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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2001
Or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the transition period from to
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Commission File Number: 0-20289
KEMET Corporation
(Exact name of registrant as specified in its charter)
Delaware 57-0923789
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2835 KEMET Way, Simpsonville, South Carolina 29681
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (864)963-6300
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [ x ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[X]
Aggregate market value of voting Common Stock held by non-affiliates of the
registrant as of June 1, 2001, computed by reference to the closing sale price
of the registrant's Common Stock was approximately $1,607,574,363.
Number of shares of each class of Common Stock outstanding as of June 1, 2001:
Common Stock, $.01 Par Value 87,725,617
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the definitive Proxy Statement relating to the annual
meeting of Stockholders to be held on July 25, 2001: Part III
PART I
ITEM 1. BUSINESS
General
KEMET Corporation and subsidiaries ("KEMET" or the "Company") is the world's
largest manufacturer of solid tantalum capacitors, the fourth largest
manufacturer of multilayer ceramic capacitors("MLCC"), and a leader in the
development of solid aluminum capacitors, based on net sales for the calendar
year ending December 31, 2000. According to industry sources, solid tantalum,
ceramic, and solid aluminum capacitors, which can be surface mount, are the
two fastest growing sectors of the United States capacitor industry. In
fiscal year 2001, KEMET generated net sales of $1,406.1 million, up 71% from
$822.1 million in fiscal year 2000. International sales accounted for
approximately 54% of the net sales for fiscal year 2001. During fiscal year
2001, the Company shipped approximately 36.1 billion capacitors, comprised of
approximately 35,000 different types of capacitors.
Capacitors are electronic components that store, filter, and regulate
electrical energy and current flow and are one of the essential passive
components used on circuit boards. Virtually all electronic applications and
products contain capacitors. Capacitors alter the relationship of currents
and voltages in a given electrical system, filter or smooth out electrical
signals where required, and retard signals of low frequencies while permitting
signals of higher frequencies to pass with minimal attenuation. Different
types of capacitors are distinguished based on dielectric material,
configuration, 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 KEMET capacitors. These
applications include communication systems, data processing equipment,
personal computers, cellular phones, automotive electronic systems, and
military and aerospace systems.
KEMET utilizes a direct sales force to market its capacitors to the world's
most successful OEMs, Electronics Manufacturing Services providers, and
electronics distributors. The Company's customers include Alcatel, Arrow
Electronics, Avnet, Celestica, Compaq, Dell, Flextronics, Ford, General
Motors, Hewlett-Packard, IBM, Intel, Jabil, Jaco, Lucent Technologies,
Motorola, Natsteel, Nokia, Pioneer, Qualcomm, SCI, Siemens, Solectron, TTI and
Visteon (formerly part of Ford).
Since its divestiture from Union Carbide ("UCC") in December 1990, the
Company's mission has been to be the preferred capacitor supplier to the
world's most successful electronics companies and to establish a distinctive
competence that differentiates KEMET as the unquestioned best-in-class
supplier. The core values that support this vision are:
Best trained and motivated people;
Company-wide quality concept (as evidenced by ISO 9000 and QS-9000
registration at all of KEMET's facilities);
An easy-to-buy-from philosophy (supported by the Company's direct sales
force and executed by KEMET's key account teams);
Lowest cost producer (by achieving significant production cost savings
through the focused plant concept and the transfer to and expansion of
manufacturing operations in Mexico where the Company can take advantage
of lower overall costs); and
Leading edge of technology (as evidenced by the Company's continued
increase in expenditures for new product development and the design and
development of new machinery and equipment).
Background of Company
KEMET's operations began in 1919 as a business of UCC to manufacture component
parts for vacuum tubes. As vacuum tubes were gradually replaced by solid-
state transistors, the Company changed its manufacturing focus from vacuum
tube parts to tantalum capacitors, and later added ceramic capacitors to meet
the expected need for capacitors in electronic circuit boards. The Company
entered the market for tantalum capacitors in 1958 as one of approximately 25
United States manufacturers. By 1966, the Company was the United States'
market leader in tantalum capacitors, a position that it still holds in an
industry consisting of three major tantalum capacitor manufacturers. In 1969,
the Company began production of ceramic capacitors as one of approximately 35
United States manufacturers. Within five years, the Company was the second
largest United States manufacturer of ceramic capacitors and fourth in the
world.
The current Company was formed in 1990 by certain members of the Company's
current management, Citicorp Venture Capital, Ltd. ("CVC"), and other
investors that acquired the outstanding common stock of KEMET Electronics
Corporation from UCC.
Public Offerings, Recapitalization and Stock Purchases
In October 1992, the Company completed an initial public offering of its
common stock and a related recapitalization to simplify its capital structure.
In June 1993, the Company completed an additional public offering of common
stock and used the net proceeds to reduce outstanding indebtedness.
In January 2000, the Company sold 6,500,000 shares of its common stock in a
public offering for $142.6 million in net cash proceeds after deducting
underwriting fees and offering expenses. Included in the offering were
2,193,220 shares sold by a stockholder of the Company which were shares of
non-voting common stock that were converted into common stock on a share-for-
share basis. The net proceeds were used to repay outstanding debt under the
Company's short-term credit facility and to fund capital expenditures.
In August 2000, the Company announced that its Board of Directors had
authorized a program to purchase up to 4.0 million shares of its common stock
in the open market. At March 31, 2001, the Company made direct purchases of
1.6 million shares for $29,315 and had outstanding put option obligations for
1.9 million shares with an average exercise price of $18.31 under the program.
The program was fulfilled in April 2001, at which time the Company announced
that its Board of Directors had authorized a second 4.0 million share stock
purchase program. The amount and timing of purchases will depend on market
conditions and other factors. The program will be funded from existing cash,
and a combination of direct purchases and/or put options may be used to
execute the program.
Stock Splits
In September 1995, the Board of Directors declared a two-for-one stock split
whereby one additional common share, par value $.01, was issued for each
common share outstanding to shareholders of record on September 13, 1995.
In May 2000, the Company's Board of Directors declared a two-for-one stock
split. The record date for the split was May 24, 2000, with distribution of
the additional shares on June 1, 2000. All references in the consolidated
financial statements to number of shares outstanding, price per share, per-
share amounts and stock option plan data have been restated to reflect the
split.
Refinancing of Outstanding Senior Debt
In October 1996, the Company refinanced the entire balance of its outstanding
revolving credit facility and swingline credit facility with new credit
facilities. These new credit facilities, each of which had an initial term of
five years, include a $150.0 million revolving credit facility and a $10.0
million swingline credit facility. (The term of each of these credit
facilities was extended by one year to October 18, 2002.) In May 1998, the
Company sold $100 million of its Senior Notes due May 4, 2010.
The Capacitor Industry
The Company estimates that worldwide capacitor consumption was approximately
$20.0 billion in the calendar year ending December 31, 2000, with tantalum and
multilayer-ceramic capacitors comprising approximately 49% of the market.
According to industry sources, tantalum capacitors and MLCC's accounted for
approximately 81% of the $4.1 billion market for capacitors consumed in the
United States in 2000 and constituted the two fastest growing sectors of the
United States capacitor market.
Because of their fundamental nature and widespread application, demand for
capacitors tends to reflect the general demand for electronic products, which
has been growing over the past several years. Growth in the electronics
market and the corresponding growth in the capacitor market has been fueled
by:
the development of new products and applications, such as cellular
phones, personal computers and electronic controls for engines and
machinery;
the increase in the electronic content of existing products, such as home
appliances, medical equipment and automobiles; and
the growth in the number of capacitors required in certain complex
electronic products that use state-of-the-art microprocessors.
The capacitor industry has shifted its manufacturing focus from traditional
leaded capacitors toward surface-mount capacitors in order to increase circuit
board densities, decrease the size of electronic components, and more highly
automate production. Surface-mount capacitors are generally smaller than
similar leaded capacitors and can be mounted on both sides of a circuit board.
To meet the increased demand for surface-mount capacitors, the Company has
invested $550.9 million in capital expenditures during the past five fiscal
years with a substantial portion spent to expand surface-mount manufacturing
capacity.
Our Strategy
KEMET has used its position as a leading, high-quality manufacturer of
capacitors to capitalize on the increasingly demanding requirements of its
customers. Key elements of the Company's strategy include the following
business objectives:
Maintaining Long-Term Customer Relationships. KEMET continually seeks to
maintain the number of business relationships it has with leading electronics
companies and to increase the percentage of each key customers' requirements
which the Company supplies under these relationships. Key customers 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. Key customers are demanding increased
levels of service to provide ease of ordering, just-in-time delivery to
multiple facilities, flexible scheduling, computerized paperless purchasing,
specialized packaging, and a full breadth of product offerings. KEMET
believes that it has responded to each of these customer needs and positioned
the Company to capture a larger portion of OEMs' capacitor supply
requirements. In addition, KEMET will continue to develop and expand
preferred supplier relationships with its customers to ensure its ability to
meet their rapidly changing demands. Preferred supplier and other
similar long-term relationships accounted for more than 90% of KEMET's net
sales for fiscal year 2001.
Providing Product Breadth and Service Flexibility. KEMET manufactures a full
line of products with different specifications in order to respond to the
needs of its customers. During fiscal year 2001, the Company manufactured
approximately 36.1 billion capacitors, comprised of approximately 35,000
different types of capacitors, with types being distinguished by dielectric
material, configuration, encapsulation, capacitance level and tolerance,
performance characteristics, marking, and packaging.
KEMET believes that it is a market leader in reliable and timely delivery of
capacitor products. As most key customers have moved to just-in-time
inventory management, the timeliness and reliability of shipments by their
suppliers have become increasingly important. The Company has designed its
manufacturing facilities and order entry system to respond quickly to customer
needs and has invested over $10.0 million in an easy-to-buy-from order entry
system. KEMET's order entry system provides on-line pricing, scheduled
delivery dates, and accurate inventory information and provides a direct link
between the Company and its major distributors.
Manufacturing High-Quality Products. KEMET is a leader in an industry in
which customers require high-quality standards and exacting product
specifications. The Company emphasizes continuous product improvement and a
company-wide commitment to quality. As a result, KEMET has received numerous
quality awards from customers such as Alcatel, AT&T, Ford, General Instrument,
General Motors, Honeywell, Intel, Motorola, Rockwell International, Rolm
Systems, Solectron, Sun Microsystems, Texas Instruments, and 3Com.
Investing in Surface-Mount Manufacturing Capacity. Demand for capacitors has
continued to evolve from leaded toward surface-mount capacitors, as KEMET's
customers continue to increase circuit board densities and shift to more
highly automated production techniques. The Company believes that by
increasing surface-mount capacity to meet the demands of its OEM customers, it
will increase sales in the growing surface-mount capacitor market. During the
past five fiscal years, the Company has invested $550.9 million in capital
expenditures, a substantial portion of which was spent to expand surface-mount
manufacturing capacity. KEMET intends to make further capital investments in
surface-mount manufacturing capacity in order to serve the growing needs of
its customers. For fiscal year 2001, sales of surface-mount capacitors
accounted for approximately 90% of the net sales, as compared to 86% for
fiscal year 2000 and 81% for fiscal year 1999.
Improving Current Products and Developing New Products. KEMET's customers
increasingly look for greater capacitance in smaller products, higher
frequency response for fast microprocessors, and lower resistance to extend
battery life in portable electronics. To respond to its customers' needs, the
Company has several high capacitance, high frequency response, low electrical
series resistance (ESR) product development initiatives. The Company has a
technical alliance with NEC Corporation to produce KO-CAPS (high-capacitance,
low ESR , organic polymer tantalum capacitors). Advanced tantalum capacitors
also include MATS (ultra-low ESR, multiple anode tantalums). A technical
alliance with Showa Denko K.K. allows the Company to produce AO-CAPS (solid
conductive polymer aluminum surface-mount capacitors.) The Company's
inaugural shipments of KO-CAPS and MATS began in early fiscal 2001 and
shipments of AO-CAPS began late in fiscal 2001. Another significant product
development initiative includes high capacitance, base metal electrode ceramic
capacitors.
Remaining an Overall Low-cost Producer. KEMET's customers are under worldwide
competitive pressure to reduce their product costs and these pressures are
passed along to component manufacturers. The Company believes that it has
achieved a leading position as an overall low-cost producer of capacitors. To
maintain this position, it is constantly seeking to reduce material and labor
costs, develop cost-efficient manufacturing equipment and processes, and
design manufacturing plants for efficient production.
KEMET has been able to reduce the manufacturing cost of its products by
increasing materials utilization efficiency and production yields. In
addition, the Company has been successful at reducing assembly direct labor
costs by locating plants in areas with relatively low-cost labor. KEMET
capacitors have been assembled in Mexico for over 30 years.
KEMET has a dedicated engineering team that continues to develop faster and
more efficient automated manufacturing, assembly, testing, and packaging
machines and processes. The Company has designed each of its manufacturing
and assembly facilities to produce one product or a family of closely related
products. KEMET's management believes that this focused approach to
manufacturing allows each facility to shorten manufacturing time, optimize
product flow, and avoid long and costly equipment retooling and employee
training time, all of which lead to overall reduced costs.
Capacitors
Capacitors are electronic components consisting of conducting materials
separated by a dielectric or insulating material (such as tantalum, ceramic,
aluminum, film, paper or mica), which allow a capacitor to interrupt the flow
of electrical current. They are divided between leaded and surface-mount
capacitors, describing the method by which the capacitors are attached to the
circuit board.
KEMET manufactures a full line of capacitors using three types of dielectrics,
solid tantalum, multilayer ceramic and solid aluminum, which were introduced
late in fiscal year 2000. Most customers buy both tantalum and ceramic
capacitors from the Company. KEMET manufactures these types of capacitors in
many different sizes and configurations. The Company produces leaded
capacitors, which are attached to a circuit board using lead wires, and
surface-mount capacitors, which are attached directly to the circuit board
without lead wires.
