Table of
Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
x
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2010
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File Number: 0-20289
KEMET CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
|
|
57-0923789
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
2835 KEMET WAY, SIMPSONVILLE, SOUTH CAROLINA 29681
(Address of principal executive offices, zip code)
(864) 963-6300
(Registrants telephone number, including area code)
Former name, former address and former fiscal year, if changed since
last report:
N/A
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES
x
NO
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such
files). YES
o
NO
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
o
|
|
Accelerated filer
x
|
|
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
(Do not check if a smaller reporting company)
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
o
YES
x
NO
The
number of shares outstanding of the registrants common stock, par value $0.01
per share, as of October 28, 2010 was 81,275,009.
Table of
Contents
KEMET CORPORATION AND SUBSIDIARIES
Form 10-Q for the Quarter Ended September 30,
2010
INDEX
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
KEMET
CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
|
|
September 30, 2010
|
|
March 31, 2010
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
117,454
|
|
$
|
79,199
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|
Accounts receivable, net
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|
154,289
|
|
141,795
|
|
Inventories, net
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|
183,676
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|
150,508
|
|
Prepaid expenses and other
|
|
10,749
|
|
14,380
|
|
Deferred income taxes
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|
3,735
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|
2,129
|
|
Total current assets
|
|
469,903
|
|
388,011
|
|
Property and equipment, net of accumulated
depreciation of $708,494 and $686,958 as of September 30, 2010 and
March 31, 2010, respectively
|
|
307,684
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|
319,878
|
|
Intangible assets, net
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|
20,501
|
|
21,806
|
|
Other assets
|
|
10,513
|
|
11,266
|
|
Total assets
|
|
$
|
808,601
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|
$
|
740,961
|
|
|
|
|
|
|
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LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
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Current liabilities:
|
|
|
|
|
|
Current portion of long-term debt
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|
$
|
5,457
|
|
$
|
17,880
|
|
Accounts payable, trade
|
|
82,032
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|
78,829
|
|
Accrued expenses
|
|
77,608
|
|
63,606
|
|
Income taxes payable
|
|
1,818
|
|
1,096
|
|
Total current liabilities
|
|
166,915
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|
161,411
|
|
Long-term debt, less current portion
|
|
268,825
|
|
231,629
|
|
Other non-current obligations
|
|
58,874
|
|
55,626
|
|
Deferred income taxes
|
|
9,282
|
|
8,023
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
Common stock, par value $0.01, authorized 300,000
shares, issued 88,525 shares at September 30, 2010 and March 31,
2010
|
|
885
|
|
885
|
|
Additional paid-in capital
|
|
478,518
|
|
479,115
|
|
Retained deficit
|
|
(135,967
|
)
|
(150,789
|
)
|
Accumulated other comprehensive income
|
|
17,120
|
|
11,990
|
|
Treasury stock, at cost (7,250 and 7,390 shares at
September 30, 2010 and March 31, 2010, respectively)
|
|
(55,851
|
)
|
(56,929
|
)
|
Total stockholders equity
|
|
304,705
|
|
284,272
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
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|
$
|
808,601
|
|
$
|
740,961
|
|
See accompanying notes to the unaudited condensed consolidated financial
statements.
2
Table of
Contents
KEMET CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
|
|
Quarters Ended September 30,
|
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Six months ended September 30,
|
|
|
|
2010
|
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2009
|
|
2010
|
|
2009
|
|
Net sales
|
|
$
|
248,588
|
|
$
|
173,265
|
|
$
|
492,382
|
|
$
|
323,432
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
178,870
|
|
148,751
|
|
361,756
|
|
278,412
|
|
Selling, general and administrative expenses
|
|
24,999
|
|
20,513
|
|
49,214
|
|
38,535
|
|
Research and development
|
|
6,224
|
|
5,569
|
|
12,255
|
|
10,348
|
|
Restructuring charges
|
|
2,303
|
|
1,267
|
|
4,095
|
|
1,267
|
|
Net (gain) loss on sales and disposals of assets
|
|
(1,770
|
)
|
52
|
|
(1,435
|
)
|
258
|
|
Total operating costs and expenses
|
|
210,626
|
|
176,152
|
|
425,885
|
|
328,820
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
37,962
|
|
(2,887
|
)
|
66,497
|
|
(5,388
|
)
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(84
|
)
|
(102
|
)
|
(105
|
)
|
(133
|
)
|
Interest expense
|
|
7,334
|
|
6,491
|
|
14,792
|
|
12,310
|
|
Increase in value of warrant
|
|
|
|
81,088
|
|
|
|
81,088
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|
(Gain) loss on early extinguishment of debt
|
|
|
|
|
|
38,248
|
|
(38,921
|
)
|
Other (income) expense, net
|
|
(4,792
|
)
|
999
|
|
(3,118
|
)
|
5,511
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
35,504
|
|
(91,363
|
)
|
16,680
|
|
(65,243
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
593
|
|
1,712
|
|
1,868
|
|
2,742
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
34,911
|
|
$
|
(93,075
|
)
|
$
|
14,812
|
|
$
|
(67,985
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
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|
$
|
0.43
|
|
$
|
(1.15
|
)
|
$
|
0.18
|
|
$
|
(0.84
|
)
|
Diluted
|
|
$
|
0.23
|
|
$
|
(1.15
|
)
|
$
|
0.10
|
|
$
|
(0.84
|
)
|
See
accompanying notes to the unaudited condensed consolidated financial
statements.
3
Table of
Contents
KEMET CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
|
|
Six Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
Sources (uses) of cash and cash equivalents
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14,812
|
|
$
|
(67,985
|
)
|
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
|
|
|
|
|
|
(Gain) loss on early extinguishment of debt
|
|
38,248
|
|
(38,921
|
)
|
Increase in value of warrant
|
|
|
|
81,088
|
|
Depreciation and amortization
|
|
28,642
|
|
25,490
|
|
Amortization of debt discount and debt issuance
costs
|
|
2,754
|
|
5,883
|
|
Net (gain) loss on sales and disposals of assets
|
|
(1,435
|
)
|
258
|
|
Stock-based compensation expense
|
|
482
|
|
1,628
|
|
Change in deferred income taxes
|
|
(418
|
)
|
(13
|
)
|
Change in operating assets
|
|
(39,109
|
)
|
11,563
|
|
Change in operating liabilities
|
|
14,376
|
|
2,111
|
|
Other
|
|
(1,907
|
)
|
(346
|
)
|
Net cash provided by operating activities
|
|
56,445
|
|
20,756
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
Capital expenditures
|
|
(13,821
|
)
|
(3,730
|
)
|
Proceeds from sales of assets
|
|
5,425
|
|
|
|
Net cash used in investing activities
|
|
(8,396
|
)
|
(3,730
|
)
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
227,434
|
|
57,786
|
|
Payments of long-term debt
|
|
(228,543
|
)
|
(47,719
|
)
|
Net payments under other credit facilities
|
|
(1,779
|
)
|
(1,346
|
)
|
Debt issuance costs
|
|
(7,461
|
)
|
(4,206
|
)
|
Debt extinguishment costs
|
|
(207
|
)
|
(3,605
|
)
|
Net cash provided by (used in) financing
activities
|
|
(10,556
|
)
|
910
|
|
Net increase in cash and cash equivalents
|
|
37,493
|
|
17,936
|
|
Effect of foreign currency fluctuations on cash
|
|
762
|
|
272
|
|
Cash and cash equivalents at beginning of fiscal
period
|
|
79,199
|
|
39,204
|
|
Cash and cash equivalents at end of fiscal period
|
|
$
|
117,454
|
|
$
|
57,412
|
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
4
Table of
Contents
Notes to Condensed Consolidated
Financial Statements
Note 1. Basis of Financial Statement Presentation
The
condensed consolidated financial statements contained herein are unaudited and
have been prepared from the books and records of KEMET Corporation and its
subsidiaries (KEMET or the Company). In the opinion of management, the
condensed consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results for the interim periods. The condensed consolidated financial
statements have been prepared in accordance with the instructions to
Form 10-Q, and therefore, do not include all information and footnotes
necessary for a complete presentation of financial position, results of
operations, and cash flows in conformity with U.S. generally accepted
accounting principles (U.S. GAAP). Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it
is suggested that these condensed consolidated financial statements be read in
conjunction with the audited financial statements and notes thereto included in
the Companys fiscal year ended March 31, 2010, Form 10-K (the Companys
2010 Annual Report) and the Companys Current Report on Form 8-K, filed
with the SEC on October 26, 2010, to add Note 19, Condensed
Consolidating Financial Statements.
Net
sales and operating results for the three and six month periods ended
September 30, 2010 are not necessarily indicative of the results to be
expected for the full year. The
accompanying condensed consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. In consolidation, all
significant intercompany amounts and transactions have been eliminated. Certain prior year amounts have been
reclassified to conform to current year presentation.
The
significant accounting policies followed by the Company are presented in the
Companys 2010 Annual Report.
Recently Issued Accounting Pronouncements
New accounting standards adopted
There were no accounting standards adopted in the six month period
ended September 30, 2010.
New accounting standards issued but not yet adopted
There are currently no new accounting standards that have been issued
that will have a significant impact on the Companys financial position,
results of operations or cash flows upon adoption.
Asset Sales
During the second quarter of fiscal year 2011, Ceramics (as hereinafter
defined) sold a building and related equipment for net proceeds of $3.4 million
which resulted in a net gain of $1.6 million which is recognized as a component
of the line item Net (gain) loss on sales and disposals of assets on the
Condensed Consolidated Statements of Operations.
Restricted Cash
A guarantee was issued by a European bank on behalf of the Company in
August 2006 in conjunction with the establishment of a Valued-Added Tax (VAT)
registration in The Netherlands. The
bank guarantee is in the amount of EUR 1.5 million ($2.0 million). An
interest-bearing deposit was placed with a European bank for EUR
1.7 million ($2.3 million). The deposit is in KEMETs name, and KEMET
receives all interest earned by this deposit. However, the deposit is pledged
to the European bank, and the bank can use the money if a valid claim is made.
The bank guarantee has no expiration date.
Restricted cash of $2.3 million and $2.2 million are included in the
line item Prepaid expenses and other on the Condensed Consolidated Balance
Sheets as of September 30, 2010 and March 31, 2010, respectively.
Warrant Liability
Concurrent with the consummation of the tender offer as discussed in
Note 2, Debt, the Company issued K Financing, LLC (K Financing)
a warrant (the Closing Warrant) to purchase up to 80,544,685 shares of the
Companys common stock, subject to certain adjustments, representing, at the
time of issuance, approximately 49.9% of the Companys outstanding common stock
on a post-Closing Warrant basis. The Closing Warrant was subsequently
transferred to K Equity, LLC (K Equity). The Closing Warrant was
exercisable at a purchase price of $0.50 per share, subject to an adjustment
which reduces the exercise price to a floor of $0.35 per share based on a
sliding scale once the aggregate borrowings under the Platinum Line of Credit
Loan (as defined in Note 2, Debt) and the Platinum Working Capital Loan
exceed $12.5 million, at any time prior to the tenth anniversary of the
Closing Warrants date
5
Table of
Contents
of
issuance. The floor exercise price was reached on September 29, 2009 when
the aggregate borrowings under the Platinum Line of Credit Loan (as defined in
Note 2, Debt) and the Platinum Working Capital Loan (as defined in Note 2, Debt)
reached $20.0 million. The Closing Warrant may be exercised in exchange
for cash, by means of net settlement of a corresponding portion of amounts owed
by the Company under the Revised Amended and Restated Platinum Credit Facility
(as defined in Note 2, Debt), by cashless exercise to the extent of
appreciation in the value of the Companys common stock above the exercise
price of the Closing Warrant, or by any combination of the preceding
alternatives.
Warrants may be classified as assets or liabilities (derivative
accounting), temporary equity, or permanent equity, depending on the terms of
the specific warrant agreement. The Closing Warrant issued to K Financing
under the Revised Amended and Restated Platinum Credit Facility was reviewed as
of June 30, 2009, the date of issuance, to determine whether it met the
definition of a derivative. The Companys evaluation of the Closing Warrant as
of the date of issuance concluded that it was not indexed to the Companys
stock since the strike price was not fixed and as such was treated as a
freestanding derivative liability. On September 29, 2009, the Company
borrowed $10.0 million from the Platinum Working Capital Loan for general
corporate purposes. As a result of this additional borrowing, the strike price
of the Closing Warrant was fixed at $0.35 per share as of September 29,
2009, and the Company assessed whether the Closing Warrant still met the
definition of a derivative. The Companys evaluation of the Closing Warrant as
of September 29, 2009, concluded that the Closing Warrant was indexed to
the Companys own stock and should be classified as a component of equity. The
Company valued the Closing Warrant immediately prior to the strike price
becoming fixed and recorded a mark-to-market adjustment of $81.1 million
through earnings in the second quarter of fiscal year 2010. Subsequent to the strike
price becoming fixed, the Company reclassified the warrant liability of
$112.5 million into the line item Additional paid-in capital on the
Condensed Consolidated Balance Sheets and the Closing Warrant is no longer
marked-to-market.
At September 30, 2009, the Company estimated the fair value of the
Closing Warrant using the Black-Scholes option pricing model using the
following assumptions:
Expected
life
|
|
9.75 years
|
|
Expected
volatility
|
|
66.0%
|
|
Risk-free
interest rate
|
|
3.5%
|
|
Dividends
|
|
0%
|
|
Fair Value Measurement
The Company utilizes three levels of inputs to measure the fair value
of (a) nonfinancial assets and liabilities that are recognized or
disclosed at fair value in the Companys consolidated financial statements on a
recurring basis (at least annually) and (b) all financial assets and
liabilities. Fair value is defined as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation
techniques used to measure fair value must maximize the use of observable
inputs and minimize the use of unobservable inputs.
The first two inputs are considered observable and the last is
considered unobservable. The levels of inputs are as follows:
·
Level 1Quoted prices
in active markets for identical assets or liabilities.
·
Level 2Inputs other
than Level 1 that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities, quoted prices in markets that
are not active, or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.
·
Level 3Unobservable
inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
6
Table of
Contents
Assets measured at fair value on a recurring basis as of
September 30, 2010 and March 31, 2010 are as follows (amounts in
thousands):
|
|
|
|
Fair Value Measurement Using
|
|
|
|
Fair Value Measurement Using
|
|
|
|
Fair Value
September 30,
2010
|
|
Level 1
|
|
Level 2
(2)(3)
|
|
Level 3
|
|
Fair Value
March 31,
2010
|
|
Level 1
|
|
Level 2 (4)
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money markets (1)
|
|
$
|
22,283
|
|
$
|
22,283
|
|
$
|
|
|
$
|
|
|
$
|
28,761
|
|
$
|
28,761
|
|
$
|
|
|
$
|
|
|
Long-term debt
|
|
284,690
|
|
|
|
284,690
|
|
|
|
260,496
|
|
70,492
|
|
190,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Included in the line item Cash
and cash equivalents on the Condensed Consolidated Balance Sheets.
(2)
For the 10.5% Senior Notes
and the Convertible Notes the Company utilized a bid quote to quantify the fair
value. For the other debt a discounted
cash flow valuation approach was used to calculate fair value.
(3)
The Convertible Notes moved
from a Level 1 to a Level 2 this quarter as there was a lack of trading
activity so quoted market prices were not available.
(4)
The valuation approach used
to calculate fair value was a discounted cash flow for each respective debt
facility.
Revenue Recognition
The
Company recognizes 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 sellers price to the
buyer is fixed or determinable, and (4) collectibility is reasonably
assured.
A
portion of sales is related to products designed to meet customer specific
requirements. These products typically have stricter tolerances making them
useful to the specific customer requesting the product and to customers with
similar or less stringent requirements. Products with customer specific
requirements are tested and approved by the customer before the Company mass
produces and ships the product. The Company recognizes revenue at shipment as
the sales terms for products produced with customer specific requirements do
not contain a final customer acceptance provision or other provisions that are
unique and would otherwise allow the customer different acceptance rights.
