to expand surface-mount manufacturing.
Our Strategy
KEMET has used its position as a leading, high-quality manufacturer of
capacitors to capitalize on the increasingly demanding requirements of its
customers. Key elements of the Company's strategy include the following
business objectives:
Maintaining Long-Term Customer Relationships. KEMET continually seeks to
maintain the number of business relationships that it has with leading OEMs
and to increase the percentage of each OEM's requirements that the company
supplies under these relationships. OEMs have moved toward long-term buying
relationships with a limited number of capacitor manufacturers as a method to
increase long-term quality and reduce the overall cost of acquiring component
products. OEMs are demanding increased levels of service to provide ease of
ordering, just-in-time delivery to multiple facilities, flexible scheduling,
computerized paperless purchasing, specialized packaging and full breadth of
product offerings. KEMET believes that it has responded to each of these
customer needs and positioned the Company to capture a larger portion of OEMs'
capacitor supply requirements. In addition, KEMET will continue to develop
and expand preferred supplier relationships with its customers to ensure its
ability to meet their rapidly changing demands. Preferred supplier or other
similar long-term relationships with OEMs accounted for approximately 56% of
KEMET's net sales for fiscal year 2000.
Providing Product Breadth and Service Flexibility. KEMET manufactures a full
line of products with different specifications in order to respond to the
needs of its customers. During fiscal year 2000, the Company manufactured
approximately 31.5 billion capacitors, comprised of approximately 35,000
different types of capacitors, with types being distinguished by dielectric
material, configuration, encapsulation, capacitance level and tolerance,
performance characteristics, marking and packaging.
KEMET believes that it is a market leader in reliable and timely delivery of
capacitor products. As most OEMs have moved to just-in-time inventory
management, the timeliness and reliability of shipments by their suppliers
have become increasingly important. The Company has designed its
manufacturing facilities and order entry system to respond quickly to
customer needs and has invested over $10.0 million in an easy-to-buy-from
order entry system. KEMET's order entry system provides on-line pricing,
scheduled delivery dates and accurate inventory information and provides a
direct link between the Company and its major distributors.
Manufacturing High-Quality Products. KEMET is a leader in an industry in
which customers require high-quality standards and exacting product
specifications. The Company emphasizes continuous product improvement and a
company-wide commitment to quality. As a result, KEMET has received numerous
quality awards from customers such as Advanced Technology Labs, Alcatel, AT&T,
Ford, General Instrument, General Motors, Honeywell, Motorola, Rockwell
International, Rolm Systems, Solectron, Sun Microsystems, Texas Instruments
and 3M.
Investing in Surface-Mount Manufacturing Capacity. Demand for capacitors has
evolved from leaded toward surface-mount capacitors, as KEMET's customers
continue to increase circuit board densities and shift to more highly
automated production techniques. The Company believes that by increasing
surface-mount capacity to meet the demands of its OEM customers, it will
increase sales in the growing surface-mount capacitor market. During the past
five fiscal years, the Company has invested $460.7 million in capital
expenditures, a substantial portion of which was spent to expand surface-mount
manufacturing capacity. This has allowed the Company to increase its sales of
surface-mount capacitors at a compound annual rate of 16% during such five-
year period. KEMET currently operates at or near capacity at its surface-
mount manufacturing facilities, and intends to make further capital
investments in surface-mount manufacturing capacity in order to serve the
growing needs of its customers. For fiscal year 2000, sales of surface-mount
capacitors accounted for approximately 86% of the net sales, as compared to
81% for fiscal year 1999 and 77% for fiscal year 1998.
Improving Current Products and Developing New Products. KEMET's customers
increasingly look for greater capacitance in smaller products. To respond to
its customers' needs, the Company continues to develop smaller surface-mount
capacitors in anticipation of continuing trends toward miniaturization of end
products. KEMET believes it is a technology leader and continues to support a
strong research and development program to meet the needs of its customers.
The Company has also entered into technical alliances with NEC Corporation to
produce KO-Caps (high-performance conductive polymer tantalum capacitors) and
Showa Denko K.K. to produce solid conductive polymer aluminum surface-mount
capacitors.
Remaining an Overall Low-cost Producer. KEMET's customers are under worldwide
competitive pressure to reduce their product costs and these pressures are
passed along to component manufacturers. The Company believes that it has
achieved a leading position as an overall low-cost producer of capacitors. To
maintain this position, it is constantly seeking to reduce materials and labor
costs, develop cost-efficient manufacturing equipment and processes and design
manufacturing plants for efficient production.
KEMET has been able to reduce the manufacturing cost of its products by
increasing materials utilization efficiency and production yields. In
addition, the Company has been successful at reducing assembly direct labor
costs by locating plants in areas with relatively low-cost labor. KEMET
capacitors have been assembled in Mexico for approximately 30 years.
KEMET has a dedicated engineering team who continue to develop faster and more
efficient automated manufacturing, assembly, testing and packaging machines
and processes. The Company has designed each of its manufacturing and
assembly facilities to produce one product or a family of closely related
products. KEMET's management believes that this focused approach to
manufacturing allows each facility to shorten manufacturing time, optimize
product flow, and avoid long and costly equipment retooling and employee
training time, all of which lead to overall reduced costs.
Capacitors
Capacitors are electronic components consisting of conducting materials
separated by a dielectric or insulating material (such as tantalum, ceramic,
aluminum, film, paper or mica), which allow a capacitor to interrupt the flow
of electrical current. They are divided between leaded and surface-mount
capacitors, describing the method by which the capacitors are attached to the
circuit board.
KEMET manufactures a full line of capacitors using two types of dielectrics,
solid tantalum and multilayer ceramic. Most customers buy both tantalum and
ceramic capacitors from the Company. KEMET manufactures these types of
capacitors in many different sizes and configurations. The Company produces
leaded capacitors, which are attached to a circuit board using lead wires, and
surface-mount capacitors, which are attached directly to the circuit board
without lead wires.
The choice of capacitor dielectric is driven by the engineering specifications
and application of the component product into which the capacitor is
incorporated. Product design engineers in the electronics industry typically
select capacitors on the basis of capacitance levels, size and cost. Tantalum
and ceramic capacitors continue to be the preferred dielectrics in new design
applications, as compared to capacitors made of other dielectrics. Tantalum
and ceramic capacitors are commonly used in conjunction with integrated
circuits, and are best suited for applications requiring lower to medium
capacitance values. Generally, ceramic capacitors are more cost-effective at
lower capacitance values, and tantalum capacitors are more cost-effective at
higher capacitance values.
Management believes that sales of tantalum and ceramic capacitors will
continue to grow more rapidly than other types of capacitors in both the
United States and worldwide markets because technological breakthroughs in
electronics are regularly expanding the number and type of applications for
these products. Both tantalum and ceramic capacitors have special properties
valuable for surface-mount applications.
Leaded and Surface-Mount Capacitors
The Company manufactures both leaded and surface-mount capacitors. The
capacitors are distinguished based on the method by which they are attached to
the circuit board. Despite the differences in configuration between leaded
and surface-mount capacitors, both types of capacitors rely on similar
technology.
The manufacture of the internal capacitor element is the same whether it is
ultimately incorporated into a leaded or surface-mount capacitor.
Consequently, much of the know-how and some of the capital equipment required
to produce these products is common. The primary distinction between leaded
and surface-mount capacitors occurs in the assembly, testing and finishing
stages, which utilize different equipment and processes. Surface-mount
capacitors must be able to withstand temperatures up to 260 degrees Centigrade
during circuit board assembly and are placed on circuit boards using high-
speed automatic placement equipment. These requirements result in quality and
process standards greater than those demanded for leaded components.
The Company believes it has taken advantage of the growth of the surface-mount
capacitor market and is an industry leader in designing and marketing surface-
mount capacitors. Demand has shifted from leaded to surface-mount capacitors
because surface-mount capacitors are more commonly incorporated into new
product designs which rely on higher density circuit boards. As a result,
worldwide sales of leaded capacitors have been declining over the past five
years and have been offset by an increase in worldwide sales of surface-mount
capacitors. Consequently, although KEMET intends to make further capital
investments in surface-mount manufacturing capacity to serve the growing needs
of its customers, the Company's results of operations and growth prospects
could be adversely affected in the event that the Company does not continue to
increase its sales and production of surface-mount capacitors.
The following table shows the respective percentages of the Company's sales of
surface-mount capacitors and leaded capacitors for the fiscal years ended
March 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION> Net Sales
(dollars in millions)
Fiscal Years Ended March 31,
2000 1999 1998
Sales Percent Sales Percent Sales Percent
<S> <C> <C> <C> <C> <C> <C>
Surface-mount $711.0 86% $459.3 81% $517.4 77%
Leaded 111.1 14% 106.3 19% 150.3 23%
------ ---- ------ --- ------ ----
Total $822.1 100% $565.6 100% $667.7 100%
====== ==== ====== ==== ====== ====
</TABLE>
Markets and Customers
KEMET's products are sold to a variety of OEMs in a broad range of industries
including the computer, communications, automotive, military and aerospace
industries. KEMET also sells an increasing number of its products to EMS
providers, which also serve OEMs in these industries. The Company is not
dependent on any one customer or group of related customers. One customer in
fiscal years 2000, 1999 and 1998 accounted for over 10% of the Company's net
sales. The Company's top 50 customers accounted for approximately 90% of the
Company's net sales during fiscal year 2000. Preferred supplier and similar
long-term relationships with OEMs accounted for approximately 56% of the
Company's net sales in fiscal years 2000, 1999 and 1998.
The following table presents an overview of the diverse industries that
incorporate the Company's capacitors into their products and the general
nature of those products.
Industry Products
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Automotive Audio systems, powertrain electronics, instrumentation,
airbag systems, anti-lock braking systems, electronic
engine controls, air conditioning controls and security
systems
Business Equipment Copiers, point-of-sale terminals and typewriters,
Communications cellular phones, modems, telephones, switching
equipment and relays
Computers Personal computers, workstations, mainframes, computer
peripheral equipment, power supplies, disk drives,
printers and local area networks
Industrial Electronic controls, measurement equipment,
instrumentation and medical electronics
Military/Aerospace Avionics, radar, guidance systems and satellite
communications
KEMET produced less than 1% of its capacitors under military specification
standards sold for both military and commercial uses during fiscal year 2000.
The Company does not sell any of its capacitors directly to the U.S.
government. Although the Company does not track sales of capacitors by
industry, the Company estimates that sales of its capacitors to OEMs which
produce products principally for the military and aerospace industries
accounted for less than 3% of its net sales during fiscal year 2000. Certain
of the Company's other customers may also purchase capacitors for products in
the military and aerospace industries.
Sales and Distribution
KEMET's domestic sales, and most of its international sales, are made through
the Company's direct sales and customer service employees. The Company's
domestic sales staff is located in seven regional offices, eleven local
offices and seven satellite offices. A substantial majority of the Company's
international sales are made through seven local sales offices and nine
satellite offices in Europe, six Far East locations, two Canadian locations,
and one Mexican location. The Company also has independent sales
representatives located in Argentina, Australia, Israel, Puerto Rico, South
Africa, and South Korea.
KEMET markets and sells its products in its major markets with a direct sales
force in contrast to its competitors which generally utilize independent
commissioned representatives or a combination of representatives and direct
sales employees. The Company believes its direct sales force creates a
distinctive competence in the market place and has established an enviable
relationship with its customers. With a global sales organization that is
customer-based, KEMET's direct sales personnel from around the world serve on
KEMET Key Account Teams. These teams are
committed to serving any customer location in the world with a dedicated KEMET
representative. This approach requires a unique blend of accountability and
responsibility to specific customer locations, guided by an overall account
strategy for each key customer.
Electronics distributors are an important distribution channel in the
electronics industry and accounted for approximately 39%, 29%, and 32% of the
Company's net sales in fiscal years 2000, 1999 and 1998, respectively. In
fiscal year 2000, TTI, Inc., a distributor of passive components, accounted
for more than 10% of net sales.