The choice of capacitor dielectric is driven by the engineering specifications
and application of the component product into which the capacitor is
incorporated. Product design engineers in the electronics industry typically
select capacitors on the basis of capacitance levels, size and cost. Tantalum
and ceramic capacitors continue to be the preferred dielectrics in new design
applications, as compared to capacitors made of other dielectrics. Tantalum
and ceramic capacitors are commonly used in conjunction with integrated
circuits, and are best suited for applications requiring lower to medium
capacitance values. Generally, ceramic capacitors are more cost-effective at
lower capacitance values, tantalum capacitors are more cost-effective at
higher capacitance values, and solid aluminum capacitors are expected to be
more cost effective at higher capacitance values.
Management believes that sales of surface mount capacitors, including MLCC's,
solid tantalum, and solid aluminum capacitors will continue to grow more
rapidly than other types of capacitors in both the United States and worldwide
markets because technological breakthroughs in electronics are regularly
expanding the number and type of applications for these products. Tantalum,
MLCC, and solid aluminum capacitors have special properties valuable for
surface-mount applications.
Leaded and Surface-Mount Capacitors
The Company manufactures both leaded and surface-mount capacitors. The
capacitors are distinguished based on the method by which they are attached to
the circuit board. Despite the differences in configuration between leaded
and surface-mount capacitors, both types of capacitors rely on similar
technology.
The manufacture of the internal capacitor element is the same whether it is
ultimately incorporated into a leaded or surface-mount capacitor.
Consequently, much of the know-how and some of the capital equipment required
to produce these products is common. The primary distinction between leaded
and surface-mount capacitors occurs in the assembly, testing and finishing
stages, which utilize different equipment and processes. Surface-mount
capacitors must be able to withstand temperatures up to 260 degrees Centigrade
during circuit board assembly and are placed on circuit boards using high-
speed automatic placement equipment. These requirements result in quality and
process standards greater than those demanded for leaded components.
The Company believes it has taken advantage of the growth of the surface-mount
capacitor market and is an industry leader in designing and marketing surface-
mount capacitors. Demand has shifted from leaded to surface-mount capacitors
because surface-mount capacitors are more commonly incorporated into new
product designs which rely on higher density circuit boards. As a result,
worldwide sales of leaded capacitors have been declining over the past six
years and have been offset by an increase in worldwide sales of surface-mount
capacitors. Consequently, although KEMET intends to make further capital
investments in surface-mount manufacturing capacity to serve the growing needs
of its customers, the Company's results of operations and growth prospects
could be adversely affected in the event that the Company does not continue to
increase its production and sales of surface-mount capacitors.
The following table shows the respective percentages of the Company's sales of
surface-mount capacitors and leaded capacitors for the fiscal years ended
March 31, 2001, 2000, and 1999.
Net Sales
(dollars in millions)
Fiscal Years Ended March 31,
2001
2000
1999
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Sales
Percent
Sales
Percent
Sales
Percent
Surface-mount
$1,261.9
90%
$711.0
86%
$459.3
81%
Leaded
144.2
10%
111.1
14%
106.3
19%
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$1,406.1
100%
$822.1
100%
$565.6
100%
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Markets and Customers
KEMET's products are sold to a variety of OEMs in a broad range of industries
including the computer, communications, automotive, military and aerospace
industries. KEMET also sells an increasing number of its products to EMS
providers, which also serve OEMs in these industries. The Company is not
dependent on any one customer or group of related customers. Two customers in
fiscal year 2001 and one customer in fiscal years 2000 and 1999 accounted for
over 10% of the Company's net sales. The Company's top 50 customers accounted
for approximately 91% of the Company's net sales during fiscal year 2001.
Preferred supplier and similar long-term relationships with key customers
accounted for over 90% of the Company's net sales in fiscal years 2001, 2000,
and 1999.
The following table presents an overview of the diverse industries that
incorporate the Company's capacitors into their products and the general
nature of those products.
Industry Products
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Automotive Audio systems, power train 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 fax machines
Communications Cellular phones, modems, telephones, switching
equipment, and relays
Computer-related Personal computers, workstations, mainframes, computer
peripheral equipment, power supplies, disk drives,
printers, and local area networks
Industrial Electronic controls, measurement equipment,
instrumentation, and medical electronics
Military/Aerospace Avionics, radar, guidance systems, and satellite,
communications
KEMET produced a small percentage of its capacitors under military
specification standards sold for both military and commercial uses during
fiscal year 2001. The Company does not sell any of its capacitors directly to
the U.S. government. Although the Company does not track sales of capacitors
by industry, the Company estimates that sales of its capacitors to OEMs which
produce products principally for the military and aerospace industries
accounted for less than 2% of its net sales during fiscal year 2001. Certain
of the Company's other customers may also purchase capacitors for products in
the military and aerospace industries.
Sales and Distribution
KEMET's domestic sales, and most of its international sales, are made through
the Company's direct sales and customer service employees. The Company's
domestic sales staff is located in seven regional offices, fourteen local
offices, and five satellite offices. A substantial majority of the Company's
international sales are made through four regional, three local, and nine
satellite offices in Europe, six Far East locations, two Canadian locations,
and one Mexican location. The Company also has independent sales
representatives located in Argentina, Brazil, Israel, Puerto Rico, Canada, and
the United States.
KEMET markets and sells its products in its major markets with a direct sales
force in contrast to its competitors which generally utilize independent
commissioned representatives or a combination of representatives and direct
sales employees. The Company believes its direct sales force creates a
distinctive competence in the market place and has established an enviable
relationship with its customers. With a global sales organization that is
customer-based, KEMET's direct sales personnel from around the world serve on
KEMET Key Account Teams. These teams are committed to serving any customer
location in the world with a dedicated KEMET representative. This approach
requires a unique blend of accountability and responsibility to specific
customer locations, guided by an overall account strategy for each key
customer.
Electronics distributors are an important distribution channel in the
electronics industry and accounted for approximately 39%, 39%, and 29% of the
Company's net sales in fiscal years 2001, 2000, and 1999, respectively. In
fiscal year 2001, two distributors of passive components each accounted for
more than 10% of net sales.
The Company's distributor policy includes the inventory price protection and
"ship-from-stock and debit" programs common in the industry. The price
protection policy protects the value of the distributors' inventory in the
event the Company reduces its published selling price to distributors. The
Company has established a rolling 12-month financial reserve for this program.
The ship-from-stock and debit program provides a mechanism for the distributor
to meet a competitive price after obtaining authorization from the local
Company sales office. This program allows the distributor to ship its higher-
priced inventory and debit the Company for the difference between KEMET's list
price and the lower authorized price for that specific transaction. Each sale
under this program requires specific authorization. The Company expenses
these authorized discounts on a monthly basis and the expense is included in
calculating net sales.
International Sales
During fiscal year 2001, net sales outside of North America were approximately
$763.7 million of capacitors, representing approximately 54% of the Company's
net sales. Although management believes that the Company is able to provide a
level of delivery and service that is competitive with local suppliers, the
Company's capacitor market shares in European and Asian markets tend to be
significantly lower than in the United States because some international
electronics manufacturers prefer to purchase components from local producers.
As a result, a large percentage of the Company's export sales are made to
foreign operations of U.S. manufacturers. A portion of the Company's European
sales are denominated in local currencies and the Euro; therefore, a
significant appreciation of the U.S. dollar against such foreign currencies or
the Euro would reduce the gross profit realized by the Company on its European
sales as measured in U.S. dollars. Substantially all of the Company's
European export shipments are made duty-paid, free delivery as required by
local market conditions (see note 9 to Consolidated Financial Statements).
Inventory and Backlog
Although the Company manufactures and inventories standardized products, a
portion of its products are produced to meet specific customer requirements.
Cancellations by customers of orders already in production could have an
impact on inventories; however, cancellations have not been significant to
date.
The backlog of outstanding orders for the Company's products was $168.6
million, and $354.2 million, at March 31, 2001 and 2000, respectively. The
Company believes the decrease was primarily a result of a industry-wide
cyclical correction of a long-term growth phase that originated in the fourth
quarter of fiscal year 2001 as opposed to the growing demand in the prior
fiscal year. The current backlog is expected to be filled during the next
three months. Most of the orders in the Company's backlog may be canceled by
its customers, in whole or in part, although some may be subject to penalty.
Competition
The market for tantalum and ceramic capacitors is highly competitive. The
capacitor industry is characterized by, among other factors, a long-term trend
toward lower prices for capacitors, low transportation costs, and few import
barriers. Competitive factors that influence the market for the Company's
products include product quality, customer service, technical innovation,
pricing, and timely delivery. The Company believes that it competes favorably
on the basis of each of these factors.
The Company's major domestic competitors include AVX Corporation in the
production of tantalum and ceramic capacitors and Vishay Intertechnology,
Inc., in the production of tantalum and MLCC ceramic capacitors. The
Company's major foreign competitors include AVX Corporation in the production
of tantalum and ceramic capacitors, Murata Manufacturing Company Ltd. and TDK
Corporation in the production of ceramic capacitors, and NEC Corporation in
the production of tantalum capacitors.
Raw Materials
The most expensive raw materials used in the manufacture of the Company's
products are tantalum powder, palladium and silver. These materials are
considered commodities and are subject to price volatility. Tantalum powder
is primarily purchased under annual contracts, while palladium and silver are
primarily purchased on the spot and forward markets, depending on market
conditions. For example, if the Company believes that prices are likely to
rise, it may purchase a significant amount of its annual requirements for
forward delivery.
There are presently three suppliers that process tantalum ore into capacitor-
grade tantalum powder. Tantalum powder is a metal used in the manufacture of
tantalum capacitors and is primarily purchased under annual contracts.
Management believes the tantalum needed has generally been available in
sufficient quantities to meet manufacturing requirements. However, the
increase in demand for tantalum capacitors during fiscal year 2001, along with
the limited number of tantalum powder suppliers, led to increases in tantalum
prices and impacted availability. Tight supplies of tantalum raw material and
some tantalum powders caused the price to increase from under $50 per pound
early in calendar 2000 to over $300 per pound late in the year. The Company
was able to pass price increases to its customers due to the strong demand for
capacitors but may not be able to do so in the future. Although the price of
tantalum is down from its peak, the Company is exploring various alternative
sources of supply to ensure a supply of tantalum at reasonable prices.
During fiscal 2001, the Company entered into a 50/50 joint venture agreement
with Australian Gold Mines NL ("AGM") to establish an independent source of
tantalum to meet the increasing demand for tantalum capacitors from key
customers. This transaction closed in April 2001. The Company's initial
investment in the joint venture is approximately $4.9 million, and the Company
acquired a 10 percent interest in AGM for approximately $2.3 million. The
Company has the right to acquire all processed tantalum products from the
initial production plant, which began operations in the quarter ended March
31, 2001, and from any future processing operations. The products are
expected to be toll converted into tantalum powder necessary for the
production of capacitors. The Company anticipates that current mining
operations will initially provide up to 10% to 15% of its annual tantalum
requirements.
Although palladium is presently found primarily in South Africa and Russia,
the Company believes that there are a sufficient number of domestic and
foreign suppliers from which the Company can purchase its palladium
requirements. Although palladium required by the Company has generally been
available in sufficient quantities, the limited number of suppliers could lead
to higher prices, and the inability of the Company to pass any increase on to
its customers could have an adverse effect on the margin of those products in
which the metal is used. The Company continues to take actions to minimize
the impact of future palladium price increases on its profit margins. The
Company has a major product development initiative to shift from the
production of MLCCs using palladium\silver electrodes to processes using base
metal electrodes, such as nickel. At March 31, 2001, the Company had
displaced approximately 50% of the palladium that it otherwise would have used
to manufacture MLCCs.
Silver and aluminum have been generally been available in sufficient
quantities, and the Company believes there are a sufficient number of
suppliers from which the Company can purchase its requirements.
Patents and Trademarks
At March 31, 2001, the Company held 60 United States and 100 foreign patents
and 9 United States and 71 foreign trademarks. The Company has entered into
few licensing arrangements for technology or products as it believes that
the success of its business is not materially dependent on the existence or
duration of any patent, license, or trademark, other than the name "KEMET."
The Company's engineering and research and development staffs have developed
and continue to develop proprietary manufacturing processes and equipment
designed to enhance the Company's manufacturing facilities and reduce costs.
Research and Development
Research and Development expenses were $26.2 million for fiscal year 2001
compared to $23.9 million for fiscal year 2000. These amounts include
expenditures for product development, such as aluminum capacitors introduced
in fiscal year 2001, and the design and development of machinery and equipment
for new processes and cost reduction efforts. Most of the Company's products
and manufacturing processes have been designed and developed by Company
engineers. The Company continues to invest in new technology to improve
product performance and production efficiencies.
Environmental
The Company is subject to various Mexican and United States federal, state,
and local environmental laws and regulations relating to the protection of the
environment, including those governing the handling and management of certain
chemicals used and generated in manufacturing electronic components. Based on
the annual costs incurred by the Company over the past several years,
management does not believe that compliance with these laws and regulations
will have a material adverse effect on the Company's capital expenditures,
earnings or competitive position. The Company believes, however, that it is
reasonably likely that the trend in environmental litigation, laws, and
regulations will continue to be toward stricter standards. Such changes in
the law and regulations may require the Company to make additional capital
expenditures which, while not currently estimable with certainty, are not
presently expected to have a material adverse effect on the Company's
financial condition. See "Legal Proceedings" for a discussion of certain
other environmental matters.
Employees
As of May 31, 2001, KEMET had approximately 12,200 employees, of whom
approximately 3,600 were located in the United States, approximately 8,400
were located in Mexico, and the remainder were located in the Company's
foreign sales offices. The Company believes that its future success will
depend in part on its ability to recruit, retain, and motivate qualified
personnel at all levels of the Company. While none of its United States
employees are unionized, the Company has approximately 6,000 hourly employees
in Mexico represented by labor unions as required by Mexican law. The Company
has not experienced any major work stoppages and considers its relations with
its employees to be good. In addition, the Company's labor costs in Mexico
are denominated in pesos, and Mexican inflation or a significant depreciation
of the United States dollar against the Mexican peso would increase the
Company's labor costs in Mexico.
