<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-92963
PROSPECTUS
5,000,000 Shares
[KEMET logo]
Common Stock
-----------------
KEMET Corporation is selling 2,500,000 shares of common stock and a
stockholder of KEMET is selling 2,500,000 shares of common stock.
Our common stock trades on the New York Stock Exchange under the symbol
"KEM." On January 13, 2000, the last reported sale price of the common stock on
the New York Stock Exchange was $46 1/4 per share.
Investing in the common stock involves risks that are described in the
"Risk Factors" section beginning on page 7 of this prospectus.
-----------------
<TABLE>
<CAPTION>
Per Share Total
--------- ------------
<S> <C> <C>
Public offering price............................. $46.00 $230,000,000
Underwriting discount............................. $1.95 $9,750,000
Proceeds, before expenses, to KEMET............... $44.05 $110,125,000
Proceeds, before expenses, to the selling
stockholder...................................... $44.05 $110,125,000
</TABLE>
The underwriters may also purchase up to an additional 750,000 shares
from KEMET at the public offering price, less the underwriting discount, within
30 days from the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of common stock will be ready for delivery on or about January
20, 2000.
-----------------
Merrill Lynch & Co. Salomon Smith Barney
-----------------
The date of this prospectus is January 13, 2000.
<PAGE>
[Logo]
[Picture of multi-anode KEMET capacitors, such as those shown
KO tantalum surface here, store, filter and regulate
mount capacitor] electrical energy and current flow on
circuit boards. Capacitors are found
in virtually all electronic
applications and products.
Above is KEMET's new multi-anode KO
tantalum surface mount capacitor
showing the detail of the internal
construction.
[Picture of ceramic array
surface mount capacitor]
Above is KEMET's new ceramic array
surface-mount capacitor showing the
detail of the internal construction.
[Picture of circuit board] To the left is a close-up showing a
typical circuit board with KEMET
tantalum and ceramic surface-mount
capacitors surrounding an integrated
circuit.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 9
Dividend Policy.......................................................... 9
Price Range of Common Stock.............................................. 9
Capitalization........................................................... 10
Selected Consolidated Financial Data..................................... 11
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 12
Business................................................................. 18
Management............................................................... 28
Principal and Selling Stockholders....................................... 32
Description of Capital Stock............................................. 34
Underwriting............................................................. 40
Notice to Canadian Investors............................................. 43
Legal Matters............................................................ 44
Experts.................................................................. 44
Incorporation of Certain Documents by Reference.......................... 44
Where You Can Find More Information...................................... 45
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-----------------
You should rely only on the information contained in this prospectus. We
and the selling stockholder have not, and the underwriters have not, authorized
any other person to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. We
and the selling stockholder are not, and the underwriters are not, making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus is accurate as of the date on the front cover of this prospectus
only. Our business, financial condition, results of operations and prospects
may have changed since that date.
The information in this prospectus may not contain all of the information
that may be important to you. You should read the entire prospectus, as well as
the documents incorporated by reference in the prospectus, before making an
investment decision. All references to "we," "us," "our," or "KEMET" in this
prospectus mean KEMET Corporation and its subsidiaries. "KEMET" and the KEMET
logo are trademarks of KEMET. This prospectus also refers to trademarks and
tradenames of other companies.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We
intend that these forward-looking statements be subject to the safe harbors
created by those provisions. These forward-looking statements involve risks and
uncertainties and include, but are not limited to, statements regarding future
events and our plans, goals and objectives. These statements are generally
accompanied by words like "intend," "anticipate," "believe," "estimate,"
"expect" or similar statements. Our actual results may differ materially from
these statements. These risks, trends and uncertainties, which in some
instances are beyond our control, include: risks associated with the cyclical
nature of the electronics industry, the requirement to continue to reduce the
cost of our products, the competitiveness of our industry, an increase in the
cost of our raw materials, the location of several of our plants in Mexico, the
possible loss of key employees and the Year 2000 computer issues. Although we
believe that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate. Therefore, we can
give no assurance that the results contemplated in these forward-looking
statements will be realized. The inclusion of this forward-looking information
should not be regarded as a representation by our company or any other person
that the future events, plans or expectations contemplated by our company will
be achieved. Furthermore, past performance in operations and share price is not
necessarily predictive of future performance.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about the offering. This
summary may not contain all of the information that is important to you. You
should carefully read this entire document and the other documents we refer to
for a more complete understanding of the offering. In addition, we incorporate
important business and financial information into this prospectus by reference.
You may obtain the information incorporated by reference into this prospectus
without charge by following the instructions in the "Where You Can Find More
Information" section of this prospectus. Unless otherwise indicated, the
information in this prospectus assumes that the underwriters' over-allotment
option has not been exercised. We report on a fiscal year ending March 31, and
our 1999 fiscal year ended on March 31, 1999.
KEMET Corporation
We are 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, 1998. According to
industry sources, tantalum and ceramic capacitors are the two fastest growing
sectors of the United States capacitor industry. In fiscal year 1999, we
generated net sales of $565.6 million and for the six months ended September
30, 1999, we generated net sales of $348.8 million. International sales
accounted for approximately 48% of our net sales for both fiscal year 1999 and
for the six months ended September 30, 1999. During fiscal year 1999, we
shipped approximately 22.3 billion capacitors, which was 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,
encapsulation, capacitance level and tolerance, performance characteristics,
marking, packaging and method of attachment to the circuit board.
A wide variety of electronic applications utilize our capacitors. These
applications include communication systems, data processing equipment, personal
computers, cellular phones, automotive electronic systems, and military and
aerospace systems.
We utilize a direct sales force to market our capacitors to a diverse and
growing number of original equipment manufacturers, also called OEMs,
electronic manufacturing service providers, also called EMS providers, and
electronics distributors. Our 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.
OEM customers throughout the industry are actively reducing the overall
cost of acquiring component products such as capacitors. To achieve these cost
reductions, OEMs are demanding increased levels of service to provide ease of
ordering, just-in-time delivery to multiple facilities, flexible scheduling,
specialized packaging and a full breadth of product offerings. We believe we
are in a unique position among capacitor manufacturers to capitalize on our
customers' demanding requirements.
Our business objectives are to:
. Maintain long-term customer relationships;
. Provide product breadth and service flexibility;
. Manufacture high-quality products;
. Invest in surface-mount manufacturing capacity;
4
<PAGE>
. Improve current products and develop new products; and
. Remain an overall low-cost producer.
Our five senior managers have an average of 27 years of experience with
us. We are headquartered in Greenville, South Carolina and have a total of 13
manufacturing plants located in the Southeastern United States and in Mexico.
Selling Stockholder
Citigroup Foundation, a private charitable foundation affiliated with
Citigroup Inc., is selling 2,500,000 shares of common stock in the offering.
Prior to the closing of the offering, Citicorp Venture Capital, Ltd. will
transfer these shares through a gift to Citigroup Foundation. Following the
offering, Citigroup Foundation will not own any shares of our common stock, and
Citicorp Venture Capital, Ltd. will own 3,213,910 shares of common stock. For
additional information about the selling stockholder and Citicorp Venture
Capital, Ltd., see "Principal and Selling Stockholders" in this prospectus.
The Offering
<TABLE>
<S> <C>
Common stock offered:
By KEMET............................... 2,500,000 shares
By the selling stockholder............. 2,500,000 shares (1)
-----------------
Total................................ 5,000,000 shares
=================
Common stock to be outstanding after the
offering................................ 42,465,742 shares (2)
</TABLE>
<TABLE>
<S> <C>
Use of proceeds.......................... To fund capital expenditures, to repay
outstanding debt under our revolving
credit facility, if any, and to repay
outstanding debt under our short-term
credit facility. We will not receive
any proceeds from the sale of common
stock in the offering by the selling
stockholder.
New York Stock Exchange symbol........... "KEM"
Risk Factors............................. See "Risk Factors" for a discussion of
factors you should carefully consider
before deciding to invest in shares of
our common stock.
</TABLE>
- -------
(1) Includes 1,096,610 shares of common stock issuable upon conversion of all
outstanding shares of non-voting common stock on a share-for-share basis as
a result of the offering.
(2) Excludes 1,612,080 shares of common stock issuable upon exercise of options
outstanding as of November 30, 1999 and 704,885 shares available for grant
as of November 30, 1999.
5
<PAGE>
Our Summary Consolidated Financial Data
(dollars in thousands, except per share data)
This table includes certain summary financial data about us. You should
read this table together with the discussion under the headings "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and our Consolidated Financial
Statements and related notes that we include in this prospectus and similar
sections in the documents that we incorporate by reference in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended March 31, September 30,
------------------------------------------------------ ---------------------
1995 1996 1997 1998 1999 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales............... $ 473,182 $ 634,171 $ 555,319 $ 667,721 $ 565,569 $ 280,204 $ 348,836
Operating income........ 63,130 120,430 62,415 82,202 22,604 9,151 30,128
Interest expense........ 6,929 4,938 5,709 7,305 9,287 4,195 5,243
Net earnings before
extraordinary item..... 30,968 65,198 37,169 49,190 6,150 1,923 13,892
Extraordinary loss on
extinguishment of
debt(1)................ 1,058 -- -- -- -- -- --
Net earnings............ $ 29,910 $ 65,198 $ 37,169 $ 49,190 $ 6,150 $ 1,923 $ 13,892
Per Common Share Data:
Net earnings before
extraordinary item per
common share
(diluted).............. $0.80 $1.67 $0.95 $1.25 $0.16 $0.05 $0.35
Extraordinary loss per
common share (1)....... 0.03 -- -- -- -- -- --
Net earnings per common
share (diluted)........ $0.77 $1.67 $0.95 $1.25 $0.16 $0.05 $0.35
Net earnings per common
share (basic).......... $0.79 $1.70 $0.96 $1.26 $0.16 $0.05 $0.35
Weighted average shares
outstanding (diluted).. 38,638,084 39,139,481 39,276,678 39,427,164 39,513,930 39,371,041 40,128,141
Weighted average shares
outstanding (basic).... 37,717,718 38,265,678 38,737,160 39,073,222 39,220,720 39,194,679 39,337,087
Other Data:
EBDAIT (2).............. $ 89,313 $ 158,063 $ 95,882 $ 121,060 $ 69,476 $ 31,564 $ 56,990
Cash flow from operating
activities............. 83,963 109,989 55,819 88,153 20,818 4,829 60,103
Capital expenditures.... 42,818 120,328 84,753 114,516 59,047 41,634 31,126
Research and
development............ 13,145 18,426 20,755 23,766 21,132 11,735 9,577
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------
As adjusted
Actual for the offering (3)
-------- --------------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Working capital................................... $ 80,524 $ 170,199
Total assets...................................... 682,480 757,155
Long-term debt, excluding current portion......... 120,000 100,000
Stockholders' equity.............................. 330,593 440,269
</TABLE>
- -------
(1) In fiscal year 1995, we refinanced our outstanding senior debt and incurred
an extraordinary loss of $1,058 (net of income tax benefit of $697).
(2) EBDAIT is earnings before depreciation, amortization, interest and taxes.
We calculate EBDAIT as operating income plus depreciation and amortization.
(3) Adjusted to reflect the sale by us of 2,500,000 shares in this offering,
based on a public offering price of $46.00.
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If these events occur, the trading price of our shares
could decline. Additional risks not currently known to us or that we now deem
immaterial may also harm us and the value of your investment.
Cyclical changes in the electronics industry could result in significant
fluctuations in demand for our products, reducing our profitability
Our products are used in the electronics industry, which is a highly
cyclical industry. The demand for capacitors tends to reflect the demand for
products in the electronics market. Our customers' requirements for our
capacitors fluctuate as a result of changes in general economic activity and
other factors that affect the demand for their products. During periods of
increasing demand for their products, they typically seek to increase their
inventory of our products to avoid production bottlenecks. When demand for
their products peaks and begins to decline, they may rapidly decrease orders
for our products while they use up accumulated inventory. During fiscal year
1999, the end-use growth rate for personal computers and cellular phones
slowed, resulting in a slower growth rate for capacitors. This slower growth
rate of electronic equipment sales resulted in excess inventory in the
electronics distributor channel. Business cycles vary somewhat in different
geographical regions, such as Asia, and within customer industries. We are also
vulnerable to general economic events beyond our control and our sales and
profits may suffer in periods of weak demand.
We must consistently reduce the total costs of our products to combat the
impact of downward price trends
Our industry is intensely competitive and prices for existing products
tend to decrease steadily over their life cycle. There is substantial and
continuing pressure from customers to reduce the total cost of using our parts.
To remain competitive, we must achieve continuous cost reductions through
process and product improvements. We must also be in a position to minimize our
customers' shipping and inventory financing costs and to meet their other goals
for rationalization of supply and production. Our growth and the profit margins
of our products will suffer if our competitors are more successful in reducing
the total cost to customers of their products than we are.
An increase in the cost of our principal raw materials could adversely affect
profitability
The principal raw materials used in the manufacture of our 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 we believe that prices are likely to rise, we may purchase a
significant amount of our annual requirements on a forward delivery basis.
Palladium is presently found primarily in South Africa and Russia.
Although the palladium we require has generally been available in sufficient
quantities, the limited number of palladium suppliers could lead and has led to
higher prices, and any inability to pass any increase on to our customers could
have an adverse effect on the margin of those products in which the metal is
used. The dramatic increase in the price of palladium experienced in the second
half of fiscal 1998 continued into fiscal 1999 and adversely affected our
profitability in those periods. This is mostly attributed to delays from the
Russian supply of palladium, which has continued into fiscal 2000.
There are presently three suppliers that process tantalum ore into
capacitor-grade tantalum powder. Our management believes that the tantalum we
require has generally been available in sufficient quantities to meet our
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 we may not be able to
pass on to our customers. Silver has generally been available in sufficient
quantities, and we believe there are a sufficient number of suppliers from
which we can purchase our silver requirements. An increase in the price of
silver that we were not able to pass on to our customers could adversely affect
our profitability.
7
<PAGE>
We face intense competition in our business
The capacitor business is highly competitive worldwide, with low
transportation costs and few import barriers. Competition is based on factors
such as product quality and reliability, availability, customer service, timely
delivery and price. The industry has become increasingly concentrated and
globalized in recent years, and our primary U.S. and non-U.S. competitors, some
of which are larger than us, have significant financial resources.
We assemble many of our capacitors in Mexico and future political or regulatory
changes in Mexico could adversely affect our profitability
Although we have not experienced significant problems conducting
operations in Mexico, changes in local economic or political conditions or a
change in the regulatory structure within Mexico, such as the imposition of new
tax regulations, could impact our production capability or adversely affect our
results of operations or financial condition.
Losing the services of our executive officers or our other highly qualified and
experienced employees could harm our business
Our success depends upon the continued contributions of our executive
officers, many of whom have many years of experience at KEMET and would be
extremely difficult to replace. We must also attract and maintain experienced
and highly skilled engineering, sales and marketing and managerial personnel.
Competition for qualified personnel is intense in our industry, and we may not
be successful in hiring and retaining these people. If we lose the services of
our executive officers or cannot attract and retain other qualified personnel,
our business could suffer through less effective management due to loss of
accumulated knowledge of our business or through less competitive products due
to a reduced ability to design, manufacture and market our products.
Unpredicted or unresolved problems associated with the Year 2000 issue could
reduce demand for our products, harm our ability to operate or increase our
costs
Although we have undertaken efforts to address potential problems
relating to Year 2000 related issues and we believe we have no significant
exposure to liabilities related to the Year 2000 for the products we have sold,
there is uncertainty about the broader scope of the Year 2000 issue as it may
affect our company and third parties, including our suppliers and customers. As
a result of the complexity of Year 2000 issues, we cannot be sure that we will
avoid all costs and other problems caused by undetected errors or defects in
the technology or systems we use or those used by other parties we rely on.
Should such problems arise, they may harm our business if we cannot implement
adequate remedial measures. We are not able to quantify the potential damage we
would suffer. For more information about our Year 2000 program, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Readiness Disclosure."