A
portion of sales is made to distributors under agreements allowing certain
rights of return and price protection on unsold merchandise held by distributors.
The Companys distributor policy includes inventory price protection and ship-from-stock
and debit (SFSD) programs common in the industry.
The
SFSD program provides a mechanism for the distributor to meet a competitive
price after obtaining authorization from the Companys local sales office. This
program allows the distributor to ship its higher-priced inventory and debit
the Company for the difference between KEMETs list price and the lower
authorized price for that specific transaction. Management analyzes historical
SFSD activity to determine the SFSD exposure on the global distributor
inventory at the balance sheet date. The
establishment of these reserves is recognized as a component of the line item Net
sales on the Condensed Consolidated Statements of Operations, while the
associated reserves are included in the line item Accounts receivable, net on
the Condensed Consolidated Balance Sheets.
The
Company provides a limited warranty to customers that the Companys products
meet certain specifications. The warranty period is generally limited to one
year, and the Companys liability under the warranty is generally limited to a
replacement of the product or refund of the purchase price of the product.
Warranty costs as a percentage of net sales were approximately 1% for the
quarters and six month periods ended September 30, 2010 and 2009. The
Company recognizes warranty costs when they are both probable and reasonably
estimable.
Use of Estimates and Assumptions
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates, assumptions, and judgments. Estimates and
assumptions are based on historical data and other assumptions that management
believes are reasonable. 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.
7
Table of Contents
The
Companys judgments are based on managements assessment as to the effect
certain estimates, assumptions, or future trends or events may have on the
financial condition and results of operations reported in the unaudited
condensed consolidated financial statements. It is important that readers of
these unaudited financial statements understand that actual results could
differ from these estimates, assumptions, and judgments.
Inventories
Inventories
are stated at the lower of cost or market.
The components of inventories are as follows (amounts in thousands):
|
|
September 30, 2010
|
|
March 31, 2010
|
|
Inventories:
|
|
|
|
|
|
Raw materials and supplies
|
|
$
|
81,399
|
|
$
|
67,511
|
|
Work in process
|
|
71,152
|
|
61,754
|
|
Finished goods
|
|
52,747
|
|
40,099
|
|
|
|
205,298
|
|
169,364
|
|
Inventory reserves
|
|
(21,622
|
)
|
(18,856
|
)
|
Total inventory
|
|
$
|
183,676
|
|
$
|
150,508
|
|
Land purchase
On
April 28, 2010, the Company purchased land in Italy to be used as the site
for a new manufacturing facility in order to consolidate our Italian
operations. In the first quarter of
fiscal year 2011, the Company paid EUR 2.1 million ($2.9 million) which was
included in the line item Capital expenditures on the Condensed Consolidated
Statements of Cash Flows. The remaining
purchase price will be paid in seven equal annual payments of EUR 489 thousand
($667 thousand) beginning on April 28, 2013.
Note 2.
Debt
A
summary of debt is as follows (amounts in thousands):
|
|
September 30,
2010
|
|
March 31, 2010
|
|
|
|
|
|
|
|
10.5% Senior Notes, net of discount of $2,983 as
of September 30, 2010
|
|
$
|
227,079
|
|
$
|
|
|
Convertible Debt, net of discount of $3,343 and
$7,861 as of September 30, 2010 and March 31, 2010, respectively
|
|
37,829
|
|
73,220
|
|
UniCredit Agreement-A (53,201 as of
March 31, 2010)
|
|
|
|
71,710
|
|
UniCredit Agreement-B (33,000 as of
March 31, 2010)
|
|
|
|
44,481
|
|
Platinum Term Loan, net of discount of $22,308 as
of March 31, 2010
|
|
|
|
15,525
|
|
Platinum Line of Credit Loan, net of discount of
$4,056 as of March 31, 2010
|
|
|
|
5,944
|
|
Platinum Working Capital Loan
|
|
|
|
10,000
|
|
Vishay
|
|
|
|
15,000
|
|
Other
|
|
9,374
|
|
13,629
|
|
Total debt
|
|
274,282
|
|
249,509
|
|
Current maturities
|
|
(5,457
|
)
|
(17,880
|
)
|
Total long-term debt
|
|
$
|
268,825
|
|
$
|
231,629
|
|
The
line item Interest expense on the Condensed Consolidated Statements of
Operations for the quarters and six month periods ended September 30, 2010
and 2009, is as follows (amounts in thousands):
|
|
Quarters Ended
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Contractual interest expense
|
|
$
|
6,504
|
|
$
|
3,172
|
|
$
|
12,038
|
|
$
|
6,427
|
|
Amortization of debt issuance costs
|
|
177
|
|
694
|
|
606
|
|
994
|
|
Amortization of debt discount
|
|
653
|
|
2,625
|
|
2,148
|
|
4,889
|
|
Total interest expense
|
|
$
|
7,334
|
|
$
|
6,491
|
|
$
|
14,792
|
|
$
|
12,310
|
|
8
Table of
Contents
10.5% Senior Notes
On May 5, 2010, the Company completed a private placement of
$230.0 million in aggregate principal amount of the Companys 10.5% Senior
Notes due 2018 (the 10.5% Senior Notes) to several initial purchasers (the Initial
Purchasers) represented by Banc of America Securities LLC pursuant to an
exemption from the registration requirements under the Securities Act of 1933,
as amended (the Securities Act). The Initial Purchasers subsequently sold the
10.5% Senior Notes to qualified institutional buyers pursuant to Rule 144A
under the Securities Act and to persons outside of the United States pursuant
to Regulation S under the Securities Act.
On
May 5, 2010, in connection with the private placement of the 10.5% Senior
Notes, the Company, the Companys domestic restricted subsidiaries (the Guarantors)
and the Initial Purchasers entered into the Registration Rights Agreement. The
terms of the Registration Rights Agreement require the Company and the
Guarantors to (i) use their commercially reasonable efforts to file with
the Securities and Exchange Commission within 210 days after the date of
the initial issuance of the 10.5% Senior Notes, a registration statement with
respect to an offer to exchange the 10.5% Senior Notes for a new issue of debt
securities registered under the Securities Act, with terms substantially
identical to those of the 10.5% Senior Notes (except for provisions relating to
the transfer restrictions and payment of additional interest); (ii) use
our commercially reasonable efforts to consummate such exchange offer within
270 days after the date of the initial issuance of the 10.5% Senior Notes;
and (iii) in certain circumstances, file a shelf registration
statement for the resale of the 10.5% Senior Notes. On October 26, 2010, the Company filed a
Form S-4 to offer, in exchange for its outstanding 10.5% Senior Notes, up
to $230.0 million in aggregate principal amount of 10.5% Senior Notes due 2018
and the guarantees thereof which have been registered under the Securities Act
of 1933, as amended.
The private placement of the 10.5% Senior Notes resulted in net
proceeds to the Company of $222.2 million. The Company used a portion of the
proceeds of the private placement to repay all of its outstanding indebtedness
under the Companys credit facility with K Financing, LLC, the Companys 60 million
credit facility and 35 million credit facility with UniCredit Corporate
Banking S.p.A. (UniCredit) and the Companys term loan with Vishay
Intertechnology, Inc. (Vishay) and used a portion of the remaining
proceeds to fund a previously announced tender offer to purchase
$40.5 million in aggregate principal amount of the Companys 2.25%
Convertible Senior Notes (the Convertible Notes) and to pay costs incurred in
connection with the private placement, the tender offer and the foregoing repayments. Debt issuance costs related to the 10.5%
Senior Notes, net of amortization, were $6.3 million as of September 30,
2010; these costs will be amortized over the term of the 10.5% Senior Notes.
The 10.5% Senior Notes were issued pursuant to an Indenture (the 10.5%
Senior Notes Indenture), dated as of May 5, 2010, by and among the
Company, Guarantors and Wilmington Trust Company, as trustee (the Trustee).
The 10.5% Senior Notes will mature on May 1, 2018, and bear interest at a
stated rate of 10.5% per annum, payable semi-annually in cash in arrears on
May 1 and November 1 of each year, beginning on November 1,
2010. The 10.5% Senior Notes are senior obligations of the Company and will be
guaranteed by each of the Guarantors and secured by a first priority lien on
51% of the capital stock of certain of the Companys foreign restricted
subsidiaries.
The terms of the 10.5% Senior Notes Indenture will, among other things,
limit the ability of the Company and its restricted subsidiaries to
(i) incur additional indebtedness or issue certain preferred stock;
(ii) pay dividends on, or make distributions in respect of, their capital
stock or repurchase their capital stock; (iii) make certain investments or
other restricted payments; (iv) sell certain assets; (v) create liens
or use assets as security in other transactions; (vi) enter into sale and
leaseback transactions; (vii) merge, consolidate or transfer or dispose of
substantially all of their assets; (viii) engage in certain transactions
with affiliates; and (ix) designate their subsidiaries as unrestricted
subsidiaries. These covenants are subject to a number of important limitations
and exceptions that are described in the 10.5% Senior Notes Indenture.
The 10.5% Senior Notes will be redeemable, in whole or in part, at any
time on or after May 1, 2014, at the redemption prices specified in the
10.5% Senior Notes Indenture. At any time prior to May 1, 2013, the
Company may redeem up to 35% of the aggregate principal amount of the 10.5% Senior
Notes with the net cash proceeds from certain equity offerings at a redemption
price equal to 110.5% of the principal amount thereof, together with accrued
and unpaid interest, if any, to the redemption date. In addition, at any time
prior to May 1, 2014, the Company may redeem the 10.5% Senior Notes, in
whole or in part, at a redemption price equal to 100% of the principal amount
of the 10.5% Senior Notes so redeemed, plus a make whole premium and together
with accrued and unpaid interest, if any, to the redemption date.
Upon the occurrence of a change of control triggering event specified
in the 10.5% Senior Notes Indenture, the Company must offer to purchase the
10.5% Senior Notes at a redemption price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase.
The 10.5% Senior Notes Indenture provides for customary events of
default (subject in certain cases to customary grace and cure periods), which
include nonpayment, breach of covenants in the 10.5% Senior Notes Indenture,
payment defaults or acceleration
9
Table of Contents
of
other indebtedness, a failure to pay certain judgments and certain events of
bankruptcy and insolvency. The 10.5% Senior Notes Indenture also provides for
events of default with respect to the collateral, which include default in the
performance of (or repudiation, disaffirmation or judgment of unenforceability
or assertion of unenforceability) by the Company or a Guarantor with respect to
the provision of security documents under the 10.5% Senior Notes Indenture.
These events of default are subject to a number of important qualifications,
limitations and exceptions that are described in the 10.5% Senior Notes
Indenture. Generally, if an event of default occurs, the Trustee or holders of
at least 25% in principal amount of the then outstanding 10.5% Senior Notes may
declare the principal of and accrued but unpaid interest, including additional
interest, on all the 10.5% Senior Notes to be due and payable.
The Company had interest payable related to the 10.5% Senior Notes
included in the line item Accrued expenses on its Condensed Consolidated
Balance Sheets of $9.8 million at September 30, 2010.
Platinum Credit Facility
On
May 5, 2009, the Company
executed
the Revised Amended and Restated Platinum Credit Facility with
K Financing, LLC (K Financing)
, an affiliate of Platinum
Equity Capital Partners II, L.P. (the Revised Amended and Restated Platinum
Credit Facility). The Revised Amended and Restated Platinum Credit Facility
consisted of a term loan of $37.8 million (Platinum Term Loan), a line of
credit loan (Platinum Line of Credit Loan) that could be borrowed from time
to time (but not reborrowed after being repaid) of up to $12.5 million, and a
working capital loan (Platinum Working Capital Loan) of up to $12.5
million.
The
Platinum Term Loan was used to purchase $93.9 million of the Companys Convertible
Notes that are more fully described below.
On
June 30, 2009, the Company drew $10.0 million from the Platinum Line of
Credit Loan and used it primarily to pay the fees and expenses related to the
execution of the tender offer (described below) and the execution of the
Revised Amended and Restated Platinum Credit Facility. The Company
incurred $3.6 million in fees and expense reimbursements related to the
execution of the tender offer, $4.2 million related to the execution of the
Revised Amended and Restated Platinum Credit Facility, and $1.4 million related
to the amendments of the UniCredit facilities.
On September 29, 2009, the Company borrowed $10.0 million on the
Platinum Working Capital Loan for general corporate purposes.
On
May 5, 2010, the Platinum Term Loan, the Platinum Line of Credit Loan, and
the Platinum Working Capital Loan were extinguished. The extinguishment of the Platinum facilities
resulted in a $33.3 million loss on early extinguishment of debt. The
calculation of the loss is as follows (amounts in thousands):
Reacquisition price:
|
|
|
|
Cash paid
|
|
$
|
57,861
|
|
Success fee
|
|
5,000
|
|
|
|
62,861
|
|
Extinguished debt:
|
|
|
|
Carrying amount of debt
|
|
32,135
|
|
Carrying amount of success fee
|
|
2,001
|
|
Unamortized debt cost
|
|
(4,619
|
)
|
|
|
29,517
|
|
|
|
|
|
Net loss
|
|
$
|
(33,344
|
)
|
The
Platinum Term Loan accrued interest at an annual rate of 9%. The Platinum Working Capital Loan and the
Platinum Line of Credit Loan accrued interest at an annual rate equal to the
greater of (i) LIBOR plus 7%, or (ii) 10%, payable monthly in
arrears.
The Companys obligations to K Financing
arising under the Revised Amended and Restated Platinum Credit Facility were
secured by substantially all of the Companys assets located in the United
States, Mexico, Indonesia and China (other than accounts receivable owing
by account debtors located in the United States, Singapore and Hong Kong, which
exclusively secured obligations to an affiliate of Vishay). As further described in the Offer to Purchase
for the Convertible Notes, in connection with entering into the Revised Amended
and Restated Platinum Credit Facility, K Financing and UniCredit entered into a
letter of understanding with respect to their respective guarantor and
collateral pools and the Companys assets in Europe that were not pledged to
either lender. The letter of
understanding also set forth each lenders agreement not to interfere with the
other lenders exercise of remedies pertaining to their respective collateral
pools.
Concurrent
with the consummation of the tender offer, the Company issued K Financing the
Closing Warrant to purchase up to 80,544,685 shares of its common stock,
subject to certain adjustments, representing at the time of issuance 49.9% of
the Companys outstanding common stock on a post-Closing Warrant basis. The Closing Warrant was subsequently
transferred to K Equity, LLC (K Equity).
10
Table of Contents
The
Company also entered into an Investor Rights Agreement (the Investor Rights
Agreement) with K Financing, which subsequently transferred its rights
thereunder to K Equity. Pursuant to the
terms of the Investor Rights Agreement, the Company has, subject to certain
terms and conditions, granted Board of Directors (Board) observation rights
to K Financing which would permit K Financing to designate up to three
individuals to observe Board meetings and receive information provided to the
Board. In addition, the Investor Rights
Agreement provides K Financing with certain preemptive rights. Subject to the terms and limitations
described in the Investor Rights Agreement, in connection with any proposed
issuance of equity securities or securities convertible into equity, the
Company would be required to offer to sell to K Financing a pro rata portion of
such securities equal to the percentage determined by dividing the number of
shares of common stock held by K Financing plus the number of shares of common
stock issuable upon exercise of the Closing Warrant, by the total number
of shares of common stock then outstanding on a fully diluted basis. The
Investor Rights Agreement also provides K Financing with certain registration
and information rights.