The Company's distributor policy includes the inventory price protection and
"ship-from-stock and debit" programs common in the industry. The price
protection policy protects the value of the distributors' inventory in the
event the Company reduces its published selling price to distributors. The
Company has established a rolling 12-month financial reserve for this program.
The ship-from-stock and debit program provides a mechanism for the distributor
to meet a competitive price after obtaining authorization from the local
Company sales office. This program allows the distributor to ship its higher-
priced inventory and debit the Company for the difference between KEMET's list
price and the lower authorized price for that specific transaction. Each sale
under this program requires specific authorization. The Company expenses
these authorized discounts on a monthly basis and the expense is included in
calculating net sales.
International Sales
During fiscal year 2000, the Company exported approximately $413.2 million of
capacitors, representing approximately 50% of the Company's net sales.
Although management believes that the Company is able to provide a level of
delivery and service that is competitive with local suppliers, the Company's
capacitor market shares in European and Asian markets tend to be significantly
lower than in the United States because some international electronics
manufacturers prefer to purchase components from local producers. As a
result, a large percentage of the Company's export sales are made to foreign
operations of U.S. manufacturers. A portion of the Company's European sales
are denominated in local currencies and the Euro; therefore, a significant
appreciation of the U.S. dollar against such foreign currencies or the Euro
would reduce the gross profit realized by the Company on its European sales as
measured in U.S. dollars. Substantially all of the Company's European export
shipments are made duty-paid, free delivery as required by local market
conditions (see note 9 to Consolidated Financial Statements).
Inventory and Backlog
Although the Company manufactures and inventories standardized products, a
portion of its products are produced to meet specific customer requirements.
Cancellations by customers of orders already in production could have an
impact on inventories; however, cancellations have not been significant to
date.
The backlog of outstanding orders for the Company's products was $354.2
million, and $50.6 million, at March 31, 2000 and 1999, respectively. The
increase was primarily a result of extended industry lead times resulting in
increased customer reserve capacity. The current backlog is expected to be
filled during the next 12 months. Most of the orders in the Company's backlog
may be canceled by its customers, in whole or in part, although some may be
subject to penalty.
Competition
The market for tantalum and ceramic capacitors is highly competitive. The
capacitor industry is characterized by, among other factors, a long-term trend
toward lower prices for capacitors, low transportation costs and few import
barriers. Competitive factors that influence the market for the Company's
products include product quality, customer service, technical innovation,
pricing and timely delivery. The Company believes that it competes favorably
on the basis of each of these factors.
The Company's major domestic competitors include AVX Corporation in the
production of tantalum and ceramic capacitors and Vishay Intertechnology,
Inc., in the production of tantalum and surface-mount ceramic capacitors. The
Company's major foreign competitors include AVX Corporation in the production
of tantalum and ceramic capacitors, Murata Manufacturing Company Ltd. and TDK
Corporation in the production of ceramic capacitors, and NEC Corporation in
the production of tantalum capacitors.
Raw Materials
The principal raw materials used in the manufacture of the Company's products
are tantalum powder, palladium and silver. These materials are considered
commodities and are subject to price volatility. Tantalum powder is primarily
purchased under annual contracts, while palladium and silver are primarily
purchased on the spot and forward markets, depending on market conditions. For
example, if the Company believes that prices are likely to rise, it may
purchase a significant amount of its annual requirements on a forward delivery
basis.
There are presently three suppliers that process tantalum ore into capacitor-
grade tantalum powder. Management believes tantalum required by the Company
has generally been available in sufficient quantities to meet requirements and
that there are a sufficient number of tantalum processors relative to
foreseeable demand; however, the limited number of tantalum powder suppliers
could lead to increases in tantalum prices that the Company may not be able to
pass on to its customers.
Although palladium is presently found primarily in South Africa and Russia,
the Company believes that there are a sufficient number of domestic and
foreign suppliers from which the Company can purchase its palladium
requirements. Although the palladium required by the Company has generally
been available in sufficient quantities, the limited number of palladium
suppliers could lead to higher prices, and the inability of the Company to
pass any increase on to its customers could have an adverse effect on the
margin of those products in which the metal is used. The Company continues to
take actions to minimize the impact of future palladium price increases on its
profit margins.
Silver has generally been available in sufficient quantities, and the Company
believes there are a sufficient number of suppliers from which the Company can
purchase its silver requirements.
Patents and Trademarks
At March 31, 2000, the Company held 38 United States and 29 foreign patents
and four United States and 62 foreign trademarks. The Company does not
generally engage in licensing technology or products, whether as licensor or
licensee. The Company believes that the success of its business is not
materially dependent on the existence or duration of any patent, license or
trademark, other than the name "KEMET." The Company's engineering and
research and development staffs have developed and continue to develop
proprietary manufacturing processes and equipment designed to enhance the
Company's manufacturing facilities and reduce costs.
Research and Development
Research and Development expenses were $23.9 million for fiscal year 2000
compared to $21.1 million for fiscal year 1999. These amounts include
expenditures for product development and the design and development of
machinery and equipment for new processes and cost reduction efforts. Most of
the Company's products and manufacturing processes have been designed and
developed by Company engineers. The Company continues to invest in new
technology to improve product performance and production efficiencies.
Environmental
The Company is subject to various Mexican and United States federal, state and
local environmental laws and regulations relating to the protection of the
environment, including those governing the handling and management of certain
chemicals used and generated in manufacturing electronic components. Based on
the annual costs incurred by the Company over the past several years,
management does not believe that compliance with these laws and regulations
will have a material adverse effect on the Company's capital expenditures,
earnings or competitive position. The Company believes, however, that it is
reasonably likely that the trend in environmental litigation and laws and
regulations will continue to be toward stricter standards. Such changes in
the law and regulations may require the Company to make additional capital
expenditures which, while not currently estimable with certainty, are not
presently expected to have a material adverse effect on the Company's
financial condition. See "Legal Proceedings" for a discussion of certain
other environmental matters.
Employees
As of March 31, 2000, KEMET had approximately 14,200 employees, of whom
approximately 4,000 were located in the United States, approximately 10,100
were located in Mexico, and the remainder were located in the Company's
foreign sales offices. The Company believes that its future success will
depend in part on its ability to recruit, retain and motivate qualified
personnel at all levels of the Company. While none of its United States
employees are unionized, the Company has approximately 7,700 hourly employees
in Mexico represented by labor unions as required by Mexican law. The Company
has not experienced any major work stoppages and considers its relations with
its employees to be good. In addition, the Company's labor costs in Mexico
are denominated in pesos, and Mexican inflation or a significant depreciation
of the United States dollar against the Mexican peso would increase the
Company's labor costs in Mexico.
ITEM 2. PROPERTIES
KEMET is headquartered in Greenville, South Carolina, and has a total of 13
manufacturing plants located in the southeastern United States and Mexico. The
manufacturing operations are in Greenville, Mauldin, Fountain Inn, and
Greenwood, South Carolina; Shelby, North Carolina; Matamoros, Monterrey, and
Ciudad Victoria, Mexico. The Company's existing manufacturing and assembly
facilities have approximately 1.8 million square feet of floor space and are
highly automated with proprietary manufacturing processes and equipment.
The Mexican facilities operate under the Maquiladora Program. In general, a
company that operates under the program is afforded certain duty and tax
preferences and incentives on products brought back into the United States.
The Company has operated in Mexico since 1969 and approximately 71% of its
employees are located in Mexico. The Company's Mexican facilities in Matamoros
are located within five miles of Brownsville, Texas, with easy access for
daily shipments of work-in-process and finished products. The Company also
has manufacturing facilities in Monterrey which commenced operations in 1991
and were expanded by 130,000 square feet in fiscal year 1997. Also in 1997,
the Company constructed and put in production a new manufacturing plant in
Monterrey which comprises 240,000 square feet of space. In addition, during
fiscal year 2000, the Company began production in a new 250,000 square foot
manufacturing facility for tantalum capacitors in Ciudad Victoria, Mexico.
The Company's manufacturing processes and standards, including compliance with
applicable environmental and worker safety laws and regulations, are
essentially identical in the United States and Mexico. The Company's Mexican
operations, like its United States operations, have won numerous quality
awards from their customers.
Each of the Company's manufacturing and assembly facilities produces one
product or a family of closely related products. Management believes that this
focused approach to manufacturing allows each facility to shorten
manufacturing time, optimize product flow, and avoid long and costly equipment
retooling and employee training time, all of which leads to overall reduced
costs.
The Company has developed just-in-time manufacturing and sourcing systems.
These systems enable the Company to meet customer requirements for faster
deliveries while minimizing the need to carry significant inventory levels.
The Company continues to emphasize flexibility in all of its manufacturing
operations to improve product delivery response times.
Management believes that substantially all of its property and equipment is in
good condition and that it has sufficient capacity to meet its current and
projected manufacturing and distribution needs for leaded capacitors. The
Company continues to add capacity to meet its projected manufacturing and
distribution needs for surface-mount capacitors.
The following table provides certain information regarding the Company's
principal facilities:
<TABLE>
<CAPTION>
Date
Constructed
Acquired or
First
Square Type of Description Occupied by
Location Footage Interest of Use Company
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Greenville, South Carolina 359,015 Owned Manufacturing/Headquarters 1963
Monterrey, Mexico (1) 268,500 Owned Manufacturing 1991
Monterrey, Mexico 240,000 Owned Manufacturing 1996
Matamoros, Mexico (2) 209,928 Owned Manufacturing 1977
Ciudad Victoria, Mexico 160,000 Owned Manufacturing 1999
Fountain Inn, South Carolina 138,522 Owned Manufacturing 1985
Shelby, North Carolina 115,266 Owned Manufacturing 1982
Mauldin, South Carolina 109,696 Owned Manufacturing 1971
Greenwood, South Carolina 108,210 Owned Manufacturing 1981
Matamoros, Mexico 51,257 Owned Manufacturing 1985
Mauldin, South Carolina 80,000 Leased Distribution/Storage 1976
Brownsville, Texas 60,000 Leased Shipping/Distribution 1992
</TABLE>
(1) Includes two separate manufacturing facilities.
(2) Includes three separate manufacturing facilities.
ITEM 3. LEGAL PROCEEDINGS
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (CERCLA) and certain analogous state laws, impose
retroactive, strict liability upon certain defined classes of persons
associated with releases of hazardous substances into the environment. Among
those liable under CERCLA (known collectively as "potentially responsible
parties" or "PRPs") is any person who "arranged for disposal" of hazardous
substances at a site requiring response action under the statute. While a
company's liability under CERCLA is often based upon its proportionate share
of overall waste volume or other equitable factors, CERCLA has been widely
held to permit imposition of joint and several liability on each PRP. The
Company has periodically incurred, and may continue to incur, liability under
CERCLA and analogous state laws with respect to sites used for off-site
management or disposal of Company-derived wastes. The Company has been named
as a PRP at the Seaboard Chemical Site in Jamestown, North Carolina. The
Company is participating in the clean-up as a "de minimis" party and does not
expect its total exposure to be material. In addition, Union Carbide
Corporation (Union Carbide), the former owner of the Company, is a PRP at
certain sites relating to the off-site disposal of wastes from properties
presently owned by the Company. The Company is participating in coordination
with Union Carbide in certain PRP-initiated activities related to these sites.
The Company expects that it will bear some portion of the liability with
respect to these sites; however, any such share is not presently expected to
be material to the Company's financial condition. In connection with the
acquisition in 1990, Union Carbide agreed, subject to certain limitations, to
indemnify the Company with respect to the foregoing sites.