8
<PAGE>
USE OF PROCEEDS
The net proceeds from our sale of 2,500,000 shares of common stock in the
offering are estimated to be approximately $109.7 million and approximately
$142.7 million if the underwriters' over-allotment option is exercised in full,
based on a public offering price of $46.00 per share, after deducting
underwriting discounts and estimated offering expenses payable by us.
We currently intend to use the net proceeds we receive from the offering
to fund capital expenditures, to repay debt outstanding under our revolving
credit facility, if any, and to repay amounts outstanding under our short-term
credit facility. There is currently no outstanding debt under our revolving
credit facility. The amount outstanding under our short-term credit facility
(approximately $8.6 million on January 13, 2000) was incurred to finance
capital expenditures, has a maturity that varies with each borrowing of between
one and 90 days (presently one day) and currently bears interest at 6.16% per
annum. You should read the discussion under the heading "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Liquidity and Capital Resources" for a discussion of our revolving credit
facility and our short-term credit facility. We will not receive any proceeds
from the sale of common stock in the offering by Citigroup Foundation, the
selling stockholder.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock since
our initial public offering in October 1992. We currently intend to retain
earnings to support our growth strategy and reduce indebtedness and do not
anticipate paying dividends in the foreseeable future. Any future determination
to pay dividends will be at the discretion of our Board of Directors and will
depend upon, among other factors, our capital requirements, operating results
and financial condition. You should read the discussion under the heading
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources" for further information about
certain of these factors.
PRICE RANGE OF COMMON STOCK
Prior to December 9, 1999, our common stock traded on the over-the-
counter market and price and volume data were reported on the Nasdaq National
Market. Since that date, our common stock has traded on the New York Stock
Exchange under the symbol "KEM." At the close of business on November 30, 1999,
there were approximately 324 holders of record of our common stock. The
following table sets forth the range of high and low sales prices per share of
our common stock as reported on the Nasdaq National Market and the New York
Stock Exchange for the periods indicated:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal Year Ended March 31, 1998:
First Quarter.................................................. $26.13 $17.88
Second Quarter................................................. 31.00 24.13
Third Quarter.................................................. 30.56 17.75
Fourth Quarter................................................. 21.88 17.50
Fiscal Year Ended March 31, 1999:
First Quarter.................................................. $20.00 $13.00
Second Quarter................................................. 14.50 8.75
Third Quarter.................................................. 15.81 9.13
Fourth Quarter................................................. 13.94 9.88
Fiscal Year Ended March 31, 2000:
First Quarter.................................................. $23.25 $11.44
Second Quarter................................................. 33.00 21.13
Third Quarter.................................................. 45.38 26.38
Fourth Quarter (through January 13, 2000)...................... 46.50 32.00
</TABLE>
See the cover page of this prospectus for a recent closing price of our
common stock on the New York Stock Exchange.
9
<PAGE>
CAPITALIZATION
The following table sets forth: (1) the actual consolidated
capitalization of KEMET as of September 30, 1999; and (2) such capitalization
on an as adjusted basis to reflect our sale of 2,500,000 shares of common stock
in the offering at a public offering price of $46.00 per share, the application
of the estimated net proceeds as described under the heading "Use of Proceeds"
and the conversion of 1,096,610 shares of non-voting common stock that will be
converted on a share-for-share basis into common stock as a result of the sale
of such shares by the selling stockholder in the offering. You should read this
table in conjunction with our Consolidated Financial Statements, related notes
and the discussion under the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of this prospectus and similar
sections in the documents that we incorporate by reference in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
--------------------
As
Actual Adjusted
--------- ----------
(unaudited, dollars
in thousands)
<S> <C> <C>
Short-term debt:
Short-term credit facility, interest rates as offered by
the bank (5.92% at
September 30, 1999) (1)................................. $ 15,000 $ --
========= =========
Long-term debt:
Revolving loan (6.08% at September 30, 1999) (1)......... $ 20,000 $ --
6.66% Senior Notes due 2010.............................. 100,000 100,000
--------- ---------
Total long-term debt................................... 120,000 100,000
--------- ---------
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000
shares, issued and outstanding 38,374,949 shares actual,
41,971,559, as adjusted (2)............................. 384 420
Non-voting common stock, par value $.01, authorized
12,000,000 shares, issued and outstanding 1,096,610
shares actual, none as adjusted (2)..................... 11 --
Additional paid-in capital............................... 148,524 258,175
Retained earnings........................................ 181,620 181,620
Accumulated other comprehensive income................... 54 54
--------- ---------
Total stockholders' equity............................. 330,593 440,269
--------- ---------
Total capitalization................................... $450,593 $ 540,269
========= =========
</TABLE>
- --------
(1) The amounts outstanding under the short-term credit facility and the
revolving credit facility significantly decreased between October 1, 1999
and January 13, 2000. You should read "Use of Proceeds" for a discussion of
amounts currently outstanding under these facilities.
(2) The common stock offered by the selling stockholder includes 1,096,610
shares of non-voting common stock that will be converted by the selling
stockholder into common stock on a share-for-share basis concurrent with
the sale to the several underwriters.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share data)
The following table sets forth our selected financial data for the
periods indicated. The selected historical financial data for the periods in
the five years ended March 31, 1999 have been derived from our consolidated
financial statements and related notes, which have been audited by KPMG LLP,
independent certified public accountants. Our selected historical financial
data for the six months ended September 30, 1998 and 1999 have been derived
from our unaudited consolidated financial statements, which include, in our
opinion, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of such information. The results for the six
months ended September 30, 1999, are not necessarily indicative of the results
expected for fiscal year 2000. You should read this information in conjunction
with our Consolidated Financial Statements, notes thereto and the discussion
under the "Management's Discussion and Analysis of Results of Operations and
Financial Condition" section of this prospectus and similar sections in the
documents that we incorporate by reference in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended March 31, September 30,
------------------------------------------------------ ---------------------
1995 1996 1997 1998 1999 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales............... $ 473,182 $ 634,171 $ 555,319 $ 667,721 $ 565,569 $ 280,204 $ 348,836
Operating costs and
expenses:
Cost of goods sold,
exclusive of
depreciation.......... 334,162 415,572 377,527 463,644 428,409 212,815 259,378
Selling, general and
administrative........ 36,562 42,110 45,748 48,751 46,552 24,090 22,891
Research and
development........... 13,145 18,426 20,755 23,766 21,132 11,735 9,577
Depreciation and
amortization.......... 26,183 37,633 33,467 38,858 46,872 22,413 26,862
Restructuring and early
retirement charges.... -- -- 15,407 10,500 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income........ 63,130 120,430 62,415 82,202 22,604 9,151 30,128
Interest expense........ 6,929 4,938 5,709 7,305 9,287 4,195 5,243
Other expense........... 5,861 10,522 2,331 4,063 4,273 2,128 4,455
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before income
taxes and extraordinary
item................... 50,340 104,970 54,375 70,834 9,044 2,828 20,430
Income tax expense...... 19,372 39,772 17,206 21,644 2,894 905 6,538
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings before
extraordinary item..... 30,968 65,198 37,169 49,190 6,150 1,923 13,892
Extraordinary loss on
early extinguishment of
debt (net of income tax
benefit)............... 1,058 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings............ $ 29,910 $ 65,198 $ 37,169 $ 49,190 $ 6,150 $ 1,923 $ 13,892
Per Common Share Data:
Net earnings per common
share (diluted)........ $ 0.77 $ 1.67 $ 0.95 $ 1.25 $ 0.16 $ 0.05 $ 0.35
Net earnings per common
share (basic).......... $ 0.79 $ 1.70 $ 0.96 $ 1.26 $ 0.16 $ 0.05 $ 0.35
Weighted average shares
outstanding (diluted).. 38,638,084 39,139,481 39,276,678 39,427,164 39,513,930 39,371,041 40,128,141
Weighted average shares
outstanding (basic).... 37,717,718 38,265,678 38,737,160 39,073,222 39,220,720 39,194,679 39,337,087
Other Data:
EBDAIT (1).............. $ 89,313 $ 158,063 $ 95,882 $ 121,060 $ 69,476 $ 31,564 $ 56,990
Capital expenditures.... 42,818 120,328 84,753 114,516 59,047 41,634 31,126
Balance Sheet Data:
Working capital......... $ 30,315 $ 33,008 $ 63,068 $ 48,772 $ 90,371 $ 87,222 $ 80,524
Total assets............ 387,459 489,828 543,244 642,109 663,690 653,851 682,480
Current portion of long-
term debt.............. 245 270 72 20,000 20,000 1,000 15,000
Long-term debt,
excluding current
installments........... 76,542 78,072 102,900 104,000 144,000 159,300 120,000
Other non-current
obligations............ 43,557 49,524 68,848 69,145 69,394 69,102 69,351
Stockholders' equity.... 138,776 211,940 252,123 306,260 313,674 308,864 330,593
</TABLE>
- --------
(1) EBDAIT is earnings before depreciation, amortization, interest and taxes.
We calculate EBDAIT as operating income plus depreciation and amortization.
11
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
General
We have continued to focus on our business objectives of maintaining and
increasing our current position as a long-term preferred supplier to a growing
number of OEMs in the United States and international markets by manufacturing
competitively priced, high-quality tantalum and ceramic capacitors, expanding
our production capacity for surface-mount capacitors in low-cost areas, and
introducing new products and new technologies. You should read this commentary
in conjunction with our Consolidated Financial Statements and notes thereto
included in this prospectus.
Comparison of Six Month Period Ended September 30, 1999 to Six Month Period
Ended September 30, 1998
Net Sales. Our net sales for the six months ended September 30, 1999
increased 24.5% to $348.8 million from $280.2 million for the six months ended
September 30, 1998. The increase in our net sales resulted from higher demand
for surface-mount tantalum and multilayer ceramic capacitors as a result of the
strong growth in the telecommunications and computer industries, along with
improvement in the Asian economy. Our sales of surface-mount capacitors were
$294.0 million for the six months ended September 30, 1999, an increase of
30.6% from $225.1 million in the six months ended September 30, 1998. Our
domestic sales increased 20.7% to $182.0 million as compared to the six months
ended September 30, 1998. Our export sales, led by our increase in sales in
Asia of 58.8%, increased 28.9% to $166.8 million as compared to the six months
ended September 30, 1998.
Cost of Goods Sold, Exclusive of Depreciation. Our cost of goods sold,
exclusive of depreciation, for the six months ended September 30, 1999 was
$259.4 million compared to $212.8 million for the six months ended September
30, 1998. As a percentage of net sales, our cost of sales, exclusive of
depreciation, decreased to 74.4%, as compared to 75.9% for the six months ended
September 30, 1998. Our cost of goods sold, exclusive of depreciation, as a
percentage of sales decreased primarily as a result of higher unit volume and
improved manufacturing margins achieved through operating efficiencies and cost
reduction programs.
Selling, General and Administrative. Our selling, general and
administrative expenses for the six months ended September 30, 1999 were $22.9
million, or 6.6% of net sales, as compared to $24.1 million, or 8.6% of net
sales, for the six months ended September 30, 1998. Our selling, general and
administrative expenses as a percent of sales decreased primarily as a result
of increased sales volume and our continued cost reduction activities.
Research and Development. Our research and development expenses were $9.6
million for the six months ended September 30, 1999, as compared to $11.7
million for the six months ended September 30, 1998. We continued to invest in
the development of new products and technologies as shown by our recent
entrance into the organic tantalum and solid aluminum capacitor businesses.
Depreciation and Amortization. Our depreciation and amortization expense
was $26.9 million for the six months ended September 30, 1999, as compared to
$22.4 million from the first six months of fiscal 1999. The increase resulted
primarily from our increased capital expenditures over the past fiscal years as
we continued to invest in additional capacity to support existing and new
product lines.
Operating Income. Our operating income for the six months ended September
30, 1999 was $30.1 million, as compared to $9.2 million for the six months
ended September 30, 1998. The increase resulted primarily from a combination of
higher sales levels and improved manufacturing margins.
Income Tax Expense. Our income tax expense was 32% of net earnings for
each of the six month periods ended September 30, 1999 and 1998. The difference
from the statutory income tax rate was primarily the result of increased
foreign sales corporation benefits and our implementation of various state tax
savings strategies.
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Comparison of Fiscal Year 1999 to Fiscal Year 1998
Net Sales. Our 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 our net sales.
Cost of Goods Sold, Exclusive of Depreciation. Our cost of goods sold,
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, our cost of sales, exclusive of depreciation, for
fiscal year 1999 was 76%, as compared to 69% for fiscal year 1998. The increase
in our cost of sales as a percentage of net sales was attributable to the
decline in our net sales from fiscal year 1998 and the higher cost of palladium
during the year. To offset the rising cost of palladium, we have been taking
action to reduce the palladium usage in traditional ceramic capacitors and
replace the high-priced palladium with a less expensive metal in some new
ceramic products. Also, in an effort to improve profit margins, we implemented
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. Our 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 our selling, general, and
administrative expenses as a percentage of sales is primarily due to the impact
of lower sales volume.
Research and Development. Our research and development expenses were
$21.1 million for fiscal year 1999, as compared to $23.8 million for fiscal
year 1998. These costs reflect our continued commitment to the development and
introduction of new products, along with the improvement of product performance
and production efficiencies.
Depreciation and Amortization. Our 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 our increased capital expenditures during
these fiscal years.
Operating Income. Our operating income was $22.6 million for fiscal year
1999, as 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. Our 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.
Comparison of Fiscal Year 1998 to Fiscal Year 1997
Net Sales. Our net sales for fiscal year 1998 were $667.7 million, an
increase of $112.4 million or 20% from fiscal year 1997. The growth in our net
sales reflects our continued investment in production capacity to support the
demand for surface-mount capacitors worldwide. Our sales of surface-mount
capacitors for fiscal year 1998 were $517.4 million, an increase of $117.6
million or 29%, as compared to fiscal year 1997, and our sales of leaded
capacitors declined 3% to $150.3 million. We experienced growth in both the
domestic and export markets with increases of 15% and 27%, respectively, over
the prior year.
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Cost of Goods Sold, Exclusive of Depreciation. Our cost of goods sold,
exclusive of depreciation, for the year ended March 31, 1998, was $463.6
million, as compared to $377.5 million for the year ended March 31, 1997. As a
percentage of net sales, our cost of sales, exclusive of depreciation, for
fiscal year 1998 was 69%, as compared to 68% for fiscal year 1997. The increase
in our cost of sales as a percentage of net sales was attributable to the
decline in average selling prices from fiscal year 1997 to fiscal year 1998
combined with higher palladium prices experienced by the industry during the
last quarter of fiscal year 1998. To address this negative impact on our cost
of sales, we implemented cost reduction activities through a restructuring
completed in the third quarter of fiscal year 1998.
Selling, General and Administrative. Our selling, general and
administrative expenses for the year ended March 31, 1998 were $48.8 million,
or 7% of net sales, as compared to $45.7 million, or 8% of net sales, for the
year ended March 31, 1997. The decrease in our selling, general, and
administrative expenses as a percentage of sales is primarily due to
efficiencies resulting from our increased sales volume.
Research and Development. Our research and development expenses were
$23.8 million for fiscal year 1998, as compared to $20.8 million for fiscal
year 1997. The increase reflects our commitment to develop and introduce new
products and to support and enhance the growth of our surface-mount capacitor
manufacturing capacity. We also continued to invest to improve product
performance and production efficiencies.
Depreciation and Amortization. Our depreciation and amortization for
fiscal year 1998 was $38.9 million, an increase of $5.4 million, or 16%, from
$33.5 million for fiscal year 1997. The increase resulted primarily from
depreciation expense associated with our increased capital expenditures during
these fiscal years.
Restructuring and Early Retirement Charges. We recorded a pretax charge
of $10.5 million ($7.3 million after tax) in the quarter ended December 31,
1997 in conjunction with our restructuring of the manufacturing and support
operations between our U.S. facilities in North and South Carolina and our
Mexican operations in Monterrey, Mexico. The restructuring plan reduced our
U.S. work force by 1,182 employees. During the quarter ended March 31, 1998, we
charged $4.8 million against the liability, and the remaining $5.7 million was
spent during fiscal 1999. We recorded a pretax charge of $15.4 million ($9.9
million after tax) in fiscal 1997, in connection with an early retirement
incentive program. The program reduced the U.S. hourly and salaried workforce
by 409 people.