The
Company also entered into a Corporate Advisory Services Agreement with Platinum
Equity Advisors, LLC (Platinum Advisors) for a term of the later of
(i) June 30, 2013 and (ii) the termination of the Credit
Facility, pursuant to which the Company pays an annual fee of $1.5 million to
Platinum Advisors for certain advisory services. In addition, the Revised Amended and Restated
Platinum Credit Facility included various fees totaling $0.7 million per year
for administration and collateral management, the Company incurred a fee of 1%
per annum for unused capacity under the Platinum Line of Credit Loan and the
Platinum Working Capital Loan and the Company paid K Financing a success fee of
$5.0 million in May 2010. This fee
was payable at the time of repayment in full of the Platinum Term Loan, whether
at maturity or otherwise.
At
the date of issuance, the Company allocated $31.4 million of the proceeds from
the issuance of the Platinum Term Loan and the draw-down on the Platinum Line
of Credit Loan to warrant liability. The
Company allocated the remainder of the issuance proceeds to the Platinum Term
Loan and the Platinum Line of Credit Loan ($12.0 million and $4.4 million,
respectively) based upon their relative fair values. The carrying amount of the Platinum Term Loan
and the Platinum Line of Credit Loan were increased by quarterly accretion to
the line item Interest expense on the Condensed Consolidated Statements of
Operations under the effective interest method over their respective terms of
approximately 3.4 years and 2.0 years.
Convertible Notes
In
November 2006, the Company sold and issued its Convertible Notes which are
unsecured obligations and rank equally with the Companys existing and future
unsubordinated and unsecured obligations and are junior to any of the Companys
future secured obligations to the extent of the value of the collateral
securing such obligations. In connection with the issuance and sale of the
Convertible Notes, the Company entered into an indenture (the Convertible
Notes Indenture) dated as of November 1, 2006, with Wilmington Trust
Company, as trustee.
The
Convertible Notes bear interest at a rate of 2.25% per annum, payable in cash
semi-annually in arrears on each May 15 and November 15. The
Convertible Notes are convertible into (i) cash in an amount equal to the
lesser of the principal amount of the Convertible Notes and the conversion
value of the Convertible Notes on the conversion date and (ii) cash or
shares of the Companys common stock (Common Stock) or a combination of cash
and shares of the Common Stock, at the Companys option, to the extent the
conversion value at that time exceeds the principal amount of the Convertible
Notes, at any time prior to the close of business on the business day
immediately preceding the maturity date of the Convertible Notes, unless the
Company has redeemed or purchased the Convertible Notes, subject to certain
conditions. The initial conversion rate was 103.0928 shares of Common Stock per
$1,000 principal amount of the Convertible Notes, which represents an initial
conversion price of approximately $9.70 per share, subject to adjustments.
The
holder may surrender the holders Convertible Notes for conversion if any of
the following conditions are satisfied:
·
During any
fiscal quarter, the closing sale price of the Common Stock for at least 20
trading days in the period of 30 consecutive trading days ending on the last
trading day of the preceding fiscal quarter exceeds 130% of the conversion
price per share on such last trading day;
·
The Company has
called the Convertible Notes for redemption;
·
The average of
the trading prices of the Convertible Notes for any five consecutive trading
day period is less than 98% of the average of the conversion values of the
Convertible Notes during that period;
·
The Company
makes certain significant distributions to the holders of the Common Stock; or
11
Table of Contents
·
In connection
with a transaction or event constituting a fundamental change (as defined in
the Convertible Notes Indenture).
The
Company received net proceeds from the sale of the Convertible Notes of
approximately $170.2 million, after deducting discounts and estimated
offering expenses of approximately $4.8 million. Net proceeds from the
sale were used to repurchase approximately 3.3 million shares of Common
Stock at a cost of approximately $24.9 million (concurrent with the
initial closing of the Convertible Notes offering). Debt issuance costs are
being amortized over a period of five years.
Issuance
and transaction costs incurred at the time of the issuance of the Convertible
Notes with third parties are allocated to the liability and equity components
and accounted for as debt issuance costs and equity issuance costs,
respectively. Debt issuance costs related to the Convertible Notes, net of
amortization, were $0.2 million as of September 30, 2010 and equity
issuance costs were $1.3 million. The deferred tax liability and a
corresponding valuation allowance adjustment in the same amount related to the
Convertible Notes were $1.1 million as of September 30, 2010.
As
of September 30, 2010, the remaining unamortized debt discount of the
Convertible Notes will be amortized over a period of 13 months, the remaining
expected term of the Convertible Notes.
The effective interest rate on the liability component is 9.1% on an
annual basis.
On June 26, 2009, $93.9 million in
aggregate principal amount of the Convertible Notes were validly tendered
(representing 53.7% of the outstanding Convertible Notes). As a result of the retrospective adoption
effective April 1, 2009 of new guidance within ASC 470-20,
Debt With Conversion and Other Options
, the carrying value
of the aggregate principal value of the tendered Convertible Notes was $81.0
million. Holders of the Convertible
Notes received $400 for each $1,000 principal amount of Convertible Notes
purchased in the tender offer, plus accrued and unpaid interest up to, but not
including, the date of payment for the Convertible Notes accepted for
payment. As a result of the consummated
tender offer, on June 30, 2009, the Company used the $37.8 million
Platinum Term Loan under the Revised Amended and Restated Platinum Credit
Facility to extinguish the tendered Convertible Notes. The extinguishment of these Convertible Notes
resulted in a $38.9 million net gain ($0.48 per share) included in the line
item(Gain) loss on early extinguishment of debt on the Condensed Consolidated
Statements of Operations for the quarter and six month period ended
September 30, 2009. The calculation of the gain is as follows (amounts in
thousands):
Reacquisition price:
|
|
|
|
Cash paid
|
|
$
|
37,568
|
|
Tender offer fees
|
|
3,605
|
|
|
|
41,173
|
|
Extinguished debt:
|
|
|
|
Carrying amount of debt
|
|
80,987
|
|
Unamortized debt cost
|
|
(893
|
)
|
|
|
80,094
|
|
|
|
|
|
Net gain
|
|
$
|
38,921
|
|
On
May 17, 2010, $40.5 million in aggregate principal amount of the
Convertible Notes was extinguished. The
extinguishment resulted in a $1.6 million loss on extinguishment of debt. The
calculation of the loss is as follows (amounts in thousands):
Reacquisition price:
|
|
|
|
Cash paid
|
|
$
|
37,867
|
|
Tender offer fees
|
|
207
|
|
|
|
38,074
|
|
Extinguished debt:
|
|
|
|
Carrying amount of debt
|
|
36,770
|
|
Unamortized debt cost
|
|
(248
|
)
|
|
|
36,522
|
|
|
|
|
|
Net loss
|
|
$
|
(1,552
|
)
|
The terms of the Convertible Notes are governed by the Convertible
Notes Indenture. The Convertible Notes mature on November 15, 2026 unless
earlier redeemed, repurchased or converted. The Company may redeem the
Convertible Notes for cash, either in whole or in part, anytime after
November 20, 2011 at a redemption price equal to 100% of the principal
amount of the Convertible Notes to be redeemed plus accrued and unpaid
interest, including additional interest, if any, up to but not including the
12
Table of
Contents
date
of redemption. In addition, holders of the Convertible Notes will have the
right to require the Company to repurchase for cash all or a portion of their
Convertible Notes on November 15, 2011, 2016 and 2021, at a repurchase
price equal to 100% of the principal amount of the Convertible Notes to be repurchased
plus accrued and unpaid interest, if any, in each case, up to but not
including, the date of repurchase.
The Convertible Notes are convertible into Common Stock at a rate equal
to 103.0928 shares per $1,000 principal amount of the Convertible Notes (equal
to an initial conversion price of approximately $9.70 per share), subject to
adjustment as described in the Convertible Notes Indenture. Upon conversion,
the Company will deliver for each $1,000 principal amount of Convertible Notes,
an amount consisting of cash equal to the lesser of $1,000 and the conversion
value (as defined in the Convertible Notes Indenture) and, to the extent that
the conversion value exceeds $1,000, at the Companys election, cash or shares
of Common Stock with respect to the remainder. The contingent conversion
feature was not required to be bifurcated and accounted for separately.
If the Company undergoes a fundamental change, holders of the
Convertible Notes will have the right, subject to certain conditions, to require
the Company to repurchase for cash all or a portion of their Convertible Notes
at a repurchase price equal to 100% of the principal amount of the Convertible
Notes to be repurchased plus accrued and unpaid interest, including contingent
interest and additional amounts, if any. One occurrence creating a fundamental
change is the Companys common stock ceasing to be listed on the New York
Stock Exchange (NYSE) or another national securities exchange in the United
States, without then being quoted on an established automated over-the-counter
trading market in the United States. The
transfer of the trading of the Companys stock from the NYSE to the OTC
Bulletin Board did not constitute a fundamental change. On June 22,
2010, the Companys common stock began trading on the NYSE Amex. As a matter of information, such listing does
not constitute a fundamental change.
The Company will pay a make-whole premium on the Convertible Notes
converted in connection with any fundamental change that occurs prior to
November 20, 2011. The amount of the make-whole premium, if any, will be
based on the Companys stock price and the effective date of the fundamental
change. The maximum make-whole premium, expressed as a number of additional
shares of the Common Stock to be received per $1,000 principal amount of the
Convertible Notes, would be 30.95 upon the conversion of Convertible Notes in
connection with the occurrence of a fundamental change prior to
November 1, 2010, or November 20, 2011 if the stock price at that
date is at least $7.46 per share of Common Stock. The Convertible Notes
Indenture contains a detailed description of how the make-whole premium will be
determined and a table showing the make-whole premium that would apply at
various stock prices and fundamental change effective dates. No make-whole
premium will be paid if the price of the Common Stock on the effective date of
the fundamental change is less than $7.46 per share. Any make-whole premium
will be payable in shares of Common Stock (or the consideration into which the
Companys Common Stock has been exchanged in the fundamental change) on the
conversion date for the Convertible Notes converted in connection with the
fundamental change.
The estimated fair value of the Convertible Notes, based on quoted
market prices as of September 30, 2010 and March 31, 2010, was
approximately $36 million and $71 million, respectively. The Company
had interest payable related to the Convertible Notes included in the line item
Accrued expenses on its Condensed Consolidated Balance Sheets of $0.4 million
and $0.7 million at September 30, 2010 and March 31, 2010,
respectively.
UniCredit Credit Facility
As
of March 31, 2010 the Company had two Senior Facility Agreements
outstanding with UniCredit. As of
March 31, 2010, Facility A had EUR 53.2 million ($71.7 million)
outstanding and Facility B had EUR 33.0 million ($44.5 million) outstanding.
On
May 5, 2010, Facility A and Facility B were extinguished. The extinguishment resulted in a $3.3 million
loss on extinguishment of debt. The calculation of the loss is as follows
(amounts in thousands):
Reacquisition price:
|
|
|
|
Cash paid
|
|
$
|
104,683
|
|
Extinguished debt:
|
|
|
|
Carrying amount of debt
|
|
104,674
|
|
Unamortized debt cost
|
|
(3,343
|
)
|
|
|
101,331
|
|
|
|
|
|
Net loss
|
|
$
|
(3,352
|
)
|
13
Table of
Contents
Material
terms and conditions of Facility A were as follows:
(i)
|
|
Interest
Rate:
|
|
Floating
at six-month EURIBOR plus 2.5%
|
(ii)
|
|
Structure:
|
|
Secured
with Italian real property, certain European accounts receivable and shares
of two of the Companys Italian subsidiaries
|
Material
terms and conditions of Facility B were as follows:
(i)
|
|
Interest
Rate:
|
|
Floating at six-month
EURIBOR plus 2.5%
|
(ii)
|
|
Structure:
|
|
Unsecured
|
Effective
as of September 30, 2009, the Company entered into an amendment to
Facility A. Under the terms of the amendment, the amortization schedule
of Facility A was modified, including the addition of an October 1, 2009
principal installment. In connection with the amendment, the Company
simultaneously executed a fee letter in which it agreed to pay to UniCredit an
amendment fee and reimburse it for certain legal expenses incurred in relation
to the amendment. These fees were
$1.5 million and were amortized as an adjustment of interest expense over
the term of the Facility, the remaining balance at the time of extinguishment
was included in the calculation of the loss on extinguishment of debt.
Vishay Loan
In
the second quarter of fiscal year 2009, the Company sold assets related to the
production and sale of wet tantalum capacitors to a subsidiary of Vishay. The
Company received $33.7 million in cash proceeds, net of amounts held in
escrow, from the sale of these assets. Concurrently, the Company entered into a
three-year term loan agreement for $15.0 million and a security agreement
with Vishay. The loan carried an interest rate of LIBOR plus 4% which was
payable monthly. Pursuant to the security agreement, the loan was secured by
certain accounts receivable of the Company. On May 5, 2010, the Vishay
loan was paid in full.
Revolving Line of Credit
On
September 30, 2010, KEMET Electronics Corporation (KEC) and KEMET
Electronics Marketing (S) Pte Ltd. (KEMET Singapore) (each a Borrower
and, collectively, the Borrowers) entered into a Loan and Security Agreement
(the Loan and Security Agreement), with Bank of America, N.A, as the
administrative agent and the initial lender. The Loan and Security Agreement
provides a $50 million revolving line of credit, which is bifurcated into a
U.S. facility (for which KEC is the Borrower) and a Singapore facility (for
which KEMET Singapore is the Borrower). The size of the U.S. facility and
Singapore facility can fluctuate as long as the Singapore facility does not
exceed $30 million and the total facility does not exceed $50 million. A
portion of the U.S. facility and of the Singapore facility can be used to issue
letters of credit. The facilities expire on September 30, 2014.
Revolving
loans may be used to pay fees and transaction expenses associated with the
closing of the credit facilities, to pay obligations outstanding under the Loan
and Security Agreement and for working capital and other lawful corporate
purposes of KEC and KEMET Singapore. Borrowings under the U.S. and
Singapore facilities are subject to a borrowing base. The borrowing base
consists of:
·
in the case of the U.S. facility, (A) 85% of KECs accounts
receivable that satisfy certain eligibility criteria plus (B) the lesser
of $4 million and 40% of the net book value of inventory of KEC that satisfy
certain eligibility criteria plus (C) the lesser of $3 million and 70% of
the net orderly liquidation percentage of the appraised value of equipment that
satisfies certain eligibility criteria less (D) certain reserves,
including certain reserves imposed by the administrative agent in its permitted
discretion; and
·
in the case of the Singapore facility, (A) 85% of KEMET Singapores
accounts receivable that satisfy certain eligibility criteria less
(B) certain reserves, including certain reserves imposed by the
administrative agent in its permitted discretion.
Interest
is payable on borrowings monthly at a rate equal to the London Interbank Offer
Rate (LIBOR) or the base rate, plus an applicable margin, as selected by the
Borrower. Depending upon the fixed charge coverage ratio of KEMET Corporation
and its subsidiaries on a consolidated basis as of the latest test date, the
applicable margin under the U.S. facility varies between 3.00% and 3.50% for
LIBOR advances and 2.00% and 2.50% for base rate advances, and under the
Singapore facility varies between 3.25% and 3.75% for LIBOR advances and 2.25%
and 2.75% for base rate advances.
The
base rate is subject to a floor that is 100 basis points above LIBOR.
14
Table
of Contents
An
unused line fee is payable monthly in an amount equal to 0.75% per annum of the
average daily unused portion of the facilities during any month; provided, that
such percentage rate is reduced to (a) 0.50% per annum for any month in
which the average daily balance of the facilities is greater than 33.3% of the
total revolving commitment and less than 66.6% of the total revolving
commitment, and (b) 0.375% per annum for any month in which the average
daily balance of the facilities is greater than or equal to 66.6% of the total
revolving commitment. A customary fee is also payable to the administrative
agent on a quarterly basis.
KECs
ability to draw funds under the U.S. facility and KEMET Singapores ability to
draw funds under the Singapore facility are conditioned upon, among other
matters:
·
the absence of the existence of a Material Adverse Effect (as defined
in the Loan and Security Agreement);
·
the absence of the existence of a default or an event of default under
the Loan and Security Agreement; and
·
the representations and warranties made by
KEC and KEMET Singapore in the Loan and Security Agreement continuing to be
correct in all material respects.