ITEM 2. PROPERTIES
KEMET is headquartered in Greenville, South Carolina, and has a total of 16
manufacturing plants and distribution centers located in the southeastern
United States and Mexico. The manufacturing operations are in Simpsonville,
Mauldin, Fountain Inn, and Greenwood, South Carolina; Shelby, North Carolina;
Matamoros, Monterrey, and Ciudad Victoria, Mexico. The Company's existing
manufacturing and assembly facilities have approximately 2.2 million square
feet of floor space and are highly automated with proprietary manufacturing
processes and equipment.
The Mexican facilities operate under the Maquiladora Program. In general, a
company that operates under the program is afforded certain duty and tax
preferences and incentives on products brought back into the United States.
The Company has operated in Mexico since 1969 and over 65% of its employees
are located in Mexico. The Company's Mexican facilities in Matamoros are
located within five miles of Brownsville, Texas, with easy access for daily
shipments of work-in-process and finished products. The Company also
has manufacturing facilities in Monterrey which commenced operations in 1991.
The Company constructed and put into production a new manufacturing plant in
Monterrey in 1997. During fiscal year 2000, the Company began production in a
new manufacturing facility for tantalum capacitors in Ciudad Victoria, Mexico.
The Company's manufacturing processes and standards, including compliance with
applicable environmental and worker safety laws and regulations, are
essentially identical in the United States and Mexico. The Company's Mexican
operations, like its United States operations, have won numerous quality,
environmental, and safety awards.
Each of the Company's manufacturing and assembly facilities produces one
product or a family of closely related products. Management believes that
this focused approach to manufacturing allows each facility to shorten
manufacturing time, optimize product flow, and avoid long and costly equipment
retooling and employee training time, all of which leads to overall reduced
costs.
The Company has developed just-in-time manufacturing and sourcing systems.
These systems enable the Company to meet customer requirements for faster
deliveries while minimizing the need to carry significant inventory levels.
The Company continues to emphasize flexibility in all of its manufacturing
operations to improve product delivery response times.
Management believes that substantially all of its property and equipment is in
good condition and that it has sufficient capacity to meet its current and
projected manufacturing and distribution needs for leaded capacitors. The
Company continues to add capacity to meet its projected manufacturing and
distribution needs for surface-mount capacitors.
The following table provides certain information regarding the Company's
principal facilities:
Date
Constructed
Acquired or
First
Square
Type of
Description
Occupied by
Location
Footage
Interest
Of Use
Company
- --------------------------
-------
---------
- -------------------------
- -----------
Greenville, South Carolina
372,000
Owned
Manufacturing/Headquarters
1963
Matamoros, Mexico (2)
291,000
Owned
Manufacturing
1985
Monterrey, Mexico (1)
275,000
Owned
Manufacturing
1991
Ciudad Victoria, Mexico
259,000
Owned
Manufacturing
1999
Fountain Inn, South Carolina
249,000
Owned
Manufacturing
1985
Monterrey, Mexico
229,000
Owned
Manufacturing
1996
Mauldin, South Carolina
129,000
Owned
Manufacturing
1971
Shelby, North Carolina
117,000
Owned
Manufacturing
1982
Greenwood, South Carolina
113,000
Owned
Manufacturing
1981
Mauldin, South Carolina
80,000
Leased
Distribution/Storage
1976
Matamoros, Mexico
68,000
Owned
Manufacturing
1977
Brownsville, Texas
60,000
Leased
Shipping/Distribution
1992
(1) Includes two separate manufacturing facilities.
(2) Includes three separate manufacturing facilities.
ITEM 3. LEGAL PROCEEDINGS
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA") and certain analogous state laws, impose
retroactive, strict liability upon certain defined classes of persons
associated with releases of hazardous substances into the environment. Among
those liable under CERCLA (known collectively as "potentially responsible
parties" or "PRPs") is any person who "arranged for disposal" of hazardous
substances at a site requiring response action under the statute. While a
company's liability under CERCLA is often based upon its proportionate share
of overall waste volume or other equitable factors, CERCLA has been widely
held to permit imposition of joint and several liability on each PRP. The
Company has periodically incurred, and may continue to incur, liability under
CERCLA and analogous state laws with respect to sites used for off-site
management or disposal of Company-derived wastes. The Company has been named
as a PRP at the Seaboard Chemical Site in Jamestown, North Carolina. The
Company is participating in the clean-up as a "de minimis" party and does not
expect its total exposure to be material. In addition, Union Carbide
Corporation (Union Carbide), the former owner of the Company, is a PRP at
certain sites relating to the off-site disposal of wastes from properties
presently owned by the Company. The Company is participating in coordination
with Union Carbide in certain PRP-initiated activities related to these sites.
The Company expects that it will bear some portion of the liability with
respect to these sites; however, any such share is not presently expected to
be material to the Company's financial condition. In connection with the
acquisition in 1990, Union Carbide agreed, subject to certain limitations, to
indemnify the Company with respect to the foregoing sites.
The Company or its subsidiaries are at any one time parties to a number of
lawsuits arising out of their respective operations, including workers'
compensation or work place safety cases, some of which involve claims of
substantial damages. Although there can be no assurance, based upon
information known to the Company, the Company does not believe that any
liability which might result from an adverse determination of such lawsuits
would have a material adverse effect on the Company's financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the Company's
quarter ended March 31,2001.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
As of December 9, 1999, the Company's Common Stock began trading on the New
York Stock Exchange under the symbol KEM. Prior to that date, the Common
Stock was traded on the Nasdaq Stock Market under the symbol KMET. The
Company had approximately 51,200 stockholders as of June 1, 2001, of which
399 were stockholders of record. The following table represents the high and
low sale prices of the Common Stock as reported by the appropriate exchange
for the periods indicated and are adjusted to reflect additional shares issued
on June 1, 2000 in connection with the two-for-one stock split:
Fiscal 2001
Fiscal 2000
- ----------------------
- ----------------------
High
Low
High
Low
First Quarter
$44.22
$24.19
$11.63
$ 5.72
Second Quarter
33.94
22.50
16.50
10.57
Third Quarter
29.19
13.75
22.69
13.19
Fourth Quarter
23.31
14.25
40.00
16.00
The Company has not declared or paid any cash dividends on its Common Stock
since the initial public offering in October 1992. The Company currently
intends to retain earnings to support its growth strategy and does not
anticipate paying dividends in the foreseeable future. Any future
determination to pay dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other factors, the capital
requirements, operating results and financial condition of the Company. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources" contained in this Form 10-K for
fiscal year 2001.
ITEM 6. SELECTED FINANCIAL DATA
Years Ended March 31,
- ------------------------------------------------------------------
Dollars in thousands
Except per share data
2001
2000
1999
1998
1997
- -----------
-----------
- -----------
- -----------
- -----------
Income Statement Data:
Net sales
$1,406,147
$822,095
$565,569
$667,721
$555,319
Operating income
566,986
124,315
22,604
82,202
62,415
Interest income
(16,713)
(2,079)
-
-
-
Interest expense
7,507
9,135
9,287
7,305
5,709
Net earnings
$ 352,346
$ 70,119
$ 6,150
$ 49,190
$ 37,169
- -----------------------
- -----------
-----------
- -----------
- -----------
- -----------
Per Common Share Data:
Net earnings per common
share-diluted
$4.00
$0.85
$0.08
$0.62
$0.47
Net earnings per common
share-basic
$4.05
$0.87
$0.08
$0.63
$0.48
Weighted average shares
outstanding
-diluted
88,181,118
82,411,634
79,027,860
78,854,328
78,553,356
-basic
86,930,965
80,650,376
78,441,440
78,146,444
77,474,320
- -----------------------
- -----------
- -----------
- -----------
- -----------
- -----------
Balance Sheet Data:
Total assets
$1,366,530
$927,256
$663,690
$642,109
$543,244
Working capital
460,055
260,154
90,371
48,772
63,068
Long-term debt
100,000
100,000
144,000
104,000
102,900
Stockholders' equity
886,176
547,456
313,674
306,260
252,123
- -----------------------
- -----------
- -----------
- -----------
- -----------
- -----------
Other Data:
Cash flow from
operating activities
$ 385,521
$177,717
$ 20,817
$ 88,153
$ 55,818
Capital expenditures
210,559
82,009
59,047
114,516
84,755
Research and development
26,188
23,918
21,132
23,766
20,753
- -----------------------
- -----------
- -----------
- -----------
- -----------
- -----------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Business Outlook
The fiscal year ended March 31, 2001, was the most financially successful year
in the history of the Company. The Company's net income for the year ended
March 31, 2001, of $352.3 million, exceeded the earnings from all previous
periods combined. The Company also ended the fiscal year in the strongest
financial position in its history with $360.8 million in cash, $100.0 million
in long-term debt, and $886.2 million in shareholders' equity. The Company
believes this performance validates its business model as well as the
capabilities of its experienced management team. The Company anticipates
using these resources to take advantage of significant market opportunities,
including high-frequency tantalum, high-capacitance ceramic, and new solid
aluminum capacitors. The electronics industry is a high-growth, cyclical
industry. The extraordinary financial results for the fiscal year ended March
31, 2001 coincidentally came near the end of a cycle that began with the Asian
crisis in fiscal year 1999.
The industry is now in another correction phase of the long-term growth trend.
The Company is of the opinion that the rapidity with which this
inventory/capacity correction is occurring is unprecedented compared to
previous cycles. The Company's near-term visibility is limited because of the
general uncertainty in the industry. The Company estimates, given the high
level of economic uncertainty, that revenues for the quarter ending June 30,
2001, will be down over 40% from the quarter ended March 31, 2001, due to an
inventory correction in the electronics industry. The backlog entering the
quarter ending June 30, 2001, of $168.6 million, is less than half that of a
year ago. Selling prices for tantalum capacitors increased significantly
during the 15 months ended March 31, 2001, due to strong demand and the
dramatic rise in the cost of tantalum ore. The Company expects selling prices
for tantalum capacitors to decline industry-wide during calendar 2001 as
demand decreases due to the inventory correction and shortages in the world
supply of tantalum powder are alleviated. The Company thinks that the gross
margin percentage for the fiscal year ending March 31, 2002, will average in
the range of 30% to 35%. The Company believes the quarter ending June 30,
2001, will be the low point in the correction phase of the current cycle. In
this environment, the Company will continue to focus its efforts on cost
reduction and development of new products so it will again be well positioned
to benefit as the industry recovers. Please refer to the discussion under the
caption "Safe Harbor Statement" below for a discussion of certain risks and
uncertainties relating to the statements above.
During fiscal year 2001, the Company entered into a 50/50 joint venture
agreement with Australasian Gold Mines NL ("AGM") to establish an independent
source of tantalum to meet the increasing demand for tantalum capacitors from
key customers. This transaction closed in April 2001. The Company's initial
investment in the joint venture is approximately $4.9 million. The Company
also acquired a 10 percent interest in AGM for approximately $2.3 million.
The Company has the right to acquire all processed tantalum products from the
initial production plant, which began operations in the March quarter, and
from any future processing operations. These tantalum products are expected
to be toll converted into tantalum powder necessary for the production of
capacitors. The Company anticipates that current mining operations will
initially provide up to 15% of its annual tantalum requirements.
Comparison of Fiscal Year 2001 to Fiscal Year 2000
Net sales for fiscal year 2001 were $1,406.1 million, which represented a 71%
increase from fiscal year 2000 net sales of $822.1 million. The increase in
net sales was attributed to the strong growth in demand for electronic
products such as computers and peripherals, cell phones, and automotive
electronic systems. Average selling prices continued an upward trend that
began in the prior fiscal year. Unit volumes increased approximately 15% to
36.1 billion units in fiscal year 2001, from 31.5 billion units in fiscal year
2000. The Company experienced growth in both domestic and export markets as
domestic sales increased 57% and export sales increased 85%.
Cost of sales, exclusive of depreciation, for the year ended March 31, 2001,
was $693.7 million as compared to $569.7 million for the year ended March 31,
2000. As a percentage of net sales, cost of sales, exclusive of depreciation,
for fiscal year 2001 was 49% as compared to 69% for fiscal year 2000. The
decrease in cost of sales as a percentage of net sales was attributed to
higher average selling prices during fiscal year 2001, gains from
manufacturing efficiencies due to higher unit volume, and the results of the
Company's cost reduction programs such as reduced palladium usage in ceramic
capacitors.
Selling, general, and administrative expenses for the year ended March 31,
2001, were $55.7 million, or 4% of net sales, as compared to $48.5 million, or
6% of net sales, for the year ended March 31, 2000. The decrease in selling,
general, and administrative expenses as a percentage of sales is primarily due
to the impact of higher sales volume and increased average selling prices.
Research, development, and engineering expenses were $26.2 million for fiscal
year 2001, compared to $23.9 million for fiscal year 2000. These costs
reflect the Company's continuing commitment to the development and
introduction of new products, such as aluminum capacitors, along with the
improvement of product performance and production efficiencies.
Depreciation and amortization for fiscal year 2001 was $63.6 million, an
increase of $7.9 million, or 14%, from $55.7 million for fiscal year 2000.
The increase resulted primarily from depreciation expense associated with
increased capital expenditures during the current and prior fiscal years.
Operating income was $567.0 million for fiscal year 2001, compared to $124.3
million for fiscal year 2000. The increase in operating income resulted
primarily from the increase in net sales and improvements in cost of sales as
discussed above.
Income tax expense for fiscal year 2001 was 38% of net earnings before income
taxes. Both federal and state taxes increased over fiscal year 2000 as loss
carryforwards and credits were not available in fiscal year 2001 to the extent
they were available in the prior fiscal year.