Operating Income. Our operating income was $82.2 million for fiscal year
1998, as compared to $62.4 million for fiscal year 1997. The increase resulted
primarily from our increased sales and improved operating efficiencies as
discussed above.
Income Tax Expense. Our income tax expense for fiscal year 1998 was 31%
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.
Liquidity and Capital Resources
Our liquidity needs arise primarily from our working capital
requirements, capital expenditures and principal and interest payments on our
indebtedness. We intend to satisfy our liquidity requirements primarily with
funds provided by operations, borrowings under our revolving credit facility
and amounts advanced under our foreign accounts receivable discounting
arrangements, supplemented with the proceeds from this offering.
During fiscal year 1999, we generated $20.8 million in net cash from
operating activities, as compared to $88.2 million in fiscal year 1998. The
decrease in our cash flow from operating activities was primarily a result of
the decrease in net income and the timing of cash flows from current assets and
liabilities, such as accounts receivable, inventories, accounts payable,
accrued liabilities and income taxes
14
<PAGE>
payable. Our cash flows from operating activities for the six months ended
September 30, 1999 amounted to $60.1 million, as compared to $4.8 million for
the six months ended September 30, 1998. The increase in our cash flow was
primarily a result of the increase in net income and the timing of cash flows
from current assets and liabilities such as accounts receivables, inventories,
accounts payables, accrued liabilities and income taxes payable.
We invested $59.0 million in capital expenditures in fiscal year 1999,
and we expect to invest $80.0 million in capital expenditures in fiscal year
2000. Our fiscal year 1999 capital was primarily invested in surface-mount
manufacturing capacity. Our capital expenditures were $31.1 million for the six
months ended September 30, 1999 compared to $41.6 million for the six months
ended September 30, 1998. Our expenditures in the first six months of fiscal
2000 reflect our completion of projects initiated during fiscal year 1999. We
recently commenced operations in our new 160,000 square foot manufacturing
facility for tantalum capacitors in Ciudad Victoria, Mexico. The new facility
will initially produce tantalum leaded products; however, this expansion is a
direct result of the ever-growing demand for our tantalum surface-mount
products.
During fiscal year 1999, our long-term debt increased $40.0 million,
primarily to fund our capital expenditures. During the six months ended
September 30, 1999, we decreased our indebtedness (long-term debt and current
portion of long-term debt) by $29.0 million, using cash generated by
operations. At September 30, 1999, we had unused availability under our
revolving credit facility and our swingline credit facility of approximately
$130.0 million and $10.0 million, respectively. We intend to repay the
outstanding amount, if any, under our revolving credit facility with a portion
of the proceeds from this offering. We are subject to restrictive covenants
under our revolving credit facility which, among others, restrict our ability
to make loans or advances or to make investments and require us to meet
financial tests related principally to funded debt, cash flows and net worth.
At September 30, 1999, we were in compliance with such covenants. Our
borrowings are secured by guarantees of certain of our wholly-owned
subsidiaries.
In May 1998, we sold $100.0 million of our Senior Notes pursuant to the
terms of a Note Purchase Agreement dated as of May 1, 1998 between KEMET and
the eleven purchasers of the Senior Notes. Our Senior Notes have a final
maturity date of May 4, 2010, with required principal repayments beginning on
May 4, 2006. Our Senior Notes bear interest at a fixed rate of 6.66%, with
interest payable semiannually beginning November 4, 1998. The Note Purchase
Agreement includes various restrictive covenants typical of transactions of
this type and requires us to meet certain financial tests, including a minimum
net worth test and a maximum ratio of debt to total capitalization.
In November 1997, we entered into a short-term credit facility with
SunTrust Bank, Atlanta whereby SunTrust Bank, Atlanta has offered to extend
unsecured short-term loans to us. The aggregate principal amount of these
short-term loans outstanding may not exceed $20.0 million. The term of each
loan may have a maturity of not more than 90 days and the interest rate on each
loan is negotiated and determined at the time of each borrowing. As of
September 30, 1999, we had $15.0 million outstanding under this short-term
credit facility at a rate of 5.92%. We intend to repay the outstanding amount
under our short-term credit facility with a portion of the proceeds from this
offering. SunTrust Bank, Atlanta does not have any commitment to lend any funds
in the future, and may cease to consider loan requests from us at any time.
We generate additional liquidity through our accounts receivable
discounting arrangements. For the past several years, KEMET Electronics, S.A.,
a wholly-owned subsidiary of KEMET, 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 $60.0 million of
accounts receivable at any one time outstanding at a discount rate of 0.60%
above LIBOR.
We presently have a total of eight manufacturing facilities in Matamoros,
Monterrey and Ciudad Victoria, Mexico. Approximately 70% of our employees are
located there and our labor costs in Mexico are denominated in pesos. In fiscal
year 1999, the devaluation of the Mexican peso proved favorable, but
15
<PAGE>
did not have a material impact on our performance. We cannot assure you that
the devaluation will continue and we cannot determine any effect this might
have on our future performance. In addition, Mexican inflation or a significant
depreciation of the U.S. dollar against the Mexican peso would increase our
labor costs in Mexico.
As we discuss in Note 12 to our Consolidated Financial Statements, we or
our subsidiaries are at any one time parties to a number of lawsuits arising
out of our operations, including workers' compensation or work place safety
cases and environmental issues, some of which involve claims of substantial
damages. Although we can give you no definite assurance, we do not believe,
based upon information known to us, that any liability which might result from
an adverse determination of these lawsuits would have a material adverse effect
on us.
We believe our strong financial position will permit the financing of our
business needs and opportunities in an orderly manner. We anticipate financing
ongoing operations primarily by internally-generated funds. In addition, we
have the flexibility to meet short-term working capital and other temporary
requirements through utilization of our borrowings under our bank credit
facilities.
Year 2000 Readiness Disclosure
We have a Year 2000 Readiness Program that began in December 1996. The
scope of our program included all of our business-critical operations in all
locations worldwide. Areas assessed included business applications, technical
infrastructure, facilities, end-user computing, manufacturing and suppliers.
Overall, we completed our Year 2000 Readiness Program as of July 15, 1999.
Our plan to resolve the Year 2000 issue included the process of
inventory, assessment, remediation, testing and implementation. As of July 15,
1999, we had completed 100% of the inventory, assessment, remediation, testing
and implementation work.
Our Year 2000 Readiness Program utilized a combination of both internal
and external resources to reprogram, implement, test or replace existing
hardware and software. The total cost of the program was approximately $6.8
million and was funded through operating cash flows. As of September 30, 1999,
we had expended $6.6 million related to the Year 2000 Readiness Program.
Suppliers that are not prepared for the Year 2000 issues could have an
impact on our ability to meet customer requirements. To reduce this risk, we
have conducted a survey of key suppliers to determine potential exposure to
Year 2000 issues. Suppliers not in compliance will be expected to be in
compliance before the issue could affect delivery. We will require all new
date-sensitive equipment and software to be Year 2000 ready before we approve
any purchase.
We have developed for our internal systems and suppliers a comprehensive
contingency plan with respect to Year 2000 issues. To ensure worldwide
consistency, standard formats were designed for risk assessment and contingency
plans. We created a database to develop, approve and maintain these documents
and monitor the project. We completed our comprehensive contingency plan in
July 1999.
Effect of Inflation
Inflation generally affects us by increasing our cost of labor, equipment
and raw materials. We do not believe that inflation has had any material effect
on our business over the past three years.
Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Risk. Our 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 will impact our
interest expense. Our outstanding balance under this facility at
September 30, 1999 was $20.0 million. We intend to repay the outstanding amount
under this facility with a portion of the proceeds from this offering. Based on
this balance, a hypothetical 10% increase in U.S. dollar LIBOR would result in
an increase in annual interest expense of approximately $0.1 million and would
therefore not have a material impact on our results of operations. We have not
historically used interest rate swaps, interest caps or other derivative
financial instruments for the purpose of hedging fluctuations in interest rates
on our floating rate debt.
16
<PAGE>
Foreign Currency Exchange Rate Risk. A portion of our sales to our
customers in Europe is denominated in local European currencies and the Euro,
thereby creating an exposure to foreign currency exchange rate risk. In order
to minimize our exposure to such risk, we will periodically enter into forward
foreign exchange contracts in which the net long or short position in a local
European currency or the Euro 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 we do not expect such
changes in the future to have a material impact on our results of operations or
cash flows. We do 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. We purchase various precious metals used in the
manufacture of capacitors and are therefore exposed to certain commodity price
risks. These precious metals consist primarily of palladium, tantalum and
silver. Palladium is a precious metal used in the manufacture of ceramic
multilayer capacitors and is mined primarily in Russia and South Africa.
Currently, we use forward contracts and spot buys to secure the acquisition of
palladium and manage the price volatility in the market. In recent years, there
has been a dramatic increase in the price of palladium attributed to delays
from the Russian supply of the metal that have caused the price to fluctuate
between $135 and approximately $452 per troy ounce. As a result, we are
aggressively pursuing ways to reduce the 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. Our management believes the
tantalum needed has generally been available in sufficient quantities to meet
manufacturing requirements. Our management 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 material to our performance. Silver has generally been
available in sufficient quantities, and we believe there are a sufficient
number of suppliers from which we can purchase our silver requirements. See
"Business--Raw Materials."
17
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BUSINESS
General
We are 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, 1998. According to
industry sources, tantalum and ceramic capacitors are the two fastest growing
sectors of the United States capacitor industry. In fiscal year 1999, we
generated net sales of $565.6 million, and for the six months ended September
30, 1999, we generated net sales of $348.8 million. International sales
accounted for approximately 48% of our net sales for both fiscal year 1999 and
for the six months ended September 30, 1999. During fiscal year 1999, we
shipped approximately 22.3 billion capacitors, which was 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,
encapsulation, 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 our capacitors. These
applications include communication systems, data processing equipment, personal
computers, cellular phones, automotive electronic systems, and military and
aerospace systems.
We utilize a direct sales force to market our capacitors to a diverse and
growing number of OEMs, EMS providers and electronics distributors. Our 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 our divestiture from Union Carbide Corporation in December 1990, we
have 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 concepts, as evidenced by ISO 9000 and QS-
9000 registration at all of our facilities;
. An easy-to-buy from philosophy supported by our direct sales force
and executed by our 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 we can take
advantage of lower overall costs; and
. Leading edge technology as evidenced by our continued increase in
expenditures for new product development and the design and
development of new machinery and equipment.
The Capacitor Industry
We estimate that worldwide capacitor consumption was approximately $13.9
billion in 1998, with tantalum and ceramic capacitors comprising approximately
37% of the market. According to industry sources, in 1998 tantalum and ceramic
capacitors accounted for approximately 62% of the
18
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$2.6 billion market for capacitors consumed in the United States 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, which use state-of-the-art microprocessors.
The capacitor industry has shifted its manufacturing focus from
traditional leaded capacitors towards 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, we
have invested $421.5 million in capital expenditures during the past five
fiscal years with a substantial portion spent to expand surface-mount
manufacturing.
Our Strategy
We have used our position as a leading, high-quality manufacturer of
capacitors to capitalize on the increasingly demanding requirements of our
customers. Key elements of our strategy include the following business
objectives:
Maintaining Long-Term Customer Relationships. We continually seek to
maintain the number of business relationships that we have with leading OEMs
and increase the percentage of each OEM's requirements that we supply 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 numerous facilities, flexible scheduling, computerized paperless
purchasing, specialized packaging and a full breadth of product offerings. We
believe that we have responded to each of these customer needs and positioned
ourselves to capture a larger portion of OEMs' capacitor supply requirements.
In addition, we will continue to develop and expand preferred supplier
relationships with our customers to ensure our ability to meet their rapidly
changing demands. Preferred supplier or other similar long-term relationships
with OEMs accounted for approximately 56% of our net sales for fiscal year
1999.
Providing Product Breadth and Service Flexibility. We manufacture a full
line of products with different specifications in order to respond to the needs
of our customers. During fiscal year 1999, we manufactured approximately 22.3
billion capacitors, which was 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.
We believe we are 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. We have designed our manufacturing facilities
and order entry system to respond quickly to customer needs and we have
invested over $10.0 million in an easy-to-buy-from order entry system. Our
order entry system provides on-line pricing, scheduled delivery dates and
accurate inventory information and provides a direct link between us and our
major distributors.
Manufacturing High-Quality Products. We believe we are a leader in an
industry in which customers require high-quality standards and exacting product
specifications. We emphasize continuous product improvement and a company-wide
commitment to quality. As a result, we have received
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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.
Low product defect rates are particularly important because once we ship
a capacitor, it may not be tested by a customer until after it has been mounted
onto a circuit board. We develop and utilize technologically advanced machinery
and proprietary production processes to provide high-quality products. We also
maintain quality improvement programs at the plant and corporate level and test
100% of our finished products prior to shipment.
Investing in Surface-Mount Manufacturing Capacity. Demand for capacitors
has evolved from leaded toward surface-mount capacitors, as our customers
continue to increase circuit board densities and shift to more highly automated
production techniques. We believe that by increasing our surface-mount capacity
to meet the demands of our OEM customers, we will increase sales in the growing
surface-mount capacitor market. During the past five fiscal years, we have
invested $421.5 million in capital expenditures, a substantial portion of which
we spent to expand surface-mount manufacturing capacity. This has allowed us to
increase our sales of surface-mount capacitors at a compound annual rate of 16%
during such five-year period. We currently operate at or near capacity at our
surface-mount manufacturing facilities. We intend to make further capital
investments in surface-mount manufacturing capacity in order to serve the
growing needs of our customers. As of the end of fiscal year 1999, we had
expanded our surface-mount capacity to approximately 29.7 billion units
annually, up 9.7% from the end of fiscal year 1998. For fiscal year 1999, sales
of surface-mount capacitors accounted for approximately 81% of our net sales,
as compared to 77% for fiscal year 1998 and 72% for fiscal year 1997.
Improving Current Products and Developing New Products. Our customers
increasingly look for greater capacitance in smaller products. To respond to
our customers' needs, we continue to develop smaller surface-mount capacitors
in anticipation of continuing trends toward miniaturization of end products. We
believe we are a technology leader and continue to support a strong research
and development program to meet the needs of our customers. We have also
entered into technical alliances with NEC Corporation to produce KO caps (high-
performance conductive polymer tantalum) and Showa Denko K.K. to produce solid
conductive polymer aluminum surface-mount capacitors.
Remaining an Overall Low-Cost Producer. Our customers are under worldwide
competitive pressure to reduce their product costs and these pressures are
passed along to component manufacturers. We believe that we have achieved a
leading position as an overall low-cost producer of capacitors. To maintain
this position, we are constantly seeking to reduce our materials and labor
costs, develop cost-efficient manufacturing equipment and processes and design
our manufacturing plants for efficient production.
We have been able to reduce the manufacturing cost of our products by
increasing materials utilization efficiency and production yields. In addition,
we have been successful at reducing assembly direct labor costs by locating
plants in areas with relatively low-cost labor. We have assembled capacitors in
Mexico for approximately 30 years. Currently, approximately 70% of our
employees are located in Mexico.
We have approximately 160 engineers who continue to develop faster and
more efficient automated manufacturing, assembly, testing and packaging
machines and processes. We have designed each of our manufacturing and assembly
facilities to produce one product or a family of closely related products. Our
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 and mica), which allows a
20
<PAGE>
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.
We manufacture a full line of capacitors using two types of dielectrics,
solid tantalum and multilayer ceramic. Most customers buy both tantalum and
ceramic capacitors from us. We have also recently entered into technical
alliances to produce high-performance conductive polymer tantalum and solid
conductive polymer aluminum surface-mount capacitors. We manufacture capacitors
in many different sizes and configurations. We produce 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. We are
currently shipping approximately 106 million capacitors each business day.