The
parent corporation of KEC - KEMET Corporation - and the Guarantors guarantee
the U.S. facility obligations and the U.S. facility obligations are secured by
a lien on substantially all of the assets of KEC and the Guarantors (other than
assets that secure the 10.5% Senior Notes due 2018). The collection accounts of
the Borrowers and Guarantors are subject to a daily sweep into a concentration
account and the concentration account will become subject to full cash dominion
in favor of the administrative agent (i) upon an event of default,
(ii) if for five consecutive business days, aggregate availability of all
facilities has been less than the greater of (A) 15% of the aggregate
revolver commitments at such time and (B) $7.5 million, or (iii) if
for five consecutive business days, availability of the U.S. facility has been
less than $3.75 million (each such event, a Cash Dominion Trigger Event).
KEC
and the Guarantors guarantee the Singapore facility obligations. In
addition to the assets that secure the U.S. facility, the Singapore obligations
are also secured by a pledge of 100% of the stock of KEMET Singapore and a
security interest in substantially all of KEMET Singapores assets.
Within 90 days after the closing date, KEMET Singapores bank accounts will be
transferred over to Bank of America and upon a Cash Dominion Trigger Event will
become subject to full cash dominion in favor of the administrative agent.
A
fixed charge coverage ratio of at least 1.1:1.0 must be maintained as at the
last day of each fiscal quarter ending immediately prior to or during any
period in which any of the following occurs and is continuing until none of the
following occurs for a period of at least forty-five consecutive days:
(i) an event of default, (ii) aggregate availability of all
facilities has been less than the greater of (A) 15% of the aggregate
revolver commitments at such time and (B) $7.5 million, or
(iii) availability of the U.S. facility has been less than $3.75
million. The fixed charge coverage ratio tests the EBITDA and fixed
charges of KEMET Corporation and its subsidiaries on a consolidated basis.
In
addition, the Loan and Security Agreement includes negative covenants that,
subject to exceptions, limit the ability of KEMET Corporation and its direct
and indirect subsidiaries to, among other things:
·
incur additional indebtedness;
·
create liens on assets;
·
make capital expenditures;
·
engage in mergers, consolidations, liquidations and dissolutions;
·
sell assets (including pursuant to sale leaseback transactions);
·
pay dividends and distributions on or repurchase capital stock;
·
make investments (including acquisitions), loans, or advances;
·
prepay certain junior indebtedness;
·
engage in certain transactions with affiliates;
·
enter into restrictive agreements;
·
amend material agreements governing certain junior indebtedness; and
·
change its lines of business.
The
Loan and Security Agreement includes certain customary representations and
warranties, affirmative covenants and events of default, which are set forth in
more detail in the Loan and Security Agreement.
Debt
issuance costs related to the Loan and Security Agreement, net of amortization,
were $1.1 million as of September 30, 2010, these costs will be amortized
over the term of the Loan and Security Agreement. There were no borrowings against the
revolving line of credit as of September 30, 2010.
15
Table
of Contents
Note 3.
Segment and Geographic Information
The
Company is organized into three business groups: the Tantalum Business Group (Tantalum),
the Ceramic Business Group (Ceramics), and the Film and Electrolytic Business
Group (Film and Electrolytic). Each business group is responsible for the
operations of certain manufacturing sites as well as all related research and
development efforts. The sales and marketing functions are shared by the business groups and are allocated
to each business group based on the business groups respective
budgeted net sales. In addition, all corporate costs are allocated to
the business groups based on the
business groups respective budgeted net sales.
Tantalum
Tantalum
operates in five manufacturing sites in the United States, Mexico, China, and
Portugal. This business group produces tantalum and aluminum polymer
capacitors. Tantalum also maintains a product innovation center in the United
States. Tantalum products are sold in
all regions of the world.
Ceramics
Ceramics
operates in two manufacturing locations in Mexico and a manufacturing facility
in China. This business group produces ceramic capacitors. In addition, the
business group has a product innovation center in the United States. Ceramics products are sold in all regions of
the world.
Film
and Electrolytic
Film
and Electrolytic operates in fourteen manufacturing sites in Europe, Asia and
Mexico. This business group produces film, paper, and electrolytic capacitors.
In addition, the business group has a product innovation center in Sweden. Film and Electrolytic products are sold in
all regions in the world.
The
following table reflects each business groups net sales, operating income
(loss), depreciation and amortization expenses and sales by region for the
quarters and six month periods ended September 30, 2010 and 2009 (amounts
in thousands):
|
|
Quarters Ended September 30,
|
|
Six Months Ended Septbember 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
$
|
123,873
|
|
$
|
81,987
|
|
$
|
237,441
|
|
$
|
154,355
|
|
Ceramics
|
|
56,730
|
|
40,998
|
|
111,054
|
|
73,946
|
|
Film and Electrolytic
|
|
67,985
|
|
50,280
|
|
143,887
|
|
95,131
|
|
|
|
$
|
248,588
|
|
$
|
173,265
|
|
$
|
492,382
|
|
$
|
323,432
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) (1)(2):
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
$
|
27,466
|
|
$
|
4,330
|
|
$
|
44,972
|
|
$
|
8,132
|
|
Ceramics
|
|
13,324
|
|
4,461
|
|
24,354
|
|
6,909
|
|
Film and Electrolytic
|
|
(2,828
|
)
|
(11,678
|
)
|
(2,829
|
)
|
(20,429
|
)
|
|
|
$
|
37,962
|
|
$
|
(2,887
|
)
|
$
|
66,497
|
|
$
|
(5,388
|
)
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expenses:
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
$
|
8,788
|
|
$
|
7,338
|
|
$
|
17,106
|
|
$
|
14,563
|
|
Ceramics
|
|
4,653
|
|
2,205
|
|
6,922
|
|
4,617
|
|
Film and Electrolytic
|
|
691
|
|
3,683
|
|
4,614
|
|
6,310
|
|
|
|
$
|
14,132
|
|
$
|
13,226
|
|
$
|
28,642
|
|
$
|
25,490
|
|
|
|
|
|
|
|
|
|
|
|
Sales by region:
|
|
|
|
|
|
|
|
|
|
North and South America (Americas)
|
|
$
|
70,915
|
|
$
|
43,375
|
|
$
|
127,701
|
|
$
|
79,497
|
|
Europe, Middle East, Africa (EMEA)
|
|
85,651
|
|
60,407
|
|
172,023
|
|
115,074
|
|
Asia and Pacific Rim (APAC)
|
|
92,022
|
|
69,483
|
|
192,658
|
|
128,861
|
|
|
|
$
|
248,588
|
|
$
|
173,265
|
|
$
|
492,382
|
|
$
|
323,432
|
|
16
Table of
Contents
The
following table reflects each business groups total assets as of
September 30, 2010 and March 31, 2010 (amounts in thousands):
|
|
September 30, 2010
|
|
March 31, 2010
|
|
Total assets:
|
|
|
|
|
|
Tantalum
|
|
$
|
410,891
|
|
$
|
378,344
|
|
Ceramics
|
|
173,354
|
|
169,564
|
|
Film and Electrolytic
|
|
224,356
|
|
193,053
|
|
|
|
$
|
808,601
|
|
$
|
740,961
|
|
(1) Restructuring
charges included in Operating income (loss) were as follows:
|
|
Quarters Ended September 30,
|
|
Six Months Ended Septbember 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Total restructuring:
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
$
|
322
|
|
$
|
108
|
|
$
|
779
|
|
$
|
108
|
|
Ceramics
|
|
93
|
|
51
|
|
187
|
|
51
|
|
Film and Electrolytic
|
|
1,888
|
|
1,108
|
|
3,129
|
|
1,108
|
|
|
|
$
|
2,303
|
|
$
|
1,267
|
|
$
|
4,095
|
|
$
|
1,267
|
|
(2) Net (gain) loss on sales and disposals of assets included in
Operating income (loss) was:
|
|
Quarters Ended September 30,
|
|
Six Months Ended Septbember 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net (gain) loss on sales and
disposals of assets:
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
$
|
(121
|
)
|
$
|
31
|
|
$
|
(15
|
)
|
$
|
155
|
|
Ceramics
|
|
(1,655
|
)
|
21
|
|
(1,632
|
)
|
103
|
|
Film and Electrolytic
|
|
6
|
|
|
|
212
|
|
|
|
|
|
$
|
(1,770
|
)
|
$
|
52
|
|
$
|
(1,435
|
)
|
$
|
258
|
|
Note 4.
Restructuring Charges
A summary of the expenses aggregated on the Condensed Consolidated
Statements of Operations line item Restructuring charges in the quarters and
six month periods ended September 30, 2010 and 2009, is as follows
(amounts in thousands):
|
|
Quarters Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Manufacturing relocation costs
|
|
$
|
1,642
|
|
$
|
|
|
$
|
3,080
|
|
$
|
|
|
Personnel reduction costs
|
|
661
|
|
1,267
|
|
1,015
|
|
1,267
|
|
Restructuring charges
|
|
$
|
2,303
|
|
$
|
1,267
|
|
$
|
4,095
|
|
$
|
1,267
|
|
Six Months Ended September 30, 2010
In fiscal year 2010, the Company initiated the first phase of a plan to
restructure Film and Electrolytic and to reduce overhead within the Company as
a whole. The restructuring plan includes
implementing programs to make the Company more competitive, removing excess
capacity, moving production to lower cost locations and eliminating unnecessary
costs throughout the Company.
Restructuring charges in the six months ended September 30, 2010
relate to this new plan and are primarily comprised of manufacturing relocation
costs of $3.1 million for relocation of equipment from various plants to Mexico
or China as well as a distribution center relocation project. In addition, the Company incurred $1.0
million in personnel reduction costs due primarily to headcount reductions
within Film and Electrolytic.
Six Months Ended September 30, 2009
Restructuring
expense in the first half of fiscal year 2010 is primarily comprised of a
headcount reduction of 57 employees in Finland.
Restructuring charges of $1.3 million were incurred in the second
quarter of fiscal year 2010 and remain as a liability on the Condensed Consolidated
Balance Sheets at September 30, 2009.
17
Table of Contents
A reconciliation of the beginning and ending liability balances for
restructuring charges included in the line items Accrued expenses and Other
non-current obligations on the Condensed Consolidated Balance Sheets were as
follows (amounts in thousands):
|
|
Quarter Ended September 30, 2010
|
|
Quarter Ended September 30, 2009
|
|
|
|
Personnel
|
|
Manufacturing
|
|
Personnel
|
|
Manufacturing
|
|
|
|
Reductions
|
|
Relocations
|
|
Reductions
|
|
Relocations
|
|
Beginning of period
|
|
$
|
6,696
|
|
$
|
|
|
$
|
5,937
|
|
$
|
|
|
Costs charged to expense
|
|
661
|
|
1,642
|
|
1,267
|
|
|
|
Costs paid or settled
|
|
(1,280
|
)
|
(1,642
|
)
|
(1,317
|
)
|
|
|
Change in foreign exchange
|
|
662
|
|
|
|
176
|
|
|
|
End of period
|
|
$
|
6,739
|
|
$
|
|
|
$
|
6,063
|
|
$
|
|
|
|
|
Six Months Ended September 30, 2010
|
|
Six Months Ended September 30, 2009
|
|
|
|
Personnel
|
|
Manufacturing
|
|
Personnel
|
|
Manufacturing
|
|
|
|
Reductions
|
|
Relocations
|
|
Reductions
|
|
Relocations
|
|
Beginning of period
|
|
$
|
8,398
|
|
$
|
|
|
$
|
7,893
|
|
$
|
|
|
Costs charged to expense
|
|
1,015
|
|
3,080
|
|
1,267
|
|
|
|
Costs paid or settled
|
|
(2,770
|
)
|
(3,080
|
)
|
(3,596
|
)
|
|
|
Change in foreign exchange
|
|
96
|
|
|
|
499
|
|
|
|
End of period
|
|
$
|
6,739
|
|
$
|
|
|
$
|
6,063
|
|
$
|
|
|
Note 5.
Accumulated Other Comprehensive Income (Loss)
Comprehensive
income (loss) for the quarters and six month periods ended September 30,
2010 and 2009 includes the following components (amounts in thousands):
|
|
Quarter Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net income (loss)
|
|
$
|
34,911
|
|
$
|
(93,075
|
)
|
$
|
14,812
|
|
$
|
(67,985
|
)
|
|
|
|
|
|
|
|
|
|
|
Amortization of postretirement benefit plan
|
|
(75
|
)
|
127
|
|
(150
|
)
|
40
|
|
Amortization of defined benefit pension plans
|
|
37
|
|
(722
|
)
|
112
|
|
(722
|
)
|
Currency translation gain (1)
|
|
15,942
|
|
2,648
|
|
5,168
|
|
9,156
|
|
Total net income (loss) and other comprehensive
income (loss)
|
|
$
|
50,815
|
|
$
|
(91,022
|
)
|
$
|
19,942
|
|
$
|
(59,511
|
)
|
(1) Due primarily to established valuation allowances, there was
no significant deferred tax effect associated with the Accumulated other
comprehensive income movement.
The
components of Accumulated other comprehensive income on the Condensed
Consolidated Balance Sheets are as follows (amounts in thousands):
|
|
September 30, 2010
|
|
March 31, 2010
|
|
Foreign currency translation gain
|
|
$
|
19,360
|
|
$
|
14,192
|
|
Defined benefit postretirement plan adjustments
|
|
2,261
|
|
2,411
|
|
Defined benefit pension plans
|
|
(4,501
|
)
|
(4,613
|
)
|
Total Accumulated other comprehensive income
|
|
$
|
17,120
|
|
$
|
11,990
|
|
18
Table of
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Note 6.
Intangible Assets
The
following table highlights the Companys intangible assets (amounts in
thousands):
|
|
September 30, 2010
|
|
March 31, 2010
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Accumulated
|
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
Indefinite Lived Intangibles:
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
7,617
|
|
$
|
|
|
$
|
7,617
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Intangibles:
|
|
|
|
|
|
|
|
|
|
Customer relationships, patents and other (3-18
years)
|
|
20,158
|
|
7,274
|
|
18,911
|
|
4,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,775
|
|
$
|
7,274
|
|
$
|
26,528
|
|
$
|
4,722
|
|
The
Company completed its annual impairment test on the indefinite lived intangible
assets in the first quarter of fiscal year 2011 and concluded no impairment
existed.
Note 7.
Income Taxes
During the second quarter of fiscal year
2011, the net income tax expense of $0.6 million is comprised of a $0.6 million
income tax expense related to foreign operations. There was no federal or state tax expense due
to the utilization of net operating loss carryforward deductions and a
valuation allowance on net deferred tax assets.
During the second quarter of fiscal year
2010, the net income tax expense of $1.7 million was comprised of $1.6 million
of income tax expense from foreign operations and $0.1 million of state income
tax expense.
Note 8.
Concentrations of Risks
Sales
and Credit Risk
The
Company sells to customers globally. Credit
evaluations of the Companys customers financial condition are performed
periodically, and the Company generally does not require collateral from its
customers. One customer, TTI, Inc.
accounted for over 10% of the Companys net sales in the three and six month
periods ended September 30, 2010 and 2009.
There were no customers accounts receivable balances exceeding 10% of
gross accounts receivable at September 30, 2010 or March 31, 2010.
Electronics
distributors are an important distribution channel in the electronics industry
and accounted for 52% and 46% of the Companys net sales in the six month
periods ended September 30, 2010 and 2009, respectively. As a result of the Companys concentration of
sales to electronics distributors, the Company may experience fluctuations in
the Companys operating results as electronics distributors experience
fluctuations in end-market demand or adjust their inventory stocking levels.