Comparison of Fiscal Year 2000 to Fiscal Year 1999
Net sales for fiscal year 2000 were $822.1 million, which represents a 45%
increase from fiscal year 1999 net sales of $565.6 million. The increase in
net sales was attributed to the strong growth in demand for electronic
products such as computers and peripherals, cell phones, and automotive
electrical systems. This growth in demand led to increased unit volume and an
improvement in the pricing environment as average selling prices increased
from their previously depressed levels. Demand for surface-mount capacitors
contributed to the growth as net sales increased 55% to $711.0 million for
fiscal year 2000. The Company experienced growth in both domestic and export
markets as domestic sales increased 39% and export sales increased 52%,
partially due to the recovery of the Asian economy.
Cost of sales, exclusive of depreciation, for the year ended March 31, 2000,
was $569.7 million as compared to $428.4 million for the year ended March 31,
1999. As a percentage of net sales, cost of sales, exclusive of depreciation,
for fiscal year 2000 was 69% as compared to 76% for fiscal year 1999. The
decrease in cost of sales as a percentage of net sales was attributed to
higher sales in fiscal year 2000, gains from manufacturing efficiencies due to
higher unit volume, and the results of the Company's cost reduction programs
such as reduced palladium usage in ceramic capacitors.
Selling, general, and administrative expenses for the year ended March 31,
2000, were $48.5 million, or 6% of net sales, compared to $46.6 million, or 8%
of net sales, for the year ended March 31, 1999. The decrease in selling,
general, and administrative expenses as a percentage of sales is primarily due
to the impact of higher sales volume and increased average selling prices.
Research, development, and engineering expenses were $23.9 million for fiscal
year 2000, compared to $21.1 million for fiscal year 1999. These costs
reflect the Company's continuing commitment to the development and
introduction of new products, along with the improvement of product
performance and production efficiencies.
Depreciation and amortization for fiscal year 2000 was $55.7 million, an
increase of $8.8 million, or 19%, from $46.9 million for fiscal year 1999.
The increase resulted primarily from depreciation expense associated with
increased capital expenditures during the current and prior fiscal years.
Operating income was $124.3 million for fiscal year 2000, compared to $22.6
million for fiscal year 1999. The increase in operating income resulted
primarily from the increase in net sales and improvements in cost of sales as
discussed above.
Income tax expense for fiscal year 2000 was 34% of net earnings before income
taxes. The decrease from the federal statutory rate of 35% is primarily the
result of increased foreign sales corporation benefits and lower state tax
expense.
Quarterly Results of Operations
The following table sets forth certain quarterly information for the years
ended March 31, 2001 and 2000. This information is unaudited but, in the
opinion of the Company's management, reflects all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly this information
when read in conjunction with the Consolidated Financial Statements and notes
thereto included elsewhere herein
Fiscal year ended March 31, 2001
- ----------------------------------------------------------------
Dollars in thousands
except per share data
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
----------
----------
----------
----------
----------
Net sales
$329,169
$364,049
$374,930
$337,999
$1,406,147
Gross profit (exclusive
of depreciation) (1)
159,333
187,875
194,011
171,269
712,488
Net earnings
$ 80,235
$ 96,264
$ 97,403
$ 78,444
$ 352,346
Net earnings per common
share (basic)
$0.92
$1.10
$1.11
$0.91
$4.05
Net earnings per common
share (diluted)
$0.90
$1.08
$1.10
$0.90
$4.00
Weighted average shares
outstanding (basic)
87,324,021
87,414,074
87,416,454
86,362,252
86,930,965
Weighted average shares
outstanding (diluted)
88,915,974
88,804,300
88,678,409
87,414,105
88,181,118
Fiscal year ended March 31, 2000
- ----------------------------------------------------------------
Dollars in thousands
except per share data
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
----------
----------
----------
----------
----------
Net sales
$162,649
$186,187
$215,139
$258,120
$822,095
Gross profit (exclusive
of depreciation) (1)
39,665
49,794
65,501
97,429
252,389
Net earnings
$ 4,694
$ 9,199
$ 18,160
$ 38,066
$ 70,119
Net earnings per common
share (basic)
$0.06
$0.12
$0.23
$0.44
$0.87
Net earnings per common
share (diluted)
$0.06
$0.11
$0.22
$0.44
$0.85
Weighted average shares
outstanding (basic)
78,571,116
78,822,996
79,713,170
85,554,814
80,650,376
Weighted average shares
outstanding (diluted)
79,778,122
80,614,798
81,199,048
87,379,088
82,411,634
(1) Gross profit (exclusive of depreciation) as a percentage of net sales
fluctuates from quarter to quarter due to a number of factors, including net
sales fluctuations, product mix, the timing and expense of moving product lines
to lower cost locations, and the relative mix of sales between distributors and
original equipment manufacturers.
Liquidity and Capital Resources
The Company's liquidity needs arise from working capital requirements, capital
expenditures, and principal and interest payments on its indebtedness. The
Company intends to satisfy its liquidity requirements primarily with funds
provided by operations and borrowings under its bank credit facilities.
During fiscal year 2001, the Company generated $385.5 million in net cash from
operating activities as compared to $177.7 million in fiscal year 2000. In
turn, this led to a significant increase in cash and short-term investments to
$360.8 million from $199.4 million at March 31, 2001 and 2000, respectively.
The increase in cash flow from operating activities was primarily a result of
the increase in net income and, to a lesser extent, the timing of cash flows
from current assets and liabilities, such as accounts receivable, inventory,
accounts payable, accrued liabilities, and income taxes payable.
Inventories increased to $202.3 million at March 31, 2001, from $131.0 million
at March 31, 2000, due to an increase in units as well as higher raw material
prices. Current liabilities increased to $285.1 million at March 31, 2001,
versus $189.1 million at March 31, 2000, commensurate with the increase in
business activity in fiscal year 2001 versus fiscal year 2000.
The Company invested $210.6 million in capital expenditures in fiscal year 2001
versus $82.0 million in fiscal year 2000, and expects to invest approximately
$100.0 to $150.0 million in fiscal year 2002. The fiscal year 2001 capital was
primarily invested in surface-mount manufacturing capacity as the Company
expects continued future growth in capacitor demand.
The Company is subject to restrictive covenants which, among others, restrict
its ability to make loans or advances or to make investments, and require it to
meet financial tests related principally to funded debt, cash flows, and net
worth. At March 31, 2001, the Company was in compliance with such covenants.
Borrowings are secured by guarantees of certain of the Company's wholly-owned
subsidiaries.
During fiscal year 2000, the Company's long-term debt decreased $44.0 million,
as the Company reduced its indebtedness with the proceeds from the January 2000
Secondary Offering. At March 31, 2001, the Company had unused availability
under its revolving credit facility and its swingline credit facility, both of
which expire in October 2002, of $150.0 million and $10.0 million,
respectively.
On January 20, 2000, the Company sold 6,500,000 shares of its common stock in a
public offering for $142.6 million in net cash proceeds after deducting
underwriting fees and offering expenses. Included in the offering were
2,193,220 shares sold by a stockholder of the Company which were shares of non-
voting common stock that were converted into common stock on a share-for-share
basis. The net proceeds were used to repay outstanding debt under the Company's
short-term credit facility and to fund capital expenditures.
In August 2000, the Company announced that its Board of Directors had
authorized a program to purchase up to 4.0 million shares of its common stock
in the open market. As of March 31, 2001, the Company had made direct
purchases of 1.6 million shares for $29.3 million and had outstanding put
option obligations for1.9 million shares with an average exercise price of
$18.31 under the program. The program was fulfilled in April 2001, at which
time the Company announced that its Board of Directors had authorized a second
4.0 million stock purchase program. The amount and timing of purchases will
depend on market conditions and other factors. The program will be funded from
existing cash, and a combination of direct purchases and put options may be
used to execute the program.
Additional liquidity is generated by the Company through its accounts
receivable discounting arrangements. For the past several years, KEMET
Electronics, S.A., a wholly-owned subsidiary of the Company, has been a party
to accounts receivable discounting agreements with both Swiss Bank Corporation
and Union Bank of Switzerland. As a result of the merger of these two entities
in 1998, KEMET Electronics, S.A., entered into a single replacement discounting
agreement with UBS AG on November 19, 1998, which allows for the sale of up to
$80.0 million of accounts receivable at any one time outstanding at a discount
rate of .60% above LIBOR.
In May 1998, the Company sold $100.0 million of its Senior Notes pursuant to
the terms of a Note Purchase Agreement dated as of May 1, 1998, between the
Company and the eleven purchasers of the Senior Notes named therein. These
Senior Notes have a final maturity date of May 4, 2010, with required principal
repayments beginning on May 4, 2006. The Senior Notes bear interest at a fixed
rate of 6.66%, with interest payable semiannually beginning November 4, 1998.
The terms of the Note Purchase Agreement include various restrictive covenants
typical of transactions of this type, and require the Company to meet certain
financial tests including a minimum net worth test and a maximum ratio of debt
to total capitalization. The net proceeds from the sale of the Senior Notes
were used to repay existing indebtedness and for general corporate purposes.
The Company presently has a total of eight manufacturing facilities in
Matamoros, Monterrey, and Ciudad Victoria, Mexico, with over 60% of the
Company's employees located there. In fiscal year 2001, the volatility of the
Mexican peso did not have a material impact on the Company's performance.
As discussed in Note 12 to the Consolidated Financial Statements, the Company
or its subsidiaries are at any one time parties to a number of lawsuits arising
out of their respective operations, including workers' compensation or work
place safety cases and environmental issues, some of which involve claims of
substantial damages. Although there can be no assurance, based upon
information known to the Company, the Company does not believe that any
liability which might result from an adverse determination of such lawsuits
would have a material adverse effect on the Company.
The Company believes its strong financial position will permit the financing
of its business needs and opportunities. It is anticipated that ongoing
operations will be financed primarily by internally generated funds. In
addition, the Company has the flexibility to meet short-term working capital
and other temporary requirements through utilization of borrowings under its
bank credit facilities.
Adoption of Accounting Standards
Effective October 1, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. It requires the recognition of all
derivative instruments as either assets or liabilities in the consolidated
balance sheet and measurement of those instruments at fair value. The
accounting treatment of changes in fair value is dependent upon whether or
not a derivative instrument is designated as a hedge and, if so, the type of
hedge. For derivatives designated as cash flow hedges, to the extent
effective, changes in fair value are recognized in accumulated other
comprehensive income ("AOCI") until the hedged item is recognized in
earnings. Ineffectiveness is recognized immediately in earnings. For
derivatives designated as fair value hedges, changes in fair value are
recognized in earnings.
Prior to adoption of SFAS No. 133, the Company recorded gains and losses
related to the hedges of forecasted foreign currency transactions directly to
earnings ("Other income and expense"), and gains and losses related to hedges
of firm commitments were deferred and recognized in earnings as adjustments of
carrying amounts when the transactions occurred.
The adoption of SFAS No. 133 did not result in a significant transition
adjustment and is therefore not separately captioned in the statement of
earnings as cumulative effect of a change in accounting principle. The
transition adjustment as of October 1, 2000, was a gain of approximately $0.9
million net of tax, and is included in cost of goods sold for the period.
The Company adopted the Securities and Exchange Commission's Staff Accounting
Bulletin No. 101 (the "SAB") effective January 1, 2001. The SAB requires that
a company recognize revenue only when all of the following criteria are met:
(1) Persuasive evidence of an arrangement exists; (2) Delivery has occurred or
services have been rendered; (3) The seller's price to the buyer is fixed or
determinable; and (4) Collectibility is reasonably assured. Upon adoption of
(2) the SAB, there was no impact on the Company's results of operations or
financial condition.
Safe Harbor Statement
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The
Company intends that these forward-looking statements be subject to the safe
harbor created by that provision. These forward-looking statements involve
risks and uncertainties beyond the Company's control. The inclusion of this
forward-looking information should not be regarded as a representation by the
Company that the future events, plans or expectations contemplated by the
Company will be achieved. Furthermore, past performance in operations and
share price is not necessarily predictive of future performance. Finally, the
Company cannot assume responsibility for certain information that is based upon
market estimates.
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect,
KEMET's actual results and could cause KEMET's actual consolidated results for
the first quarter of fiscal year 2002 and beyond to differ materially from
those expressed in any forward-looking statements made by, or on behalf of,
the Company whether contained herein, in other documents subsequently filed by
the Company with the SEC, or in oral statements:
A moderating growth rate in end-use products which incorporate the Company's
products and the effects of a down-turn in the general economy or in general
business conditions;
Underutilization of KEMET's plants and factories, or of any plant expansion or
new plant, including, but not limited to, those in Mexico, resulting in
production inefficiencies and higher costs; start-up expenses, inefficiencies,
delays, and increased depreciation costs in connection with the start of
production in new plants and expansions; capacity constraints that could limit
the ability to continue to meet rising demand for surface-mount capacitors;
Occurrences affecting the slope or speed of decline of the pricing curve for
the Company's products, or affecting KEMET's ability to reduce product and
other costs and to increase productivity; the effect of changes in the mix of
products sold and the resulting effects on gross margins;
Difficulties in obtaining raw materials, supplies, power, natural resources,
and any other items needed for the production of capacitors; the effects of
quality deviations in raw materials, particularly tantalum powder and ceramic
dielectric materials; the effects of significant price increases for tantalum
or palladium, or an inability to obtain adequate supplies of tantalum from the
limited number of suppliers;
The amount and rate of growth in the Company's selling, general, and
administrative expenses, and the impact of unusual items resulting from KEMET's
ongoing evaluation of its business strategies, asset valuations, and
organizational structure;
The acquisition of fixed assets and other assets, including inventories and
receivables; the making or incurring of any expenditures and expenses,
including, but not limited to, depreciation and research and development
expenses; any revaluation of assets or related expenses; and the amount of and
any changes to tax rates;
The effect of any changes in trade, monetary, and fiscal policies, laws, and
regulations; other activities of governments, agencies, and similar
organizations; social and economic conditions, such as trade restrictions or
prohibitions, inflation, and monetary fluctuations; import and other charges or
taxes; the ability or inability of KEMET to obtain, or hedge against, foreign
currency; foreign exchange rates and fluctuations in those rates, particularly
a strengthening of the U.S. dollar; nationalization; unstable governments and
legal systems; intergovernmental disputes; the costs and other effects of legal
and administrative cases and proceedings (whether civil, such as environmental
and product-related, or criminal); settlements, investigations, claims, and
changes in those items; developments or assertions by or against the Company
relating to intellectual property rights and intellectual property licenses;
adoptions of new or changes in accounting policies and practices and the
application of such policies and practices; the effects of changes within
KEMET's organization, particularly at the executive officer level, or in
compensation and benefit plans; the amount, type, and cost of the financing
which the Company has and any changes to that financing; the effects of severe
weather on KEMET's operations, including disruptions at manufacturing
facilities; the effects of a disruption in KEMET's computerized ordering
systems; and the effects of a disruption in KEMET's communications systems.