The Company or its subsidiaries are at any one time parties to a number of
lawsuits arising out of their respective operations, including workers'
compensation or work place safety cases, some of which involve claims of
substantial damages. Although there can be no assurance, based upon
information known to the Company, the Company does not believe that any
liability which might result from an adverse determination of such lawsuits
would have a material adverse effect on the Company's financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the Company's
quarter ended March 31, 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
As of December 9, 1999, the Company's Common Stock began trading on the New
York Stock Exchange under the symbol KEM. Prior to that date, the Common
Stock was traded on the Nasdaq Stock Market under the symbol KMET. At the
close of business on June 7, 2000, there were approximately 895 holders of
record of the Company's Common Stock. The following table represents the high
and low sale prices of the Common Stock as reported by the appropriate
exchange for the periods indicated:
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999
------------------- --------------------
<S> <C> <C> <C> <C>
High Low High Low
First Quarter $11.63 $ 5.72 $10.00 $ 6.50
Second Quarter 16.50 10.57 7.25 4.38
Third Quarter 22.69 13.19 7.91 4.57
Fourth Quarter 40.00 16.00 6.97 4.94
</TABLE>
The Company has not declared or paid any cash dividends on its Common Stock
since the initial public offering in October 1992. The Company currently
intends to retain earnings to support its growth strategy and does not
anticipate paying dividends in the foreseeable future. Any future
determination to pay dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other factors, the capital
requirements, operating results and financial condition of the Company. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources" contained in this Form 10-K for
fiscal year 2000.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended March 31,
Dollars in Thousands ----------------------------------------------------------
Except Per Share Data 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $822,095 $565,569 $667,721 $555,319 $634,171
Operating income 124,315 22,604 82,202 62,415 120,430
Interest income (2,079) - - - -
Interest expense 9,135 9,287 7,305 5,709 4,938
Net earnings $ 70,119 $ 6,150 $ 49,190 $ 37,169 $ 65,198
-------------------------------------------------------------------------------
Per Common Share Data:
Net earnings per common
share-diluted $0.85 $0.08 $0.62 $0.47 $0.83
Net earnings per common
share-basic $0.87 $0.08 $0.63 $0.48 $0.85
Weighted average shares
shares outstanding:
-diluted 82,411,634 79,027,860 78,854,328 78,553,356 78,278,962
-basic 80,650,376 78,441,440 78,146,444 77,474,320 76,531,356
-------------------------------------------------------------------------------
Balance Sheet Data:
Total assets $927,256 $663,690 $642,109 $543,244 $489,828
Working capital 260,154 90,371 48,772 63,068 33,008
Long-term debt 100,000 144,000 104,000 102,900 78,072
Stockholders' equity 547,456 313,674 306,260 252,123 211,940
-------------------------------------------------------------------------------
Other Data:
Cash flow from
operating activities $177,717 $ 20,818 $ 88,153 $ 55,818 $109,989
Capital expenditures 82,009 59,047 114,516 84,755 120,328
Research and development 23,918 21,132 23,766 20,753 18,426
-------------------------------------------------------------------------------
/Table>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Comparison of Fiscal Year 2000 to Fiscal Year 1999
Net sales for fiscal year 2000 were $822.1 million which represents a 45%
increase from fiscal year 1999 net sales of $565.6 million. The increase in
net sales was attributed to the strong growth in demand for electronic
products such as computers and peripherals, cell phones, and automotive
electrical systems. This growth in demand led to increased unit volume and
an improvement in the pricing environment as average selling prices increased
from their previously depressed levels. Demand for surface-mount capacitors
contributed to the growth as net sales increased 55% to $711.0 million for
fiscal year 2000. The Company experienced growth in both domestic and export
markets as domestic sales increased 39% and export sales increased 52%,
partially due to the recovery of the Asian economy.
Cost of sales, exclusive of depreciation, for the year ended March 31, 2000,
was $569.7 million as compared to $428.4 million for the year ended March 31,
1999. As a percentage of net sales, cost of sales, exclusive of depreciation,
for fiscal year 2000 was 69% as compared to 76% for fiscal year 1999. The
decrease in cost of sales as a percentage of net sales was attributed to
higher sales in fiscal year 2000, gains from manufacturing efficiencies due to
higher unit volume, and the results of the Company's cost reduction programs
such as reduced palladium usage in ceramic capacitors.
Selling, general and administrative expenses for the year ended March 31,
2000, were $48.5 million, or 6% of net sales, as compared to $46.6 million, or
8% of net sales for the year ended March 31, 1999. The decrease in selling,
general, and administrative expenses as a percentage of sales is primarily due
to the impact of higher sales volume and increased average selling prices.
Research, development and engineering expenses were $23.9 million for fiscal
year 2000 compared to $21.1 million for fiscal year 1999. These costs reflect
the Company's continuing commitment to the development and introduction of new
products, along with the improvement of product performance and production
efficiencies.
Depreciation and amortization for fiscal year 2000 was $55.7 million, an
increase of $8.8 million, or 19%, from $46.9 million for fiscal year 1999.
The increase resulted primarily from depreciation expense associated with
increased capital expenditures during the current and prior fiscal years.
Operating income was $124.3 million for fiscal year 2000 compared to $22.6
million for fiscal year 1999. The increase in operating income resulted
primarily from the increase in net sales and improvements in cost of sales as
discussed above.
Income tax expense for fiscal year 2000 was 34% of net earnings before income
taxes. The decrease from the federal statutory rate of 35% is primarily the
result of increased foreign sales corporation benefits and lower state tax
expense.
Comparison of Fiscal Year 1999 to Fiscal Year 1998
Net sales for fiscal year 1999 were $565.6 million which represents a 15%
decrease from fiscal year 1998 net sales of $667.7 million. The decrease in
net sales was primarily attributed to the imbalance of supply and demand that
the electronics industry experienced during the year. This imbalance, or
oversupply situation, was created as a result of several factors, including
increased demand in the previous year, the Asian economic crisis, and the move
by our customers to reduce their inventory levels, in part due to new "Build
to Order" production methods. All these factors, along with the higher-than-
normal rate of decline in average selling prices, contributed to the decrease
in net sales.
Cost of sales, exclusive of depreciation, for the year ended March 31, 1999,
was $428.4 million as compared to $463.6 million for the year ended March 31,
1998. As a percentage of net sales, cost of sales, exclusive of depreciation,
for fiscal year 1999 was 76% as compared to 69% for fiscal year 1998. The
increase in cost of sales as a percentage of net sales was attributable to the
decline in net sales from fiscal year 1998 and the higher cost of palladium
during the year. To offset the rising cost of palladium, the Company has been
taking action to reduce palladium usage in traditional ceramic capacitors and
replace high-priced palladium with a less expensive metal in some new ceramic
products. Also, in an effort to improve profit margins, the Company announced
a workforce reduction of approximately 1,000 employees and 450 contract
personnel in the U.S. and Mexico, and a deferral of all wage and salary
increases and bonuses.
Selling, general and administrative expenses for the year ended March 31,
1999, were $46.6 million, or 8% of net sales, as compared to $48.8 million, or
7% of net sales, for the year ended March 31, 1998. The increase in selling,
general, and administrative expenses as a percentage of sales is primarily due
to the impact of lower sales volume.
Research, development and engineering expenses were $21.1 million for fiscal
year 1999 compared to $23.8 million for fiscal year 1998. These costs reflect
the Company's continued commitment to the development and introduction of new
products, along with the improvement of product performance and production
efficiencies.
Depreciation and amortization for fiscal year 1999 was $46.9 million, an
increase of $8.0 million, or 21%, from $38.9 million for fiscal year 1998.
The increase resulted primarily from depreciation expense associated with
increased capital expenditures during the current and prior fiscal years.
Operating income was $22.6 million for fiscal year 1999 compared to $82.2
million for fiscal year 1998. The decrease in operating income resulted
primarily from the lower net sales and increase in costs discussed above.
Income tax expense for fiscal year 1999 was 32% of net earnings before income
taxes. The decrease from the federal statutory rate of 35% is primarily the
result of increased foreign sales corporation benefits and lower state tax
expense.
Quarterly Results of Operations
The following table sets forth certain quarterly information for the years
ended March 31, 2000 and 1999. This information is unaudited and has not been
reviewed by the Company's independent auditors in accordance with standards
established by the American Institute of Certified Public Accountants but, in
the opinion of the Company's management, reflects all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly this
information when read in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere herein
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year ended March 31, 2000
Dollars in Thousands
except Per Share First Second Third Fourth
Data Quarter Quarter Quarter Quarter Total
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $162,649 $ 186,187 $ 215,139 $ 258,120 $ 822,095
Gross profit
(exclusive of
depreciation)(1) 39,665 49,794 65,501 97,429 252,389
Net earnings $ 4,694 $ 9,199 $ 18,160 $ 38,066 $ 70,119
Net earnings per
common share(basic) $0.06 $0.12 $0.23 $0.44 $0.87
Net earnings per
common share(diluted) $0.06 $0.11 $0.22 $0.44 $0.85
Weighted average
shares outstanding
(basic) 78,571,116 78,822,996 79,713,170 85,554,814 80,650,376
Weighted average
shares outstanding
(diluted) 79,778,122 80,614,798 81,199,048 87,379,088 82,411,634
Fiscal Year ended March 31, 1999
Dollars in Thousands
Thousands except First Second Third Fourth
Per Share Data Quarter Quarter Quarter Quarter Total
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $142,471 $137,733 $141,914 $143,451 $565,569
Gross profit
(exclusive of
depreciation)(1) 35,205 32,184 35,050 34,721 137,160
Net earnings $ 1,497 $ 426 $ 1,851 $ 2,376 $ 6,150
Net earnings per
common share(basic) $0.02 $0.01 $0.02 $0.03 $0.08
Net earnings per
common share(diluted) $0.02 $0.01 $0.02 $0.03 $0.08
Weighted average
shares outstanding
(basic) 76,370,764 78,407,212 78,440,734 78,497,910 78,441,440
Weighted average
shares outstanding
(diluted) 78,780,092 78,696,668 78,737,954 78,844,440 79,027,860
(1) Gross profit (exclusive of depreciation) as a percentage of net sales fluctuates from quarter to quarter due
to a number of factors, including net sales fluctuations, product mix, the timing and expense of moving product
lines to lower cost locations, and the relative mix of sales between distributors and original equipment
manufacturers.
</Table
Liquidity and Capital Resources
The Company's liquidity needs arise from working capital requirements, capital
expenditures, and principal and interest payments on its indebtedness. The
Company intends to satisfy its liquidity requirements primarily with funds
provided by operations and borrowings under its bank credit facilities.
During fiscal year 2000, the Company generated $177.7 million in net cash from
operating activities as compared to $20.8 million in fiscal year 1999. The
increase in cash flow from operating activities 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, inventory, accounts payable, accrued
liabilities and income taxes payable.
The Company invested $82.0 million in capital expenditures in fiscal year 2000,
and expects to invest approximately $200.0 million in fiscal year 2001. The
fiscal year 2000 capital was primarily invested in surface-mount manufacturing
capacity. In fiscal year 2000, the Company began production in a new tantalum
manufacturing facility in Ciudad Victoria, Mexico. The new facility will produce
tantalum capacitors to meet the ever-growing demand for the Company's tantalum
surface-mount products.
The Company is subject to restrictive covenants which, among others, restrict its
ability to make loans or advances or to make investments, and require it to meet
financial tests related principally to funded debt, cash flows, and net worth.
At March 31, 2000, the Company was in compliance with such covenants. Borrowings
are secured by guarantees of certain of the Company's wholly-owned subsidiaries.
During fiscal year 2000, the Company's long-term debt decreased $44.0 million, as
the Company reduced their indebtedness with the proceeds from the January 2000
Secondary Offering. At March 31, 2000, the Company had unused availability under
its revolving credit facility and its swingline credit facility of $150.0 million
and $10.0 million, respectively.
On January 20, 2000, the Company sold 6,500,000 shares of its common stock in a
public offering for $142.6 million in net cash proceeds after deducting
underwriting fees and offering expenses. Included in the shares sold were
2,193,220 shares of non-voting common stock that were converted into common stock
on a share-for-share basis. The net proceeds were used to repay outstanding debt
under the Company's short-term credit facility and will be used to fund future
capital expenditures.
Additional liquidity is generated by the Company through its accounts receivable
discounting arrangements. For the past several years, KEMET Electronics, S.A., a
wholly-owned subsidiary of the Company, has been a party to accounts receivable
discounting agreements with both Swiss Bank Corporation and Union Bank of
Switzerland. As a result of the merger of these two entities in 1998, KEMET
Electronics, S.A., entered into a single replacement discounting agreement with
UBS AG on November 19, 1998, which allows for the sale of up to $80.0 million of
accounts receivable at any one time outstanding at a discount rate of .60% above
LIBOR.