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 aluminum, film, mica,
paper or ceramic disks. 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.
Our management believes that sales of tantalum and ceramic capacitors
will continue to grow more rapidly than other types of capacitors in both the
U.S. 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. We manufacture both leaded and
surface-mount capacitors. The capacitors are distinguished based on the method
by which the capacitor is 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)C 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.
We believe that we have taken advantage of the growth of the surface-
mount capacitor market and we are 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 in
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 more than offset by an increase in worldwide sales of
surface-mount capacitors. Consequently, although we intend to make further
capital investments in surface-mount manufacturing capacity to serve the
growing needs of our customers, our results of operations and growth prospects
could be adversely affected in the event that we do not continue to increase
our sales and production of surface-mount capacitors.
21
<PAGE>
The following table shows the percentages of our net sales of surface-
mount capacitors and leaded capacitors for the fiscal years ended March 31,
1997, 1998 and 1999 and for the six months ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
Six Months Ended September
Fiscal Years Ended March 31, 30,
-------------------------------------------- -----------------------------
1997 1998 1999 1998 1999
-------------- -------------- -------------- -------------- --------------
Net Net Net Net Net
Sales Percent Sales Percent Sales Percent Sales Percent Sales Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(unaudited, dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Surface-mount........... $399.8 72% $517.4 77% $459.4 81% $225.1 80% $294.0 84%
Leaded.................. 155.5 28 150.3 23 106.2 19 55.1 20 54.8 16
------ --- ------ --- ------ --- ------ --- ------ ---
Total................. $555.3 100% $667.7 100% $565.6 100% $280.2 100% $348.8 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
Markets and Customers
We sell our products to a variety of OEMs in a broad range of industries
including the computer, communications, automotive, military and aerospace
industries. We also sell an increasing amount of our products to EMS providers,
which also serve OEMs in these industries. We are not dependent on any one
customer or group of related customers. Two customers accounted for over 10% of
our net sales during fiscal year 1997, and one customer in fiscal years 1998
and 1999. Our top 50 customers accounted for approximately 90% of our net sales
during fiscal year 1999. Preferred supplier and similar long-term relationships
with OEMs accounted for approximately 56% of our net sales in each of fiscal
years 1997, 1998 and 1999.
The following table presents an overview of the diverse industries that
incorporate our capacitors into their products and the general nature of those
products.
<TABLE>
<CAPTION>
Industry Products
- -------- --------
<S> <C>
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
</TABLE>
We produced approximately 5% of our capacitors under military
specification standards sold for both military and commercial uses during
fiscal year 1999. We do not sell any of our capacitors directly to the U.S.
government. Although we do not track sales of capacitors by industry, we
estimate that sales of our capacitors to OEMs which produce products
principally for the military and aerospace industries accounted for less than
2% of our net sales during fiscal year 1999. Certain of our other customers may
also purchase capacitors for products in the military and aerospace industries.
Sales and Distribution
Our domestic sales, and most of our foreign sales, are made through our
approximately 200 direct sales and customer service employees. Our domestic
sales staff is located in five regional offices, 14 local offices and six
satellite offices. A substantial majority of our international sales are made
through local sales offices in four European locations, six Far East locations
and two Canadian locations. In addition, we have 12 local and satellite offices
in Europe and one in South America. We also have independent sales
representatives located in Argentina, Australia, India, South Korea and
Thailand.
22
<PAGE>
We market and sell our products in our major markets through a direct
sales force. This is in contrast to our competitors, which generally utilize
independent commissioned representatives or a combination of representatives
and direct sales employees. We believe our direct sales force differentiates us
from our competitors and allows us to develop strong customer relationships.
With a global sales organization that is customer-based and geographically
independent, our 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 29%, 32% and 29% of our
net sales in fiscal years 1997, 1998 and 1999, respectively. In fiscal year
1999, TTI, Inc., a distributor of passive components, accounted for
approximately 10.4% of our net sales.
Our 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 our distributors' inventory in the event we reduce
our published selling price to distributors. We have 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 KEMET sales office. This program allows
the distributor to ship its higher-priced inventory and debit KEMET for the
difference between our list price and the lower authorized price for that
specific transaction. Each sale under this program requires specific
authorization. We expense these authorized discounts on a monthly basis and the
expense is included in calculating net sales.
International Sales
During fiscal year 1999, we exported approximately $272.1 million of
capacitors, representing approximately 48% of our net sales. Although our
management believes that we are able to provide a level of delivery and service
that is competitive with local suppliers, our 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 our export
sales are made to international operations of U.S. manufacturers. A portion of
our sales to our customers in Europe is denominated in local European
currencies and the Euro, and therefore a significant appreciation of the U.S.
dollar against such local European currencies or the Euro would reduce the
gross profit realized on those sales as measured in U.S. dollars. Substantially
all of our European export shipments are made duty-paid, free delivery as
required by local market conditions. You should read Note 9 to our Consolidated
Financial Statements for further information regarding our international sales.
Inventory and Backlog
Although we manufacture and inventory standardized products, we produce a
portion of our products to meet specific customer requirements. Cancellations
by customers of orders already in production could have an impact on
inventories; however, to date cancellations have not been significant.
The backlog of outstanding orders for our products was $62.0 million and
$50.6 million at March 31, 1998 and 1999, respectively. The decrease was
primarily a result of the additional manufacturing capacity we brought on-
stream and reduced industry lead times as well as the industry-wide inventory
correction experienced in fiscal year 1999. We expect to fill the current
backlog during the next 12 months. Most of the orders in our backlog may be
canceled by our customers, in whole or in part, although sometimes subject to
penalty.
Competition
The worldwide 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,
23
<PAGE>
low transportation costs and few import barriers. Competitive factors that
influence the market for our products include product quality, customer
service, technical innovation, pricing and timely delivery. We believe that we
compete favorably on the basis of each of these factors.
Our 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. Our 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.
Manufacturing and Facilities
We are headquartered Greenville, South Carolina, and have a total of 13
manufacturing plants located in the southeastern United States and Mexico. Our
manufacturing operations are in Greenville, Mauldin, Fountain Inn and
Greenwood, South Carolina; Shelby, North Carolina; and Matamoros, Monterrey and
Ciudad Victoria, Mexico. Our 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.
Our 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. We
have operated in Mexico since 1969 and approximately 70% of our employees are
located in Mexico. Our 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. We also have manufacturing facilities in
Monterrey which commenced operations in 1991 and were expanded by 130,000
square feet in fiscal year 1997. Also in 1997, we constructed and put in
production a new manufacturing plant in Monterrey which comprises 240,000
square feet of space. In addition, we have recently commenced production in our
new 160,000 square foot manufacturing facility for tantalum capacitors in
Ciudad Victoria, Mexico.
Our manufacturing processes and standards, including compliance with
applicable environmental and worker safety laws and regulations, are
essentially identical in the United States and Mexico. Our Mexican operations,
like our U.S. operations, have won numerous quality awards from our customers.
Each of our manufacturing and assembly facilities produces one product or
a family of closely related products. Our 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.
We have developed just-in-time manufacturing and sourcing systems. These
systems enable us to meet customer requirements for faster deliveries while
minimizing the need to carry significant inventory levels. We continue to
emphasize flexibility in all of our manufacturing operations to improve product
delivery response times.
Our management believes that substantially all of our property and
equipment is in good condition and that we have sufficient capacity to meet our
current and projected manufacturing and distribution needs for leaded
capacitors. We continue to add capacity to meet our projected manufacturing and
distribution needs for surface-mount capacitors.
24
<PAGE>
The following table provides certain information regarding our principal
facilities:
<TABLE>
<CAPTION>
Date Constructed,
Acquired or First
Square Type of Occupied by the
Location Footage Interest Description 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.
Raw Materials
The principal raw materials used in the manufacture of our 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 we believe that prices are likely to rise, we may purchase a
significant amount of our annual requirements on a forward delivery basis.
There are presently three suppliers that process tantalum ore into
capacitor-grade tantalum powder. Our management believes that the tantalum we
require has generally been available in sufficient quantities to meet our
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 we may not be able to
pass on to our customers.
Although palladium is presently found primarily in South Africa and
Russia, we believe that there are a sufficient number of domestic and foreign
suppliers from which we can purchase our palladium requirements. Although the
palladium we require has generally been available in sufficient quantities, the
limited number of palladium suppliers could lead and has led to higher prices,
and any inability to pass any increase on to our customers could have an
adverse effect on the margin of those products in which the metal is used. The
dramatic increase in the price of palladium experienced in the second half of
fiscal 1998 continued into fiscal 1999, which adversely affected our
profitability in those periods. This is mostly attributed to delays from the
Russian supply of palladium, which has continued into fiscal 2000. We continue
to take actions to minimize the impact of this increase on our profit margins,
including manufacturing a portion of our ceramic products with base metal
electrodes.
Silver has generally been available in sufficient quantities, and we
believe there are a sufficient number of suppliers from which we can purchase
our silver requirements.
25
<PAGE>
Patents and Trademarks
At September 30, 1999, we held 29 U.S. and 28 foreign patents and four
U.S. and 61 foreign trademarks. We do not generally engage in licensing
technology or products, whether as licensor or licensee. We believe that the
success of our business is not materially dependent on the existence or
duration of any patent, license or trademark, other than the name "KEMET." Our
engineering and research and development staffs have developed and continue to
develop proprietary manufacturing processes and equipment designed to enhance
our manufacturing facilities and reduce costs.
Research and Development
Research and development expenses were $21.1 million for fiscal year
1999, as compared to $23.8 million for fiscal year 1998. 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
our products and manufacturing processes have been designed and developed by
our engineers. We continue to invest in new technology to improve product
performance and production efficiencies.
Environmental
We are subject to various Mexican and U.S. 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 we incurred over the past several years, our management does
not believe that compliance with these laws and regulations will have a
material adverse effect upon our capital expenditures, earnings or competitive
position. We believe, 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 us to
make additional capital expenditures which, while not currently estimable with
certainty, are not presently expected to have a material adverse effect on our
financial condition. You should read "--Legal Proceedings" for a discussion of
certain other environmental matters.
Employees
As of November 30, 1999, we had approximately 12,624 employees, of whom
approximately 3,727 were located in the United States, approximately 8,782 were
located in Mexico, and the remainder were located in our foreign sales offices.
We believe that our future success will depend in part on our ability to
recruit, retain and motivate qualified personnel at all levels of the Company.
While none of our U.S. employees are unionized, we have approximately 6,786
hourly employees in Mexico represented by labor unions as required by Mexican
law. We have not experienced any major work stoppages and consider our
relations with our employees to be good.
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 permits imposition of
joint and several liability on each PRP. We have 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. We
have been named as a PRP at certain waste disposal sites. We do not expect our
total exposure in connection with such sites to be material to our financial
condition or results of operations. In
26
<PAGE>
addition, Union Carbide Corporation (Union Carbide), the former owner of our
business, is a PRP at certain sites relating to the off-site disposal of wastes
from properties we presently own. We are participating in coordination with
Union Carbide in certain PRP-initiated activities related to these sites. We
expect that we will bear some portion of the liability with respect to these
sites. However, we do not expect any such share to be material to our financial
condition or results of operations. In connection with the acquisition of our
business from Union Carbide in 1990, Union Carbide agreed, subject to certain
limitations such as deductibles, caps, and survival periods, certain of which
have since expired but within which we have submitted to Union Carbide a claims
notice, to indemnify us with respect to the foregoing sites.
We or our subsidiaries are at any one time parties to a number of
lawsuits arising out of our respective operations, including workers
compensation or work place safety cases, some of which involve claims of
substantial damages. Although we can give you no definite assurance, based upon
information known to us, we do not believe that any liability which might
result from an adverse determination of such lawsuits would have a material
adverse effect on our financial condition or results of operations.
27
<PAGE>
MANAGEMENT
Directors, Executive Officers and Certain Key Employees
The following table sets forth certain information concerning each of our
directors, executive officers and certain key employees as of November 30,
1999.
<TABLE>
<CAPTION>
Years with
Name Age Position Company (1)
---- --- -------- -----------
<S> <C> <C> <C>
David E. Maguire........ 65 Chairman, Chief Executive Officer and Director 40
Charles M. Culbertson
II..................... 50 President and Chief Operating Officer 19
Glenn H. Spears......... 60 Executive Vice President and Secretary 22
Harris L. Crowley, Jr.
....................... 49 Senior Vice President, Technology and Engineering 24
D. Ray Cash............. 51 Senior Vice President of Administration,
Treasurer and Assistant Secretary 29
William W. Johnson...... 47 Vice President, Sales Worldwide 7
Raymond L. Beck, Jr. ... 50 Vice President, Quality and Marketing 28
C. Ross Patterson, Jr.
....................... 43 Vice President and Chief Information Officer 1
Larry W. Sheppard....... 55 Vice President, Human Resources 29
James A. Bruorton III... 50 Vice President, Worldwide Distribution 26
Eugene J. DiCianni...... 49 Vice President, Sales, Americas 24
Derek Payne............. 63 Vice President/Managing Director, Europe 22
Ravi G. Sastry.......... 39 Vice President/Managing Director, Asia 16
Susan M. Smith.......... 45 Vice President, Sales Key Accounts 20
James P. McClintock..... 44 Vice President, U.S. Ceramic Operations 20
Manuel A. Cappella...... 51 Vice President/Managing Director, Mexico, Tantalum 27
E. Thomas Coyle, Jr. ... 52 Vice President/Managing Director, Mexico, Ceramic 22
Dr. Larry A. Mann....... 42 Vice President, Ceramic Technology 10
Dr. Daniel F. Persico... 44 Vice President, Tantalum Technology 2
Charles E. Volpe........ 62 Director 32
Stewart A. Kohl......... 44 Director --
E. Erwin Maddrey, II.... 58 Director --
Paul C. Schorr IV....... 32 Director --
</TABLE>
- --------
(1) Includes service with Union Carbide.
Our Board of Directors is divided into three classes, as nearly equal in
number as possible, having terms expiring at the annual meeting of our
stockholders for 2000, 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 KEMET 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 KEMET are not entitled to an annual directors' fee. All
directors are reimbursed for out-of-pocket expenses 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, our
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.
28
<PAGE>
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.
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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.
Susan M. Smith, Vice President, Sales Key Accounts, was named such in
December 1997. Ms. Smith has served in various sales capacities with Union
Carbide and KEMET since September 1979.
James P. McClintock, Vice President, U.S. Ceramic Operations, was named
such in June 1999. Mr. McClintock had been Vice President, Tantalum, since
April 1997. 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, Ceramic,
was named such in September 1998. Mr. Coyle has served in various engineering
and manufacturing capacities with Union Carbide and KEMET since May 1976.
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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.
There are no family relationships among the foregoing persons.
Board and Committee Meetings
Our Board of Directors held four meetings (exclusive of committee
meetings) during fiscal year 1999. Each current director attended at least 75%
of the number of meetings held during fiscal year 1999 of the Board of
Directors and all committees on which such director served. Our 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 three times during
fiscal year 1999.
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 our executive officers and key employees
and grants all options to purchase our common stock. The Compensation Committee
met three times during fiscal year 1999.
Audit Committee. The Audit Committee of the Board of Directors consists
of Messrs. Kohl and Maddrey. The Audit Committee, among other duties, reviews
our internal and external financial reporting, reviews the scope of our
independent audit and considers comments by our auditors regarding internal
controls and accounting procedures and management's response to those comments.
The Audit Committee met twice during fiscal year 1999. Following the completion
of the offering, Mr. Schorr will join the Audit Committee.
We do not have a standing nominating committee.
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PRINCIPAL AND SELLING STOCKHOLDERS
As of November 30, 1999, our issued and outstanding capital stock
consisted of 38,869,132 shares of common stock and 1,096,610 shares of non-
voting common stock. The non-voting common stock is convertible into an equal
number of shares of common stock at any time, at the option of the holder,
subject to certain limitations. We will issue an additional 2,500,000 shares of
common stock in the offering. In connection with the offering, the selling
stockholder will sell 2,500,000 shares of common stock, 1,096,610 shares of
which are shares of non-voting common stock that will be converted on a share-
for-share basis into common stock as a result of the offering. We have agreed
to sell up to an additional 750,000 shares of common stock in connection with
the underwriters' over-allotment option.