Effect of Inflation
Inflation generally affects the Company by increasing the cost of labor,
equipment, and raw materials. The Company does not believe that inflation has
had any material effect on the Company's business over the past three years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk
The Company's debt financing alternatives include a revolving credit agreement
which is priced on a floating rate basis at a spread over U.S. dollar LIBOR.
Accordingly, any movement in U.S. dollar LIBOR would impact the Company's
interest expense, except for the fact that the outstanding balance under this
facility at March 31, 2001, was $0. The Company has not historically used
interest rate swaps, interest rate caps, or other derivative financial
instruments for the purpose of hedging fluctuations in interest rates on its
floating rate debt.
Foreign Currency Exchange Rate Risk
A portion of the Company's sales to its customers in Europe are denominated in
local European currencies, thereby creating an exposure to foreign currency
exchange rate risk. Also, a portion of the Company's cost in its Mexican
operations are denominated in Mexican pesos, creating an exposure to exchange
rate risk. In order to minimize its exposure to such risk, the Company will
periodically enter into forward foreign exchange contracts in which the net
long or short position in a local European currency or Mexico peso is hedged
against the U.S. dollar.
The impact of changes in the relationship of other currencies to the U.S.
dollar has historically not been significant, and such changes in the future
are not expected to have a material impact on the Company's results of
operations or cash flows. The Company does not use derivative financial
instruments for speculative purposes or if there is no underlying business
transaction supporting or related to the derivative financial instrument.
Commodity Price Risk
The Company purchases various precious metals used in the manufacture of
capacitors and is therefore exposed to certain commodity price risks. These
precious metals consist primarily of palladium and tantalum.
Palladium is a precious metal used in the manufacture of multilayer ceramic
capacitors and is mined primarily in Russia and South Africa. Currently, the
Company uses forward contracts and spot buys to secure the acquisition of
palladium and manage the price volatility in the market. There has been a
dramatic increase in the price of palladium attributed to delays from the
Russian supply of the metal which has caused the price to fluctuate between
$554 and $1,090 per troy ounce during fiscal year 2001. As a result, the
Company is aggressively pursuing ways to reduce palladium usage in ceramic
capacitors and minimize the price risk.
Tantalum powder is a metal used in the manufacture of tantalum capacitors and
is primarily purchased under annual contracts. Management believes the
tantalum needed has generally been available in sufficient quantities to meet
manufacturing requirements. However, the increase in demand for tantalum
capacitors during fiscal year 2001, along with the limited number of tantalum
powder suppliers, led to increases in tantalum prices and impacted
availability. Tight supplies of tantalum raw material and some tantalum powders
caused the price to increase from under $50 per pound early in calendar 2000 to
over $300 per pound late in the year. The Company was able to pass price
increases to its customers due to the strong demand for capacitors but may not
be able to do so in the future. Although the price of tantalum is down from
its peak, the Company is exploring various alternative sources of supply to
ensure a supply of tantalum at reasonable prices.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
Form 10-K. See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES OF THE
REGISTRANT
Years with
Name Age Position Company (1)
- ------------------------------------------------------------------------------
David E. Maguire 66 Chairman, Chief Executive Officer and Director 42
Charles M. Culbertson II 52 President and Chief Operating Officer 21
Glenn H. Spears (2) 62 Executive Vice President and Secretary 23
Harris L. Crowley, Jr. 51 Senior Vice President, Technology, New Products
and Engineering 26
D. Ray Cash 52 Senior Vice President, Chief Financial Officer,
and Assistant Secretary 31
William W. Johnson 49 Vice President, Sales Worldwide 9
Raymond L. Beck, Jr. 51 Vice President, Quality and Marketing 30
C. Ross Patterson, Jr. 45 Vice President and Chief Information Officer 3
Larry W. Sheppard 57 Vice President, Human Resources 31
James A. Bruorton III 52 Vice President, Worldwide Distribution 28
Eugene J. DiCianni 51 Vice President of Sales, Americas 26
Derek Payne 64 Vice President/Managing Director, Europe 25
Ravi G. Sastry 41 Vice President, International Sales and
Managing Director, Asia 17
James P. McClintock 45 Vice President, Ceramic Operations 22
Manuel A. Cappella 53 Vice President/Managing Director of Mexico,
Tantalum 29
Dr. Larry A. Mann 44 Vice President, Ceramic Technology 12
Dr. Daniel F. Persico 46 Vice President, Tantalum Technology 4
Michael W. Boone 50 Treasurer/Director of Finance and Secretary 14
Charles E. Volpe 63 Director -
Stewart A. Kohl 45 Director -
E. Erwin Maddrey, II 60 Director -
Paul C. Schorr IV 34 Director -
(1) Includes service with UCC.
(2) Retired effective April 1, 2001.
Directors and Executive Officers
David E. Maguire, Chairman, Chief Executive Officer and Director, has served
as Chairman since August 1992. Mr. Maguire served as Chief Executive Officer,
President, and Director from November 1997 until June 1999, and from December
1990 until October 1996. Mr. Maguire also served as Chairman, President and
Chief Executive Officer of KEMET Electronics Corporation, a wholly owned
subsidiary, since April 1987. From January 1959 until April 1987, Mr. Maguire
served in a number of capacities with the KEMET capacitor business of Union
Carbide, most recently as Vice President from June 1978 until April 1987.
Charles M. Culbertson II, President and Chief Operating Officer, was named
such in June 1999. Mr. Culbertson had been Senior Vice President and General
Manager, Tantalum, since November 1997 and had been Vice President and General
Manager of Tantalum Surface-Mount Capacitors since January 1996. Since June
1980, Mr. Culbertson has served in a number of engineering and management
positions in the Company. Mr. Culbertson also serves on the board of
directors of Australasian Gold Mines NL.
Glenn H. Spears, Former Executive Vice President and Secretary, named such in
October 1999, retired effective April 1, 2001. 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 Corp 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 Corp in that same capacity since April 1987.
D. Ray Cash, Senior Vice President/Chief Financial Officer and Assistant
Secretary was named such in August 2000 and his duties include responsibility
for the Administration and Finance functions. Mr. Cash is Assistant Secretary
and was named such in April 1997. Mr. Cash had been Senior Vice President of
Administration and Treasurer since 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 Corp 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 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., HammerBlow Corporation, Hudson Sharp Machine
Company, Porcelain Products Company, Shorebanc Holding Company.
E. Erwin Maddrey, II, Director, was named such in May 1992. Mr. Maddrey is
President and Chief Executive Officer of Maddrey and Associates. Mr. Maddrey
was the President, Chief Executive Officer, and Chairman of Delta Apparel
Company, a textile manufacturer, and its predecessors from 1984 through June
2000. 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, Delta Woodside
Industries, Inc., Delta Apparel Company, Duckhead Apparel Company 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 currently Managing Director of
Citicorp Venture Capital, Ltd., a private equity firm, and had held various
positions of increasing responsibility with Citicorp Venture since 1996.
Prior to that time, he served as an Engagement Manager with McKinsey &
Company, Inc. from 1993. Mr. Schorr also serves on the boards of AMI
Semiconductor, ChipPAC Incorporated and Fairchild Semiconductor International,
Inc.
Other Key Employees
William W. Johnson, Vice President, Sales Worldwide, was named such in July
1996. Mr. Johnson was previously a plant manager with Vitramon, Incorporated,
which was acquired by Vishay Intertechnology, Inc., a manufacturer and
supplier of a broad line of passive electronic components. Also during his
tenure with Vitramon, Incorporated, Mr. Johnson was Director of Sales and
Marketing.
Raymond L. Beck Jr., Vice President, Quality and Marketing, was named such in
November 1997. Prior to that time, Mr. Beck had been Vice President of
Ceramic Product Management since January 1995. Mr. Beck has served in various
sales and marketing positions including Regional Sales Manager and Ceramic
Surface-Mount Capacitor Product Manager with Union Carbide and KEMET since
October 1971.
C. Ross Patterson, Jr., Vice President and Chief Information Officer, was
named such in January 1999. Mr. Patterson was previously Group Director,
Information Systems, with Glaxo Wellcome Inc., based in Research Triangle
Park, NC 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 of 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. Mr. Payne will retire on November 1, 2001.
Ravi G. Sastry, Vice President of International Sales, was named such in March
2001 and continues to be Managing Director of Asia as named in December 1997.
Mr. Sastry had been Vice President/Managing Director, Asia since December
1997. Mr. Sastry has served in various sales, marketing, and manufacturing
capacities with Union Carbide and KEMET since August 1983.
James P. McClintock, Vice President, Ceramic Operations, was named such in
July 2000. Prior to that, Mr. McClintock has been Vice President of U.S.
Ceramic Operations, since June 1999. Prior to that, Mr. McClintock was Vice
President, Tantalum. Mr. McClintock has served in various engineering and
manufacturing capacities with Union Carbide and KEMET since January 1979.
Manuel A. Cappella, Vice President/Managing Director of 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.
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. Dr. Persico worked with Cabot Corporation from 1995 - November
1997 as Director of Technology and subsequently as Business Unit Manager.
Michael W. Boone, Treasurer/Director of Finance and Secretary, was named
Secretary in April 2001, Treasurer in August 2000 and Director of Finance in
March 1997. Mr. Boone joined KEMET in June 1987 as Manager of Credit and Cash
Management.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on July 25, 2001. The information specified in Item 402(k) and (1) of
Regulation S-K and set forth in the Company's definitive proxy statement for
its annual stockholders' meeting to be held on July 25, 2001, is not
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on July 25, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on July 25, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements are filed as a part of this report:
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2001 and 2000
Consolidated Statements of Earnings for the years ended March 31, 2001,
2000, and 1999
Consolidated Statements of Stockholders' Equity and Comprehensive Income for
the years ended March 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows for the years ended March 31, 2001,
2000, and 1999
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules.
None.
(a) (3) Exhibits.
The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission.
4.1 Eighth Amendment to Credit Agreement among KEMET Corporation, Wachovia
Bank, N.A. as agent, and the Banks named in the Credit Agreement dated as of
the 1st day of June 2000 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).
23.3 Consent of Independent Auditors
27.1 Financial Data Schedule
Exhibits Incorporated by Reference
The Exhibits listed below have been filed with the Commission and are
incorporated herein by reference to the exhibit number and file number of such
documents which are stated in parentheses.
4.2 Seventh Amendment to Credit Agreement among KEMET Corporation, Wachovia
Bank, N.A. as agent, and the Banks named in the Credit Agreement dated as of
the 1st day of June 2000 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).
10.1 Amendment No. 1 to KEMET Corporation 1992 Key Employee Stock Option Plan
effective October 23, 2000 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31,
2000,
(b) Reports on Form 8-K.
No reports were filed on Form 8-K during the fiscal year and fiscal quarter
ended March 31, 2001.
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, 2001 and 2000, 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, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of KEMET
Corporation and subsidiaries as of March 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
Greenville, South Carolina KPMG LLP
April 27, 2001
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2001 and 2000
Dollars in thousands except per share data
March 31,
---------------------------
2001
2000
----------
---------
ASSETS
Current assets:
Cash and cash equivalents
$ 360,758
$ 75,735
Short-term investments (note 15)
-
123,687
Accounts receivable (notes 10 and 11)
96,583
94,127
Inventories:
Raw materials and supplies
79,002
53,532
Work in process
81,975
58,220
Finished goods
41,300
19,207
----------
---------
Total inventories
202,277
130,959
Prepaid expenses and other current assets (note 15)
50,493
4,688
Deferred income taxes (note 7)
35,018
20,099
----------
---------
Total current assets
745,129
449,295
Property and equipment, net (note 11)
567,262
423,399
Intangible assets, net (note 2)
44,027
46,198
Other assets
10,112
8,364
----------
---------
Total assets
$1,366,530
$ 927,256
==========
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade (note 10)
$ 201,767
$ 123,708
Accrued expenses (note 11)
49,229
42,045
Income taxes payable
34,078
23,388
----------
---------
Total current liabilities
285,074
189,141
Long-term debt (note 3)
100,000
100,000
Other non-current obligations (note 4)
51,084
54,757
Deferred income taxes (note 7)
44,196
35,902
----------
---------
Total liabilities
480,354
379,800
Stockholders' equity (notes 8, 13 and 16):
Common stock, par value $.01, authorized
300,000,000 shares, issued 87,619,477 and
87,025,908 shares at March 31, 2001 and
2000, respectively
876
870
Additional paid-in capital
322,068
308,724
Retained earnings
590,192
237,846
Accumulated other comprehensive income
2,355
16
Treasury stock, at cost (1,600,040 shares at March
31, 2001)
(29,315)
-
---------
---------
Total stockholders' equity
886,176
547,456
---------
---------
Commitments and contingencies (notes 10 and 12)
Total liabilities and stockholders' equity
$1,366,530
$ 927,256
==========
=========
See accompanying notes to consolidated financial statements.