Employee
Risks
As
of September 30, 2010, KEMET had 10,900 employees, of whom 500 are located
in the United States 5,700 are located in Mexico, 2,600 in Asia and 2,100 in
Europe. The number of employees
represented by labor organizations at KEMET locations in each of the following
countries is: 4,600 hourly employees in
Mexico (as required by Mexican law), 820 employees in the three Italian plants,
550 employees in the Batam, Indonesia plant, 350 employees in the Evora,
Portugal plant, 310 employees in the Anting, China plant, 280 employees in the
Kyustendil, Bulgaria plant, 200 employees in the Suomussalmi, Finland plant and
80 employees in our Swedish locations.
For fiscal year 2010 and the current fiscal year to date, we have not
experienced any major work stoppages. Our labor costs in Mexico, Asia and
various locations in Europe are denominated in local currencies, and a
significant depreciation or appreciation of the United States dollar against
the local currencies would increase or decrease our labor costs.
Note 9.
Stock-based Compensation
Stock
Options
At
September 30, 2010, the Company had three stock option plans that reserved
shares of common stock for issuance to executives and key employees: the 1992
Key Employee Stock Option Plan, the 1995 Executive Stock Option Plan, and the
2004 Long-Term Equity Incentive Plan. All of these plans were approved by the
Companys stockholders. Collectively, these plans authorized the grant of up to
12.1 million shares of the Companys common stock. Options issued under these
plans usually vest in
19
Table of
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one
or two years and expire ten years from the grant date. Stock options granted to the Chief Executive
Officer on January 27, 2010 vest 50% on June 30, 2014 and 50% on June 30, 2015.
The compensation expense associated with stock-based compensation for
the quarters and six month periods ended September 30, 2010 and 2009,
respectively were recorded on the Condensed Consolidated Statements of Operations
as follows (amounts in thousands):
|
|
Quarters Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Cost of sales
|
|
$
|
32
|
|
$
|
354
|
|
$
|
70
|
|
$
|
415
|
|
Selling, general and administrative expenses
|
|
301
|
|
1,033
|
|
412
|
|
1,213
|
|
Total stock-based compensation expense
|
|
$
|
333
|
|
$
|
1,387
|
|
$
|
482
|
|
$
|
1,628
|
|
In
the Operating activities section of the Condensed Consolidated Statements of
Cash Flows, stock-based compensation expense was treated as an adjustment to
net income (loss) for the quarters and six month periods ended
September 30, 2010 and 2009. No stock options were exercised during the
quarters and six month periods ended September 30, 2010 and 2009.
Restricted Stock
The
Company grants shares of its common stock as restricted stock to members of the
Board of Directors and the Chief Executive Officer. Restricted stock granted to
the Board of Directors vests in one year while restricted stock granted to the
Chief Executive Officer on January 27, 2010 vest 50% on June 30, 2014 and 50% on June 30,
2015. The contractual term on restricted stock is indefinite. In the
second quarter of fiscal year 2011, 140,000 shares of restricted stock were
granted to the Board of Directors. As of
September 30, 2010, unrecognized compensation costs related to the
unvested restricted stock share based compensation arrangements granted was
$0.8 million. The expense is to be recognized over the respective vesting
periods.
2011/2012 LTIP
During
the first quarter of fiscal year 2011, the Board of Directors of the Company
approved a new long-term incentive plan (2011/2012 LTIP) based upon the
achievement of an EBITDA target for the two-year period comprised of fiscal
years ending in March 2011 and 2012. At the time of the award,
participants will receive at least 10% of the award, in restricted shares of
the Companys common stock; and the remainder will be realized in cash. The Company assesses the likelihood of
meeting the EBITDA financial metric on a quarterly basis and has recorded an
expense of $2.2 million in the six month period ended September 30, 2010,
based on this assessment. The Company will continue to monitor the
likelihood of whether the EBITDA financial metric will be realized and will
adjust compensation expense to match expectations.
2010/2011 LTIP
During
the second quarter of fiscal year 2010, the Board of Directors of the Company
approved a long-term incentive plan (2010/2011 LTIP) based upon the
achievement of an EBITDA target for the two-year period comprised of fiscal
years ending in March 2010 and 2011. At the time of the award and at
the sole discretion of the Compensation Committee, participants may receive up
to 15% of the award as restricted shares of the Companys common stock, and the
remainder of the award will be realized in cash. The Company assesses the likelihood of
meeting the EBITDA financial metric on a quarterly basis and has recorded an
expense of $2.6 million in the six month period ended September 30, 2010,
based on this assessment. In total, the Company has accrued $4.8 million
based upon this assessment. The Company will continue to monitor the the EBITDA
financial metric, however, there will not be any additional expense.
20
Table of
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Note
10. Reconciliation of Basic and Diluted Income (Loss) Per Common Share
The
following table presents a reconciliation of basic EPS to diluted EPS.
Computation of Basic and Diluted Income (Loss) Per Share
(Amounts in thousands, except per share data)
|
|
Quarters Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
34,911
|
|
$
|
(93,075
|
)
|
$
|
14,812
|
|
$
|
(67,985
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
81,275
|
|
80,868
|
|
81,275
|
|
80,866
|
|
Assumed conversion of employee stock options
|
|
915
|
|
|
|
779
|
|
|
|
Assumed conversion of Closing Warrant
|
|
71,392
|
|
|
|
69,533
|
|
|
|
Diluted
|
|
153,582
|
|
80,868
|
|
151,587
|
|
80,866
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.43
|
|
$
|
(1.15
|
)
|
$
|
0.18
|
|
$
|
(0.84
|
)
|
Diluted
|
|
$
|
0.23
|
|
$
|
(1.15
|
)
|
$
|
0.10
|
|
$
|
(0.84
|
)
|
Common
stock equivalents that could potentially dilute income per basic share in the
future, but were not included in the computation of diluted earnings per share
because the impact would have been antidilutive, were as follows (amounts in
thousands):
|
|
Quarters Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Assumed conversion of employee stock options
|
|
2,328
|
|
3,940
|
|
2,435
|
|
3,666
|
|
Assumed conversion of Closing Warrant
|
|
|
|
80,545
|
|
|
|
80,545
|
|
Note
11. Pension and Other Postretirement
Benefit Plans
The
Company sponsors defined benefit pension plans which include seven in Europe,
one in Singapore and two in Mexico and a postretirement plan in the United
States. Costs recognized for these
benefit plans are recorded using estimated amounts, which may change as actual
costs for the fiscal year are determined.
The
components of net periodic benefit costs relating to the Companys pension and
other postretirement benefit plans are as follows for the quarters ended
September 30, 2010 and 2009 (amounts in thousands):
|
|
Pension
|
|
Other Benefits
|
|
|
|
Quarters Ended September 30,
|
|
Quarters Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net service cost
|
|
$
|
266
|
|
$
|
225
|
|
$
|
|
|
$
|
|
|
Interest cost
|
|
457
|
|
406
|
|
16
|
|
19
|
|
Expected return on net assets
|
|
(164
|
)
|
(134
|
)
|
|
|
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
31
|
|
42
|
|
(79
|
)
|
(97
|
)
|
Prior service cost
|
|
5
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit (income) costs
|
|
$
|
595
|
|
$
|
544
|
|
$
|
(63
|
)
|
$
|
(78
|
)
|
21
Table of
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The
components of net periodic benefit costs relating to the Companys pension and
other postretirement benefit plans are as follows for the six month period ended
September 30, 2010 and 2009 (amounts in thousands):
|
|
Pension
|
|
Other Benefits
|
|
|
|
Six Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net service cost
|
|
$
|
532
|
|
$
|
451
|
|
$
|
|
|
$
|
|
|
Interest cost
|
|
914
|
|
811
|
|
31
|
|
39
|
|
Expected return on net assets
|
|
(328
|
)
|
(268
|
)
|
|
|
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
62
|
|
84
|
|
(158
|
)
|
(194
|
)
|
Prior service cost
|
|
10
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit (income) costs
|
|
$
|
1,190
|
|
$
|
1,088
|
|
$
|
(127
|
)
|
$
|
(155
|
)
|
In
fiscal year 2011, the Company expects to contribute up to $2.8 million to the
pension plans of which the Company has contributed $0.5 million as of
September 30, 2010. The Company
expects to make no contributions to fund the Companys other benefits in fiscal
year 2011 as the Companys policy is to pay benefits as costs are incurred.
Note
12. Condensed Consolidating Financial Statements
The 10.5% Senior Notes are fully and unconditionally guaranteed,
jointly and severally, on a senior basis by certain of the Companys 100% owned
domestic subsidiaries (Guarantor Subsidiaries) and secured by a first
priority lien on 51% of the capital stock of certain of our foreign restricted
subsidiaries (Non-Guarantor Subsidiaries).
The Companys Guarantor Subsidiaries and Non-Guarantor Subsidiaries are
not consistent with the Companys business groups or geographic operations;
accordingly this basis of presentation is not intended to present the Companys
financial condition, results of operations or cash flows for any purpose other
than to comply with the specific requirements for subsidiary guarantor
reporting. We are required to present condensed consolidating financial
information in order for the subsidiary guarantors of the Companys public debt
to be exempt from reporting under the Securities Exchange Act of 1934.
Condensed consolidating financial statements for the Companys
Guarantor Subsidiaries and Non-Guarantor Subsidiaries are presented in the
following tables (amounts in thousands):
22
Table of Contents
Condensed Consolidating Balance Sheet
September 30, 2010
(Unaudited)
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Reclassifications
and Eliminations
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,329
|
|
$
|
89,153
|
|
$
|
21,972
|
|
$
|
|
|
$
|
117,454
|
|
Accounts receivable, net
|
|
4
|
|
55,783
|
|
98,502
|
|
|
|
154,289
|
|
Intercompany receivable
|
|
201,644
|
|
173,125
|
|
174,566
|
|
(549,335
|
)
|
|
|
Inventories, net
|
|
|
|
105,689
|
|
78,290
|
|
(303
|
)
|
183,676
|
|
Prepaid expenses and other
|
|
215
|
|
5,862
|
|
4,672
|
|
|
|
10,749
|
|
Deferred income taxes
|
|
|
|
536
|
|
3,199
|
|
|
|
3,735
|
|
Total current assets
|
|
208,192
|
|
430,148
|
|
381,201
|
|
(549,638
|
)
|
469,903
|
|
Property and equipment, net
|
|
137
|
|
79,587
|
|
227,960
|
|
|
|
307,684
|
|
Investments in subsidiaries
|
|
282,982
|
|
329,815
|
|
|
|
(612,797
|
)
|
|
|
Intangible assets, net
|
|
|
|
9,127
|
|
11,374
|
|
|
|
20,501
|
|
Other assets
|
|
6,524
|
|
3,114
|
|
875
|
|
|
|
10,513
|
|
Long-term intercompany receivable
|
|
80,916
|
|
98,299
|
|
|
|
(179,215
|
)
|
|
|
Total assets
|
|
$
|
578,751
|
|
$
|
950,090
|
|
$
|
621,410
|
|
$
|
(1,341,650
|
)
|
$
|
808,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
|
|
$
|
|
|
$
|
5,457
|
|
$
|
|
|
$
|
5,457
|
|
Accounts payable, trade
|
|
172
|
|
28,366
|
|
53,494
|
|
|
|
82,032
|
|
Intercompany payable
|
|
165
|
|
417,320
|
|
132,193
|
|
(549,678
|
)
|
|
|
Accrued expenses
|
|
10,020
|
|
23,388
|
|
44,200
|
|
|
|
77,608
|
|
Income taxes payable
|
|
(1,214
|
)
|
1,263
|
|
1,769
|
|
|
|
1,818
|
|
Total current liabilities
|
|
9,143
|
|
470,337
|
|
237,113
|
|
(549,678
|
)
|
166,915
|
|
Long-term debt, less current portion
|
|
264,908
|
|
|
|
3,917
|
|
|
|
268,825
|
|
Other non-current obligations
|
|
|
|
5,625
|
|
53,249
|
|
|
|
58,874
|
|
Deferred income taxes
|
|
|
|
1,271
|
|
8,011
|
|
|
|
9,282
|
|
Long-term intercompany payable
|
|
|
|
80,916
|
|
98,299
|
|
(179,215
|
)
|
|
|
Stockholders equity
|
|
304,700
|
|
391,941
|
|
220,821
|
|
(612,757
|
)
|
304,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
578,751
|
|
$
|
950,090
|
|
$
|
621,410
|
|
$
|
(1,341,650
|
)
|
$
|
808,601
|
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
23
Table of
Contents
Condensed Consolidating Balance Sheet
March 31, 2010
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Reclassifications
and Eliminations
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,602
|
|
$
|
54,707
|
|
$
|
12,890
|
|
$
|
|
|
$
|
79,199
|
|
Accounts receivable, net
|
|
|
|
48,797
|
|
92,998
|
|
|
|
141,795
|
|
Intercompany receivable
|
|
189,207
|
|
170,268
|
|
138,548
|
|
(498,023
|
)
|
|
|
Inventories, net
|
|
|
|
85,603
|
|
65,182
|
|
(277
|
)
|
150,508
|
|
Prepaid expenses and other
|
|
1,476
|
|
5,908
|
|
6,996
|
|
|
|
14,380
|
|
Deferred income taxes
|
|
42
|
|
(1,066
|
)
|
3,153
|
|
|
|
2,129
|
|
Total current assets
|
|
202,327
|
|
364,217
|
|
319,767
|
|
(498,300
|
)
|
388,011
|
|
Property and equipment, net
|
|
158
|
|
88,155
|
|
231,565
|
|
|
|
319,878
|
|
Investments in subsidiaries
|
|
213,201
|
|
327,617
|
|
|
|
(540,818
|
)
|
|
|
Intangible assets, net
|
|
|
|
9,615
|
|
12,191
|
|
|
|
21,806
|
|
Other assets
|
|
8,690
|
|
1,651
|
|
925
|
|
|
|
11,266
|
|
Long-term intercompany receivable
|
|
85,576
|
|
97,083
|
|
|
|
(182,659
|
)
|
|
|
Total assets
|
|
$
|
509,952
|
|
$
|
888,338
|
|
$
|
564,448
|
|
$
|
(1,221,777
|
)
|
$
|
740,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
10,387
|
|
$
|
|
|
$
|
7,493
|
|
$
|
|
|
$
|
17,880
|
|
Accounts payable, trade
|
|
40
|
|
32,481
|
|
46,308
|
|
|
|
78,829
|
|
Intercompany payable
|
|
165
|
|
393,011
|
|
105,125
|
|
(498,301
|
)
|
|
|
Accrued expenses
|
|
4,551
|
|
19,771
|
|
39,284
|
|
|
|
63,606
|
|
Income taxes payable
|
|
|
|
|
|
1,096
|
|
|
|
1,096
|
|
Total current liabilities
|
|
15,143
|
|
445,263
|
|
199,306
|
|
(498,301
|
)
|
161,411
|
|
Long-term debt, less current portion
|
|
210,495
|
|
14,999
|
|
6,135
|
|
|
|
231,629
|
|
Other non-current obligations
|
|
|
|
5,383
|
|
50,243
|
|
|
|
55,626
|
|
Deferred income taxes
|
|
42
|
|
(386
|
)
|
8,367
|
|
|
|
8,023
|
|
Long-term intercompany payable
|
|
|
|
85,576
|
|
97,082
|
|
(182,658
|
)
|
|
|
Stockholders equity
|
|
284,272
|
|
337,503
|
|
203,315
|
|
(540,818
|
)
|
284,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
509,952
|
|
$
|
888,338
|
|
$
|
564,448
|
|
$
|
(1,221,777
|
)
|
$
|
740,961
|
|
See
accompanying notes to the unaudited condensed consolidated financial
statements.