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of November 30, 1999, and as
adjusted to reflect the sale by us and Citigroup Foundation, the selling
stockholder, of the common stock offered hereby, (1) by each person who is
known by us to own beneficially more than 5% of the common stock, (2) by the
selling stockholder, (3) by each of our current directors and executive
officers and (4) by all of our directors and executive officers as a group.
Except as otherwise indicated below, the following table does not assume
conversion of non-voting common stock into common stock. Following the
offering, no shares of non-voting common stock will be outstanding. Except as
otherwise indicated below, each of the persons named in the table has sole
voting and investment power with respect to the securities beneficially owned
by it or him as set forth opposite its or his name.
<TABLE>
<CAPTION>
Number
of Shares
of Common
Common Stock Stock Common Stock
Beneficial Ownership Sold in Beneficial Ownership
Prior to the the After the Offering
Directors, Executive Offering Offering (1)
Officers, -------------------- --------- --------------------
Selling Stockholder and 5% Number of Number of Number of
Stockholders Shares Percentage Shares Shares Percentage
- -------------------------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Citigroup Foundation
(2)(3)................... 2,500,000 6.3% 2,500,000 -- --
Citicorp Venture Capital,
Ltd. (4)(5).............. 3,213,910 8.3 -- 3,213,910 7.6%
David E. Maguire (5)(6)... 502,576 1.3 -- 502,576 1.2
Charles M. Culbertson II
(6)...................... 9,452 * -- 9,452 *
Harris L. Crowley, Jr.
(5)(6)................... -- -- -- -- --
Glenn H. Spears (5)(6).... 77,171 * -- 77,171 *
D. Ray Cash (5)(6)........ 258,078 * -- 258,078 *
Stewart A. Kohl (7)....... 10,000 * -- 10,000 *
Charles E. Volpe (5)(6)... 305,266 * -- 305,266 *
E. Erwin Maddrey, II (8).. 2,000 * -- 2,000 *
Paul C. Schorr IV (9)..... -- -- -- -- --
First Pacific Advisors,
Inc. (10)................ 4,140,700 10.7 -- 4,140,700 9.8
Lazard Freres & Co. LLC
(11)..................... 3,444,597 8.9 -- 3,444,597 8.1
All Directors and
Executive Officers as a
group (9 persons)........ 1,164,543 3.0 -- 1,164,543 2.7
</TABLE>
- --------
* Less than one percent.
(1) Assumes no exercise of the underwriters' over-allotment option.
(2) The selling stockholder is a private charitable foundation affiliated with
Citigroup Inc. (Citigroup). The address of the foundation is 153 East 53rd
Street, 3rd Floor, New York, New York 10043.
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(3) As of November 30, 1999, the selling stockholder did not beneficially own
any of these 2,500,000 shares (which includes all 1,096,610 shares of non-
voting common stock). Instead, CVC, which is affiliated with the selling
stockholder, owns all of such shares. However, CVC has informed us that
CVC will transfer all 2,500,000 shares to the selling stockholder by gift
prior to the closing of the offering. Because that transfer is
anticipated, and because this prospectus registers resales by the selling
stockholder which may occur only after such transfer, the selling
stockholder has been shown as the beneficial owner of the shares for
purposes of this prospectus.
(4) The amount shown as beneficially owned by CVC prior to the offering does
not include the shares that CVC has informed us that CVC will
transfer to the selling stockholder by gift prior to the closing of the
offering. As of November 30, 1999, CVC beneficially owned 5,713,910
shares, which includes 4,617,300 shares of common stock and 1,096,610
shares of non-voting common stock. Each of (i) Citibank, N.A. (Citibank),
as the sole stockholder of CVC, (ii) Citicorp, as the sole stockholder of
Citibank, (iii) Citigroup Holdings Company (Holdings), as the sole
stockholder of Citicorp, and (iv) Citigroup, as the sole stockholder of
Holdings, may be deemed to share with CVC voting and dispositive power
over shares owned by CVC. In addition, as of January 12, 2000, Citigroup
shared voting and dispositive power over an additional 422,135 shares. The
address for each of CVC, Citibank and Citicorp, is 399 Park Avenue, New
York, New York 10043. The address for each of Citigroup and Holdings is
153 East 53rd Street, New York, New York 10043.
(5) All of these parties have entered into an agreement providing for the
election of directors, which agreement will terminate following the
offering. Each such party disclaims beneficial ownership of shares of
common stock owned by each other party.
(6) The address of these individuals is c/o KEMET Corporation, 2835 KEMET Way,
Simpsonville, South Carolina 29681.
(7) The address of this individual is c/o The Riverside Company, The Terminal
Tower, 50 Public Square, Suite 4000, Cleveland, Ohio 44113.
(8) The address of this individual is c/o Delta Woodside Industries, Inc., 233
North Main Street, Greenville, South Carolina 29601.
(9) The address of this individual is c/o Citicorp Venture Capital, Ltd., 399
Park Avenue, New York, New York 10043.
(10) First Pacific Advisors, Inc. (First Pacific) reported shared voting power
over 974,100 shares and shared dispositive power over 4,140,700 shares.
The information set forth herein is based solely on an Amendment No. 1 to
Schedule 13G filed by First Pacific for the year ended December 31, 1998.
The address of First Pacific, as so reported, was 11400 West Olympic
Boulevard, Suite 1200, Los Angeles, CA 90064.
(11) Lazard Freres & Co. LLC (Lazard Freres) reported sole voting power over
2,956,330 shares and sole dispositive power over 3,444,597 shares. The
information set forth herein is based solely on a Schedule 13G filed by
Lazard Freres for the year ended December 31, 1998. The address of Lazard
Freres, as so reported, was 30 Rockefeller Plaza, New York, NY 10020.
At the time of the acquisition of KEMET from Union Carbide, CVC and
certain of our senior managers entered into an agreement providing for the
nomination and election of directors to the Board. Pursuant to the terms of the
agreement, the parties to that agreement nominated and voted in favor of
Messrs. Kohl, Maguire and Schorr as directors. This agreement will terminate as
a result of the sale by the selling stockholder of the shares of common stock
in the offering.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized and Outstanding Capital Stock
The total amount of our authorized capital stock consists of 100,000,000
shares of common stock, par value $0.01 per share, 12,000,000 shares of non-
voting common stock, par value $0.01 per share, and 10,000,000 shares of
preferred stock, par value $0.10 per share. Upon completion of the offering,
42,465,742 shares of common stock will be issued and outstanding, and no shares
of non-voting common stock or preferred stock will be outstanding.
Common Stock
As of November 30, 1999, there were 324 holders of record and there were
38,869,132 shares of common stock and 1,096,610 shares of non-voting common
stock outstanding. The rights of holders of common stock and non-voting common
stock are identical except for voting. The issued and outstanding shares of
common stock and non-voting common stock are, and the shares of common stock
being offered by KEMET and the selling stockholder will be upon payment
therefor will be, validly issued, fully paid and nonassessable.
Subject to the prior rights of the holders of any preferred stock, the
holders of outstanding shares of our common stock and non-voting common stock
are entitled to receive dividends out of assets legally available therefor at
such times and in such amounts as our Board of Directors may from time to time
determine. The shares of our common stock and non-voting common stock are
neither redeemable nor convertible (except as described in this prospectus),
and the holders have no preemptive or subscription rights to purchase any of
our securities. Upon our liquidation, dissolution or winding up, the holders of
our common stock and non-voting common stock are entitled to receive pro rata
our assets which are legally available for distribution, after payment of all
debts and other liabilities and subject to the prior rights of any holders of
preferred stock then outstanding.
Each outstanding share of common stock is entitled to one vote on all
matters submitted to a vote of stockholders. Holders of non-voting common stock
are not entitled to vote, except as required by law or in the case of certain
mergers or consolidations. There is no cumulative voting. Subject to certain
regulatory limitations which may be imposed upon a holder, the non-voting
common stock is convertible on a one-for-one basis into common stock at any
time at the option of the holder thereof.
Preferred Stock
Our Board of Directors is authorized to issue preferred stock in classes
or series and to fix the designations, preferences, qualifications, limitations
or restrictions of any class or series with respect to the rate and nature of
dividends, the price and terms and conditions on which shares may be redeemed,
the amount payable in the event of voluntary or involuntary liquidation, the
terms and conditions for conversion or exchange into any other class or series
of stock, voting rights and other terms.
Certain Effects of Authorized but Unissued Stock
Under our Restated Certificate of Incorporation, upon completion of the
offering, there will be approximately 69.5 million shares of common stock and
non-voting common stock and 10.0 million shares of preferred stock available
for future issuance without shareholder approval. We may utilize these
additional shares for a variety of corporate purposes, including future public
offerings to raise additional capital or to facilitate corporate acquisitions.
One of the effects of the existence of unissued and unreserved common
stock and preferred stock may be to enable our Board of Directors to issue
shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of us by means of a
merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of our management. We could also use such additional shares to
dilute the stock ownership of persons seeking to obtain control of us.
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<PAGE>
Our Board of Directors is authorized without any further action by the
shareholders to determine the rights, preferences, privileges and restrictions
of the unissued preferred stock. The purpose of authorizing our Board of
Directors to determine such rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. Our Board of
Directors may issue preferred stock with voting and conversion rights which
could adversely affect the voting power of the holders of common stock and
which could, among other things, have the effect of delaying, deterring or
preventing a change in control of us.
We do not currently have any plans to issue additional shares of common
stock or preferred stock other than shares of common stock which may be issued
upon the exercise of options which have been granted or which may be granted in
the future to our employees, or in conversion for outstanding shares of non-
voting common stock.
Certain Provisions of our Restated Certificate of Incorporation and By-laws
Our Restated Certificate of Incorporation provides that we must indemnify
each of our officers and directors to the fullest extent permitted by
applicable law, except as may be otherwise provided in our By-laws. In
furtherance of this, our Board of Directors is expressly authorized to amend
our By-laws to give full effect to any changes in applicable law,
notwithstanding possible self-interest of the directors in the action being
taken. Our Restated Certificate of Incorporation also provides that, to the
fullest extent permitted by the Delaware General Corporation Law, our directors
shall not be liable to us or our stockholders for monetary damages for breach
of fiduciary duty as a director. Such limitation does not affect the liability
of a director (1) for any transaction from which the director derives an
improper personal benefit, (2) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (3) for improper
payment of dividends or redemption of shares or (4) for any breach of a
director's duty of loyalty to us or our stockholders.
As described below, our Restated Certificate of Incorporation and By-laws
contain certain provisions that are intended to enhance the likelihood of
continuity and stability in the composition of our Board of Directors and which
may have the effect of delaying, deterring or preventing a future takeover or
change in control of us unless such takeover or change in control is approved
by our Board of Directors. These provisions may also render the removal of our
current Board of Directors and of management more difficult.
Pursuant to our Restated Certificate of Incorporation, our Board of
Directors is divided into three classes serving staggered three-year terms.
Directors can be removed from office only for cause and only by the affirmative
vote of the holders of a majority of the voting power of the then outstanding
shares of our capital stock entitled to vote generally in the election of
directors (voting stock), voting together as a single class. Vacancies on our
Board of Directors may only be filled by the remaining directors and not by the
stockholders, except that in the case of newly created directorships, if the
remaining directors fail to fill any such vacancy, the stockholders may do so
at the next annual or special meeting called for that purpose.
Our By-laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of our Board of Directors, of
candidates for election as directors and with regard to certain matters to be
brought before an annual meeting of our stockholders. In general, we must
receive notice not less than 130 days prior to the meeting and the notice must
contain certain specified information concerning the person to be nominated or
the matter to be brought before the meeting and concerning the stockholder
submitting the proposal.
Our Restated Certificate of Incorporation provides that in the case of
certain mergers, sales of assets, issuances of securities, liquidations or
dissolutions, or reclassifications or recapitalizations involving holders of
stock representing 20% or more of the voting power of the then outstanding
shares of voting stock (other than certain existing holders of voting stock
prior to our initial public offering in 1992), such transactions must be
approved by 80% of the combined voting power of our then outstanding
35
<PAGE>
voting stock, unless such transactions are approved by a majority of the
Disinterested Directors (as defined in our Restated Certificate of
Incorporation) or unless certain minimum price, form of consideration and
procedural requirements are satisfied. Our Restated Certificate of
Incorporation provides that the affirmative vote of the holders of 80% of the
total votes eligible to be cast in the election of directors is required to
amend, alter, change, or repeal the provisions of our Restated Certificate of
Incorporation described above. These requirements of a supermajority vote to
approve certain transactions and amendments to our Restated Certificate of
Incorporation could enable a minority of our stockholders to exercise veto
powers over such transactions and amendments.
Only our Chairman of the Board, our President or a majority of our Board
of Directors may call special meetings of our stockholders. Our Restated
Certificate of Incorporation provides that stockholders may act only at an
annual or special meeting and that stockholders may not act by written
consent.
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law,
which generally prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder.
Section 203 applies unless:
(1) Prior to the date such stockholder became an interested
stockholder, the board of directors of the corporation approved
either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;
(2) Upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding certain
shares; or
(3) On or after such date the stockholder became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and ratified by 66 2/3% of the voting
stock which the interested stockholder did not own.
Rights Agreement
Our Board of Directors has authorized the issuance of one preferred
share purchase right (a
Right) for each of our outstanding shares of common stock and non-voting
common stock (collectively, the Common Securities). Each holder of Common
Securities is entitled to one Right for each share that is or becomes
outstanding prior to the earliest of the Distribution Date (as defined), the
redemption of the Rights, the exchange of the Rights and the expiration of the
Rights (and, in certain cases, following the Distribution Date). Each Right
entitles the registered holder to purchase from us one one-thousandth of a
share of our Junior Participating Preferred Stock, Series A, par value $0.10
per share (the Preferred Shares), at a price of $85.00 per one one-thousandth
of a Preferred Share (the Purchase Price), subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement (the
Rights Agreement) between us and Wachovia Bank of North Carolina, N.A., as
Rights Agent (the Rights Agent), dated as of July 1, 1996.
The Rights will be evidenced by Common Security certificates and not by
separate certificates until the earlier to occur of (such earlier date being
called the Distribution Date):
(1) The expiration of our redemption rights following the date of
public disclosure that a person or group other than certain exempt
persons (an Acquiring Person), together with such Acquiring Person's
affiliates or associates, has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of our outstanding
Common Securities (the
Stock Acquisition Date); and
(2) The tenth business day after the date of commencement or public
disclosure of an intention to commence a tender offer or exchange
offer by a person other than an exempt
36
<PAGE>
person if, upon consummation of the offer, such person could acquire
beneficial ownership of 15% or more of our outstanding Common
Securities.
Until the Distribution Date (or earlier redemption, exchange or
expiration of the Rights):
(1) The Rights will be transferred with and only with the Common
Securities;
(2) Common Security certificates will contain a notation
incorporating the Rights Agreement by reference; and
(3) The surrender for transfer of any certificate for Common
Securities will also constitute the transfer of the Rights associated
with the Common Securities represented by such certificate.
The definition of exempt persons includes (1) the Company, (2) any
subsidiary of the Company, (3) CVC and its affiliates and associates and (4)
the parties to the existing voting agreement (together with their respective
affiliates and associates, the Voting Agreement Parties) covering our Common
Securities.
As soon as practicable following the Distribution Date, we will mail
separate certificates evidencing the Rights (Right Certificates) to holders of
record of the Common Securities as of the close of business on the
Distribution Date. From and after the Distribution Date, such separate Right
Certificates alone will evidence the Rights.