In May 1998, the Company sold $100.0 million of its Senior Notes pursuant to the
terms of a 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 Senior Notes were used to
repay existing indebtedness and for general corporate purposes.
The Company presently has a total of eight manufacturing facilities in Matamoros,
Monterrey, and Ciudad Victoria, Mexico, with approximately 71% of the Company's
employees located there. In fiscal year 2000, the volatility of the Mexican peso
did not have a material impact on the Company's performance.
As discussed in Note 12 to the Consolidated Financial Statements, the Company or
its subsidiaries are at any one time parties to a number of lawsuits arising out
of their respective operations, including workers' compensation or work place
safety cases and environmental issues, some of which involve claims of
substantial damages. Although there can be no assurance, based upon information
known to the Company, the Company does not believe that any liability which might
result from an adverse determination of such lawsuits would have a material
adverse effect on the Company.
The Company believes its strong financial position will permit the financing of
its business needs and opportunities. 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.
Adoption of Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires a public company to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
The Company is required to adopt this standard by the first quarter of 2002. The
Company has not yet assessed the impact this standard will have on the financial
condition or results of operations at the time of adoption; however, the impact
will ultimately depend on the amount and type of derivative instruments the
Company holds at the time of adoption.
Safe Harbor Statement
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1996. Many of the following
important factors discussed below have been discussed in the Company's prior SEC
filings.
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect,
KEMET's actual results and could cause KEMET's actual consolidated results for
the first quarter of fiscal year 2001 and beyond to differ materially from those
expressed in any forward-looking statements made by, or on behalf of,
the Company whether contained herein, in other documents subsequently filed by
the Company with the SEC, or in oral statements:
A moderating growth rate in end-use products which incorporate the Company's
products and the effects of a down-turn in the general economy or in general
business conditions;
Underutilization of KEMET's plants and factories, or of any plant expansion or
new plants, including, but not limited to, those in Mexico, resulting in
production inefficiencies and higher costs; start-up expenses, inefficiencies,
delays, and increased depreciation costs in connection with the start of
production in new plants and expansions; capacity constraints that could limit
the ability to continue to meet rising demand for surface-mount capacitors;
Occurrences affecting the slope or speed of decline of the pricing curve for the
Company's products, or affecting KEMET's ability to reduce product and other
costs and to increase productivity; the effect of changes in the mix of products
sold and the resulting effects on gross margins;
Difficulties in obtaining raw materials, supplies, power, natural resources, and
any other items needed for the production of capacitors; the effects of quality
deviations in raw materials, particularly tantalum powder and ceramic dielectric
materials; the effects of significant price increases for tantalum or palladium,
or an inability to obtain adequate supplies of tantalum from the limited number
of suppliers;
The amount and rate of growth in the Company's selling, general and
administrative expenses, and the impact of unusual items resulting from KEMET's
ongoing evaluation of its business strategies, asset valuations, and
organizational structure;
The acquisition of fixed assets and other assets, including inventories and
receivables; the making or incurring of any expenditures and expenses including,
but not limited to, depreciation and research and development expenses; any
revaluation of assets or related expenses; and the amount of and any changes to
tax rates;
The effect of any changes in trade, monetary and fiscal policies, laws, and
regulations; other activities of governments, agencies, and similar
organizations; social and economic conditions, such as trade restrictions or
prohibitions, inflation, and monetary fluctuations; import and other charges or
taxes; the ability or inability of KEMET to obtain, or hedge against, foreign
currency; foreign exchange rates and fluctuations in those rates, particularly a
strengthening of the U.S. dollar; nationalization; unstable governments and legal
systems; intergovernmental disputes; the costs and other effects of legal and
administrative cases and proceedings (whether civil, such as environmental and
product-related, or criminal); settlements, investigations, claims, and changes
in those items; developments or assertions by or against the Company relating to
intellectual property rights and intellectual property licenses; adoptions of new
or changes in accounting policies and practices and the application of such
policies and practices; the effects of changes within KEMET's organization,
particularly at the executive officer level, or in compensation and benefit
plans; the amount, type and cost of the financing which the Company has and any
changes to that financing; the effects of severe weather on KEMET's operations,
including disruptions at manufacturing facilities; the effects of a disruption in
KEMET's computerized ordering systems; and the effects of a disruption in KEMET's
communications systems.
Effect of Inflation
Inflation generally affects the Company by increasing the cost of labor,
equipment, and raw materials. The Company does not believe that inflation has had
any material effect on the Company's business over the past three years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk
The Company's debt financing alternatives include a revolving Credit Agreement
which is priced on a floating rate basis at a spread over U.S. dollar LIBOR.
Accordingly, any movement in U.S. dollar LIBOR would impact the Company's
interest expense, except for the fact that the outstanding balance under this
facility at March 31, 2000, was $0. The Company has not historically used
interest rate swaps, interest rate caps, or other derivative financial
instruments for the purpose of hedging fluctuations in interest rates on its
floating rate debt.
Foreign Currency Exchange Rate Risk
A portion of the Company's sales to its customers in Europe are denominated in
local European currencies, thereby creating an exposure to foreign currency
exchange rate risk. Also, a portion of the Company's cost in its Mexican
operations are denominated in Mexican pesos creating an exposure to exchange rate
risk. In order to minimize its exposure to such risk, the Company will
periodically enter into forward foreign exchange contracts in which the net long
or short position in a local European currency or Mexico peso is hedged against
the U.S. dollar.
The impact of changes in the relationship of other currencies to the U.S. dollar
have historically not been significant, and such changes in the future are not
expected to have a material impact on the Company's results of operations or cash
flows. The Company does not use derivative financial instruments for speculative
purposes or if there is no underlying business transaction supporting or related
to the derivative financial instrument.
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 $284 and $770
per troy ounce. As a result, the Company is aggressively pursuing ways 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. It also believes that there are sufficient number of
tantalum processors relative to forecasted demand. However, the limited number
of tantalum powder suppliers could lead to increases in tantalum prices. In
recent years, the price volatility in tantalum prices has not been considered
material to Company performance.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this Form 10-K.
See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES OF THE
REGISTRANT
</TABLE>
<TABLE>
<CAPTION>
Years with
Name Age Position Company (1)
------------------------------------------------------------------------------
<S> <C> <C> <C>
David E. Maguire 65 Chairman, Chief Executive Officer and Director 41
Charles M. Culbertson II 51 President and Chief Operating Officer 20
Glenn H. Spears 61 Executive Vice President and Secretary 22
Harris L. Crowley, Jr. 50 Senior Vice President, Technology
and Engineering 25
D. Ray Cash 51 Senior Vice President of Administration,
Treasurer and Assistant Secretary 30
William W. Johnson 48 Vice President, Sales Worldwide 8
Raymond L. Beck, Jr. 50 Vice President, Quality and Marketing 29
C. Ross Patterson, Jr. 44 Vice President and Chief Information Officer 2
Larry W. Sheppard 56 Vice President, Human Resources 30
James A. Bruorton III 51 Vice President, Worldwide Distribution 27
Eugene J. DiCianni 50 Vice President, Sales, Americas 25
Derek Payne 63 Vice President/Managing Director, Europe 24
Ravi G. Sastry 40 Vice President/Managing Director, Asia 16
James P. McClintock 44 Vice President, U.S. Ceramic Operations 21
Manuel A. Cappella 52 Vice President/Managing Director, Mexico,
Tantalum 28
E. Thomas Coyle, Jr. 52 Vice President/Managing Director, Mexico,
Ceramic 23
Dr. Larry A. Mann 43 Vice President, Ceramic Technology 11
Dr. Daniel F. Persico 45 Vice President, Tantalum Technology 3
Charles E. Volpe 62 Director 32
Stewart A. Kohl 44 Director -
E. Erwin Maddrey, II 59 Director -
Paul C. Schorr IV 33 Director -
(1) Includes service with UCC.
</Table
The Board of Directors of the Company is divided into three classes, as nearly
equal in number as possible, having terms expiring at the annual meeting of
the Company's stockholders for 2000, comprised of Messrs. Volpe and Schorr
and 2001, Messrs. Maguire and Kohl, and 2002, Mr. Maddrey. At each annual
meeting of stockholders, successors to the class of directors whose term
expires at such meeting are elected to serve for three-year terms and until
their successors are elected and qualified. The directors, other than
directors that are employed by the Company or Citicorp Venture Capital, Ltd.
(CVC) and its affiliates, are entitled to an annual directors' fee of $20,000.
Directors that are employed by CVC or its affiliates are entitled to an annual
directors' fee of $8,000, and directors that are employed by the Company are
not entitled to an annual directors' fee. All directors are reimbursed for
out-of-pocket expense incurred in connection with attending meetings.
Directors and Executive Officers
David E. Maguire, Chairman, Chief Executive Officer and Director, has served
as Chairman since August 1992. Mr. Maguire served as Chief Executive Officer,
President, and Director from November 1997 until June 1999, and from December
1990 until October 1996. Mr. Maguire also served as Chairman, President and
Chief Executive Officer of KEMET Electronics Corporation, a wholly owned
subsidiary, since April 1987. From January 1959 until April 1987, Mr. Maguire
served in a number of capacities with the KEMET capacitor business of Union
Carbide, most recently as Vice President from June 1978 until April 1987.
Charles M. Culbertson II, President and Chief Operating Officer, was named
such in June 1999. Mr. Culbertson had been Senior Vice President and General
Manager, Tantalum, since November 1997 and had been Vice President and General
Manager of Tantalum Surface-Mount Capacitors since January 1996. Since June
1980, Mr. Culbertson has served in a number of engineering and management
positions in the Company.
Glenn H. Spears, Executive Vice President and Secretary, was named such in
October 1999. Mr. Spears had been Senior Vice President and Secretary since
October 1992. Mr. Spears had been Vice President and Secretary since December
1990 and had also served as Vice President and Secretary of KEMET Electronics
since April 1987. From June 1977 until April 1987, Mr. Spears served in a
number of managerial capacities with the KEMET capacitor business of Union
Carbide, including Director of Human Resources and Plant Manager.
Harris L. Crowley, Jr., Senior Vice President, Technology and Engineering, was
named such in June 1999. Mr. Crowley had been Senior Vice President and
General Manager, Ceramics, since November 1997. Prior thereto, Mr. Crowley
had been Vice President and General Manager of Ceramic Capacitors since
January 1996, Vice President and General Manager of Ceramic Surface-Mount
Capacitors since September 1993, and Vice President of Product Marketing
(Ceramics) since October 1992. Prior to that time, Mr. Crowley had been
Product Marketing Manager (Ceramics) for the Company since December 1990, and
had served KEMET Electronics in that same capacity since April 1987.
D. Ray Cash, Senior Vice President of Administration, Treasurer and Assistant
Secretary, was named such in April 1997. Mr. Cash had been Vice President of
Administration since December 1990. Mr. Cash had also served as Vice
President of Administration for KEMET Electronics since April 1987. Prior
thereto, Mr. Cash had served in a number of different capacities with the
KEMET capacitor business of Union Carbide, most recently as Director of
Administration. Mr. Cash also serves on the Board of Directors of Specialty
Electronics, Inc.
Charles E. Volpe, Director, was named such in December 1990. Mr. Volpe also
served as Executive Vice President and Chief Operating Officer, and most
recently served as President and Chief Operating Officer from October 1995
until his retirement on March 31, 1996. Mr. Volpe served as a Vice President
from March 1996 until July 1997. Mr. Volpe had also served as Executive Vice
President and Director of KEMET Electronics since April 1987. From August
1966 until April 1987, Mr. Volpe served in a number of capacities with the
KEMET capacitor business of Union Carbide, most recently as General Manager.
Mr. Volpe is also a director of Trend Technologies, Inc., and Encad Inc.