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Dollars in thousands except per share data
Years ended March 31,
- ---------------------------------------
2001
2000
1999
----------
----------
----------
Net sales
$1,406,147
$ 822,095
$ 565,569
Operating costs and expenses:
Cost of goods sold, exclusive of depreciation
693,659
569,706
428,409
Selling, general and administrative expenses
55,713
48,457
46,552
Research and development
26,188
23,918
21,132
Depreciation and amortization
63,601
55,699
46,872
----------
----------
----------
Total operating costs and expenses
839,161
697,780
542,965
----------
----------
----------
Operating income
566,986
124,315
22,604
Other income and expense:
Interest income
(16,713)
(2,079)
-
Interest expense
7,507
9,135
9,287
Other expense (note 11)
7,892
11,695
4,273
----------
----------
----------
Earnings before income taxes
568,300
105,564
9,044
Income tax expense (note 7)
215,954
35,445
2,894
----------
----------
----------
Net earnings
$ 352,346
$ 70,119
$ 6,150
==========
==========
==========
Net earnings per share (notes 13, 14 and 16):
Basic
$4.05
$0.87
$0.08
Diluted
$4.00
$0.85
$0.08
Weighted-average shares outstanding:
Basic
86,930,965
80,650,376
78,441,440
Diluted
88,181,118
82,411,634
79,027,860
See accompanying notes to consolidated financial statements.
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Dollars in thousands
Accumulated
Total
Additional
Other
Stock-
- ---Common Stock---
Paid-in
Retained
Comprehensive
Treasury
holders'
Shares
Amount
Capital
Earnings
Income
Stock
Equity
- --------
- -------
- --------
- --------
- --------
- --------
- --------
Balance at March 31, 1998
78,321,358
$783
$143,908
$161,577
$ (8)
$ -
$306,260
Comprehensive income:
Net earnings
-
-
-
6,150
-
-
6,150
Foreign currency translation gain
-
-
-
-
80
-
80
Total comprehensive income
-
-
-
-
-
-
6,230
Exercise of stock options (note 8)
53,120
-
164
-
-
-
164
Tax benefit on exercise of stock options
-
-
72
-
-
-
72
Purchases of stock by Employee Savings Plan
135,322
2
946
-
-
-
948
- --------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999
78,509,800
785
145,090
167,727
72
-
313,674
Comprehensive income:
Net earnings
-
-
-
70,119
-
-
70,119
Foreign currency translation loss
-
-
-
-
(56)
-
(56)
Total comprehensive income
-
-
-
-
-
-
70,063
Exercise of stock options (note 8)
1,944,260
20
11,052
-
-
-
11,072
Tax benefit on exercise of stock options
-
-
9,315
-
-
-
9,315
Purchases of stock by Employee Savings Plan
71,848
-
724
-
-
-
724
Secondary offering (note 16)
6,500,000
65
142,543
-
-
-
142,608
- --------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000
87,025,908
870
308,724
237,846
16
-
547,456
Comprehensive income:
Net earnings
-
-
-
352,346
-
-
352,346
Unrealized gain on foreign exchange
contracts, net of tax of $1,398
-
-
-
-
2,594
-
2,594
Foreign currency translation loss
-
-
-
-
(255)
-
(255)
Total comprehensive income
-
-
-
-
-
-
354,685
Exercise of stock options (note 8)
549,720
5
3,204
-
-
-
3,209
Tax benefit on exercise of stock options
-
-
4,325
-
-
-
4,325
Purchases of stock by Employee Savings Plan
43,889
1
1,094
-
-
-
1,095
Put options proceeds (note 13)
-
-
4,721
-
-
-
4,721
Treasury stock purchases (note 16)
(1,600,040)
-
-
-
-
(29,315)
(29,315)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2001
86,019,477
$876
$322,068
$590,192
$2,355
$(29,315)
$886,176
See accompanying notes to consolidated financial statements.
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Dollars in thousands
Years ended March 31,
- ----------------------------------------
2001
2000
1999
- -----------
----------
-----------
Sources (uses) of cash
Operating activities:
Net earnings
$352,346
$ 70,119
$ 6,150
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation and amortization
63,601
55,699
46,872
Post-retirement and unfunded pension
(3,662)
(14,586)
(236)
Loss on sale and disposal of equipment
5,266
11,579
985
Deferred income taxes
(6,625)
2,931
9,997
Changes in other non-current assets and
liabilities
(1,759)
(2,950)
(782)
Changes in assets and liabilities:
Accounts receivable
(2,456)
(38,025)
4,256
Inventories
(71,318)
(5,140)
(11,136)
Prepaid expenses and other current assets
(45,805)
(55)
(36)
Accounts payable, trade
78,059
58,958
(23,961)
Accrued expenses and income taxes
17,874
39,187
(11,292)
----------
----------
----------
Net cash provided by operating activities
385,521
177,717
20,817
----------
----------
----------
Investing activities:
Purchases of short-term investments
(202,354)
(123,687)
-
Proceeds from maturity of short-term investments
326,041
-
-
Additions to property and equipment
(210,559)
(82,009)
(59,047)
Other
2,339
81
(197)
----------
----------
----------
Net cash used by investing activities
(84,533)
(205,615)
(59,244)
Financing activities:
Proceeds from sale of common stock to Employee
Savings Plan
1,095
724
947
Proceeds from exercise of stock options including
related tax benefit
7,534
20,387
236
Proceeds from secondary offering
-
142,608
-
Proceeds from put options (note 13)
4,721
-
-
Purchases of treasury stock
(29,315)
-
-
Net payments to revolving loan and demand note
-
(64,000)
(60,000)
Issuance of senior notes, net of debt issue costs
-
-
99,357
----------
----------
----------
Net cash provided (used) by financing activities
(15,965)
99,719
40,540
----------
----------
----------
Net increase in cash
285,023
71,821
2,113
Cash and cash equivalents at beginning of period
75,735
3,914
1,801
----------
----------
----------
Cash and cash equivalents at end of period
$360,758
$ 75,735
$ 3,914
==========
==========
==========
Supplemental Cash Flow Statement Information
Interest paid
$ 7,361
$ 9,477
$ 7,730
Income taxes paid
$209,186
$ 7,179
$ 3,065
See accompanying notes to consolidated financial statements.
Note 1: Organization and Significant Accounting Policies
Nature of Business and Organization
KEMET Corporation and subsidiaries ("KEMET" or the "Company") is the world's
largest manufacturer of solid tantalum capacitors, the fourth largest
manufacturer of multilayer ceramic capacitors, and a leader in the development
of solid aluminum capacitors. The Company is headquartered in Greenville,
South Carolina, and has thirteen manufacturing plants located in South
Carolina, North Carolina, and Mexico. Additionally, the Company has wholly-
owned foreign subsidiaries which primarily sell KEMET's products in foreign
markets.
Principles of Consolidation
The accompanying consolidated financial statements of the Company include the
accounts of its wholly-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation.
Cash Equivalents
Cash equivalents consist of direct obligations of U.S. government agencies and
investment-grade commercial paper with an initial term of less than three
months. For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments with original maturities of three months or
less to be cash equivalents.
Short-term Investments
Short-term investments consist of direct obligations of U.S. government
agencies and investment-grade commercial paper with original maturities of
greater than three months, but less than one year. These investments are
considered to be held-to-maturity and are therefore stated at cost that
approximates market value.
Derivative Financial Instruments
Derivative financial instruments are utilized by the Company to reduce
exposures to volatility of foreign currencies and commodities impacting the
cost of its products. The Company does not enter into financial instruments
for trading or speculative purposes.
Effective October 1, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. It requires the recognition of all
derivative instruments as either assets or liabilities in the consolidated
balance sheet and measurement of those instruments at fair value. The
accounting treatment of changes in fair value is dependent upon whether or not
a derivative instrument is designated as a hedge and, if so, the type of
hedge. For derivatives designated as cash flow hedges, to the extent
effective, changes in fair value are recognized in accumulated other
comprehensive income until the hedged item is recognized in earnings.
Ineffectiveness is recognized immediately in earnings. For derivatives
designated as fair value hedges, changes in fair value are recognized in
earnings.
Prior to adoption of SFAS No. 133, the Company recorded gains and losses
related to the hedges of forecasted foreign currency transactions directly to
earnings ("Other income and expense"), and gains and losses related to hedges
of firm commitments were deferred and recognized in earnings as adjustments of
carrying amounts when the transactions occurred.
The adoption of SFAS No. 133 did not result in a significant transition
adjustment and is therefore not separately captioned in the statement of
earnings as cumulative effect of a change in accounting principle. The
transition adjustment as of October 1, 2000, was a gain of approximately $0.9
million net of tax, and is included in cost of goods sold for the period.
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 7% and 6%
of inventory costs of certain raw materials at March 31, 2001 and 2000,
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 $902 and $854 higher than reported at March
31, 2001 and 2000, 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. Reviews are regularly performed to determine whether facts and
circumstances exist which indicate that the carrying amount of assets may not
be recoverable. The Company assesses the recoverability of its assets by
comparing the projected undiscounted net cash flows associated with the
related asset or group of assets over their remaining life against their
respective carrying amounts. Impairment, if any, is based on the excess of
the carrying amount over the fair value of those assets.
Intangible Assets
Patents and technology are amortized using the straight-line method over
twenty-five years. Goodwill and trademarks are amortized using the straight-
line method over a forty-year period. The Company assesses the recoverability
of its intangible assets by determining whether the amortization of the
intangible's balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired assets. The amount
of intangible impairment, if any, is measured based on projected discounted
future operating cash flows. The assessment of the recoverability of
intangibles will be impacted if estimated future operating cash flows are not
achieved.
Other Assets
Other assets consist principally of the cash surrender value of life insurance
policies.
Deferred Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Stock-based Compensation
The Company applies the intrinsic value-based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related interpretations in accounting for stock options.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
The Company has elected the "disclosure only" provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," which provide pro forma disclosure
of earnings as if stock compensation were recognized on the fair value basis.
Concentrations of Credit Risk
The Company sells to customers located throughout the United States and the
world. Credit evaluations of its customers' financial conditions are
performed periodically, and the Company generally does not require collateral
from its customers.
Foreign Operations
Financial statements of the Company's Mexican operations are prepared using
the U.S. dollar as its functional currency. Translation of the Mexican
operations, as well as gains and losses from non-U.S. dollar foreign currency
transactions, such as those resulting from the settlement of foreign
receivables or payables, are reported in the Consolidated Statements of
Earnings.
Translation of other foreign operations to U.S. dollars occurs using the
current exchange rate for balance sheet accounts and an average exchange rate
for results of operations. Such translation gains or losses are recognized as
a component of equity in "Accumulated Other Comprehensive Income."
Comprehensive Income
Comprehensive income consists of net earnings and foreign currency translation
gains or losses and unrealized gains and losses from forward contracts and is
presented in the Consolidated Statements of Stockholders' Equity and
Comprehensive Income.
Revenue Recognition
Revenue is recognized from sales when a product is shipped. A portion of
sales is made to distributors under agreements allowing certain rights of
return and price protection on unsold merchandise held by distributors (see
note 10). The Company adopted the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 (the "SAB") effective January 1, 2001. The SAB
requires that a company recognize revenue only when all of the following
criteria are met: (1) Persuasive evidence of an arrangement exists; (2)
Delivery has occurred or services have been rendered; (3) The seller's price
to the buyer is fixed or determinable; and (4) Collectibility is reasonably
assured. Upon adoption of the SAB, there was no impact on the Company's
results of operations or financial condition.
Earnings per Share
The Company calculates earnings per share in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings per share is computed using the weighted-
average number of shares outstanding. Diluted earnings per share is computed
using the weighted-average number of shares outstanding adjusted for the
incremental shares attributed to outstanding options to purchase common stock.
On June 1, 2000, the Company issued additional shares in connection with the
two-for-one stock split. The per common share amounts in the Consolidated
Financial Statements and accompanying notes have been adjusted to reflect the
stock splits.
Environmental Cost
The Company recognizes liabilities for environmental remediation when it is
probable that a liability has been incurred and can be reasonably estimated.
The Company determines its liability on a site-by-site basis, and it is not
discounted or reduced for possible recoveries from insurance carriers.
Expenditures that extend the life of the related property or mitigate or
prevent future environmental contamination are capitalized.
Business Segments
The Company has determined, using the criteria in SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," that it operates in
a single reporting segment. The Company's products may be categorized
generally based upon primary raw material (tantalum or ceramic) or method of
attachment (surface-mount or leaded), and are sold to original equipment
manufacturers, electronics manufacturing services providers, and electronics
distributors. Two customers each accounted for more than 10% of net sales in
the fiscal year ended March 31, 2001, and one customer accounted for more than
10% of net sales in the fiscal years ended March 31, 2000 and 1999.
Geographic information is included in note 9.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements. In addition, they affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates and assumptions.
Reclassification
Certain prior year amounts have been reclassified to conform to 2001
presentation and the effect of the June 1, 2000, stock split (see note 16).
Note 2: Intangible Assets
Intangible assets consist of the following (dollars in thousands):
March 31,
- -------------------------------
2001
2000
------------
------------
Goodwill
$40,709
$40,709
Trademarks
10,000
10,000
Patents and technology
12,000
12,000
Other
1,143
1,143
------------
------------
63,852
63,852
Accumulated amortization
19,825
17,654
------------
------------
Intangible assets, net
$44,027
$46,198
============
============
Note 3: Debt
A summary of long-term debt follows (dollars in thousands):
March 31,
- --------------------------
2001
2000
--------
--------
Senior notes, interest payable
semiannually at a rate of 6.66% with
a final maturity date of May 4, 2010
$100,000
$100,000
- --------
- --------
100,000
100,000
Less current installments
-
-
- --------
- --------
Long-term debt, excluding current
installments
$100,000
$100,000
========
========
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. The Senior Notes
have a final maturity date of May 4, 2010, and begin amortizing on May 4,
2006. The Senior Notes bear interest at a fixed rate of 6.66%, with interest
payable semiannually beginning November 4, 1998. The aggregate maturities of
the debt subsequent to March 31, 2001, follow: 2007, $20,000; 2008, $20,000;
2009, $20,000; 2010, $20,000; and 2011, $20,000.