The Rights will first become exercisable after the Distribution Date
(unless sooner redeemed or exchanged). The Rights will expire at the close of
business on July 1, 2006 (the Expiration Date), unless earlier redeemed or
exchanged by us as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities, cash or other property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (1) in the event
of a stock dividend or distribution on, or a subdivision, combination or
reclassification of, the Preferred Shares, (2) upon the grant to holders of
the Preferred Shares of certain rights, options or warrants to subscribe for
Preferred Shares or securities convertible into Preferred Shares at less than
the current market price of the Preferred Shares or (3) upon the distribution
to holders of the Preferred Shares of evidences of indebtedness or assets
(excluding regular periodic cash dividends out of earnings or retained
earnings) or of subscription rights or warrants (other than those referred to
above).
In addition, the number of outstanding Rights, the Purchase Price
payable and the number of one one-thousandths of a share of Preferred Shares
issuable upon exercise of each Right are subject to adjustment in the event of
a stock dividend on the Common Securities payable in Common Securities or
subdivision or combination of the Common Securities occurring, in any such
case, prior to the Distribution Date.
If a person becomes an Acquiring Person, the Rights will flip-in and
entitle each holder of a Right, except as provided below, to purchase, upon
exercise at the then-current Purchase Price, that number of shares of our
common stock having a market value of two times such Purchase Price. In
addition, following a flip-in, our Board will have the option of exchanging
all or part of the Rights, except as provided below, for an equal number of
shares of common stock.
In the event that, following a flip-in, we are involved in a merger or
other business combination transaction where we are not the surviving
corporation or where Common Securities are changed or exchanged or in a
transaction or transactions wherein 50% or more of our consolidated assets or
earning power are sold, the Rights will flip-over and entitle each holder of a
Right to purchase, upon the exercise of the Right at the then current Purchase
Price, that number of shares of common stock of the acquiring company or
KEMET, as the case may be, which at the time of such transaction would have a
market value of two times such Purchase Price.
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<PAGE>
Any Rights beneficially owned at any time on or after the earlier of the
Distribution Date and the Stock Acquisition Date by an Acquiring Person and
certain related persons and transferees will become null and void upon the
occurrence of a flip-in, and any such holder of such Rights will have no right
to exercise such Rights or have such Rights exchanged as provided above.
Our Board of Directors may redeem the Rights in whole, but not in part,
at a price of $0.01 per Right (the Redemption Price) at any time before a
person becomes an Acquiring Person.
We may not redeem any Preferred Shares issued upon exercise of the
Rights. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment equal to the greater of $25 per share and 1,000
times the dividend declared per Common Security. In the event of our
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment equal to the greater of $100 per share and
1,000 times the payment made per Common Security. Each Preferred Share will
have 1,000 votes per share, voting together with our common stock. In the event
of any merger, consolidation or other transaction in which Common Securities
are exchanged, each Preferred Share will be entitled to receive 1,000 times the
amount received per Common Security.
At any time before a person becomes an Acquiring Person, our Board of
Directors may amend or supplement the Rights Agreement without the approval of
the Rights Agent or any holder of the Rights, except for an amendment or
supplement which would change the Redemption Price, provide for an earlier
expiration date of the Rights or change the Purchase Price. Thereafter, our
Board of Directors may amend or supplement the Rights Agreement without such
approval only to cure any ambiguity, correct or supplement any defective or
inconsistent provision or change or supplement the Rights Agreement in any
manner which shall not adversely affect the interests of the holders of the
Rights (other than an Acquiring Person or an affiliate or associate thereof).
Until a Right is exercised, its holder, as such, will have no rights as a
stockholder of KEMET, including, without limitation, the right to vote or to
receive dividends.
Subject to certain exceptions and permitted acquisitions, CVC is allowed
to acquire additional Common Securities in an amount not to exceed the sum of
(1) 1% and (2) its beneficial ownership of Common Securities on the date of the
Rights Agreement, as such beneficial ownership of Common Securities may be
increased as a result of certain subsequent events such as an acquisition of
Common Securities by us or any subsidiary or as a result of acquiring Common
Securities as a result of the operation of the Rights Agreement.
Subject to certain exceptions and permitted acquisitions, the Voting
Agreement Parties are allowed to acquire additional Common Securities in an
amount not to exceed the sum of (1) 1% and (2) the beneficial ownership of
Common Securities of such persons on the date of the Rights Agreement, as such
beneficial ownership of Common Securities may be increased as a result of
certain subsequent events such as an acquisition of Common Securities by us or
any of our subsidiaries or as a result of acquiring Common Securities as a
result of the operation of the Rights Agreement.
The Rights may have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group (other than an exempt person) that
attempts to acquire KEMET on terms not approved by our Board, except pursuant
to an offer conditioned on a substantial number of Rights being acquired. The
Rights should not interfere with any merger or other business combination
approved by our Board of Directors prior to the time a person or group other
than an exempt person has acquired beneficial ownership of 15% or more of the
Common Securities because we may generally redeem the Rights until such time.
This description of the Rights does not purport to be complete and we
qualify it in its entirety by reference to the Rights Agreement, including the
definitions therein of certain terms.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Boston
EquiServe.
38
<PAGE>
Registration Agreement
We have entered into a registration agreement with CVC and certain of our
senior managers. Pursuant to this agreement, the holders of a majority of the
shares of our common stock then held or previously held by such parties, may
require us to register all or part of their holdings of such securities at our
expense, provided certain conditions are met. The senior managers may
participate in such registration at our expense, provided certain conditions
are met. The senior managers and the investors may participate in such
registration at our expense on a pro rata basis. The agreement also grants the
investors and senior managers certain piggyback rights to participate in any
future registration of our securities. Upon completion of the offering, the
holders of an aggregate of approximately 4.5 million shares of common stock
will have registration rights under this agreement.
We have received a request for a demand registration from CVC covering up
to 2,500,000 shares of common stock that are being offered in the offering and
that CVC will transfer to the selling stockholder by gift prior to the closing
of the offering.
39
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith
Barney Inc. are acting as representatives of each of the underwriters named
below. Subject to the terms and conditions set forth in a purchase agreement
among KEMET, the selling stockholder and the underwriters, KEMET and the
selling stockholder have agreed to sell to the underwriters, and each of the
underwriters severally and not jointly has agreed to purchase from KEMET and
the selling stockholder, the number of shares of common stock set forth
opposite its name below.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................... 1,450,000
Salomon Smith Barney Inc. ...................................... 1,450,000
J.C. Bradford & Co. ............................................ 350,000
First Union Securities, Inc..................................... 350,000
J.P. Morgan Securities Inc. .................................... 350,000
Needham & Company, Inc. ........................................ 350,000
U.S. Bancorp Piper Jaffray Inc. ................................ 350,000
Wachovia Securities, Inc. ...................................... 350,000
---------
Total...................................................... 5,000,000
=========
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the shares of
common stock being sold pursuant to such agreement if any of the shares of
common stock being sold pursuant to such agreement are purchased. In the event
of a default by an underwriter, the purchase agreement provides that, in
certain circumstances, the commitments of non-defaulting underwriters may be
increased or the purchase agreement may be terminated.
KEMET and the selling stockholder have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933 or to contribute to payments that the underwriters may
be required to make in respect thereof.
The representatives have advised KEMET and the selling stockholder that
the underwriters propose initially to offer the shares of common stock to the
public at the public offering price set forth on the cover page of this
prospectus, and to certain dealers at such price less a concession not in
excess of $1.17 per share of common stock. The underwriters may allow, and such
dealers may reallow, a discount not in excess of $.10 per share of common stock
on sales to certain other dealers. After the offering, the public offering
price, concession and discount may be changed.
Over-allotment Option
KEMET has granted an option to the underwriters, exercisable within 30
days after the date of this prospectus, to purchase up to an additional 750,000
shares of common stock at the public offering price set forth on the cover page
of this prospectus, less the underwriting discount. The underwriters may
exercise this option solely to cover over-allotments, if any, made on the sale
of the common stock offered hereby. To the extent that the underwriters
exercise this option, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares of common stock
proportionate to such underwriter's initial amount reflected in the foregoing
table.
40
<PAGE>
Commissions and Discounts
The following table shows (1) the per share and total public offering
price, (2) the underwriting discount to be paid by KEMET and the selling
stockholder to the underwriters, (3) the proceeds before expenses to KEMET and
(4) the proceeds to the selling stockholder. This information is presented
assuming either no exercise or full exercise by the underwriters of their
over-allotment option.
<TABLE>
<CAPTION>
Per Without
Share Option With Option
----- ------------ -----------
<S> <C> <C> <C>
Public offering price................... $46.00 $230,000,000 $264,500,000
Underwriting discount................... $1.95 $9,750,000 $11,212,500
Proceeds, before expenses, to KEMET..... $44.05 $110,125,000 $143,162,500
Proceeds, before expenses, to the
selling stockholder.................... $44.05 $110,125,000 $110,125,000
</TABLE>
The expenses of the offering (exclusive of the underwriting discount)
are estimated at $450,000 and are payable by KEMET.
The shares of common stock are being offered by the several
underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
underwriters and certain other conditions. The underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part.
No Sale of Similar Securities
KEMET, the selling stockholder, Citicorp Venture Capital, Ltd. and each
executive officer and director of KEMET have agreed, subject to certain
exceptions, not to directly or indirectly (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of or otherwise
dispose of or transfer any shares of common stock or securities convertible
into or exchangeable or exercisable for or repayable with common stock,
whether now owned or thereafter acquired by the person executing the agreement
or with respect to which the person executing the agreement thereafter
acquires the power of disposition, or file a registration statement under the
Securities Act of 1933 with respect to the foregoing (other than shares sold
in this offering) or (2) enter into any swap or other agreement that
transfers, in whole or in part, the economic consequences of ownership of
common stock or such other securities, in cash or otherwise, without the prior
written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated on
behalf of the underwriters, for a period of 90 days after the date of this
prospectus.
New York Stock Exchange
KEMET's common stock is listed on the New York Stock Exchange under the
symbol "KEM."
NASD Regulations
Because more than ten percent of the net proceeds of the offering may be
paid to members or affiliates of members of the National Association of
Securities Dealers, Inc. participating in the offering, the offering will be
conducted in accordance with NASD Conduct Rule 2710(c)(8).
Because Salomon Smith Barney Inc. may be deemed to be an affiliate of
CVC, which as of December 8, 1999 was the beneficial owner of more than 10% of
the outstanding common stock of KEMET, the offering will be conducted in
accordance with Conduct Rule 2720 of the National Association of Securities
Dealers, Inc.
The underwriters do not intend to confirm sales of the shares to any
accounts over which they exercise discretionary authority.
41
<PAGE>
Price Stabilization and Short Selling
Until the distribution of the common stock is completed, rules of the SEC
may limit the ability of the underwriters and certain selling group members to
bid for and purchase common stock of KEMET. As an exception to these rules, the
representatives are permitted to engage in certain transactions that stabilize
the price of the common stock of KEMET. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
common stock of KEMET.
If the underwriters create a short position in the common stock in
connection with the offering, i.e, if they sell more shares of the common stock
than are set forth on the cover page of this prospectus, the representatives
may reduce that short position by purchasing shares of the common stock in the
open market. The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
In general, purchases of a security for the purposes of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might have been in the absence of such purchases.
None of KEMET, the selling stockholder or any of the underwriters makes
any representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the common
stock. In addition, none of KEMET, the selling stockholder or any of the
underwriters makes any representation that the representatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
42
<PAGE>
NOTICE TO CANADIAN INVESTORS
The offering in Canada is being made solely in the Provinces of Quebec,
Ontario, Manitoba, Saskatchewan, Alberta and British Columbia.
Resale Restrictions
The distribution of the shares of our common stock in Canada is being
made on a private placement basis. Accordingly, any resale of such shares must
be made in accordance with an exemption from the registration and prospectus
requirements of applicable securities laws, which vary depending on the
province. Purchasers of the shares of our common stock are advised to seek
legal advice prior to any resale of the shares of our common stock.
Representations by Purchasers
Confirmations of the acceptance of offers to purchase the shares of
common stock will be sent to purchasers in Canada who have not withdrawn their
offers to purchase prior to the issuance of such confirmations. Each purchaser
who receives a purchase confirmation will, by the purchaser's receipt thereof,
be deemed to represent to us, the selling stockholder and the dealer from whom
such purchase confirmation is received that such purchaser is entitled under
applicable provincial securities laws to purchase such shares of common stock
without the benefit of a prospectus qualified under such securities laws.
Enforcement of Legal Rights
Ontario. The shares of common stock being offered are those of a foreign
issuer and Ontario purchasers will not receive the contractual right of action
prescribed by section 32 of the Regulation under the Securities Act (Ontario)
(now Ontario Securities Commission Rule 45-501, 21 O.S.C.B. 127). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
Alberta. Securities legislation in Alberta provides that every purchaser
of securities pursuant to this prospectus shall have, in addition to any other
rights they may have at law, a right of action for damages or recession, or
both, against us or the selling stockholder on whose behalf the distribution is
made if the prospectus or any amendment thereto contains a misrepresentation.
However such rights must be exercised within prescribed time limits. Purchasers
should refer to the applicable provisions of the Alberta securities legislation
for particulars of these rights or consult with a lawyer.
The Securities Act (Alberta) provides that no action may be commenced to
enforce such right of action unless the right is exercised: (a) in the case of
an action for rescission, 180 days from the day of the transaction that gave
rise to the cause of action; or (b) in the case of any action, other than an
action for rescission, the earlier of: (i) 180 days from the day that the
purchaser first had knowledge of the facts giving rise to the cause of action;
or (ii) one year from the day of the transaction that gave rise to the cause of
action.
Saskatchewan. The Securities Act, 1988 (Saskatchewan) provides purchasers
with certain statutory rights of action, including: (a) if the prospectus or
any amendment thereto contains a misrepresentation, which was a
misrepresentation at the time of purchase (i) a right action for damages or
rescission against us, (ii) a right of action for damages against all of our
promoters and directors who were promoters or directors at the time the
prospectus or any amendment thereto was sent or delivered, and (iii) a right of
action for damages against the dealer from whom the shares of common stock were
purchased; (b) a right of action for damages against any individual who makes a
verbal misrepresentation to such Saskatchewan purchaser prior to or
contemporaneously with the purchase of the shares of common stock; (c) a right
to void the agreement to purchase the shares of common stock and recover the
purchase price if the shares of common stock are sold in contravention of the
Act, the regulations under
43
<PAGE>
the Act or a decision of the Saskatchewan Securities Commission; and (d) a
right of action for damages or rescission if a copy of this notice, the
document in which this notice is included or any amendment thereto was not
delivered to such purchaser before the shares of common stock were subscribed
for.
An action for damages must be started by the earlier of (a) one year
after the investor first had knowledge of the facts giving rise to the action
or (b) six years after the date of the transaction that gave rise to the
action. An action for rescission must be commenced by 180 days after the date
of the transaction that gave rise to the action.
The rights available to Saskatchewan purchasers are in addition to and
without derogation from any other right or remedy which such purchasers may
have at law, are intended to correspond to the provisions of the Act and are
subject to the defences contained therein.
All of our directors and officers, the selling stockholder as well as the
experts named in this prospectus may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon us or such persons. All or a substantial portion of
our assets and the assets of such persons may be located outside of Canada and,
as a result, it may not be possible to satisfy a judgment against us or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
us or such persons outside of Canada.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for KEMET by Kirkland & Ellis, Chicago, Illinois and for the selling
stockholder by John R. Dye, Esq., Associate General Counsel of Citigroup Inc.
Certain legal matters will be passed upon for the underwriters by Davis Polk &
Wardwell, New York, New York.
EXPERTS
The consolidated financial statements of KEMET Corporation and
subsidiaries as of March 31, 1998 and 1999, and for each of the years in the
three-year period ended March 31, 1999, included or incorporated by reference
herein and in the Registration Statement have been included or incorporated
herein and in the Registration Statement in reliance upon the reports of KPMG
LLP, independent certified public accountants, appearing or incorporated
herein, and upon the authority of said firm as experts in accounting and
auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information we incorporate by reference is an important part of the prospectus
and information that we file later with the SEC will automatically update and
supercede this information. We incorporate by reference the documents listed
below and any future filings we make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended, until we sell
all of the securities.