Stewart A. Kohl, Director, was named such in May 1992. Mr. Kohl has been a
Managing General Partner in The Riverside Company, an investment company,
since October 1993. Mr. Kohl was previously a vice President of Citicorp
North America, Inc., and had been employed by various subsidiaries of Citicorp
North America, Inc., since 1988. Mr. Kohl also serves on the board of
directors of Agri-Max, Inc., Hudson Sharp Machine Company, Porcelain Products
Company, Shore Bank and Trust Company and Trend Technologies, Inc.
E. Erwin Maddrey, II, Director, was named such in May 1992. Mr. Maddrey has
been President, Chief Executive Officer and a director of Delta Woodside
Industries, Inc., a textile manufacturer, and its predecessors since 1984.
Prior thereto, Mr. Maddrey served as President and Chief Operating Officer and
director of Riegel Textile Corporation. Mr. Maddrey also serves on the board
of directors of Blue Cross of South Carolina and Renfro Corp.
Paul C. Schorr IV, Director, was unanimously elected by members of the Board
of Directors on April 21, 1998. Mr. Schorr is a Vice President of Citicorp
Venture Capital, Ltd., a subsidiary of Citibank. Mr. Schorr joined Citicorp
Venture Capital, Ltd. in 1996. Mr. Schorr was previously a manager for
McKinsey and Company, Inc., a management consulting company, since 1993. Mr.
Schorr also serves on the boards of Inland Resources Company, Inc., Sybron
Chemicals, Inc., and Fairchild Semi-Conductors Company, Inc.
Other Key Employees
William W. Johnson, Vice President, Sales Worldwide, was named such in July
1996. Mr. Johnson was previously a plant manager with Vitramon, Incorporated,
which was acquired by Vishay Intertechnology, Inc., a manufacturer and
supplier of a broad line of passive electronic components. Also during his
tenure with Vitramon, Incorporated, Mr. Johnson was Director of Sales and
Marketing.
Raymond L. Beck Jr., Vice President, Quality and Marketing, was named such in
November 1997. Prior to that time, Mr. Beck had been Vice President of
Ceramic Product Management since January 1995. Mr. Beck has served in various
sales and marketing positions including Regional Sales Manager and Ceramic
Surface-Mount Capacitor Product Manager with Union Carbide and KEMET since
October 1971.
C. Ross Patterson Jr., Vice President and Chief Information Officer, was named
such in January 1999. Mr. Patterson was previously Group Director,
Information Systems, with Glaxo Wellcome Inc., based in Research Triangle
Park, N.C. Glaxo Wellcome, a subsidiary of London-based Glaxo Wellcome plc,
is a leading research-based pharmaceutical firm. Mr. Patterson served in
various Information Systems capacities beginning in November 1986.
Larry W. Sheppard, Vice President, Human Resources, was named such in January
1995. Mr. Sheppard has served in various employee relations capacities with
Union Carbide and KEMET in Greenville, SC, and Columbus, GA, since December
1969.
James A. Bruorton, III, Vice President, Worldwide Distribution, was named such
in July 1996. Mr. Bruorton has served in various sales and marketing
capacities with Union Carbide and KEMET since September 1973.
Eugene J. DiCianni, Vice-President, Sales, Americas, was named such in
December 1997. Mr. DiCianni has served in various sales capacities with Union
Carbide and KEMET since August 1975.
Derek Payne, Vice President/Managing Director, Europe, was named such in
August 1995. Mr. Payne has been Managing Director for KEMET Electronics S.A.,
a wholly-owned subsidiary of KEMET Electronics Corporation, located in Geneva,
Switzerland, since April 1988. Prior thereto, Mr. Payne held various sales
and marketing positions with Union Carbide and KEMET Electronics since March
1977.
Ravi G. Sastry, Vice President/Managing Director, Asia, was named such in
December 1997. Mr. Sastry has served in various sales, marketing, and
manufacturing capacities with Union Carbide and KEMET since August 1983.
James P. McClintock, Vice President of U.S. Ceramic Operations, was named such
in June 1999. Prior to that, Mr. McClintock was Vice President, Tantalum.
Mr. McClintock has served in various engineering and manufacturing capacities
with Union Carbide and KEMET since January 1979.
Manuel A. Cappella, Vice President/Managing Director, Mexico, Tantalum, was
named such in April 1997. Mr. Cappella has served in various engineering and
manufacturing capacities for Union Carbide and KEMET since January 1977.
Prior thereto, Mr. Cappella held various engineering positions with Union
Carbide in South America beginning in March 1972.
E. Thomas Coyle, Jr., Vice President/Managing Director, Mexico, Ceramics, was
named such in September 1998. Mr. Coyle has served in various engineering and
manufacturing capacities with UCC and KEMET since May 1976.
Dr. Larry A. Mann, Vice President, Ceramic Technology, was named such in June
1999. Dr Mann had been Director of Ceramic Technology since June 1995.
Dr. Daniel F. Persico, Vice President, Tantalum Technology, was named such in
June 1999. Dr. Persico had been Director of Tantalum Technology since
November 1997.
Board and Committee Meetings
The Board of Directors held four meetings (exclusive of committee meetings)
during fiscal year 2000. Each current director attended at least 75% of the
number of meetings held during fiscal year 2000 of the Board of Directors and
all committees on which such director served. The Board of Directors has
established the following committees, the functions and current members of
which are noted below.
Executive Committee
The Executive Committee of the Board of Directors consists of Messrs. Maguire,
Volpe and Kohl. The Executive Committee exercises the powers of the Board of
Directors during intervals between Board meetings and acts as an advisory body
to the Board by reviewing various matters prior to their submission to the
Board. The Executive Committee met one time during fiscal year 2000.
Compensation Committee
The Compensation Committee of the Board of Directors consists of Messrs.
Schorr, Kohl and Maddrey. The Compensation Committee reviews and makes
recommendations to the Board of Directors regarding salaries, compensation and
benefits of the Company's executive officers and key employees and grants all
options to purchase common stock. The Compensation Committee met three times
during fiscal year 2000.
Audit Committee
The Audit Committee of the Board of Directors consists of Messrs. Schorr, Kohl
and Maddrey. The Audit Committee, among other duties, reviews the Company's
internal and external financial reporting, reviews the scope of independent
audits and considers comments by auditors regarding internal controls and
accounting procedures and management's response to those comments. The Audit
Committee met three times during fiscal year 2000. In fiscal year 2000, the
Audit Committee adopted a Charter in compliance with various regulatory
requirements.
The Company does not have a standing nominating committee.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on July 26, 2000. The information specified in Item 402(k) and (1) of
Regulation S-K and set forth in the Company's definitive proxy statement for
its annual stockholders' meeting to be held on July 26, 2000, is not
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on July 26, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on July 26, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements are filed as a part of this report:
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 and 1999
Consolidated Statements of Earnings for the years ended March 31, 2000, 1999
and 1998
Consolidated Statements of Stockholders' Equity and Comprehensive Income for
the years ended March 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the years ended March 31, 2000,
1999, and 1998
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules.
None.
(a) (3) Exhibits.
The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission.
23.3 Consent of Independent Auditors
27.1 Financial Data Schedule
Exhibits Incorporated by Reference
The Exhibits listed below have been filed with the Commission and are
incorporated herein by reference to the exhibit number and file number of such
documents which are stated in parentheses.
10.1 Fifth Amendment to Credit Agreement among KEMET Corporation, Wachovia
Bank, N.A. as agent, and the Banks named in the Credit Agreement dated as of
the 30th day of August 1997 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.1 Sixth Amendment to Credit Agreement among KEMET Corporation, Wachovia
Bank, N.A. as agent, and the Banks named in the Credit Agreement dated as of
the 30th day of August 1997 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1999).
(b) Reports on Form 8-K.
On July 1, 1999, Form 8-K was filed by the Company announcing that Charles M.
Culbertson II had been named President and Chief Operating Officer of the
Company. The Company also announced additional organizational changes.
No reports were filed on Form 8-K during the fiscal quarter ended March 31,
2000.
Independent Auditors' Report
The Board of Directors
KEMET Corporation:
We have audited the accompanying consolidated balance sheets of KEMET
Corporation and subsidiaries as of March 31, 2000 and 1999, and the related
consolidated statements of earnings, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
March 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of KEMET
Corporation and subsidiaries as of March 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
Greenville, South Carolina KPMG LLP
April 24, 2000, except as to note 17,
which is dated as of May 15, 2000
</TABLE>
<TABLE>
<CAPTION>
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2000 and 1999
Dollars in Thousands Except Per Share Data
March 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 75,735 $ 3,914
Short-term investments (note 15) 123,687 -
Accounts receivable, net (notes 10 and 11) 94,127 57,784
Inventories:
Raw materials and supplies 53,532 45,288
Work in process 58,220 52,225
Finished goods 19,207 28,306
--------- ---------
Total inventories 130,959 125,819
Prepaid expenses and other current assets 4,688 2,951
Income taxes receivable (note 7) - 1,855
Deferred income taxes (note 7) 20,099 10,899
--------- ---------
Total current assets 449,295 203,222
Property and equipment, net (note 11) 423,399 406,735
Intangible assets, net (note 2) 46,198 46,268
Other assets 8,364 7,465
--------- ---------
Total assets $927,256 $663,690
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 3) $ - $ 20,000
Accounts payable, trade (note 10) 123,708 64,750
Accrued expenses (notes 5 and 11) 42,045 28,101
Income taxes payable(note 7) 23,388 -
--------- ---------
Total current liabilities 189,141 112,851
Long-term debt, excluding
current installments (note 3) 100,000 144,000
Other non-current obligations (note 4) 54,757 69,394
Deferred income taxes (note 7) 35,902 23,771
--------- ---------
Total liabilities 379,800 350,016
Stockholders' equity (notes 8, 16 and 17):
Common stock, par value $.01, authorized
100,000,000 shares, issued and outstanding
87,025,908 and 76,316,580 shares at
March 31, 2000 and 1999, respectively 870 763
Non-voting common stock, par value $.01,
authorized 12,000,000 shares, issued and
outstanding -0- and 2,193,220 at March 31, 2000
and 1999, respectively - 22
Additional paid-in capital 308,724 145,090
Retained earnings 237,846 167,727
Accumulated other comprehensive income 16 72
--------- ---------
Total stockholders' equity 547,456 313,674
--------- ---------
Contingencies and commitments (notes 10 and 12)
Total liabilities and stockholders' equity $927,256 $663,690
========= =========
</TABLE> See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Dollars in Thousands Except Per Share Data
Years ended March 31,
----------------------------------
2000 1999 1998
-------- -------- ---------
<S> <C> <C> <C>
Net sales $822,095 $565,569 $667,721
Operating costs and expenses:
Cost of goods sold, exclusive of
depreciation 569,706 428,409 463,644
Selling, general and administrative
expenses 48,457 46,552 48,751
Research and development 23,918 21,132 23,766
Depreciation and amortization 55,699 46,872 38,858
Restructuring charge (note 13) - - 10,500
-------- -------- --------
Total operating costs and expenses 697,780 542,965 585,519
-------- -------- --------
Operating income 124,315 22,604 82,202
Other income and expense:
Interest income (2,079) - -
Interest expense (note 7) 9,135 9,287 7,305
Other (note 11) 11,695 4,273 4,063
-------- -------- --------
Earnings before income taxes 105,564 9,044 70,834
Income tax expense (note 7) 35,445 2,894 21,644
-------- -------- --------
Net earnings $ 70,119 $ 6,150 $ 49,190
======== ======== ========
Net earnings per share (notes 14 and 17):
Basic $0.87 $0.08 $0.63
Diluted $0.85 $0.08 $0.62
Weighted-average shares outstanding:
Basic 80,650,376 78,441,440 78,146,444
Diluted 82,411,634 79,027,860 78,854,328
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION> KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Dollars in Thousands
Accumulated Total
Additional Other Stock-
------Common Stock------ Paid-in Retained Comprehensive holders'
Shares Amount Capital Earnings Income Equity
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 77,627,242 $776 $138,964 $112,387 $(4) $252,123
Comprehensive income:
Net earnings - - - 49,190 - 49,190
Foreign currency translation loss - - - - (4) (4)
Total comprehensive income - - - - - 49,186
Exercise of stock options (note 8) 591,380 6 1,886 - - 1,892
Tax benefit on exercise of stock options - - 1,928 - - 1,928
Purchases of stock by Employee Savings Plan 102,736 1 1,130 - - 1,131
----------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 78,321,358 783 143,908 161,577 (8) 306,260
Comprehensive income:
Net earnings - - - 6,150 - 6,150
Foreign currency translation gain - - - - 80 80
Total comprehensive income - - - - - 6,230
Exercise of stock options(note 8) 53,120 - 164 - - 164
Tax benefit on exercise of stock options - - 72 - - 72
Purchases of stock by Employee Savings Plan 135,322 2 946 - - 948
----------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 78,509,800 785 145,090 167,727 72 313,674
Comprehensive income:
Net earnings - - - 70,119 - 70,119
Foreign currency translation loss - - - - (56) (56)
Total comprehensive income - - - - - 70,063
Exercise of stock options (note 8) 1,944,260 20 11,052 - - 11,072
Tax benefit on exercise of stock options - - 9,315 - - 9,315
Purchases of stock by Employee Savings Plan 71,848 - 724 - - 724
Secondary offering (note 16) 6,500,000 65 142,543 - - 142,608
----------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 87,025,908 $870 $308,724 $237,846 $16 $547,456
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION> KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Dollars in Thousands
Years ended March 31,
----------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Sources (uses) of cash:
Operating activities:
Net earnings $ 70,119 $ 6,150 $ 49,190
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 55,699 46,873 38,943
Postretirement and unfunded
pension (14,586) (236) 1,107
Loss on sale and disposal of
equipment 11,579 985 3,145
Deferred income taxes 2,931 9,997 2,686
Changes in other non-current
assets and liabilities (2,950) (782) (2,363)
Changes in assets and liabilities:
Accounts receivable (38,025) 4,256 (6,852)
Inventories (5,140) (11,136) (17,314)
Prepaid expenses (55) (36) (513)
Accounts payable, trade 58,958 (23,961) 26,552
Accrued expenses and income taxes 39,187 (11,292) (6,428)
-------- -------- --------
Net cash from operating activities 177,717 20,818 88,153
-------- -------- --------
Investing activities:
Purchase of short-term investments (123,687) - -
Additions to property and equipment (82,009) (59,047) (114,516)
Other 81 (198) (3)
-------- -------- --------
Net cash used by investing activities (205,615) (59,245) (114,519)
Financing activities:
Proceeds from sale of common stock
to Employee Savings Plan 724 947 1,131
Proceeds from exercise of stock options
including related tax benefit 20,387 236 3,820
Proceeds from secondary offering 142,608 - -
Repayment of long-term debt - - (72)
Net proceeds from (payments to)
revolving loan and demand note (64,000) (60,000) 21,100
Issuance of senior notes, net
of debt issue costs - 99,357 -
-------- -------- --------
Net cash provided by financing
activities 99,719 40,540 25,979
-------- -------- --------
Net increase (decrease)in cash 71,821 2,113 (387)
Cash and cash equivalents at beginning
of period 3,914 1,801 2,188
-------- -------- --------
Cash and cash equivalents at end
of period $ 75,735 $ 3,914 $ 1,801
======== ======== ========
Supplemental Cash Flow Statement Information
------------------------------------------------------------------------------
Interest paid $ 9,477 $ 7,730 $ 7,418
Income taxes paid $ 7,179 $ 3,065 $29,040
See accompanying notes to consolidated financial statements.