The Company had two unsecured and unused credit facilities during the fiscal
year ended March 31, 2001: a $150.0 million revolving credit facility and a
$10.0 million swingline credit facility. The annual fee for the revolving
credit facility is approximately $190 and both facilities expire on October
18, 2002.
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, 2001, the Company was in
compliance with such covenants. Borrowings are secured by guarantees of
certain of the Company's wholly owned subsidiaries.
Note 4: Other Non-Current Obligations
Non-current obligations are summarized as follows (dollars in thousands):
March 31,
- -----------------------
2001
2000
-------
- -------
Accrued pension benefit liability (note 5)
$12,098
$18,337
Accrued post-retirement medical plan
liability (note 6)
36,820
34,243
Other
2,166
2,177
-------
-------
Other non-current obligations
$51,084
$54,757
=======
=======
Included as a part of other non-current obligations is the Company's accrual
for environmental liabilities.
Note 5: Employee Pension and Savings Plans
The Company has a non-contributory pension plan (Plan) which covers
substantially all employees in the United States who meet age and service
requirements. The Plan provides defined benefits that are based on years of
credited service, average compensation (as defined), and the primary social
security benefit. The effective date of the Plan is April 1, 1987.
The cost of pension benefits under the Plan is determined by an independent
actuarial firm using the "projected unit credit" actuarial cost method.
Currently payable contributions to the Plan are limited to amounts that are
currently deductible for income tax reporting purposes, and are included in
accrued expenses in the consolidated balance sheets.
Components of net periodic pension cost include the following (dollars in
thousands):
Years ended March 31,
--------------------------------------
2001
2000
1999
------
------
-------
Service cost
$4,246
$4,544
$3,472
Interest cost
8,462
8,071
6,494
Expected return on assets
(8,862)
(6,323)
(6,084)
Amortization of:
Transition asset
(6)
(6)
(6)
Prior service cost
(84)
(83)
(90)
Actuarial loss
-
650
-
Gain on curtailment of employee
benefit plan
-
-
(1,818)
-------
-------
-------
Total net periodic pension cost
$3,756
$6,853
$1,968
=======
=======
=======
The weighted-average rates used in determining pension cost for the Plan are
as follows:
Years ended March 31,
- ---------------------------------
2001
2000
1999
------
------
------
Discount rate
7.00%
7.50%
7.00%
Rate of compensation increase
5.00%
5.00%
4.00%
Expected return on Plan assets
9.00%
9.00%
9.50%
A reconciliation of the Plan's projected benefit obligation, fair value of the
Plan assets, and funding status is as follows (dollars in thousands):
March 31,
- ----------------------
2001
2000
---------
---------
Projected benefit obligation:
Net obligation at beginning of year
$111,698
$ 96,830
Service cost
4,246
4,544
Interest cost
8,462
8,071
Actuarial gain
8,991
7,164
Gross benefits paid
(4,739)
(4,911)
--------
---------
Net benefit obligation at end of year
$128,658
$111,698
=========
=========
Fair value of Plan assets:
Fair value of Plan assets at beginning of year
$ 94,880
$ 62,153
Actual return on Plan assets
(7,743)
11,343
Employer contributions
11,500
26,295
Gross benefits paid
(4,739)
(4,911)
---------
---------
Fair value of Plan assets at end of year
$ 93,898
$ 94,880
=========
=========
Funding status:
Funded status at end of year
$(34,760)
$(16,818)
Unrecognized net actuarial loss
31,687
6,091
Unrecognized prior service cost
(399)
(482)
Unrecognized net transition asset
-
(7)
---------
---------
Net accrued benefit liability
$ (3,472)
$(11,216)
=========
=========
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 were not limited by the Employee Retirement Security
Act of 1974 and the Internal Revenue Code. Expenses related to the deferred
compensation plan totaled $1,504 in fiscal 2001, $988 in fiscal 2000, and $885
in fiscal 1999. Total benefits accrued under this plan were $8,626 at March
31, 2001, and $7,121 at March 31, 2000.
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%. The Company
contributed $2,061 in fiscal 2001, $1,801 in fiscal 2000, and $1,786 in fiscal
1999.
Note 6: Post-Retirement 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 post-retirement medical and life insurance
benefits are as follows (dollars in thousands):
Years ended March 31,
-------------------------------
2001
2000
1999
------
------
------
Service cost
$1,268
$1,479
$ 701
Interest cost
2,985
2,834
2,086
Amortization of actuarial (gain) loss
111
248
(23)
Curtailment gain
-
-
(611)
------
------
------
Total net periodic benefits cost
$4,364
$4,561
$2,153
======
======
======
A reconciliation of the post-retirement medical and life insurance plan's
projected benefit obligation, fair value of plan assets, and funding status is
as follows (dollars in thousands):
March 31,
- ----------------------
2001
2000
- ---------
- ---------
Projected benefit obligation:
Net obligation at beginning of year
$ 40,396
$ 29,241
Service cost
1,268
1,479
Interest cost
2,985
2,834
Actuarial gain
347
8,880
Gross benefits paid
(1,786)
(2,038)
- ---------
- ---------
Net benefit obligation at end of year
$ 43,210
$ 40,396
=========
=========
Fair value of plan assets:
Employer contributions
$ 1,786
$ 2,038
Gross benefits paid
(1,786)
(2,038)
- ---------
- ---------
Fair value of plan assets at end of year
$ -
$ -
=========
=========
Funding status:
Funded status at end of year
$(43,210)
$(40,396)
Unrecognized net actuarial loss
6,390
6,153
- ----------
- --------
Net accrued benefit liability
$(36,820)
$(34,243)
=========
=========
The weighted-average rates used in determining post-retirement medical and
life insurance costs are as follows (dollars in thousands):
Years ended March 31,
- -------------------------------------------------
2001
2000
1999
- ---------------
- ---------------
- ---------------
Discount rate
7.00%
7.50%
7.00%
Rate of compensation increase
5.00%
5.00%
4.00%
Health care cost trend on covered charges:
8.0% decreasing
9.5% decreasing
8.0% decreasing
to ultimate
to ultimate
to ultimate
trend of 6.0%
trend of 7.0%
trend of 7.0%
in 2008
in 2008
in 2008
Sensitivity of retiree welfare results
Effect of a one percentage point increase
in assumed health care cost trend:
? On total service and interest
cost components
$ 143
$ 538
$ 140
? On post-retirement benefit obligation
$ 933
$ 3,487
$ 1,023
Effect of a one percentage point decrease
in assumed health care cost trend:
? On total service and interest
cost components
$ (131)
$ (472)
$ (128)
? On post-retirement benefit obligation
$ (885)
$(3,196)
$ (970)
Note 7: Income Taxes
The components of earnings before income taxes consist of (dollars in
thousands):
Years ended March 31,
-----------------------------------------
2001
2000
1999
--------
--------
------
Domestic
$530,128
$ 91,373
$4,449
Foreign
38,172
14,191
4,595
--------
--------
------
$568,300
$105,564
$9,044
========
========
======
The provision for income tax expense for continuing operations(dollars in
thousands):
Years ended March 31,
----------------------------------------------
2001
2000
1999
--------
-------
-------
Current
Federal
$197,522
$27,342
$(9,810)
State & Local
16,384
1,051
232
Foreign
10,071
4,121
2,475
--------
-------
-------
223,977
32,514
(7,103)
--------
-------
-------
Deferred
Federal
(7,859)
2,568
9,969
State & Local
(499)
193
447
Foreign
335
170
(419)
--------
-------
-------
(8,023)
2,931
9,997
--------
-------
-------
Provision for income
taxes
$215,954
$35,445
$ 2,894
========
=======
=======
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
Years ended March 31,
---------------------------
2001
2000
1999
-----
-----
-----
Statutory federal income tax rate
35.0%
35.0%
35.0%
State income taxes, net of federal taxes
1.9
0.8
4.9
Foreign sales corporation
(1.8)
(1.9)
(10.7)
Goodwill amortization
.1
0.3
3.8
Other
2.8
(0.6)
(1.0)
-----
-----
-----
Effective income tax rate
38.0%
33.6%
32.0%
=====
=====
=====
The components of deferred tax assets and liabilities are as follows (dollars
in thousands):
March 31,
-----------------------------
2001
2000
---------
---------
Deferred tax assets:
Pension benefits
$ 4,424
$ 6,768
Medical benefits
14,296
12,116
Sales and product allowances
35,853
15,911
All other
1,896
5,365
---------
---------
56,469
40,160
Deferred tax liabilities:
Depreciation and differences in basis
(57,095)
(50,892)
Amortization of intangibles
(4,678)
(5,071)
Tax effect of hedging
(1,398)
-
All other
(2,476)
-
---------
---------
(65,647)
(55,963)
---------
---------
Net deferred income tax liability
$ (9,178)
$(15,803)
=========
=========
The net deferred income tax liability is reflected in the accompanying 2001
and 2000 balance sheets as a $35,018 and $20,099 current asset and a $44,196
and $35,902 non-current liability, respectively.
Based on the scheduled reversal of deferred tax liabilities and projected
future taxable income, the Company believes that the deferred tax assets will
ultimately be realized. Accordingly, no valuation allowance has been provided
for in 2001 or 2000.
At March 31, 2001, unremitted earnings of the subsidiaries outside the United
States were deemed to be permanently invested. No deferred tax liability was
recognized with regard to such earnings. It is not practicable to estimate
the income tax liability that might be incurred if such earnings were remitted
to the United States.
Note 8: Stock Option Plans
The Company has two option plans that 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." On July 1, 2000, the Company
adopted the provisions of FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation," which requires variable accounting
treatment on certain re-priced options. This requires that any increase in
the stock price above the July 1, 2000, adoption date stock price be
recognized immediately as compensation expense. For fiscal years 2001, 2000,
and 1999, 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
years 2001, 2000, and 1999, 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):
Years ended March 31,
----------------------------------
2001
2000
1999
--------
--------
--------
Net earnings
As reported
$352,346
$70,119
$ 6,150
Pro forma
$348,628
$64,286
$ 4,203
Earnings per share:
Basic
As reported
$ 4.05
$ 0.87
$ 0.08
Pro forma
$ 4.01
$ 0.80
$ 0.06
Diluted
As reported
$ 4.00
$ 0.85
$ 0.08
Pro forma
$ 3.95
$ 0.78
$ 0.06
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 2001 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 2001, 2000, and 1999; a risk-free
interest rate of 5.1% for 2001, 6.8% for 2000, and 5.4% for 1999 ; expected
volatility of 58.0% for 2001, 49.7% for 2000, 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, 1,905,120 options were granted to certain executives. In May 1992, the
Company also approved the 1992 Key Employee Stock Option Plan, which
authorizes the granting of options to purchase 2,310,000 shares of Common
Stock. In addition, stockholders approved the 1995 Executive Stock Option
Plan at the 1996 Annual Meeting. This plan provides for the issuance of
options to purchase 3,800,000 shares of common stock to certain executives.
These plans provide that shares granted come from the Company's authorized but
unissued common stock. The prices of the options granted thus far pursuant to
these plans are no less than 100% of the value of the shares on the date of
grant. Also, the options may not be exercised within two years from the date
of grant and no options will be exercisable after ten years from the date of
grant.
In fiscal 1999, the Company's Board of Directors approved an option re-price
program for the Key Employee Stock Option Plan and Executive Stock Option
Plan, effective February 1, 1999, and April 1, 1999, respectively. Under this
program, options to purchase 658,260 shares under the Key Employee Stock
Option Plan and 1,048,000 shares under the Executive Stock Option Plan at
prices ranging from $9.63 to $16.07 per share were canceled and reissued at
$5.00 and $6.00 per share, respectively. The reissued price was the fair
market value at that time. The vesting date of the options originally granted
in 1995 and 1996 was changed to April 2000. The vesting date for those
options originally issued in 1997 remained at October 1999. A summary of the
status of the Company's three stock option plans as of March 31, 2001, 2000,
and 1999, and changes during the years ended on those dates is presented
below:
March 31,
----------------------------------------------------------------------------------------------
2001
2000
1999
----------------------------
---------------------------
----------------------------
Weighted-
Weighted-
Weighed-
Average
Average
Average
Exercisable
Exercisable
Exercisable
Fixed Options
Shares
Price
Shares
Price
Shares
Price
-----------
-----------
-----------
-----------
----------
-----------
Options outstanding
at beginning of year
2,632,020
$10.09
3,286,000
$ 6.81
2,502,040
$10.10
Options granted
828,000
17.51
2,379,000
10.71
1,859,140
5.48
Options exercised
(549,720)
5.62
(1,944,260)
5.83
(53,120)
3.51
Options cancelled
(69,280)
11.10
(1,088,720)
9.66
(1,032,060)
12.55
Options outstanding
-----------
-----------
----------
at end of year
2,841,020
$13.12
2,632,020
$10.09
3,286,000
$ 6.81
===========
===========
==========
Option price range
at end of year
$2.50 to $ 19.38
$2.50 to $16.07
$2.50 to $16.07
Option price range
for exercised shares
$2.50 to $ 16.07
$2.50 to $16.07
$2.50 to $7.10
Options available for
grant at end of year
2,647,870
1,412,590
2,414,580
Options exercisable
at end of year
723,020
504,210
624,860
Weighted-average fair
value of options
granted
during the year
$ 9.61
$ 7.54
$ 2.69
The following table summarizes information about stock options outstanding at March 31, 2001:
Options Outstanding
Options Exercisable
- --------------------------------------------------------
- --------------------------------------------------------
Weighted-
Range of
Number
Weighted-Average
Weighted-
Number
Average
Exercisable
Outstanding
Remaining
Average
Exercisable
Exercisable
Prices
at 3/31/01
Contractual Life
Exercisable Price
At 3/31/01
Price
- -----------------
- -----------------
- -----------------
- -----------------
- -----------------
- -----------------
$ 2.50
9,200
1.6 Years
$ 2.50
9,200
$ 2.50
$ 5.00 To $ 6.75
713,820
6.0 Years
$ 5.62
713,820
$ 5.62
$14.50 To $19.38
2,118,000
9.0 Years
$15.70
-
$ -
---------
-------
2,841 020
8.2 Years
$13.12
723,020
$ 5.58
=========
=======
Note 9: Geographic Information (dollars in thousands):
Years ended March 31, (1)
----------------------------------------------
2001
2000
1999
----------
--------
--------
United States
$642,406
$408,890
$293,428
Asia Pacific
273,853
190,289
119,938
Germany
124,980
49,670
34,142
Mexico (2)
86,779
-
-
Other countries (3)
278,129
173,246
118,061
--------
--------
--------
$1,406,147
$822,095
$565,569
==========
========
========
(1) Revenues are attributed to countries or regions based on the location of the
customer. The Company sold $231,801 and $148,158 to two customers and each
accounted for more than 10% of net sales in the fiscal year ended March 31,
2001. One customer accounted for more than 10% of net sales as the Company sold
$129,600 and $59,367 to it in the fiscal years ended March 31, 2000 and 1999,
respectively.