. Annual Report on Form 10-K for the year ended March 31, 1999
(including information specifically incorporated by reference into
our Form 10-K from our definitive Proxy Statement for our 1999
Annual Meeting of Stockholders).
. Quarterly Reports on Form 10-Q for the quarterly periods ended
June 30, 1999 and September 30, 1999.
. Current Report on Form 8-K dated June 23, 1999, filed with the SEC
on July 1, 1999.
44
<PAGE>
. The description of our common stock under the caption "Item 1.
Description of Registrant's Securities to be Registered: Common
Stock" contained in our Registration Statement on Form 8-A dated
and filed with the SEC on November 29, 1999 (File No. 000-20289).
. The description of our preferred share purchase rights under the
caption "Item 1. Description of Registrant's Securities to be
Registered: Preferred Share Purchase Rights" contained in our
Registration Statement on Form 8-A dated and filed with the SEC on
November 29, 1999 (File No. 000-20289).
On request we will provide at no cost to each person, including any
beneficial owner, who receives a copy of this prospectus, a copy of any or all
of the documents we incorporate by reference in this prospectus. We will not
provide exhibits to any of such documents, however, unless such exhibits are
specifically incorporated by reference into those documents. Written or
telephone requests for such copies should be addressed to us at 2835 KEMET Way,
Simpsonville, South Carolina 29681, telephone: (864) 963-6300.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Those reports, proxy statements and other information
may be obtained:
. At the Public Reference Room of the SEC, Room 1024-Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
. At the public reference facilities at the SEC's regional offices
located at Seven World Trade Center, 13th Floor, New York, New
York 10048 or Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511;
. From the SEC, Public Reference Section, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549; and
. From the Internet site maintained by the SEC at
http://www.sec.gov, which contains reports, proxy and information
statements and other information regarding issuers that
electronically file with the SEC.
Some locations may charge prescribed or modest fees for copies. You may
obtain information on the operation of the Public Reference Room of the SEC by
calling the SEC at 1-800-SEC-0330.
We have filed with the SEC a Registration Statement on Form S-3 (together
with any amendments or supplements thereto, the Registration Statement) under
the Securities Act covering the shares of common stock offered hereby. As
permitted by the SEC, this prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information included in the
Registration Statement. This additional information may be obtained from the
locations described above. Statements contained in this prospectus as to the
contents of any contract or other document are not necessarily complete. You
should refer to the contract or other document for all of the details.
45
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as at March 31, 1998 and 1999 and September
30, 1999 (unaudited)..................................................... F-3
Consolidated Statements of Earnings for the years ended March 31, 1997,
1998 and 1999 and for the six months ended September 30, 1998 and 1999
(unaudited).............................................................. F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the years ended March 31, 1997, 1998 and 1999 and for the six month
period ended September 30, 1999 (unaudited) ............................. F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1997,
1998 and 1999 and for the six months ended September 30, 1998 and 1999
(unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
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, 1998 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, 1999. 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 generally accepted auditing
standards. 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, 1998 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, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Greenville, South Carolina
April 30, 1999
F-2
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
------------------ September 30,
1998 1999 1999
-------- -------- ---------------
(unaudited)
(dollars in thousands except
per share data)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 1,801 $ 3,914 $ 6,917
Accounts receivable, net (notes 10 and
11)..................................... 62,040 57,784 64,463
Inventories:
Raw materials and supplies............. 37,275 45,288 52,276
Work in process........................ 48,068 52,225 53,093
Finished goods......................... 29,340 28,306 22,622
-------- -------- --------
Total inventories.................... 114,683 125,819 127,991
Prepaid expenses......................... 2,915 2,951 3,255
Income taxes receivable (note 7)......... -- 1,855 1,855
Deferred income taxes (note 7)........... 13,581 10,899 14,427
-------- -------- --------
Total current assets................. 195,020 203,222 218,908
Property and equipment, net (note 11)...... 393,551 406,735 408,655
Intangible assets, net (note 2)............ 46,816 46,268 47,425
Other assets............................... 6,722 7,465 7,492
-------- -------- --------
Total assets......................... $642,109 $663,690 $682,480
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt
(note 3)................................ $ 20,000 $ 20,000 $ 15,000
Accounts payable, trade (note 10)........ 88,711 64,750 82,223
Accrued expenses (notes 5 and 11)........ 36,669 28,101 34,704
Income taxes (note 7).................... 868 -- 6,457
-------- -------- --------
Total current liabilities............ 146,248 112,851 138,384
Long-term debt, excluding current
installments (note 3)..................... 104,000 144,000 120,000
Other non-current obligations (note 4)..... 69,145 69,394 69,351
Deferred income taxes (note 7)............. 16,456 23,771 24,152
-------- -------- --------
Total liabilities.................... 335,849 350,016 351,887
Contingencies and commitments (notes 10 and
12)
Stockholders' equity (notes 3 and 8):
Common stock, par value $.01, authorized
100,000,000 shares, issued and
outstanding 38,064,069 and 38,158,290
shares at March 31, 1998 and 1999,
respectively and 38,374,949 at September
30, 1999................................ 381 382 384
Non-voting common stock, par value $.01,
authorized 12,000,000 shares, issued and
outstanding 1,096,610 at March 31, 1998,
1999 and September 30, 1999............. 11 11 11
Additional paid-in capital............... 144,299 145,482 148,524
Retained earnings........................ 161,577 167,727 181,620
Accumulated other comprehensive income... (8) 72 54
-------- -------- --------
Total stockholders' equity........... 306,260 313,674 330,593
-------- -------- --------
Total liabilities and stockholders'
equity.............................. $642,109 $663,690 $682,480
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Six Months ended
Years ended March 31, September 30,
----------------------------------- -----------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 555,319 $ 667,721 $ 565,569 $ 280,204 $ 348,836
Operating costs and
expenses:
Cost of goods sold,
exclusive of
depreciation......... 377,527 463,644 428,409 212,815 259,378
Selling, general and
administrative
expenses............. 45,748 48,751 46,552 24,090 22,891
Research and
development.......... 20,755 23,766 21,132 11,735 9,577
Depreciation and
amortization......... 33,467 38,858 46,872 22,413 26,862
Restructuring and
early retirement
charges (note 13).... 15,407 10,500 -- -- --
----------- ----------- ----------- ----------- -----------
Total operating
costs and
expenses........... 492,904 585,519 542,965 271,053 318,708
----------- ----------- ----------- ----------- -----------
Operating income.... 62,415 82,202 22,604 9,151 30,128
Other expense:
Interest expense (note
7)................... 5,709 7,305 9,287 4,195 5,243
Other expense......... 2,331 4,063 4,273 2,128 4,455
----------- ----------- ----------- ----------- -----------
Earnings before
income taxes....... 54,375 70,834 9,044 2,828 20,430
Income tax expense (note
7)..................... 17,206 21,644 2,894 905 6,538
----------- ----------- ----------- ----------- -----------
Net earnings........ $ 37,169 $ 49,190 $ 6,150 $ 1,923 $ 13,892
=========== =========== =========== =========== ===========
Net earnings per share
(note 14):
Basic................. $ 0.96 $ 1.26 $ 0.16 $ 0.05 $ 0.35
Diluted............... $ 0.95 $ 1.25 $ 0.16 $ 0.05 $ 0.35
Weighted-average shares
outstanding:
Basic................. 38,737,160 39,073,222 39,220,720 39,194,679 39,337,087
Diluted............... 39,276,678 39,427,164 39,513,930 39,371,041 40,128,141
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
----------------- Paid-in Retained Comprehensive Stockholders'
Shares Amount Capital Earnings Income Equity
---------- ------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1996................... 38,611,003 $386 $136,344 $ 75,218 $(8) $211,940
========== ==== ======== ======== === ========
Comprehensive income:
Net earnings.......... -- -- -- 37,169 -- 37,169
Foreign currency
translation gain..... -- -- -- -- 4 4
--------
Total comprehensive
income................. 37,173
--------
Exercise of stock
options (note 8)....... 150,110 1 927 -- -- 928
Tax benefit on exercise
of stock options....... -- -- 911 -- -- 911
Purchases of stock by
Employee Savings Plan.. 52,508 1 1,170 -- -- 1,171
---------- ---- -------- -------- --- --------
Balance at March 31,
1997................... 38,813,621 $388 $139,352 $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)....... 295,690 3 1,889 -- -- 1,892
Tax benefit on exercise
of stock options....... -- -- 1,928 -- -- 1,928
Purchases of stock by
Employee Savings Plan.. 51,368 1 1,130 -- -- 1,131
---------- ---- -------- -------- --- --------
Balance at March 31,
1998................... 39,160,679 $392 $144,299 $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)....... 26,560 -- 164 -- -- 164
Tax benefit on exercise
of stock options....... -- -- 72 -- -- 72
Purchases of stock by
Employee Savings Plan.. 67,661 1 947 -- -- 948
---------- ---- -------- -------- --- --------
Balance at March 31,
1999................... 39,254,900 $393 $145,482 $167,727 $72 $313,674
========== ==== ======== ======== === ========
(Unaudited)
Comprehensive income:
Net earnings.......... -- -- -- 13,892 -- 13,892
Foreign currency
translation loss..... -- -- -- -- (18) (18)
--------
Total comprehensive
income................. 13,874
--------
Exercise of stock
options................ 186,780 -- 1,445 -- -- 1,445
Tax benefit on exercise
of stock options....... -- -- 1,130 -- -- 1,130
Purchases of stock by
Employee Savings Plan.. 29,879 2 467 -- -- 469
---------- ---- -------- -------- --- --------
Balance at September 30,
1999................... 39,471,559 $395 $148,524 $181,620 $54 $330,593
========== ==== ======== ======== === ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
Years ended March 31, September 30,
----------------------------- ------------------
1997 1998 1999 1998 1999
-------- --------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Sources (uses) of cash:
Operating activities:
Net earnings.............. $ 37,169 $ 49,190 $ 6,150 $ 1,923 $ 13,892
Adjustments to reconcile
net earnings to net cash
from operating
activities:
Depreciation and
amortization........... 33,720 38,943 46,873 22,413 26,862
Postretirement and
unfunded pension....... 19,238 1,107 (236) -- --
Loss on sale and
disposal of equipment.. 705 3,145 985 933 3,228
Deferred income taxes... (1,600) 2,686 9,997 1,515 (3,147)
Changes in other non-
current assets and
liabilities............ (1,151) (2,363) (782) (980) (2,110)
Change in assets and
liabilities:
Notes and accounts
receivable............. (3,120) (6,852) 4,256 9,828 (6,679)
Inventories............. (13,648) (17,314) (11,136) (3,238) (2,172)
Prepaid expenses........ (325) (513) (36) (629) (304)
Accounts payable,
trade.................. (10,870) 26,552 (23,961) (25,317) 17,473
Accrued expenses and
income taxes........... (4,299) (6,428) (11,292) (1,619) 13,060
-------- --------- -------- -------- --------
Net cash from
operating
activities........... 55,819 88,153 20,818 4,829 60,103
-------- --------- -------- -------- --------
Investing activities:
Additions to property and
equipment................ (84,753) (114,516) (59,047) (41,634) (31,126)
Other..................... 74 (3) (198) (45) (18)
-------- --------- -------- -------- --------
Net cash used by
investing
activities........... (84,679) (114,519) (59,245) (41,679) (31,144)
-------- --------- -------- -------- --------
Financing activities:
Proceeds from sale of
common stock to Employee
Savings Plan............. 1,171 1,131 947 590 467
Proceeds from exercise of
stock options including
related tax benefit...... 1,839 3,820 236 133 2,577
Repayment of long-term
debt..................... (270) (72) -- -- --
Net proceeds from
(payments to) revolving
loan..................... 24,900 21,100 (60,000) (63,700) (29,000)
Issuance of senior notes,
net of debt issue costs.. -- -- 99,357 100,000 --
-------- --------- -------- -------- --------
Net cash provided
(used) by financing
activities........... 27,640 25,979 40,540 37,023 (25,956)
Net increase
(decrease) in cash... (1,220) (387) 2,113 173 3,003
Cash at beginning of
period..................... 3,408 2,188 1,801 1,801 3,914
-------- --------- -------- -------- --------
Cash at end of period....... $ 2,188 $ 1,801 $ 3,914 $ 1,974 $ 6,917
======== ========= ======== ======== ========
Supplemental Cash Flow
Statement Information:
Interest paid............. $ 6,550 $ 7,418 $ 7,730 $ 3,455 $ 5,312
Income taxes paid......... $ 15,283 $ 29,040 $ 3,065 $ 1,882 $ 2,854
Reduction of goodwill and
deferred taxes resulting
from Internal Revenue
Service settlement....... $ 13,390 -- -- -- --
======== ========= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 1: Organization and Significant Accounting Policies
Nature of Business and Organization: KEMET Corporation and subsidiaries
(the Company) are engaged in the manufacture and sale of solid tantalum and
multilayer ceramic capacitors in the worldwide market under the KEMET brand
name. The Company is headquartered in Greenville, South Carolina, and has
twelve 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.
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).
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, 1998
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 $1,039 and $917 higher
than reported at March 31, 1998 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.
Deferred Income Taxes: Under the asset and liability method of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109), 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. Under SFAS 109, 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.
F-7
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
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 Currency Translations: The Company translates the balance sheets
of foreign operations, excluding Mexico, using year-end exchange rates and
weighted-average rates for the period to translate the statement of earnings.
Translation gains and losses arising from the conversion of the balance sheets
of foreign entities into U.S. dollars are deferred as adjustments to
stockholders' equity. With respect to operations in Mexico, the functional
currency is the U.S. dollar, and any gains or losses from translating foreign
denominated balances are included directly in income. Gains and losses arising
from foreign currency transactions are also included directly in income.
Fair Value of Financial Instruments: The Company's Financial Instruments
include accounts receivable, accounts payable, long-term debt and other
financing commitments. The carrying values of such financial instruments
approximate the fair market value determined as of March 31, 1999.
Comprehensive Income: In 1999, the Company adopted SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income consists of net earnings and
foreign currency translation gains (losses) and is presented in the
consolidated statements of stockholders' equity and comprehensive income. The
statement requires only additional disclosures in the consolidated financial
statements; it does not affect the Company's financial position or results of
operations. Prior year financial statements have been reclassified to conform
to the requirements of SFAS No. 130.
Pension and Other Postretirement Plans: In 1999, the Company adopted SFAS
No. 132, Employers' Disclosures about Pension and Other Postretirement
Benefits. SFAS No. 132 revises employers' disclosures about pension and other
postretirement benefit plans. SFAS No. 132 does not change the method of
accounting for such plans.
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.
Earnings per Share: The Company adopted SFAS No. 128, Earnings per Share,
beginning with fiscal year 1998. All prior period earnings per share data has
been restated to conform to the provisions of SFAS No. 128. 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.
Business Segments: In 1999, the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, which requires
companies to report financial and descriptive information about its reportable
operating segments. The Company has determined using the
F-8
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
criteria in SFAS No. 131 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, electronic manufacturing service
providers, and electronics distributors. One customer accounted for
approximately 10% of net sales in each of the fiscal years ended March 31, 1998
and 1999. Geographic information is included in note 9.
Reclassification: Certain prior year amounts have been reclassified to
conform to 1999 presentation.
Note 2: Intangible Assets
Intangible assets consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
March 31,
---------------
1998 1999
------- -------
<S> <C> <C>
Goodwill................................................. $40,709 $40,709
Trademarks............................................... 10,000 10,000
Patents and technology................................... 10,000 10,000
Other.................................................... -- 1,143
------- -------
60,709 61,852
Accumulated amortization................................. 13,893 15,584
------- -------
Net intangible assets.................................... $46,816 $46,268
======= =======
</TABLE>
Note 3: Debt
A summary of long-term debt follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Revolving loan, interest at rates ranging from 5.88% to
5.89% and 5.64% to 5.67% at March 31, 1998 and 1999,
respectively, due on October 18, 2001................. $104,000 $ 44,000
Demand note, interest at rates as offered by the bank
(5.47% at March 31, 1999)............................. 20,000 20,000
Senior notes, interest payable semiannually at a rate
of 6.66% with a final maturity date of May 4, 2010.... -- 100,000
-------- --------
124,000 164,000
Less current installments.............................. 20,000 20,000
-------- --------
Long-term debt, excluding current installments......... $104,000 $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.