</Table
Note 1: Organization and Significant Accounting Policies
Nature of Business and Organization
KEMET Corporation and subsidiaries (the Company) is engaged in the
manufacture and sale of solid tantalum, multilayer ceramic, and organic
polymer capacitors in the worldwide market under the KEMET brand name. The
Company is headquartered in Greenville, South Carolina, and has thirteen
manufacturing plants located in South Carolina, North Carolina and Mexico.
Additionally, the Company has wholly-owned foreign subsidiaries which
primarily market KEMET's products in foreign markets.
Principles of Consolidation
The accompanying consolidated financial statements of the Company include
the accounts of its wholly-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation.
Cash Equivalents
Cash equivalents consist of direct obligations of U.S. government agencies
and investment-grade commercial paper with an initial term of less than
three months. For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
Short-Term Investments
Short-term investments consist of direct obligations of U.S. government
agencies and investment-grade commercial paper with original maturities of
greater than three months, but less than one year. These investments are
considered to be held-to-maturity and are therefore stated at cost which
approximates market value.
Derivative Financial Instruments
Derivative financial instruments are utilized by the Company to reduce
foreign currency exposures that arise in the normal course of business. The
Company does not enter into financial instruments for trading or speculative
purposes.
The Company hedges certain foreign currency transactions and firm
commitments by entering into forward exchange contracts. Gains and losses
associated with currency rate changes on forward contracts hedging foreign
currency transactions are recorded currently in earnings. Gains and losses
related to hedges of firm commitments are deferred and recognized in
earnings or as adjustments of carrying amounts when the transactions occur.
Inventories
Inventories are stated at the lower of cost or market. These costs do not
include depreciation or amortization, the impact of which is not material to
the consolidated financial statements. The cost of most inventories is
determined by the "first-in, first-out"(FIFO) method. Approximately 6% of
inventory costs of certain raw materials at March 31, 2000 and 1999,
respectively, have been determined on the "last-in, first-out"(LIFO) basis.
It is estimated that if all inventories had been costed using the FIFO
method, they would have been approximately $854 and $917 higher than
reported at March 31, 2000 and 1999, respectively.
Property and Equipment
Property and equipment are carried at cost. Depreciation is calculated
principally using the straight-line method over the estimated useful lives
of the respective assets. Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful lives of the
assets or the terms of the respective leases. Expenditures for maintenance
are expensed; expenditures for renewals and improvements are generally
capitalized. Upon sale or retirement of property and equipment, the related
cost and accumulated depreciation are removed and any gain or loss is
recognized
Intangible Assets
Values assigned to patents and technology are based on management estimates
and are amortized using the straight-line method over twenty-five years.
Goodwill and trademarks are amortized using the straight-line method over a
forty-year period. The Company assesses the recoverability of its intangible
assets by determining whether the amortization of the intangible's balance
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired assets. The amount of intangible impairment, if
any, is measured based on projected discounted future operating cash flows.
The assessment of the recoverability of intangibles will be impacted if
estimated future operating cash flows are not achieved.
Other Assets
Other assets consist principally of the cash surrender value of life insurance
policies.
Deferred Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Stock-based Compensation
The Company applies the intrinsic value-based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related interpretations in accounting for stock options.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
The Company has elected the "disclosure only" provisions of SFAS No. 123,
"Accounting for Stock Based Compensation," which provide pro forma disclosure
of earnings as if stock compensation were recognized on the fair value basis.
Concentrations of Credit Risk
The Company sells to customers located throughout the United States and the
world. Credit evaluations of its customers' financial conditions are
performed periodically, and the Company generally does not require collateral
from its customers.
Foreign Operations
Financial statements of the Company's Mexican operations are prepared using
the U.S. dollar as its functional currency. Translation of the Mexican
operations, as well as gains and losses from non-U.S. dollar foreign currency
transactions, such as those resulting from the settlement of foreign
receivables or payables, are reported in the Consolidated Statements of
Earnings.
Translation of other foreign operations to U.S. dollars occurs using the
current exchange rate for balance sheet accounts and an average exchange rate
for results of operations. Such translation gains or losses are recognized as
a component of equity in "Accumulated Other Comprehensive Income."
Comprehensive Income
Comprehensive income consists of net earnings and foreign currency translation
gains or losses and is presented in the Consolidated Statements of
Stockholders' Equity and Comprehensive Income.
Revenue Recognition
Revenue is recognized from sales when a product is shipped. A portion of
sales is made to distributors under agreements allowing certain rights of
return and price protection on unsold merchandise held by distributors (see
note 10).
Earnings per Share
The Company calculates earnings per share in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings per share is computed using the
weighted-average number of shares outstanding. Diluted earnings per share is
computed using the weighted-average number of shares outstanding adjusted for
the incremental shares attributed to outstanding options to purchase common
stock.
Environmental Cost
The Company recognizes liabilities for environmental remediation when it is
probable that a liability has been incurred and can be reasonably estimated.
The Company determines its liability on a site-by-site basis, and it is not
discounted or reduced for possible recoveries from insurance carriers.
Expenditures which extend the life of the related property or mitigate or
prevent future environmental contamination are capitalized.
Business Segments
The Company has determined, using the criteria in SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," that it operates in
a single reporting segment. The Company's products may be categorized
generally based upon primary raw material (tantalum or ceramic) or method of
attachment (surface-mount or leaded), and are sold to original equipment
manufacturers, electronics manufacturing services providers, and electronics
distributors. One customer accounted for more than 10% of net sales in each
of the fiscal years ended March 31, 2000, 1999 and 1998. Geographic
information is included in note 9.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements. In addition, they affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates and assumptions.
Reclassification
Certain prior year amounts have been reclassified to conform to 2000
presentation and the effect of the June 1, 2000, stock split (see note 17).
Note 2: Intangible Assets
Intangible assets consist of the following (dollars in thousands):
</TABLE>
<TABLE>
<CAPTION>
March 31,
--------------------
2000 1999
------- -------
<S> <C> <C>
Goodwill $40,709 $40,709
Trademarks 10,000 10,000
Patents and technology 12,000 10,000
Other 1,143 1,143
------- -------
63,852 61,852
Accumulated amortization 17,654 15,584
------- -------
Net intangible assets $46,198 $46,268
======= =======
</TABLE>
Note 3: Debt
A summary of long-term debt follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Revolving loan, interest at rates ranging from
5.64% to 5.67% at March 31, 1999, due on
October 18, 2001 $ - $ 44,000
Demand note, interest at rates as offered by the
bank (5.47% at March 31, 1999), repaid in 2000 - 20,000
Senior notes, interest payable semiannually at a
rate of 6.66% with a final maturity date of
May 4, 2010 100,000 100,000
-------- --------
100,000 164,000
Less current installments - 20,000
-------- --------
Long-term debt, excluding current installments $100,000 $144,000
======== ========
</TABLE>
In May 1998, the Company sold $100,000 of its Senior Notes pursuant to the
terms of a Note Purchase Agreement dated 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, and begin amortizing 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 Company is subject to restrictive covenants under its loan agreements
which, among others, restrict its ability to make loans or advances or to make
investments and require it to meet financial tests related principally to
funded debt, cash flows, and net worth. At March 31, 2000, the Company was in
compliance with such covenants. Borrowings are secured by guarantees of
certain of the Company's wholly owned subsidiaries.
The aggregate maturities of long-term debt subsequent to March 31, 2000,
follow: 2007, $20,000; 2008, $20,000; 2009, $20,000; 2010, $20,000; and 2011,
$20,000.
Note 4: Other Non-Current Obligations
Non-current obligations are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Unfunded projected pension benefit obligation
(note 5) 18,337 $ 35,447
Unfunded postretirement medical plans (note 6) 34,243 31,719
Other 2,177 2,228
-------- --------
Other non-current obligations $ 54,757 $69,394
======== ========
</TABLE>
Included as a part of other non-current obligations is the Company's accrual
for environmental liabilities.
Note 5: Employee Pension and Savings Plans
The Company has a non-contributory pension plan (Plan) which covers
substantially all employees in the United States who meet age and service
requirements. The Plan provides defined benefits that are based on years of
credited service, average compensation (as defined), and the primary social
security benefit. The effective date of the Plan is April 1, 1987.
The cost of pension benefits under the Plan is determined by an independent
actuarial firm using the "projected unit credit" actuarial cost method.
Currently payable contributions to the Plan are limited to amounts that are
currently deductible for income tax reporting purposes, and are included in
accrued expenses in the consolidated balance sheets.