24
Table of Contents
Condensed Consolidating Statements of Operations
For the Quarter Ended September 30, 2010
(Unaudited)
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Reclassifications
and Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
|
|
$
|
242,856
|
|
$
|
236,659
|
|
$
|
(230,927
|
)
|
$
|
248,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
183,304
|
|
216,192
|
|
(220,626
|
)
|
178,870
|
|
Selling, general and administrative expenses
|
|
11,925
|
|
15,031
|
|
6,949
|
|
(8,906
|
)
|
24,999
|
|
Research and development
|
|
|
|
4,840
|
|
1,384
|
|
|
|
6,224
|
|
Restructuring charges
|
|
|
|
1,540
|
|
763
|
|
|
|
2,303
|
|
Net (gain) loss on sales and disposals of assets
|
|
|
|
(1,807
|
)
|
37
|
|
|
|
(1,770
|
)
|
Total operating costs and expenses
|
|
11,925
|
|
202,908
|
|
225,325
|
|
(229,532
|
)
|
210,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
(11,925
|
)
|
39,948
|
|
11,334
|
|
(1,395
|
)
|
37,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(4
|
)
|
(131
|
)
|
(9
|
)
|
60
|
|
(84
|
)
|
Interest expense
|
|
7,093
|
|
|
|
301
|
|
(60
|
)
|
7,334
|
|
Other (income) expense, net
|
|
(12,005
|
)
|
3,145
|
|
3,742
|
|
326
|
|
(4,792
|
)
|
Equity in earnings of subsidiaries
|
|
(41,920
|
)
|
|
|
|
|
41,920
|
|
|
|
Income before income taxes
|
|
34,911
|
|
36,934
|
|
7,300
|
|
(43,641
|
)
|
35,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
40
|
|
585
|
|
(32
|
)
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,911
|
|
$
|
36,894
|
|
$
|
6,715
|
|
$
|
(43,609
|
)
|
$
|
34,911
|
|
25
Table of Contents
Condensed Consolidating Statements of Operations
For the Quarter Ended September 30, 2009
(Unaudited)
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Reclassifications
and Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
|
|
$
|
168,548
|
|
$
|
179,998
|
|
$
|
(175,281
|
)
|
$
|
173,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
146,371
|
|
169,435
|
|
(167,055
|
)
|
148,751
|
|
Selling, general and administrative expenses
|
|
2,134
|
|
16,943
|
|
9,157
|
|
(7,721
|
)
|
20,513
|
|
Research and development
|
|
|
|
4,123
|
|
1,446
|
|
|
|
5,569
|
|
Restructuring charges
|
|
|
|
225
|
|
1,042
|
|
|
|
1,267
|
|
Net loss on sales and disposals of assets
|
|
|
|
36
|
|
16
|
|
|
|
52
|
|
Total operating costs and expenses
|
|
2,134
|
|
167,698
|
|
181,096
|
|
(174,776
|
)
|
176,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
(2,134
|
)
|
850
|
|
(1,098
|
)
|
(505
|
)
|
(2,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
(397
|
)
|
(25
|
)
|
320
|
|
(102
|
)
|
Interest expense
|
|
6,306
|
|
|
|
505
|
|
(320
|
)
|
6,491
|
|
Increase in value of warrant
|
|
81,088
|
|
|
|
|
|
|
|
81,088
|
|
Other (income) expense, net
|
|
(1,004
|
)
|
1,214
|
|
816
|
|
(27
|
)
|
999
|
|
Equity in subsidiaries
|
|
4,491
|
|
|
|
|
|
(4,491
|
)
|
|
|
Income (loss) before income taxes
|
|
(93,015
|
)
|
33
|
|
(2,394
|
)
|
4,013
|
|
(91,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
60
|
|
60
|
|
1,859
|
|
(267
|
)
|
1,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(93,075
|
)
|
$
|
(27
|
)
|
$
|
(4,253
|
)
|
$
|
4,280
|
|
$
|
(93,075
|
)
|
26
Table of Contents
Condensed Consolidating Statements of Operations
For the Six Months Ended September 30, 2010
(Unaudited)
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Reclassifications
and Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
|
|
$
|
472,045
|
|
$
|
484,838
|
|
$
|
(464,501
|
)
|
$
|
492,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
364,608
|
|
441,000
|
|
(443,852
|
)
|
361,756
|
|
Selling, general and administrative expenses
|
|
20,614
|
|
28,299
|
|
19,358
|
|
(19,057
|
)
|
49,214
|
|
Research and development
|
|
|
|
9,162
|
|
3,093
|
|
|
|
12,255
|
|
Restructuring charges
|
|
|
|
3,072
|
|
1,023
|
|
|
|
4,095
|
|
Net (gain) loss on sales and disposals of assets
|
|
|
|
(1,783
|
)
|
348
|
|
|
|
(1,435
|
)
|
Total operating costs and expenses
|
|
20,614
|
|
403,358
|
|
464,822
|
|
(462,909
|
)
|
425,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
(20,614
|
)
|
68,687
|
|
20,016
|
|
(1,592
|
)
|
66,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(13
|
)
|
(137
|
)
|
(15
|
)
|
60
|
|
(105
|
)
|
Interest expense
|
|
14,212
|
|
94
|
|
546
|
|
(60
|
)
|
14,792
|
|
Loss on early extinguishment of debt
|
|
38,248
|
|
|
|
|
|
|
|
38,248
|
|
Other (income) expense, net
|
|
(14,680
|
)
|
12,260
|
|
(795
|
)
|
97
|
|
(3,118
|
)
|
Equity in earnings of subsidiaries
|
|
(73,193
|
)
|
|
|
|
|
73,193
|
|
|
|
Income before income taxes
|
|
14,812
|
|
56,470
|
|
20,280
|
|
(74,882
|
)
|
16,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
107
|
|
1,761
|
|
|
|
1,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14,812
|
|
$
|
56,363
|
|
$
|
18,519
|
|
$
|
(74,882
|
)
|
$
|
14,812
|
|
27
Table of Contents
Condensed Consolidating Statements of Operations
For the Six Months Ended September 30, 2009
(Unaudited)
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Reclassifications
and Eliminations
|
|
Consolidated
|
|
Net sales
|
|
$
|
|
|
$
|
315,809
|
|
$
|
334,052
|
|
$
|
(326,429
|
)
|
$
|
323,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
271,647
|
|
317,160
|
|
(310,395
|
)
|
278,412
|
|
Selling, general and administrative expenses
|
|
8,450
|
|
27,174
|
|
18,734
|
|
(15,823
|
)
|
38,535
|
|
Research and development
|
|
|
|
7,910
|
|
2,438
|
|
|
|
10,348
|
|
Restructuring charges
|
|
|
|
225
|
|
1,042
|
|
|
|
1,267
|
|
Net loss on sales and disposals of assets
|
|
|
|
241
|
|
17
|
|
|
|
258
|
|
Total operating costs and expenses
|
|
8,450
|
|
307,197
|
|
339,391
|
|
(326,218
|
)
|
328,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
(8,450
|
)
|
8,612
|
|
(5,339
|
)
|
(211
|
)
|
(5,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
(418
|
)
|
(35
|
)
|
320
|
|
(133
|
)
|
Interest expense
|
|
11,074
|
|
389
|
|
1,167
|
|
(320
|
)
|
12,310
|
|
Increase in value of warrant
|
|
81,088
|
|
|
|
|
|
|
|
81,088
|
|
Gain on early extinguishment of debt
|
|
(38,921
|
)
|
|
|
|
|
|
|
(38,921
|
)
|
Other (income) expense, net
|
|
(6,540
|
)
|
7,534
|
|
4,517
|
|
|
|
5,511
|
|
Equity in subsidiaries
|
|
12,674
|
|
|
|
|
|
(12,674
|
)
|
|
|
Income (loss) before income taxes
|
|
(67,825
|
)
|
1,107
|
|
(10,988
|
)
|
12,463
|
|
(65,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
160
|
|
132
|
|
2,450
|
|
|
|
2,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(67,985
|
)
|
$
|
975
|
|
$
|
(13,438
|
)
|
$
|
12,463
|
|
$
|
(67,985
|
)
|
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended September 30, 2010
(Unaudited)
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Reclassifications
and Eliminations
|
|
Consolidated
|
|
Sources (uses) of cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities
|
|
$
|
(13,977
|
)
|
$
|
48,573
|
|
$
|
21,849
|
|
$
|
|
|
$
|
56,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
(4,524
|
)
|
(9,297
|
)
|
|
|
(13,821
|
)
|
Proceeds from sales of assets
|
|
|
|
5,425
|
|
|
|
|
|
5,425
|
|
Net cash provided by (used in) investing
activities
|
|
|
|
901
|
|
(9,297
|
)
|
|
|
(8,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
226,976
|
|
|
|
458
|
|
|
|
227,434
|
|
Payments of long-term debt
|
|
(210,604
|
)
|
(15,000
|
)
|
(2,939
|
)
|
|
|
(228,543
|
)
|
Net payments under other credit facilities
|
|
|
|
|
|
(1,779
|
)
|
|
|
(1,779
|
)
|
Debt issuance costs
|
|
(7,461
|
)
|
|
|
|
|
|
|
(7,461
|
)
|
Debt extinguishment costs
|
|
(207
|
)
|
|
|
|
|
|
|
(207
|
)
|
Net cash provided by (used in) financing
activities
|
|
8,704
|
|
(15,000
|
)
|
(4,260
|
)
|
|
|
(10,556
|
)
|
Net increase (decrease) in cash and cash
equivalents
|
|
(5,273
|
)
|
34,474
|
|
8,292
|
|
|
|
37,493
|
|
Effect of foreign currency fluctuations on cash
|
|
|
|
(28
|
)
|
790
|
|
|
|
762
|
|
Cash and cash equivalents at beginning of fiscal
period
|
|
11,602
|
|
54,707
|
|
12,890
|
|
|
|
79,199
|
|
Cash and cash equivalents at end of fiscal period
|
|
$
|
6,329
|
|
$
|
89,153
|
|
$
|
21,972
|
|
$
|
|
|
$
|
117,454
|
|
28
Table of Contents
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended September 30, 2009
(Unaudited)
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Reclassifications
and Eliminations
|
|
Consolidated
|
|
Sources (uses) of cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities
|
|
$
|
(8,413
|
)
|
$
|
25,582
|
|
$
|
3,587
|
|
$
|
|
|
$
|
20,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(12
|
)
|
(2,073
|
)
|
(1,645
|
)
|
|
|
(3,730
|
)
|
Net cash used in investing activities
|
|
(12
|
)
|
(2,073
|
)
|
(1,645
|
)
|
|
|
(3,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
57,786
|
|
|
|
|
|
|
|
57,786
|
|
Payments of long-term debt
|
|
(45,284
|
)
|
|
|
(2,435
|
)
|
|
|
(47,719
|
)
|
Net payments under other credit facilities
|
|
|
|
|
|
(1,346
|
)
|
|
|
(1,346
|
)
|
Permanent intercompany financing
|
|
7,717
|
|
(7,717
|
)
|
|
|
|
|
|
|
Debt issuance costs
|
|
(4,206
|
)
|
|
|
|
|
|
|
(4,206
|
)
|
Debt extinguishment costs
|
|
(3,605
|
)
|
|
|
|
|
|
|
(3,605
|
)
|
Dividends received (paid)
|
|
|
|
248
|
|
(248
|
)
|
|
|
|
|
Net cash provided by (used in) financing
activities
|
|
12,408
|
|
(7,469
|
)
|
(4,029
|
)
|
|
|
910
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
3,983
|
|
16,040
|
|
(2,087
|
)
|
|
|
17,936
|
|
Effect of foreign currency fluctuations on cash
|
|
|
|
(220
|
)
|
492
|
|
|
|
272
|
|
Cash and cash equivalents at beginning of fiscal
period
|
|
26
|
|
25,869
|
|
13,309
|
|
|
|
39,204
|
|
Cash and cash equivalents at end of fiscal period
|
|
$
|
4,009
|
|
$
|
41,689
|
|
$
|
11,714
|
|
$
|
|
|
$
|
57,412
|
|
Note 13.
Subsequent Events
The Company has evaluated events and material transactions for
potential recognition or disclosure occurring between the end of the Companys
most recent quarterly period and through the time that this Form 10-Q was
filed with the SEC.
On October 12, 2010, KEMET Corporation filed a Definitive Proxy
Statement with respect to a special meeting of stockholders to be held on
November 3, 2010 in order to vote on an amendment to our Restated
Certificate of Incorporation to effect a reverse stock split. Stockholder
approval of the amendment to our Restated Certificate of Incorporation will
permit our board of directors to effect a reverse stock split at the boards
discretion within one year of the special meeting.
On October 21, 2010, the Company filed a registration statement on
Form S-3 with the SEC using a shelf registration process. This filing relates to the possible resale
of up to 30.0 million shares of the Companys common stock by K Equity.
On
October 26, 2010, the Company filed a Form S-4 to offer, in exchange
for our outstanding 10.5% Senior Notes due 2018 (Old Notes), up to $230.0
million in aggregate principal amount of 10.5% Senior Notes due 2018 and the
guarantees thereof which have been registered under the Securities Act of 1933,
as amended.
On October 26, 2010,
the Companys board of directors approved (subject to shareholder approval) a
reverse stock split of the Companys issued and outstanding common stock, as
well as the shares available for issuance under the Companys employee and
director equity plans at a ratio of one-for-three (1:3).
29
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
This
report contains certain statements that are forward-looking within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions that are difficult to predict. Actual outcomes and results may
differ materially from those expressed in, or implied by, the Companys
forward-looking statements. Words such as expects, anticipates, believes,
estimates and other similar expressions or future or conditional verbs such
as will, should, would and could are intended to identify such
forward-looking statements. Readers of this report should not rely solely on
the forward-looking statements and should consider all uncertainties and risks
throughout this report as well as those discussed under Part I, Item
1A of the Companys 2010 Annual Report. The statements are representative only
as of the date they are made, and the Company undertakes no obligation to
update any forward-looking statement.
All
forward-looking statements, by their nature, are subject to risks and
uncertainties. The Companys actual future results may differ materially from
those set forth in the Companys forward-looking statements. The Company faces
risks that are inherent in the businesses and the market places in which the Company
operates. While management believes these forward-looking statements are
accurate and reasonable, uncertainties, risks and factors, including those
described below, could cause actual results to differ materially from those
reflected in the forward-looking statements.
Factors that may cause actual outcome and
results to differ materially from those expressed in, or implied by, these
forward-looking statements include, but are not necessarily limited to the
following: (i) adverse economic conditions could impact our ability to
realize operating plans if the demand for our products declines, and such
conditions could adversely affect our liquidity and ability to continue to
operate; (ii) adverse economic conditions could cause further reevaluation
and the write down of long-lived assets; (iii) an increase in the cost or
a decrease in the availability of our principle raw materials;
(iv) changes in the competitive environment; (v)
uncertainty of
the timing of customer product qualifications in heavily regulated industries
; (vi) economic, political, or regulatory changes in the
countries in which we operate; (vii) difficulties, delays or unexpected
costs in completing the restructuring plan; (viii) inability to attract,
train and retain effective employees and management; (ix) inability to
develop innovative products to maintain customer relationships
and offset
potential price erosion in older products
;
(x) the impact of laws and regulations
that apply to our business,
including those relating to environmental matters
;
(xi) volatility of financial and credit markets which would affect our
access to capital; (xii) needing to reduce costs
of our products
to remain competitive
;
(xiii) potential limitation on use of net operating losses to offset
possible future taxable income; and (xiv) exercise of the warrant by K
Equity, LLC which could potentially result in the existence of a controlling
stockholder.
Additional
risks and uncertainties not presently known to the Company or that the Company
currently deems immaterial also may impair the Companys business operations
and could cause actual results to differ materially from those included,
contemplated or implied by the forward-looking statements made in this report,
and the reader should not consider the above list of factors to be a complete
set of all potential risks or uncertainties.
ACCOUNTING POLICIES AND ESTIMATES
The
following discussion and analysis of financial condition and results of
operations are based on the unaudited condensed consolidated financial
statements included herein. The Companys significant accounting policies are
described in Note 1 to the consolidated financial statements in the Companys
2010 Annual Report. The Companys
critical accounting policies are described under the caption Critical
Accounting Policies in Item 7 of the Companys 2010 Annual Report.