(2) Did not exceed 5% of sales in 2000 and 1999 and included with "Other
countries."
(3) No country in this group exceeded 5% of consolidated net sales.
The following geographic information includes long-lived assets based on
physical location (dollars in thousands):
March 31,
--------------------------------------------
2001
2000
1999
- --------
- --------
- --------
United States
$314,980
$243,385
$247,966
Mexico
251,331
179,092
157,795
Other
951
922
974
--------
--------
--------
$567,262
$423,399
$406,735
========
========
========
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 for anticipated returns and price protection changes based on
historical experience. Charges against sales in fiscal 2001, fiscal 2000, and
fiscal 1999 were $72,575, $54,212, and $43,592 respectively. Actual
applications against the allowances in fiscal 2001, fiscal 2000, and fiscal
1999, were $35,603, $44,623, and $43,885, respectively.
(b) A subsidiary of the Company sells certain receivables discounted at .60%
above LIBOR for the number of days the receivables are outstanding, with a
recourse provision not to exceed 5% of the face amount of the factored
receivables. The Company has issued a joint and several guarantee in an
aggregate amount up to but not to exceed $4,000 to guarantee this recourse
provision. The Company transferred receivables and incurred factoring costs
of $529,946 and $5,236 in fiscal 2001, $372,656 and $3,444 in fiscal 2000, and
$258,619 and $2,988 in fiscal 1999.
Included in accounts payable, trade, is $30,310 and $44,212 at March 31, 2001
and 2000, respectively, which represents factored receivables collected but
not remitted.
(c) The Company's leases consist primarily of manufacturing equipment and
expire principally between 2001 and 2006. A number of leases require that the
Company pay certain executory costs (taxes, insurance, and maintenance) and
contain certain renewal and purchase options. Annual rental expense for
operating leases are included in results of operations and were approximately
$7,346 in fiscal 2001, $8,300 in fiscal 2000, and $10,229 in fiscal 1999.
Future minimum lease payments over the next five fiscal years under non-
cancelable operating leases at March 31, 2001, are as follows (dollars in
thousands):
2002
2003
2004
2005
2006
Total
- -------
- -------
- -------
- -------
- -------
- -------
Minimum lease
payments
$3,997
2,245
852
422
50
$7,566
Note 11: Supplementary Balance Sheet and Income Statement Detail (dollars in
thousands)
March 31,
----------------------
2001
2000
--------
--------
Accounts receivable:
Trade
$143,681
$103,139
Other
6,273
6,767
--------
--------
149,954
109,906
Less:
Allowance for doubtful accounts
882
262
Allowance for price protection
and customer returns (note 10)
52,489
15,517
--------
--------
Net accounts receivable
$ 96,583
$ 94,127
========
========
Property and equipment, at cost
Useful life
-----------
Land and land improvements
20 years
$ 12,817
$ 12,946
Buildings
20-40 years
94,462
86,465
Machinery and equipment
10 years
653,645
522,514
Furniture and fixtures
4-10 years
41,368
36,989
Construction in progress
-
75,894
41,326
--------
--------
Total property and equipment
878,186
700,240
Accumulated depreciation
310,924
276,841
--------
--------
Net property and equipment
$567,262
$423,399
========
========
Accrued expenses:
Salaries, wages and related employee costs
$ 23,795
$ 18,254
Vacation
9,526
8,752
Other
15,908
15,039
--------
--------
Total accrued expenses
$ 49,229
$ 42,045
========
========
Years ended March 31,
-------------------------------------
2001
2000
1999
--------
--------
--------
Other (income) /expense
Loss on retirement of assets
$ 3,380
$ 9,405
$ 985
Accounts receivable discounting
5,236
3,444
2,988
Unrealized gain on foreign currency
forward contracts
(941)
(1,682)
-
Other
217
528
300
--------
--------
--------
$ 7,892
$11,695
$ 4,273
========
========
========
Note 12: Legal Proceedings
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (CERCLA), and certain analogous state laws impose
retroactive, strict liability upon certain defined classes of persons
associated with releases of hazardous substances into the environment. Among
those liable under CERCLA (known collectively as "potentially responsible
parties" or "PRPs") is any person who "arranged for disposal" of hazardous
substances at a site requiring response action under the statute. While a
company's liability under CERCLA is often based upon its proportionate share
of overall waste volume or other equitable factors, CERCLA has been widely
held to permit imposition of joint and several liabilities on each PRP. The
Company has periodically incurred, and may continue to incur, liability under
CERCLA and analogous state laws with respect to sites used for off-site
management or disposal of Company-derived wastes. The Company has been named
as a PRP at the Seaboard Chemical Site in Jamestown, North Carolina. The
Company is participating in the clean-up as a "de minimis" party and does not
expect its total exposure to be material. In addition, Union Carbide
Corporation (Union Carbide), the former owner of the Company, is a PRP at
certain sites relating to the off-site disposal of wastes from properties
presently owned by the Company. The Company is participating, in coordination
with Union Carbide, in certain PRP-initiated activities related to these
sites. The Company expects that it will bear some portion of the liability
with respect to these sites; however, any such share is not presently expected
to be material to the Company's financial condition or results of operations.
In connection with the acquisition in 1990, Union Carbide agreed, subject to
certain limitations, to indemnify the Company with respect to the foregoing
sites.
The Company or its subsidiaries are at any one time parties to a number of
lawsuits arising out of their respective operations, including workers'
compensation or work place safety cases, some of which involve claims of
substantial damages. Although there can be no assurance, based upon
information known to the Company, the Company does not believe that any
liability which might result from an adverse determination of such lawsuits
would have a material adverse effect on the Company's financial condition or
results of operations.
Note 13: Put Options
During the fiscal year ended March 31, 2001, the Company sold put options to
institutional parties as part of a program to purchase up to 4.0 million (note
16) of its common shares. Premiums generated from the sale of the put options
were $4.7 million and have been accounted for as Additional Paid-In Capital.
The fair value of the put options at March 31, 2001, totaled $4.4 million.
The Company had the maximum potential obligation to purchase 1.9 million
shares of its common stock at a weighted average purchase price of $18.31 for
an aggregate of $34.8 million at March 31, 2001. The put options are
exercisable only at maturity and expire between April and October 2001. The
Company has the right to settle the put options through physical settlement or
net share settlement using shares of the Company's common stock.
Note 14: Earnings Per Share
Basic and diluted earnings per share are calculated as follows (dollars in
thousands except per share data):
Years ended March 31,
-----------------------------------------
2001
2000
1999
- ----------
- ----------
- ----------
Net earnings
$352,346
$70,119
$ 6,150
Weighted-average shares outstanding
(Basic)
86,930,965
80,650,376
78,441,440
Stock Options
1,250,153
1,761,258
586,420
----------
-----------
----------
Weighted-average shares outstanding
(Diluted)
88,181,118
82,411,634
79,027,860
----------
----------
----------
Basic earnings per share
$4.05
$0.87
$0.08
Diluted earnings per share
$4.00
$0.85
$0.08
Note 15: Derivatives, Hedging, and Other Financial Instruments
The Company uses certain derivative financial instruments to reduce exposures
to volatility of foreign currencies and commodities impacting the costs of its
products.
Hedging Foreign Currencies
Certain operating expenses at the Company's Mexican facilities are paid in
Mexican pesos. In order to hedge these forecasted cash flows, management
purchases forward contracts to buy Mexican pesos for periods and amounts
consistent with the related underlying cash flow exposures. These contracts
are designated as hedges at inception and monitored for effectiveness on a
routine basis. At March 31, 2001, the Company had outstanding forward
exchange contracts that mature within one year to purchase Mexican pesos with
notional amounts of $89.3 million. The fair values of these contracts at
March 31, 2001, totaled $5.0 million, which is recorded as a derivative asset
on the Company's balance sheet as other current assets. Changes in the
derivatives' fair values are deferred and recorded as a component of
"Accumulated Other Comprehensive Income (Loss)" (AOCI), until the underlying
transaction is recorded in earnings. When the hedged item affects earnings,
gains or losses are reclassified from AOCI to the consolidated statement of
earnings as cost of goods sold. The Company anticipates all amounts in AOCI
as of March 31, 2001, will be reclassified into earnings within one year. Any
ineffectiveness in the Company's hedging relationships is recognized
immediately in earnings.
Prior to adoption of SFAS No. 133 (as amended by SFAS No. 138), the Company
recorded gains from foreign currency contracts of $0.9 million, $1.7 million,
and $0 in 2001, 2000, and 1999, respectively, as a component of other income
and expense in its statement of earnings. Subsequent to adoption of the new
standard, the Company recorded $2.8 million of gains from foreign currency
contracts as a component of cost of goods sold in 2001.
The Company formally documents all relationships between hedging instruments
and hedged items, as well as risk management objectives and strategies for
undertaking various hedge transactions.
Hedging Commodity Prices
The Company occasionally enters into contracts for the purchase of its raw
materials, primarily palladium, which are considered to be derivatives or
imbedded derivatives with underlyings not clearly and closely related to the
host contract. As such, the fair values of these imbedded derivatives are
recorded on the balance sheet as derivative assets or liabilities and the
change in fair values is recorded as a component of cost of goods sold. At
March 31, 2001, the Company had derivative assets from these imbedded
derivatives of $3.7 million included in other current assets on the balance
sheet, and the change in fair values of such derivatives since adoption of the
new standard in fiscal 2001 was a gain of $2.1 million.
All other contracts to purchase raw materials qualify for the normal purchases
exclusion and are not accounted for as derivatives.
Other Financial Instruments
The carrying values of cash and cash equivalents, short-term investments,
accounts receivable, and accounts payable approximate their fair values. The
fair value of the Company's debt outstanding at March 31, 2001 and 2000 was
$96.5 million and $92.1 million, respectively, which was determined based on
quotes from lending institutions.
Note 16: Common Stock
In August 2000, the Company announced that its Board of Directors had
authorized a program to purchase up to 4.0 million shares of its common stock
in the open market. Through March 31, 2001, the Company had acquired 1.6
million shares for $29.3 million and had outstanding put option obligations
for 1.9 million shares with an average exercise price of $18.31. The program
was fulfilled in April 2001, at which time the Company announced that its
Board of Directors had authorized a second 4.0 million stock purchase program.
The amount and timing of purchases will depend on market conditions and other
factors. The program will be funded from existing cash and a combination of
direct purchases and/or put options may be used to execute the program.
On May 15, 2000, the Company's Board of Directors declared a two-for-one stock
split. The record date for the split was May 24, 2000, with distribution of
the additional shares on June 1, 2000. All references in the consolidated
financial statements to number of shares outstanding, price per share, per
share amounts, and stock option plan data have been restated to reflect the
split.
On January 20, 2000, the Company sold 6,500,000 shares of its common stock in
a public offering for $142.6 million in net cash proceeds after deducting
underwriting fees and offering expenses. Included in the offering were
2,193,220 shares sold by a stockholder of the Company which were shares of
non-voting common stock that were converted into common stock on a share-for-
share basis. The net proceeds to the Company were used to repay outstanding
debt under the Company's short-term credit facility and to fund capital
expenditures.
Note 17: Investment in Joint Venture
During the fiscal year ended March 31, 2001, the Company entered into a 50/50
joint venture agreement with Australasian Gold Mines NL (AGM) to establish an
independent source of tantalum to meet the increasing demand for tantalum
capacitors from key customers. This transaction closed in April 2001. The
Company's initial investment in the joint venture is approximately $4.9
million. The Company also acquired a 10 percent interest in AGM for
approximately $2.3 million. The Company has the right to acquire all
processed tantalum products from the initial production plant, which began
operations in the quarter ended March 31, 2001, and from any future processing
operations of the joint venture. These tantalum products are expected to be
toll converted into tantalum powder necessary for the production of
capacitors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KEMET Corporation
(Registrant)
Date: June 15, 2001 /S/ D.Ray Cash
D. Ray Cash
Senior Vice President, Chief Financial
Officer, and Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: June 15, 2001 /S/ David E. Maguire
David E. Maguire
Chairman and Chief Executive Officer
Date: June 15, 2001 /S/ Charles M. Culbertson II
Charles M. Culbertson II
President and Chief Operating Officer
Date: June 15, 2001 /S/ D. Ray Cash
D. Ray Cash
Senior Vice President, Chief Financial Officer
and Assistant Secretary (Principal Accounting
and Financial Officer)
Date: June 15, 2001 /S/ Charles E. Volpe
Charles E. Volpe
Director
Date: June 15, 2001 /S/ Stewart A. Kohl
Stewart A. Kohl
Director
Date: June 15, 2001 /S/ E. Erwin Maddrey, II
E. Erwin Maddrey, II
Director
Date: June 15, 2001 /S/ Paul C. Schorr IV
Paul C. Schorr IV
Director
3
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