Components of net periodic pension cost include the following (dollars in
thousands):
<TABLE>
<CAPTION> Years ended March 31,
--------------------------------
2000 1999 1998
--------- --------- --------
<S> <C> <C> <C>
Service cost $4,544 $3,472 $3,705
Interest cost 8,071 6,494 6,638
Expected return on assets (6,323) (6,084) (4,209)
Amortization of:
Transition asset (6) (6) (6)
Prior service cost (83) (90) (90)
Actuarial loss 650 - -
Gain on curtailment of employee
benefit plan - (1,818) -
--------- --------- ---------
Total net periodic pension cost $6,853 $1,968 $6,038
========= ========= =========
</TABLE>
The weighted-average rates used in determining pension cost for the plan are
as follows:
<TABLE>
<CAPTION> Years ended March 31,
--------------------------------
2000 1999 1998
--------- --------- --------
<S> <C> <C> <C>
Discount rate 7.50% 7.00% 7.25%
Rate of compensation increase 5.00% 4.00% 5.00%
Expected return on plan assets 9.00% 9.50% 8.50%
</TABLE>
A reconciliation of the Plan's projected benefit obligation, fair value of
the Plan assets, and funding status is as follows (dollars in thousands):
<TABLE>
<CAPTION> March 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Projected benefit obligation:
Net obligation at beginning of year $96,830 $ 97,383
Service cost 4,544 3,472
Interest cost 8,071 6,494
Actuarial (gain) loss 7,164 (4,099)
Curtailments - (1,818)
Gross benefits paid (4,911) (4,602)
----------- -----------
Net benefit obligation at end of year 111,698 96,830
=========== ===========
Fair value of plan assets:
Fair value of plan assets at beginning of year 62,153 65,116
Actual return on plan assets 11,343 264
Employer contributions 26,295 1,374
Gross benefits paid (4,911) (4,602)
----------- -----------
Fair value of plan assets at end of year 94,880 62,152
=========== ===========
Funding status:
Funded status at end of year (16,818) (34,677)
Unrecognized net actuarial (gain) loss 6,091 4,597
Unrecognized prior service cost (482) (565)
Unrecognized net transition obligation (asset) (7) (13)
----------- -----------
Net amount recognized at end of year $(11,216) $(30,658)
=========== ===========
</TABLE>
The Company sponsors an unfunded Deferred Compensation Plan for key managers.
This plan is non-qualified and provides certain key employees defined pension
benefits which would equal those provided by the Company's non-contributory
pension plan if the plan was not limited by the Employee Retirement Security
Act of 1974 and the Internal Revenue Code. Expenses related to the deferred
compensation plan totaled $988 in fiscal 2000, $885 in fiscal 1999, and $2,115
in fiscal 1998. Total benefits accrued under this plan were $7,121 at March
31, 2000, and $6,308 at March 31, 1999.
In addition, the Company has a defined contribution plan (Savings Plan) in
which all U.S. employees who meet certain eligibility requirements may
participate. A participant may direct the Company to contribute amounts,
based on a percentage of the participant's compensation, to the Savings Plan
through the execution of salary reduction agreements. In addition, the
participants may elect to make after-tax contributions. The Company will make
annual matching contributions to the Savings Plan of 30% to 50% and salary
reduction contributions up to 7.5% of compensation. The Company contributed
$1,801 in fiscal 2000, $1,786 in fiscal 1999 and $1,896 in fiscal 1998.
Note 6: Postretirement Medical and Life Insurance Plans
The Company provides health care and life insurance benefits for certain
retired employees who reach retirement age while working for the Company.
The components of the expense for postretirement medical and life insurance
benefits are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Years ended March 31,
----------------------------------
2000 1999 1998
-------- -------- ----------
<S> <C> <C> <C>
Service cost $1,479 $ 701 $ 739
Interest cost 2,834 2,086 2,343
Amortization of actuarial gain 248 (23) -
Curtailment gain - (611) -
-------- -------- --------
$4,561 $2,153 $3,082
======== ======== ========
</TABLE>
A reconciliation of the postretirement medical and life insurance plan's
projected benefit obligation, fair value of plan assets, and funding status is
as follows (dollars in thousands):
<TABLE> March 31,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Projected benefit obligation:
Net obligation at beginning of year $ 29,241 $ 33,446
Service cost 1,479 701
Interest cost 2,834 2,086
Actuarial (gain) loss 8,880 (4,163)
Curtailments - (611)
Gross benefits paid (2,038) (2,218)
-------- --------
Net benefit obligation at end of year $ 40,396 $ 29,241
======== ========
Fair value of plan assets:
Employer contributions $ 2,038 $ 2,218
Gross benefits paid (2,038) (2,218)
-------- --------
Fair value of plan assets at end of year $ - $ -
======== ========
Funding status:
Funded status at end of year $(40,396) $(29,241)
Unrecognized net actuarial (gain) loss 6,153 (2,478)
-------- --------
Net amount recognized at end of year $(34,243) $(31,719)
======== ========
</Table
The weighted-average rates used in determining postretirement medical and life insurance costs are as
follows (dollars in thousands):
</TABLE>
<TABLE>
<CAPTION> Years ended March 31,
-----------------------------------------------
2000 1999 1998
------------ ------------ -----------
<S> <C> <C> <C>
Discount rate 7.50% 7.00% 7.25%
Rate of compensation increase 5.00% 4.00% 5.00%
Health care cost trend on covered charges: 9.5% decreasing 8.0% decreasing 8.0% decreasing
to ultimate to ultimate to ultimate
trend of 6.5% trend of 7.0% trend of 7.0%
in 2008 in 2008 in 2008
Sensitivity of retiree welfare results:
Effect of a one percentage point increase
in assumed health care cost trend:
* On total service and interest
cost components $ 538 $ 140 $ 220
* On postretirement benefit obligation $ 3,487 $1,023 $ 1,365
Effect of a one percentage point decrease
in assumed health care cost trend:
* On total service and interest
cost components $ (472) $ (128) $ (201)
* On postretirement benefit obligation $(3,196) $ (970) $(1,307)
</TABLE>
Note 7: Income Taxes
<TABLE>
The components of earnings before income taxes consist of (dollars in thousands):
<CAPTION> Years ended March 31,
----------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Domestic $ 91,373 $ 4,449 $ 62,210
Foreign 14,191 4,595 8,624
--------- -------- ---------
$105,564 $ 9,044 $ 70,834
========= ======== =========
</TABLE>
The provision for income tax expense consists of (dollars in thousands):
<TABLE>
<CAPTION> Years ended March 31,
---------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $27,342 $(9,810) $15,835
State and local 1,051 232 806
Foreign 4,121 2,475 2,317
-------- -------- --------
32,514 (7,103) 18,958
-------- -------- --------
Deferred:
Federal 2,568 9,969 1,970
State and local 193 447 216
Foreign 170 (419) 500
-------- --------- -------
2,931 9,997 2,686
-------- --------- -------
Provision for income taxes $35,445 $ 2,894 $21,644
======= ======== ========
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION> Years ended March 31,
------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal taxes .8 4.9 .9
Foreign sales corporation (1.9) (10.7) (3.3)
Goodwill amortization .3 3.8 .5
Reduction in prior year tax accrual (2.0) (4.9) (2.4)
Other 1.4 3.9 ( .1)
------- ------- -------
Effective income tax rate 33.6% 32.0% 30.6%
</TABLE>
The components of deferred tax assets and liabilities are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
March 31,
----------------------
2000 1999
-------- ---------
S> <C> <C>
Deferred tax assets:
Pension benefits $ 6,768 $ 13,372
Medical benefits 12,116 12,535
Sales and product allowances 15,911 6,899
All other 5,365 4,086
--------- --------
40,160 36,892
Deferred tax liabilities:
Depreciation and differences in basis (50,892) (44,355)
Amortization of intangibles (5,071) (5,409)
--------- ---------
(55,963) (49,764)
--------- ---------
Net deferred income tax liability $(15,803) $(12,872)
========= =========
</TABLE>
The net deferred income tax liability is reflected in the accompanying 2000
and 1999 balance sheets as a $20,099 and $10,899 current asset and a $35,902
and $23,771 non-current liability, respectively.
The Company anticipates that the reversal of existing taxable temporary
differences will provide sufficient taxable income to realize the remaining
deferred tax assets. Accordingly, no valuation allowance has been provided
for in 2000 or 1999.
For fiscal year ended March 31, 1999, the Company had a regular tax loss of
$10.7 million which was carried back to recover Federal income taxes paid in
prior years.
During fiscal years 2000 and 1999, the Company received Federal income tax
refunds related to amending various years tax returns. These refunds were
recognized as tax benefits during the current year. Interest income
received from these refunds was netted against interest expense.
Note 8: Stock Option Plans
The Company has two option plans which reserve shares of common stock for
issuance to executives and key employees. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the stock option plans. Had
compensation costs for the Company's two stock option plans been determined
based on the fair value at the grant date for awards in fiscal year 2000,
1999 and 1998, consistent with the provisions of SFAS No. 123, the Company's
net earnings and earnings per share would have been reduced to the pro forma
amounts indicated below (dollars in thousands except per share data):
<TABLE>
<CAPTION>
Years ended March 31,
--------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net earnings As reported $70,119 $ 6,150 $49,190
Pro forma $64,286 $ 4,203 $47,554
Earnings per share:
Basic As reported $ 0.87 $0.08 $0.63
Pro forma $ 0.80 $0.06 $0.61
Diluted As reported $ 0.85 $0.08 $0.62
Pro forma $ 0.78 $0.06 $0.60
</TABLE>
The pro forma amounts indicated above recognize compensation expense on a
straight-line basis over the vesting period of the grant. The pro forma
effect on net income for fiscal year 2000 is not representative of the pro
forma effects on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1996.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: expected life of 5 years for 2000, 1999 and 1998; a risk-free
interest rate of 6.8% for 2000, 5.4% for 1999 and 5.7% for 1998; expected
volatility of 49.7% for 2000, 45.1% for 1999 and 42.6% for 1998; and a
dividend yield of 0.0% for all three years.
Under the 1992 Executive Stock Option Plan approved by the Company in April
1992, 1,905,120 options were granted to certain executives. In May 1992, the
Company also approved the 1992 Key Employee Stock Option Plan, which
authorizes the granting of options to purchase 2,310,000 shares of Common
Stock. In addition, stockholders approved the 1995 Executive Stock Option
Plan at the 1996 Annual Meeting. This plan provides for the issuance of
options to purchase 3,800,000 shares of common stock to certain executives.
These plans provide that shares granted come from the Company's authorized but
unissued common stock. The prices of the options granted thus far pursuant to
these plans are no less than 100% of the value of the shares on the date of
grant. Also, the options may not be exercised within two years from the date
of grant and no options will be exercisable after ten years from the date of
grant.
In fiscal 1999, the Company's Board of Directors approved an option re-price
program for the Key Employee Stock Option Plan and Executive Stock Option
Plan, effective February 1, 1999, and April 1, 1999, respectively. Under this
program, options to purchase 658,260 shares under the Key Employee Stock
Option Plan and 1,048,000 shares under the Executive Stock Option Plan at
prices ranging from $9.63 to $16.07 per share were canceled and reissued at
$5.00 and $6.00 per share, respectively. The reissued price was the fair
market value at that time. The vesting date of the options originally granted
in 1995 and 1996 was changed to April 2000. The vesting date for those
options originally issued in 1997 remained at October 1999.