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates, assumptions, and judgments. Estimates and
assumptions are based on historical data and other assumptions that management
believes are reasonable. 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.
The
Companys judgments are based on managements assessment as to the effect
certain estimates, assumptions, or future trends or events may have on the
financial condition and results of operations reported in the unaudited
condensed consolidated financial statements. It is important that readers of
these unaudited financial statements understand that actual results could
differ from these estimates, assumptions, and judgments.
30
Table of Contents
Business Overview
We are a leading global manufacturer of a wide variety of capacitors.
Our product offerings include tantalum, multilayer ceramic, solid and
electrolytic aluminum, and film and paper capacitors. Capacitors are
fundamental components of most electronic circuits and are found in
communication systems, data processing equipment, personal computers, cellular
phones, automotive electronic systems, defense and aerospace systems, consumer
electronics, power management systems and many other electronic devices and
systems. Capacitors are typically used to filter out interference, smooth the
output of power supplies, block the flow of direct current while allowing
alternating current to pass and for many other purposes. We manufacture a broad
line of capacitors in many different sizes and configurations using a variety
of raw materials. Our product line consists of over 250,000 distinct part
configurations distinguished by various attributes, such as dielectric (or
insulating) material, configuration, encapsulation, capacitance level and
tolerance, performance characteristics and packaging. Most of our customers
have multiple capacitance requirements, often within each of their products.
Our broad offering allows us to meet the majority of those needs independent of
application and end use. In fiscal year 2010, we shipped approximately
31 billion capacitors and in the six month period ended September 30,
2010, we shipped approximately 19 billion capacitors. We believe the
medium-to-long term demand for the various types of capacitors offered by us
will grow on a regional and global basis due to a variety of factors, including
increasing demand for and complexity of electronic products, growing demand for
technology in emerging markets and the ongoing development of new solutions for
energy generation and conservation.
Our Competitive Strengths
We believe our Company benefits from the following competitive
strengths:
Strong Customer Relationships.
We have a large and diverse customer base. We
believe that our persistent emphasis on quality control and history of
performance establishes loyalty with Original Equipment Manufacturers (OEMs),
Electronic Manufacturing Service (EMS) providers and distributors. Our
customer base includes nearly all of the worlds major electronics OEMs
(including Alcatel-Lucent USA Inc., Apple Inc., Cisco Systems, Inc., Dell
Inc., Hewlett-Packard Company, International Business Machines
Corporation, Intel Corporation, Motorola, Inc. and Nokia
Corporation), EMSs (including Celestica Inc., Elcoteq SE, Flextronics
International LTD., Jabil Circuit, Inc. and Sanmina-SCI Corporation) and
distributors (including TTI, Inc., Arrow Electronics, Inc. and
Avnet, Inc.). Our strong, extensive and efficient worldwide distribution
network is one of our differentiating factors.
Breadth of Our Diversified Product Offering and
Markets.
We believe
that we have the most complete line of primary capacitor types, across a full
spectrum of dielectric materials including tantalum, ceramic, solid and
electrolytic aluminum, film and paper. As a result, we believe we can satisfy
virtually all of our customers capacitance needs, thereby strengthening our
position as their supplier of choice. We sell our products into a wide range of
different end markets, including computing, industrial, telecommunications,
transportation, consumer, defense and healthcare markets across all geographic
regions. No single end market segment accounted for more than 30% and only one
customer, TTI, Inc., accounted for more than 10% of our net sales in the
six month period ended September 30, 2010. Our largest customer is a
distributor, and no single end use customer accounted for more than 5% of our
net sales in the quarter and six month periods ended September 30, 2010.
We believe that well-balanced product, geographic and customer diversification
help us mitigate some of the negative financial impact through economic cycles.
Leading Market Positions and Operating Scale.
Based on net sales, we believe that we are
the largest manufacturer of tantalum capacitors in the world and one of the
largest manufacturers of direct current film capacitors in the world and have a
significant market position in the specialty ceramic and custom wet aluminum
electrolytic markets. We believe the demand for our products is growing and we
are well-positioned to take advantage of that trend due to our strengths and
the diversity of our product offerings.
Strong Presence in Specialty Products.
We engage in design collaboration with our
customers in order to meet their specific needs and provide them with
customized products satisfying their engineering specifications. During the six
month period ended September 30, 2010, specialty products accounted for
30.3% of our revenue. By allocating an increasing portion of our management
resources and research and development investment to specialty products, we
have established ourselves as one of the leading innovators in this fast
growing emerging segment of the market, which includes healthcare, renewable
energy, telecom infrastructure and oil and gas. For example, in
August 2009, we were selected as one of thirty companies to receive a
grant from the Department of Energy. Our $15.1 million award will enable
us to produce film and electrolytic capacitors within the United States to
support alternative energy products and emerging green technologies such as
hybrid electric drive vehicles. Producing these parts in the United States will
allow us to compete effectively in the alternative energy market in North
America and South America (Americas). We believe our ability to provide innovative
and flexible service offerings, superior customer support and focus on
speed-to-market result in a more rewarding customer experience, earning us a
high degree of customer loyalty.
Low-Cost Production.
We believe we have some of the lowest cost
production facilities in the industry. Many of our key customers have relocated
their production facilities to Asia, particularly China, and we have a growing
list of customers that are based
31
Table of Contents
in
Asia. We believe our manufacturing facilities in China have low production
costs and close proximity to the large and growing Chinese market as well as
the ability to increase capacity and change our product mix to meet our
customers needs. We also believe our operations in Mexico, which are our
primary production facilities supporting our North American and, to a large
extent, European customers, are among the most cost efficient in the world.
Our Brand.
Founded by Union Carbide in 1919 as KEMET
Laboratories, we believe that KEMET has a reputation as a high quality,
efficient and affordable partner that sets our customers needs as the top
priority. This has allowed us to successfully attract loyal clientele and
enabled us to expand our operations and market share over the past few years.
We believe our commitment to the needs of the industry in which we operate has
differentiated us among other competitors and established us as the
Easy-To-Buy-From company.
Our People.
We believe that we have successfully
developed a unique corporate culture based on innovation, customer focus and
commitment. We have a strong, highly experienced and committed team in each of
our markets. Many of our professionals have developed unparalleled experience
in building leadership positions in new markets, as well as successfully
integrating acquisitions. Combined, our 15 member management team has an
average of over 11 years of experience with us and an average of over
25 years of experience in the manufacturing industry and has grown our
revenue to $736.3 million in fiscal year 2010 from $425.3 million in
fiscal year 2005, representing a compound annual growth rate of 11.6%.
Business Strategy
Our strategy is to use our position as a leading, high-quality
manufacturer of capacitors to capitalize on the increasingly demanding
requirements of our customers. Key elements of our strategy include:
Develop Our Significant Customer Relationships and
Industry Presence.
We intend to
continue to be responsive to our customers needs and requirements and to make
order entry and fulfillment easier, faster, more flexible and more reliable for
our customers by focusing on building products around customers needs, giving
decision making authority to customer-facing personnel and providing
purpose-built systems and processes, such as our Easy-To-Buy-From order entry
system.
Continue to Pursue Low-Cost Production Strategy.
We intend to actively pursue measures that
will allow us to maintain our position as a low-cost producer of capacitors
with facilities close to our customers. These measures include shifting
production to low cost locations; reducing material and labor costs; developing
more cost-efficient manufacturing equipment and processes; designing
manufacturing plants for more efficient production; and reducing
work-in-process (WIP) inventory by building products from start to finish in
one factory. Additionally, we intend to continue to implement Lean and Six
Sigma methods to drive towards zero product defects so that quality remains a
given in the minds of our customers. Between August 2008 and
January 2009, we implemented rationalization plans which have resulted in
an annual savings of approximately $45 million. In addition, we have
implemented numerous cost reduction initiatives and process improvements which
we believe will result in meaningful savings from (i) the successful
renegotiation of unfavorable sourcing contracts; (ii) relocation of
tantalum manufacturing to Mexico and Suzhou, China; (iii) relocation of
Film and Electrolytic manufacturing to Bulgaria and Mexico; and (iv) the
integration of Evox Rifa and Arcotronics.
Leverage Our Technological Competence and Expand Our
Leadership in Specialty Products.
We continue to leverage our technological
competence to introduce new products in a timely and cost efficient manner and
generate an increasing portion of our sales from new and customized solutions
to improve financial performance as well as to meet our customers varied and
evolving capacitor needs. We believe that by continuing to build on our
strength in the higher growth and higher margin specialty segments of the
capacitor market, we will be well positioned to achieve our long-term growth
targets while also improving our profitability. During the second quarter of
fiscal year 2011, we introduced 11,783 new products of which 34 were first to
market, and specialty products accounted for 31.3% of our revenue over this
period. During the six month period
ended September 30, 2010, we introduced 13,237 new products of which 66
were first to market, and specialty products accounted for 30.8% of our revenue
over this period.
Further Expand Our Broad Capacitance Capabilities.
We define ourselves as The Capacitance
Company and strive to be the supplier of choice for all our customers
capacitance needs across the full spectrum of dielectric materials including
tantalum, ceramic, solid and electrolytic aluminum, film and paper. While we believe
we have the most complete line of capacitor technologies across these primary
capacitor types, we intend to continue to research additional capacitance
technologies and solutions in order to maximize the breadth of our product
offerings.
Selectively Target Complementary Acquisitions.
We expect to continue to evaluate and pursue
strategic acquisition opportunities, some of which may be significant in size,
which would enable us to enhance our competitive position and expand our market
presence. Our strategy is to acquire complementary capacitor and other related
businesses that would allow us to leverage our business model, including those
involved in other passive components that are synergistic with our customers
technologies and current product offerings.
Promote the KEMET Brand Globally.
We are focused on promoting the KEMET brand
globally by highlighting the high quality and high reliability of our products
and our superior customer service. We will continue to market our products to
new and existing customers around the world in order to expand our business. We
continue to be recognized by our customers as a leading
32
Table of Contents
global
supplier. For example, in November 2009, we received the Outstanding
Performance Award for quality and delivery from Sanmina-SCI Corporation, a
leading EMS provider.
Global Sales & Marketing Strategy.
Our motto Think Global Act Local describes
our approach to sales and marketing. Each of our three sales regions (Americas,
Europe, Middle East and Africa (EMEA) and Asia and Pacific Rim
(APAC),) has account managers, field application engineers and strategic
marketing managers in the region. In addition, we also have local customer and
quality-control support in each region. This organizational structure allows us
to respond to the needs of our customers on a timely basis and in their native
language. The regions are managed locally and report to a senior manager who is
on the KEMET Leadership Team. Furthermore, this organizational structure
ensures the efficient communication of our global goals and strategies and
allows us to serve the language, cultural and other region-specific needs of
our customers.
We manufacture capacitors in Bulgaria, China, Finland,
Germany, Indonesia, Italy, Mexico, Portugal, Sweden, the United
Kingdom, and the United States. Commodity manufacturing in the United States
has been substantially relocated to our lower-cost manufacturing facilities in
Mexico and China. Production that remains in the United States focuses
primarily on early-stage manufacturing of new products and other specialty
products for which customers are predominantly located in North America.
The market for all of our 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 our products
include product quality, customer service, technical innovation, pricing and
timely delivery. It is our belief that we compete favorably on the basis of
each of these factors.
We are organized into three business groups: Tantalum, Ceramics, and
Film and Electrolytic. Each business group is responsible for the operations of
certain manufacturing sites as well as all related research and development
efforts. The sales and marketing functions are shared by each of the business
groups and the costs of which are allocated to the business groups. In
addition, all corporate costs are allocated to the business groups.
We believe our Mexican operations are among the most cost efficient in
the world, and they continue to be our primary production facilities supporting
North America and, to a large extent, European customers. We also believe that
our China manufacturing facilities benefit from low production costs and
proximity to large and growing markets, which have caused some of our key
customers to relocate production facilities to Asia, particularly China. As a
result, one of our strategies is to continue to shift production to low-cost
locations which provide us the best opportunity to be a low-cost producer of
capacitors.
Net sales for the quarter ended September 30, 2010 were
$248.6 million, which is a 43.5% increase over the same quarter last
fiscal year and a 2.0% increase over the prior fiscal quarter ended June 30,
2010. Net sales for the six month period
ended September 30, 2010 were $492.4 million, which is a 52.2%
increase over the same six month period last fiscal year.
On April 8, 2010, we reported that we reached an agreement with
three labor unions in Italy and with the regional government in Emilia
Romagna, Italy to proceed with our planned restructuring process. We
intend to focus on producing specialty products in Europe and the U.S. and
shift standard and commodity production to lower cost regions.
Issuance of 10.5% Senior Notes
On May 5, 2010, we completed a private placement of
$230.0 million in aggregate principal amount of our 10.5% Senior Notes due
2018 (the 10.5% Senior Notes). The
private placement of the 10.5% Senior Notes resulted in proceeds to us of
$222.2 million. We used a portion of the proceeds of the private placement
to repay all of the outstanding indebtedness under our credit facility with K
Financing, LLC, our 60 million credit facility and 35 million
credit facility with UniCredit and our term loan with Vishay. We used a portion of the remaining proceeds
to fund a previously announced tender offer to purchase $40.5 million in
aggregate principal amount of our 2.25% Convertible Senior Notes (the
Convertible Notes) and to pay costs incurred in connection with the private
placement, the tender offer and the foregoing repayments. We incurred
approximately $6.6 million in costs related to the execution of the
offering.
Revolving Line of Credit
On September 30, 2010, KEMET Electronics Corporation (KEC) and
KEMET Electronics Marketing (S) Pte Ltd. (KEMET Singapore) (each a
Borrower and, collectively, the Borrowers) entered into a Loan and Security
Agreement (the Loan and Security Agreement), with Bank of America, N.A, as
the administrative agent and the initial lender. The Loan and Security
Agreement provides a $50 million revolving line of credit, which is bifurcated
into a U.S. facility (for which KEC is the Borrower) and a Singapore facility
(for which KEMET Singapore is the Borrower). The size of the U.S.
facility and Singapore facility can fluctuate as long as the Singapore facility
does not exceed $30 million and the total facility does not exceed $50
million.
33
Table of Contents
A
portion of the U.S. facility and of the Singapore facility can be used to issue
letters of credit. The facilities expire on September 30, 2014.
Listing
As
announced on June 21, 2010, the Companys common stock was approved for
listing on the NYSE Amex. Trading commenced on the NYSE Amex on June 22,
2010 under the ticker symbol KEM (NYSE Amex: KEM).
CONDENSED
CONSOLIDATED RESULTS OF OPERATIONS
Comparison of the Second Quarter of Fiscal Year 2011 with the Second
Quarter of Fiscal Year 2010
The
following table sets forth the operating income (loss) and certain components
thereof for each of our business segments for the quarters ended
September 30, 2010 and 2009, as well as the relative percentages that
these amounts represent to total net sales.