On November 12, 1997, the Company entered into an agreement with a bank
which offered to extend unsecured short-term loans to the Company in which the
aggregate principal amount of all loans outstanding may not exceed $20,000. The
term of each loan may have a maturity of not more than 90 days and the interest
rate on each loan is negotiated and determined at the time of each borrowing.
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, 1999, the Company was in
compliance with such covenants. Borrowings are secured by guarantees of certain
of the Company's wholly-owned subsidiaries.
F-9
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
The aggregate maturities of long-term debt subsequent to March 31, 1999,
follow: 2000, $20,000; 2002, $44,000; 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,
---------------
1998 1999
------- -------
<S> <C> <C>
Unfunded projected pension benefit obligation............ $35,072 $35,447
Unfunded postretirement medical plans (note 6)........... 31,784 31,719
Other.................................................... 2,289 2,228
------- -------
Other non-current obligations............................ $69,145 $69,394
======= =======
</TABLE>
Included as a part of other non-current obligations is the Company's
accrual for environmental liabilities. The Company's policy is to accrue
remediation costs when it is probable that such efforts will be required and
the related costs can be reasonably estimated.
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,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Service cost.............. $ 3,690 $ 3,705 $ 3,472
Interest cost............. 5,857 6,638 6,494
Expected return on
assets................... (3,805) (4,209) (6,084)
Amortization of:
Transition obligation
(asset)................ (6) (6) (6)
Prior service cost...... (90) (90) (90)
Actuarial loss.......... 24 -- --
Gain on curtailment of
employee benefit plan.... -- -- (1,818)
------- ------- -------
Total net periodic pension
cost..................... $ 5,670 $ 6,038 $ 1,968
======= ======= =======
</TABLE>
The weighted-average rates used in determining pension cost for the plan
are as follows:
<TABLE>
<CAPTION>
Years ended March
31,
-----------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Discount rate........................................... 7.75% 7.25% 7.00%
Rate of compensation increase........................... 5.00% 5.00% 4.00%
Expected return on plan assets.......................... 8.50% 8.50% 9.50%
</TABLE>
F-10
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
A reconciliation of the plan's projected benefit obligation, fair value
of plan assets, and funding status is as follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Projected benefit obligation:
Net obligation at beginning of year............... $ 81,695 $ 97,383
Service cost...................................... 3,705 3,472
Interest cost..................................... 6,638 6,494
Actuarial (gain) loss............................. 9,592 (4,099)
Curtailments...................................... -- (1,818)
Gross benefits paid............................... (4,247) (4,602)
-------- --------
Net benefit obligation at end of year............... 97,383 96,830
-------- --------
Fair value of plan assets:
Fair value of plan assets at beginning of year.... 49,538 65,116
Actual return on plan assets...................... 13,457 264
Employer contributions............................ 6,368 1,374
Gross benefits paid............................... (4,247) (4,602)
-------- --------
Fair value of plan assets at end of year............ 65,116 62,152
-------- --------
Funding status:
Funded status at end of year...................... (32,267) (34,677)
Unrecognized net actuarial (gain) loss............ 2,922 4,597
Unrecognized prior service cost................... (700) (565)
Unrecognized net transition obligation (asset).... (19) (13)
-------- --------
Net amount recognized at end of year................ $(30,064) $(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 totalled $2,103 $2,115, and $885 in 1997,
1998, and 1999, respectively.
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 $1,868 in
fiscal 1997, $1,896 in fiscal 1998 and $1,786 in fiscal 1999.
F-11
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
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,
--------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Service cost........................................ $ 810 $ 739 $ 701
Interest cost....................................... 2,037 2,343 2,086
Amortization of actuarial gain...................... -- -- (23)
Curtailment gain.................................... -- -- (611)
------ ------ ------
$2,847 $3,082 $2,153
====== ====== ======
</TABLE>
A reconciliaton 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>
<CAPTION>
March 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Projected benefit obligation:
Net obligation at beginning of year................ $ 28,334 $ 33,446
Service cost....................................... 739 701
Interest cost...................................... 2,343 2,086
Actuarial (gain) loss.............................. 3,493 (4,163)
Curtailments....................................... -- (611)
Gross benefits paid................................ (1,463) (2,218)
-------- --------
Net benefit obligation at end of year................ $ 33,446 $ 29,241
-------- --------
Fair value of plan assets:
Employer contributions............................. $ 1,463 $ 2,218
Gross benefits paid................................ (1,463) (2,218)
-------- --------
Fair value of plan assets at end of year............. $ -- $ --
-------- --------
Funding status:
Funded status at end of year....................... $(33,446) $(29,241)
Unrecognized net actuarial (gain) loss............. 1,662 (2,478)
-------- --------
Net amount recognized at end of year................. $(31,784) $(31,719)
-------- --------
</TABLE>
F-12
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
The weighted-average rates used in determining postretirement medical and
life insurance costs are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Years ended March 31,
-----------------------------------------------------
1997 1998 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Discount rate............ 7.75% 7.25% 7.00%
Rate of compensation
increase................ 5.00% 5.00% 4.00%
Health care cost trend on
covered charges......... 9% decreasing to 8% decreasing to 8% decreasing to
ultimate trend of ultimate trend of ultimate trend of
7% in 2008 7% in 2008 7% 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.......... $ 172 $ 220 $ 140
. On postretirement
benefit obligation.. $1,129 $ 1,365 $1,023
Effect of a one
percentage point
decrease in assumed
health care cost
trend:
. On total service
and interest cost
components.......... $ (161) $ (201) $ (128)
. On postretirement
benefit obligation.. $(1,086) $(1,307) $ (970)
</TABLE>
Note 7: Income Taxes
Information with respect to income taxes is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Years ended March 31,
------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current:
Federal...................................... $17,325 $15,835 $(9,810)
State and Local.............................. 658 806 232
Foreign...................................... 823 2,317 2,475
------- ------- -------
18,806 18,958 (7,103)
Deferred:
Federal...................................... (1,376) 1,970 9,969
State and local.............................. (150) 216 447
Foreign...................................... (74) 500 (419)
------- ------- -------
(1,600) 2,686 9,997
------- ------- -------
Provision for income taxes..................... $17,206 $21,644 $ 2,894
======= ======= =======
</TABLE>
F-13
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
A reconciliation of the statutory federal income tax rate to the
effective income tax rate is as follows:
<TABLE>
<CAPTION>
Years ended
March 31,
-----------------
1997 1998 1999
---- ---- -----
<S> <C> <C> <C>
Statutory federal income tax rate...................... 35.0% 35.0% 35.0%
State income taxes, net of federal taxes............... .6 .9 4.9
Foreign sales corporation.............................. (3.8) (3.3) (10.7)
Goodwill amortization.................................. .7 .5 3.8
Reduction in prior year tax accrual.................... (1.8) (2.4) (4.9)
Other.................................................. .9 (.1) 3.9
---- ---- -----
Effective income tax rate.............................. 31.6% 30.6% 32.0%
==== ==== =====
</TABLE>
The components of deferred tax assets and liabilities are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
March 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Pension benefits................................... $ 13,100 $ 13,372
Medical benefits................................... 12,324 12,535
Sales and product allowances....................... 8,135 6,899
All other.......................................... 5,331 4,086
-------- --------
38,890 36,892
-------- --------
Deferred tax liabilities:
Depreciation and differences in basis.............. (36,228) (44,355)
Amortization of intangibles........................ (5,537) (5,409)
-------- --------
(41,765) (49,764)
-------- --------
Net deferred income tax liability.................... $ (2,875) $(12,872)
======== ========
</TABLE>
The net deferred income tax liability is reflected in the accompanying
1998 and 1999 balance sheets as a $13,581 and $10,899 current asset and a
$16,456 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 1999 or 1998.
For fiscal year ended March 31, 1999, the Company had a regular tax loss
of $15 million which will be carried back to recover Federal income taxes paid
in prior years.
During fiscal year 1998, the Company and the Internal Revenue Service
finalized a settlement involving adjustments to the Company's consolidated
income tax returns for fiscal years 1994 and 1995. The adjustments to the
consolidated income tax return primarily involved the partial disallowance of
amortization of a non-compete agreement. The total tax including interest
associated with the settlement amounted to approximately $1,050.
During fiscal year 1999, the Company received Federal income tax refunds
related to amending various years. These refunds were recognized as tax
benefits during the current year. Interest income received from these refunds
was netted against interest expense.
F-14
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
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 1999, 1998 and 1997, 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,
----------------------
1997 1998 1999
------- ------- ------
<C> <S> <C> <C> <C>
Net earnings As reported..................... $37,169 $49,190 $6,150
Pro forma....................... $36,146 $47,554 $4,203
Earnings per
share:
Basic As reported..................... $ 0.96 $ 1.26 $ 0.16
Pro forma....................... $ 0.93 $ 1.22 $ 0.11
Diluted As reported..................... $ 0.95 $ 1.25 $ 0.16
Pro forma....................... $ 0.92 $ 1.21 $ 0.11
</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 1999 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 1997, 1998 and 1999; a risk-
free interest rate of 6.1% for 1997, 5.7% for 1998 and 5.4% for 1999; expected
volatility of 23.8% for 1997, 42.6% for 1998 and 45.1% for 1999; 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, 952,560 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 1,155,000 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 1,900,000 shares of common stock to certain executives.
These plans provide that shares granted come from the Company's
authorized but unissued common stock. The price 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. Under this program,
options to purchase 329,130 shares of the Company's Common Stock with exercise
prices ranging from $19.25 to $32.13 per share were amended to lower the
exercise price to $10.00 per share, which 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 remains at October 1999.
F-15
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
A summary of the status of the Company's three stock option plans as of
March 31, 1997, 1998, and 1999, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
March 31,
--------------------------------------------------------------------
1997 1998 1999
---------------------- ---------------------- ----------------------
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...... 1,114,885 $13.36 1,239,835 $15.53 1,251,020 $20.20
Options granted......... 281,330 19.25 308,445 25.75 934,570 10.95
Options exercised....... (150,110) 6.19 (295,690) 6.45 (26,560) 7.02
Options canceled........ (6,270) 20.13 (1,570) 11.83 (516,030) 25.10
--------- --------- --------- --------- --------- ---------
Options outstanding at
end of year............ 1,239,835 $15.53 1,251,020 $20.20 1,643,000 $13.61
--------- --------- --------- --------- --------- ---------
Option price range at
end of year............ $5.00 to $32.13 $5.00 to $32.13 $5.00 to $32.13
Option price range for
exercised shares....... $5.00 to $10.63 $5.00 to $10.63 $5.00 to $14.19
Options available for
grant at end of year... 2,121,175 1,812,730 1,207,290
Options exercisable at
year-end............... 679,590 664,050 312,430
Weighted-average fair
value of options
granted during the
year................... $ 5.42 $11.89 $ 5.38
</TABLE>
The following table summarizes information about stock options
outstanding at March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ -------------------------------
Range of Number Weighted-Average Number Weighted-Average
Exercisable Outstanding at Remaining Weighted-Average Exercisable at Exercisable
Prices 3/31/99 Contractual Life Exercise Price 3/31/99 Price
- ---------------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 5.00 to $ 5.72 222,160 4.0 Years $ 5.50 222,160 $ 5.50
$10.00 to $11.47 1,024,840 9.1 Years $10.92 90,270 $10.24
$19.25 to $32.13 396,000 8.1 Years $25.13 -- --
- ---------------- --------- --------- ------ ------- ------
1,643,000 312,430
========= =======
</TABLE>
Note 9: Foreign Sales
The Company has wholly-owned foreign subsidiaries which primarily market
products in foreign markets. Foreign sales by geographic region were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Years ended March 31,
--------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Europe......................................... $101,060 $134,623 $109,512
Asia........................................... 104,932 123,671 120,991
Other.......................................... 24,657 34,914 41,639
-------- -------- --------
Total........................................ $230,649 $293,208 $272,142
======== ======== ========
</TABLE>
F-16
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
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 $3,000 to guarantee this recourse
provision. The Company transferred receivables and incurred factoring costs of
$218,146 and $2,109 in 1997, $283,153 and $2,834 in 1998, and $258,619 and
$2,988 in 1999.
Included in accounts payable, trade, is $27,686 and $32,715 at March 31,
1998 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 1999 and 2004. 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 $11,653 in
1997, $12,592 in 1998, and $10,229 in 1999. Future minimum lease payments over
the next five years under noncancelable operating leases at March 31, 1999, are
as follows (dollars in thousands):
<TABLE>
<S> <C>
2000........................ $ 7,910
2001........................ 4,454
2002........................ 2,371
2003........................ 791
2004........................ 253
-------
Total..................... $15,779
=======
</TABLE>
F-17
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
Note 11: Supplementary Balance Sheet Detail
<TABLE>
<CAPTION>
March 31,
-----------------
1998 1999
-------- --------
(dollars in
thousands)
<S> <C> <C> <C>
Accounts receivable:
Trade................................................... $ 61,773 $ 56,773
Other................................................... 6,879 7,236
-------- --------
Total accounts receivable............................. 68,652 64,009
Less:
Allowance for doubtful accounts......................... 390 297
Allowance for price protection and customer returns
(note 10).............................................. 6,222 5,928
-------- --------
Net accounts receivable............................... $ 62,040 $ 57,784
======== ========
Property and equipment, at cost Useful Life
Land and land improvements.................. 10-20 years $ 13,071 $ 12,919
Buildings................................... 10-40 years 61,702 73,402
Machinery and equipment..................... 5-10 years 369,154 464,041
Furniture and fixtures...................... 3-10 years 32,086 35,532
Construction in progress.................... 97,104 49,896
-------- --------
Total property and equipment.......................... 573,117 635,790
Accumulated depreciation.................................. 179,566 229,055
-------- --------
Net property and equipment............................ $393,551 $406,735
======== ========
Accrued expenses:
Pension costs........................................... $ 4,031 $ 3,799
Salaries, wages and related employee costs.............. 12,009 7,863
Vacation................................................ 8,879 8,150
Other................................................... 11,750 8,289
-------- --------
Total accrued expenses................................ $ 36,669 $ 28,101
======== ========
</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.
F-18
<PAGE>
KEMET CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements--(Continued)
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 and Early Retirement Charges
(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.
(b) On June 5, 1996, the Company announced an early retirement incentive
program for its U.S. hourly and salaried employees. Under this program, the
Company reduced the U.S. hourly and salaried workforce by 409 people. The total
cost of the program was $15,407 ($9,900 after tax). Senior Management of the
Company was not eligible for the early retirement incentive.
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,
--------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net earnings........................... $37,169 $49,190 $6,150
---------- ---------- ----------
Weighted-average shares outstanding
(Basic)............................... 38,737,160 39,073,222 39,220,720
Stock Options.......................... 539,518 353,942 293,210
---------- ---------- ----------
Weighted-average shares outstanding
(Diluted)............................. 39,276,678 39,427,164 39,513,930
---------- ---------- ----------
Basic earnings per share............... $ 0.96 $ 1.26 $ 0.16
Diluted earnings per share............. $ 0.95 $ 1.25 $ 0.16
</TABLE>
F-19
<PAGE>
[Logo]
[Picture of Facility]
Fountain Inn
[Picture of Facility]
Ciudad Victoria
[Picture of Facility]
Monterrey
[Map of Southeastern United States and
Mexico showing location of KEMET's
facilities in Shelby, North Carolina;
Fountain Inn, Greenwood, Mauldin and
Simpsonville, South Carolina; Brownsville,
Texas; and Matamoros, Monterrey and
Ciudad Victoria, Mexico.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 Shares
[KEMET LOGO]
Common Stock
----------------
PROSPECTUS
----------------
Merrill Lynch & Co.
Salomon Smith Barney
January 13, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