A summary of the status of the Company's three stock option plans as of March
31, 2000, 1999, and 1998, and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION> March 31,
----------------------------------------------------------------------------
2000 1999 1998
---------------------- ---------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercisable Exercisable Exercisable
Fixed Options Shares Price Shares Price Shares Price
-------- ------------ -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at beginning of year 3,286,000 $ 6.81 2,502,040 $10.10 2,479,670 $ 7.77
Options granted 2,379,000 10.71 1,869,140 5.48 616,890 12.88
Options exercised (1,944,260) 5.83 (53,120) 3.51 (591,380) 3.23
Options canceled (1,088,720) 9.66 (1,032,060) 12.55 (3,140) 5.94
Options outstanding ---------- ---------- ----------
at end of year 2,632,020 $10.09 3,286,000 $ 6.81 2,502,040 $10.10
========== ========== ==========
Option price range
at end of year $2.50 to $16.07 $2.50 to $16.07 $2.50 to $16.07
Option price range
for exercised shares $2.50 to $16.07 $2.50 to $ 7.10 $2.50 to $ 5.32
Options available for
grant at end of year 1,412,590 2,414,580 3,625,460
Options exercisable
at end of year 504,210 624,860 1,328,100
Weighted-average fair
value of options granted
during the year $ 7.54 $2.69 $ 5.95
</TABLE>
<TABLE>
The following table summarizes information about stock options outstanding at March 31, 2000:
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ---------------------------------------------
Weighted-
Range of Number Weighted-Average Weighted- Number Average
Exercisable Outstanding Remaining Average Exercisable Exercisable
Prices at 3/31/00 Contractual Life Exercise Price at 3/31/00 Price
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.50 to $ 4.99 57,040 3.0 Years $ 2.80 57,040 $ 2.80
$ 5.00 to $ 9.99 1,231,480 6.7 Years $ 5.59 431,170 $ 5.68
$10.00 to $16.07 1,343,500 9.5 Years $14.52 16,000 $16.07
--------- --------
2,632,020 504,210
========= ========
</TABLE>
Note 9: Geographic Information
The following geographic information includes net sales based on product
shipment destination (1) (dollars in thousands):
<TABLE>
<CAPTION>
Years ended March 31,
---------------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
United States $408,890 $293,428 $374,512
Asia Pacific 190,289 119,938 122,034
Germany 49,670 34,142 40,625
Other countries (2) 173,246 118,061 130,550
--------- --------- ---------
$822,095 $565,569 $667,721
========= ========= =========
(1) Revenues are attributed to countries based on the location of the
customer. In fiscal years 2000, 1999, and 1998, one customer represented more
than 10% of consolidated net sales.
(2) No country in this group exceeded 5% of consolidated net sales.
The following geographic information includes long-lived assets based on
physical location (dollars in thousands):
March 31,
--------------------------------------------
2000 1999 1998
--------- --------- ---------
United States $243,385 $247,966 $261,965
Mexico 179,092 157,795 130,530
Other 922 974 1,056
--------- --------- ---------
$423,399 $406,735 $393,551
========= ========= =========
</TABLE>
Note 10: Commitments
(a) The Company has agreements with distributor customers which, under certain
conditions, allow for returns of overstocked inventory and provide protection
against price reductions initiated by the Company. Allowances for these
commitments are included in the consolidated balance sheets as reductions in
trade accounts receivable (note 11). The Company adjusts sales to
distributors through the use of allowance accounts based on historical
experience.
(b) A subsidiary of the Company sells certain receivables discounted at .60 of
1% above LIBOR for the number of days the receivables are outstanding, with a
recourse provision not to exceed 5% of the face amount of the factored
receivables. The Company has issued a joint and several guarantee in an
aggregate amount up to but not to exceed $4,000 to guarantee this recourse
provision. The Company transferred receivables and incurred factoring costs
of $372,656 and $3,444 in 2000, $258,619 and $2,988 in 1999, and $283,153 and
$2,834 in 1998.
Included in accounts payable, trade, is $44,212 and $32,715 at March 31, 2000
and 1999, respectively, which represents factored receivables collected but
not remitted.
(c) The Company's leases consist primarily of manufacturing equipment and
expire principally between 2000 and 2005. A number of leases require that
the Company pay certain executory costs (taxes, insurance and maintenance)
and certain renewal and purchase options. Annual rental expense for
operating leases are included in results of operations and were
approximately $8,300 in 2000, $10,229 in 1999, and $12,592 in 1998. Future
minimum lease payments over the next five years under noncancelable
operating leases at March 31, 2000, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
2001 2002 2003 2004 2005 Total
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Minimum lease
Payments: $ 5,650 $ 3,461 $ 1,586 $ 504 $ 270 $11,471
</TABLE>
Note 11: Supplementary Balance Sheet and Income Statement Detail (dollars in
thousands)
<TABLE>
<CAPTION>
March 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Accounts receivable:
Trade $103,139 $ 56,773
Other 6,767 7,236
---------- ----------
109,906 64,009
Less:
Allowance for doubtful accounts 262 297
Allowance for price protection and
customer returns (note 10) 15,517 5,928
---------- ----------
Net accounts receivable $ 94,127 $ 57,784
========== ==========
Property and equipment, at cost Useful Life
-----------
Land and land improvements 20 years $ 12,946 $ 12,919
Buildings 20-40 years 86,465 73,402
Machinery and equipment 10 years 522,514 464,041
Furniture and fixtures 4-10 years 36,989 35,532
Construction in progress - 41,326 49,896
---------- ----------
Total property and equipment 700,240 635,790
Accumulated depreciation 276,841 229,055
---------- ----------
Net property and equipment $423,399 $406,735
========== ==========
Accrued expenses:
Pension costs $ 3,246 $ 3,799
Salaries, wages and related employee costs 15,008 7,863
Vacation 8,752 8,150
Other 15,039 8,289
--------- ----------
Total accrued expenses $ 42,045 $ 28,101
========= ==========
</TABLE>
<TABLE>
<CAPTION>
Years ended March 31,
-------------------------------------
2000 1999 1998
--------- --------- ----------
<S> <C> <C> <C>
Other (income)/expense:
Loss on retirement of assets $ 9,405 $ 985 $ 1,616
Accounts receivable discounting 3,444 2,988 2,834
Unrealized gain on foreign currency
forward contracts (1,682) - -
Other 528 300 (387)
--------- --------- ---------
$ 11,695 $ 4,273 $ 4,063
========= ========= =========
</TABLE>
Note 12: Legal Proceedings
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (CERCLA), and certain analogous state laws, impose
retroactive, strict liability upon certain defined classes of persons
associated with releases of hazardous substances into the environment. Among
those liable under CERCLA (known collectively as "potentially responsible
parties" or "PRPs") is any person who "arranged for disposal" of hazardous
substances at a site requiring response action under the statute. While a
company's liability under CERCLA is often based upon its proportionate share
of overall waste volume or other equitable factors, CERCLA has been widely
held to permit imposition of joint and several liabilities on each PRP. The
Company has periodically incurred, and may continue to incur, liability under
CERCLA and analogous state laws, with respect to sites used for off-site
management or disposal of Company-derived wastes. The Company has been named
as a PRP at the Seaboard Chemical Site in Jamestown, North Carolina. The
Company is participating in the clean-up as a "de minimis" party and does not
expect its total exposure to be material. In addition, Union Carbide
Corporation (Union Carbide), the former owner of the Company, is a PRP at
certain sites relating to the off-site disposal of wastes from properties
presently owned by the Company. The Company is participating, in coordination
with Union Carbide, in certain PRP-initiated activities related to these
sites. The Company expects that it will bear some portion of the liability
with respect to these sites; however, any such share is not presently expected
to be material to the Company's financial condition or results of operations.
In connection with the acquisition in 1990, Union Carbide agreed, subject to
certain limitations, to indemnify the Company with respect to the foregoing
sites.
The Company or its subsidiaries are at any one time parties to a number of
lawsuits arising out of their respective operations, including workers'
compensation or work place safety cases, some of which involve claims of
substantial damages. Although there can be no assurance, based upon
information known to the Company, the Company does not believe that any
liability which might result from an adverse determination of such lawsuits
would have a material adverse effect on the Company's financial condition or
results of operations.
Note 13: Restructuring Charge
(a) The Company recorded a pretax charge of $10.5 million ($7.3 million after
tax) in the quarter ended December 31, 1997, in conjunction with a plan to
restructure the manufacturing and support operations between its U.S.
facilities in North and South Carolina and its Mexican operations in
Monterrey, Mexico. Under the restructuring plan, the Company reduced the U.S.
workforce by 1,182 people. Through March 31, 1999, the Company has paid $10.5
million in severance, pension, and outplacement costs under the restructuring
plan, reducing the liability to zero.
Note 14: Earnings Per Share
Basic and diluted earnings per share are calculated as follows (dollars in
thousands except per share data):
<TABLE>
<CAPTION>
Years ended March 31,
--------------------------------------
2000 1999 1998
---------- ---------- -----------
<S> <C> <C> <C>
Net earnings $70,119 $ 6,150 $49,190
Weighted-average shares outstanding
(Basic) 80,650,376 78,441,440 78,146,444
Stock Options 1,761,258 586,420 707,884
---------- ---------- ----------
Weighted-average shares outstanding
(Diluted) 82,411,634 79,027,860 78,854,328
========== ========== ==========
Basic earnings per share $0.87 $0.08 $0.63
Diluted earnings per share $0.85 $0.08 $0.62
</TABLE>
Note 15: Financial Instruments
The following table presents the carrying amounts and the estimated fair
values of financial instruments at March 31, 2000 and 1999 (dollars in
thousands):
<TABLE>
<CAPTION> March 31,
----------------------------------------
2000 1999
-------------------- -----------------
<S> <C> <C> <C> <C>
Carrying Fair Carrying Fair
Assets/(Liabilities): Amount Value Amount Value
------------------------------------------------------------------------------
Short-term investments:
Direct obligations of U.S.
government agencies $ 38,990 $ 38,990 $ - $ -
Investment-grade commercial
paper 84,697 84,697 - -
--------- -------- --------- --------
Total $ 123,687 $ 123,687 $ - $ -
Foreign currency forward
contracts $ 1,682 $ 1,682 - -
Long-term debt $(100,000) $ (92,150) $(164,000) $(162,550)
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable approximate their fair values. Fair values above were
determined using quoted market prices or quotes from dealers.
At March 31, 2000, the Company had outstanding forward exchange contracts to
purchase Mexican pesos with notional amounts of $90,389. All contracts mature
within one year. The notional amounts do not represent actual amounts
exchanged by the parties and thus are not a measure of the Company's exposure
through its use of derivatives. The amounts exchanged are calculated by
reference to the notional amounts and by other terms.
The counter-parties to the Company's derivative financial instruments are
substantial and credit-worthy multinational financial institutions.
Therefore, the Company considers the risk of counter-party default to be
minimal.
Note 16: Common Stock, Secondary Offering
On January 20, 2000, the Company sold 6,500,000 shares of its common stock in
a public offering for $142.6 million in net cash proceeds after deducting
underwriting fees and offering expenses. Included in the shares sold were
2,193,220 shares of non-voting common stock that were converted into common
stock on a share-for-share basis. The net proceeds were used to repay
outstanding debt under the Company's short-term credit facility and will be
used to fund future capital expenditures.
Note 17: Subsequent Event
On May 15, 2000, the Company's Board of Directors declared a two-for-one stock
split. The record date for the split was May 24, 2000, with distribution of
the additional shares on June 1, 2000. All references in the consolidated
financial statements to number of shares outstanding, price per share, per
share amounts and stock option plan data have been restated to reflect the
split.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KEMET Corporation
(Registrant)
Date: June 28, 2000 /S/ D.Ray Cash
D. Ray Cash
Senior Vice President of Administration,
Treasurer and Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: June 28, 2000 /S/ David E. Maguire
David E. Maguire
Chairman and Chief Executive Officer
Date: June 28, 2000 /S/ Charles M. Culbertson II
Charles M. Culbertson II
President and Chief Operating Officer
Date: June 28, 2000 /S/ D. Ray Cash
D. Ray Cash
Senior Vice President of Administration,
Treasurer and Assistant Secretary
(Principal Accounting and Financial Officer)
Date: June 28, 2000 /S/ Charles E. Volpe
Charles E. Volpe
Director
Date: June 28, 2000 /S/ Stewart A. Kohl
Stewart A. Kohl
Director
Date: June 28, 2000 /S/ E. Erwin Maddrey, II
E. Erwin Maddrey, II
Director
Date: June 28, 2000 /S/ Paul C. Schorr IV
Paul C. Schorr IV
Director
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