The table also sets forth certain other consolidated statement of operations
data, as well as the relative percentages that these amounts represent to total
net sales (amounts in thousands, except percentages):
34
Table of Contents
|
|
Quarters Ended
|
|
|
|
September 30, 2010
|
|
September 30, 2009
|
|
|
|
Amount
|
|
% to Total Sales
|
|
Amount
|
|
% to Total Sales
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
$
|
123,873
|
|
49.8
|
%
|
$
|
81,987
|
|
47.3
|
%
|
Ceramics
|
|
56,730
|
|
22.8
|
%
|
40,998
|
|
23.7
|
%
|
Film and Electrolytic
|
|
67,985
|
|
27.3
|
%
|
50,280
|
|
29.0
|
%
|
Total
|
|
$
|
248,588
|
|
100.0
|
%
|
$
|
173,265
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
$
|
41,752
|
|
16.8
|
%
|
$
|
16,127
|
|
9.3
|
%
|
Ceramics
|
|
19,416
|
|
7.8
|
%
|
10,505
|
|
6.1
|
%
|
Film and Electrolytic
|
|
8,550
|
|
3.4
|
%
|
(2,118
|
)
|
-1.2
|
%
|
Total
|
|
69,718
|
|
28.0
|
%
|
24,514
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
10,981
|
|
4.4
|
%
|
8,775
|
|
5.1
|
%
|
Ceramics
|
|
6,000
|
|
2.4
|
%
|
4,554
|
|
2.6
|
%
|
Film and Electrolytic
|
|
8,018
|
|
3.2
|
%
|
7,184
|
|
4.1
|
%
|
Total
|
|
24,999
|
|
10.1
|
%
|
20,513
|
|
11.8
|
%
|
|
|
|
|
|
|
|
|
|
|
R&D expenses
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
3,104
|
|
1.2
|
%
|
2,883
|
|
1.7
|
%
|
Ceramics
|
|
1,654
|
|
0.7
|
%
|
1,418
|
|
0.8
|
%
|
Film and Electrolytic
|
|
1,466
|
|
0.6
|
%
|
1,268
|
|
0.7
|
%
|
Total
|
|
6,224
|
|
2.5
|
%
|
5,569
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
322
|
|
0.1
|
%
|
108
|
|
0.1
|
%
|
Ceramics
|
|
93
|
|
|
|
51
|
|
|
|
Film and Electrolytic
|
|
1,888
|
|
0.8
|
%
|
1,108
|
|
0.6
|
%
|
Total
|
|
2,303
|
|
0.9
|
%
|
1,267
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss on sales and
disposals of assets
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
(121
|
)
|
|
|
31
|
|
|
|
Ceramics
|
|
(1,655
|
)
|
-0.7
|
%
|
21
|
|
|
|
Film and Electrolytic
|
|
6
|
|
|
|
|
|
|
|
Total
|
|
(1,770
|
)
|
-0.7
|
%
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
27,466
|
|
11.0
|
%
|
4,330
|
|
2.5
|
%
|
Ceramics
|
|
13,324
|
|
5.4
|
%
|
4,461
|
|
2.6
|
%
|
Film and Electrolytic
|
|
(2,828
|
)
|
-1.1
|
%
|
(11,678
|
)
|
-6.7
|
%
|
Total
|
|
37,962
|
|
15.3
|
%
|
(2,887
|
)
|
-1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
2,458
|
|
1.0
|
%
|
88,476
|
|
51.1
|
%
|
Income (loss) before income taxes
|
|
35,504
|
|
14.3
|
%
|
(91,363
|
)
|
-52.7
|
%
|
Income tax expense
|
|
593
|
|
0.2
|
%
|
1,712
|
|
1.0
|
%
|
Net income (loss)
|
|
$
|
34,911
|
|
14.0
|
%
|
$
|
(93,075
|
)
|
-53.7
|
%
|
35
Table of Contents
Consolidated Comparison of the
Second Quarter of Fiscal Year 2011 with the Second Quarter of Fiscal Year 2010
Net Sales
Net
sales for quarter ended September 30, 2010 were $248.6 million, which
represented a 43.5% increase from net sales of $173.3 million in the second
quarter of fiscal year 2010 due to an improvement in business across all
segments. Net sales for the second
quarter of fiscal year 2011 improved by 2.0% when compared to first quarter of
fiscal year 2011.
By
region, 29% of net sales for the quarter ended September 30, 2010 were to
customers in the Americas, 37% were to customers in APAC, and 34% were to customers
in EMEA. For the quarter ended September 30, 2009, 25% of net sales
were to customers in the Americas, 40% were to customers in APAC, and 35% were
to customers in EMEA.
By
channel, 53% of net sales for the quarter ended September 30, 2010, were
to distribution customers, 15% were to electronic manufacturing services
customers, and 32% were to original equipment manufacturing customers.
For the quarter ended September 30, 2009, 46% of net sales were to
distribution customers, 15% were to electronic manufacturing services
customers, and 39% were to original equipment manufacturing customers.
Gross Margin
Our
gross margin for the second quarter of fiscal year 2011 increased $45.2 million
when compared to the second quarter of fiscal year 2010. Gross margin as a percent to net sales
improved to 28.0% of net sales in the second quarter of fiscal year 2011, up
from 14.1% of net sales in the second quarter of fiscal year 2010. The primary contributor to the higher gross
margin was the increase in volume and overall average selling prices, while
fixed cost reductions previously initiated in headcount and other manufacturing
expenses were sustained during the second quarter of fiscal year 2011.
Selling,
General and Administrative Expenses
Selling,
general and administrative (SG&A) expenses were $25.0 million, or
10.1% of net sales for the second quarter of fiscal year 2011 compared to $20.5
million, or 11.8% of net sales for second quarter of fiscal year 2010. The $4.5 million increase in SG&A expenses
includes an increase of $1.4 million in selling expenses consistent with the
increase in sales. In addition, there
was an increase of $3.2 million related to incentive accruals, $0.4 million
related to marketing and $0.2 million related to ERP integration costs in the
second quarter of fiscal year 2011 compared to the second quarter of fiscal
year 2010. These increased expenses were
offset by a decrease in expense associated with the cancellation of an incentive
plan of $1.1 million which was incurred in the second quarter of fiscal year
2010.
Research and Development
Research
and development expenses were $6.2 million, or 2.5% of net sales for the second
quarter of fiscal year 2011, compared to $5.6 million, or 3.2% of net
sales for the second quarter of fiscal year 2010. The 11.8% increase resulted
from increased activities to ensure that products are available to support
KEMETs growth and to meet customer needs.
The growth in spending also reflects KEMETs increased focus on
Specialty product development which requires an increase in sampling, tooling,
and testing.
Restructuring Charges
We
incurred $1.3 million in restructuring charges in the second quarter of fiscal
year 2010 compared to $2.3 million in restructuring charges for the second quarter
of fiscal year 2011. The restructuring
charges in the second quarter of fiscal year 2011 included $1.6 million in
charges for the relocation of equipment to Mexico and China as well as a
distribution center relocation project and $0.7 million for reductions in
workforce, primarily in Film and Electrolytic.
Operating
Income (Loss)
Operating
income for the quarter ended September 30, 2010 was $38.0 million compared
to an operating loss of $2.9 million for the quarter ended
September 30, 2009. Gross margin
increased $45.2 million as compared to the second quarter of fiscal year 2010
and a $1.6 million gain was realized on the sale of an idle facility in the
U.S. These improvements were offset by
the increase in operating expenses of $5.1 million and we incurred $2.3 million
in restructuring charges in the second quarter of fiscal year 2011 compared to
$1.3 million during the second quarter of fiscal year 2010.
36
Table of Contents
Other
(Income) Expense, net
Other
(income) expense, net was an expense of $88.5 million in the second quarter of
fiscal year 2010 compared to an expense of $2.5 million in the second quarter
of fiscal year 2011. The improvement is
mainly attributable to no expense in the second quarter of fiscal year 2011
related to the increase in value of warrant compared to $81.1 million in the
second quarter of fiscal year 2010. In
addition, during the second quarter of fiscal year 2011, we granted a supplier of tantalum powder and
wire and related materials, a
non-exclusive license, with a right to sublicense, concerning certain
patents and patent applications which
resulted in a net gain of $2.0 million.
Also, there was a gain on foreign currency translation of $2.7 million
in the second quarter of fiscal year 2011 as compared to a loss on foreign
currency translation of $1.4 million in the second quarter of fiscal year 2010,
primarily due to the strengthening of the Euro against the dollar. Partially offsetting these favorable items
was a $0.9 million increase in net interest expense in the second quarter of
fiscal year 2011 compared with the second quarter of fiscal year 2010.
Income
Taxes
Our income tax expense for the second
quarter of fiscal year 2011 is $0.6 million compared to an income tax expense
of $1.7 million for the second quarter of fiscal year 2010. Income tax expense for the second quarter of
fiscal year 2011 is comprised of $0.6 million of income tax expense related to
foreign operations. There was no federal
or state income tax expense due to the utilization of net operating loss
carryforward deductions and a valuation allowance on net deferred tax assets. The effective tax rate for the second quarter
of fiscal year 2011 was 1.7%.
During
the second quarter of fiscal year 2010, the net income tax expense of $1.7
million was comprised of $1.6 million of income tax expense from foreign
operations and $0.1 million of state income tax expense.
The
effective tax rate for the second quarter of fiscal year 2010 was (1.9)%.
Business Groups Comparison of the Quarter Ended September 30, 2010
with the Quarter Ended September 30, 2009
Tantalum
Net
Sales
Net
sales increased 51.1% during the second quarter of fiscal year 2011, as
compared to the second quarter of fiscal year 2010. Unit sales volume increased 16.5% during the
second quarter of fiscal year 2011 as compared to the second quarter of fiscal
year 2010. Average selling prices increased 29.7% for the second quarter
of fiscal year 2011 as compared to the second quarter of fiscal year 2010. The increase in average selling prices is due
primarily to a shift in regional sales quantities to the Americas and EMEA as
well as an increase in average selling prices for most product lines. Americas and EMEA unit sales quantities
represented 49.4% of the total units sold in the second quarter of the fiscal
year 2011 as compared to 37.8% in the same quarter of fiscal year 2010. All three regions and sectors were strong,
bolstered by the automotive, industrial, wireless and computer segments.
Gross
Margin
Gross
margin as a percent to Tantalum net sales increased to 33.7% in the second
quarter of fiscal year 2011 as compared to 19.7% in the second quarter of
fiscal year 2010. The primary
contributor to the higher gross margin was driven by the increase in sales
quantities and average selling prices, while reducing fixed cost spending, from
the cost reductions initiated throughout fiscal year 2009 in headcount and
other manufacturing expenses.
Operating
Income
Operating
income for the second quarter of fiscal year 2011 improved to $27.5 million
when compared to the second quarter of fiscal year 2010 of $4.3 million. The improvement is attributable to an increase
in gross margin of $25.6 million and a gain on sales and disposals of assets of
$0.1 million in the second quarter of fiscal year 2011 compared to less than
$0.1 million in the second quarter of fiscal year 2010. This was offset by an increase in operating
expenses of $2.4 million, and an increase in restructuring charges to $0.3
million as compared to $0.1 million in the second quarter of fiscal year 2011
as compared to the same quarter of fiscal year 2010.
Ceramics
Net
Sales
Net
sales increased by 38.4% during the second quarter of fiscal year 2011 as
compared to the second quarter of fiscal year 2010, due to higher unit sales
volumes and average selling prices. Unit sales volumes increased 25.1% during
the second quarter of
37
Table of Contents
fiscal
year 2011, as compared to the same period last year due primarily to strong
market demand across all regions. Average selling price increased 10.6%
due primarily to region mix and product line mix effects.
Gross
Margin
Gross
margin as a percent to Ceramics net sales increased to 34.2% in the second
quarter of fiscal year 2011 from 25.6% in the second quarter of fiscal year
2010. The improvement in gross margin
can be attributed primarily to higher volume and, to a lesser extent, increased
efficiencies.
Operating
Income
Operating
income for the second quarter of fiscal year 2011 was $13.3 million, an
improvement of $8.9 million when compared to $4.5 million of operating income
in the second quarter of fiscal year 2010.
The improvement is primarily attributable to an increase in gross margin
of $8.9 million as well as the gain on sales and disposals of assets of $1.6
million in the second quarter of fiscal year 2011 compared to a loss on sales
and disposals of assets less than $0.1 million in the second quarter of fiscal
year 2010. This improvement was offset
by an increase in operating expenses of $1.6 million in the second quarter of
fiscal year 2011 compared to the second quarter of fiscal year 2010.
Film and Electrolytic
Net
Sales
Net
sales increased from $50.3 million in the second quarter of fiscal year 2010 to
$68.0 million in the second quarter of fiscal year 2011. Unit sales volume for
the second quarter of fiscal year 2011 increased for almost all product lines
for a total increase of 41.7% compared to the second quarter of fiscal year
2010. In addition, there was a 4.8%
increase in the average selling price in the second quarter of fiscal year 2011
compared to the second quarter of fiscal year 2010 despite the $4.8 million
adverse effect of foreign exchange.
Average selling prices increased over almost all product lines.
Gross
Margin
Gross
margin as a percent to Film and Electrolytic net sales increased to 3.4% in the
second quarter of fiscal year 2011 from negative 1.2% in the second quarter of
fiscal year 2010. The improvement is due
to both increased volume and the improvement in average selling prices which
was partially offset by foreign exchange.
Operating
(Loss)
Operating
loss for the second quarter of fiscal year 2011 was $2.8 million as compared to
an operating loss of $11.7 million in second quarter of fiscal year 2010. Gross margin increased $10.7 million in the
second quarter of fiscal year 2011 as compared to the second quarter of fiscal
year 2010. Offsetting the improvement in
gross margin was a $1.0 million increase in operating expenses as compared to
the second quarter of fiscal year 2010.
Within the operating expenses increase, research and development costs
increased $0.2 million to ensure that products are available to support our
growth and to meet customer needs. In
addition, restructuring charges were $1.9 million in the second quarter of
fiscal year 2011 compared to $1.1 million in the second quarter of fiscal year
2010.
Comparison of the Six Month Period Ended September 30, 2010 with
the Six Month Period Ended September 30, 2009
The
following table sets forth the operating income (loss) for each of our business
segments for the six month periods ended September 30, 2010 and September 30,
2009. The table also sets forth each of
the segments net sales as a percent to total net sales, the net income (loss)
components as a percent to total net sales, and the percentage increase or
decrease of such components over the comparable prior year period (dollars in
thousands):
38
Table of
Contents
|
|
Six Months Ended
|
|
|
|
September 30, 2010
|
|
September 30, 2009
|
|
|
|
Amount
|
|
% to Total Sales
|
|
Amount
|
|
% to Total Sales
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
$
|
237,441
|
|
48.2
|
%
|
$
|
154,355
|
|
47.7
|
%
|
Ceramics
|
|
111,054
|
|
22.6
|
%
|
73,946
|
|
22.9
|
%
|
Film and Electrolytic
|
|
143,887
|
|
29.2
|
%
|
95,131
|
|
29.4
|
%
|
Total
|
|
$
|
492,382
|
|
100.0
|
%
|
$
|
323,432
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
$
|
73,127
|
|
14.9
|
%
|
$
|
30,199
|
|
9.3
|
%
|
Ceramics
|
|
37,377
|
|
7.6
|
%
|
18,491
|
|
5.7
|
%
|
Film and Electrolytic
|
|
20,122
|
|
4.1
|
%
|
(3,670
|
)
|
-1.1
|
%
|
Total
|
|
130,626
|
|
26.5
|
%
|
45,020
|
|
13.9
|
%
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
21,309
|
|
4.3
|
%
|
16,468
|
|
5.1
|
%
|
Ceramics
|
|
11,442
|
|
2.3
|
%
|
8,494
|
|
2.6
|
%
|
Film and Electrolytic
|
|
16,463
|
|
3.3
|
%
|
13,573
|
|
4.2
|
%
|
Total
|
|
49,214
|
|
10.0
|
%
|
38,535
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
R&D expenses
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
6,082
|
|
1.2
|
%
|
5,336
|
|
1.6
|
%
|
Ceramics
|
|
3,026
|
|
0.6
|
%
|
2,934
|
|
0.9
|
%
|
Film and Electrolytic
|
|
3,147
|
|
0.6
|
%
|
2,078
|
|
0.6
|
%
|
Total
|
|
12,255
|
|
2.5
|
%
|
10,348
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
779
|
|
0.2
|
%
|
108
|
|
|
|
Ceramics
|
|
187
|
|
|
|
51
|
|
|
|
Film and Electrolytic
|
|
3,129
|
|
0.6
|
%
|
1,108
|
|
0.3
|
%
|
Total
|
|
4,095
|
|
0.8
|
%
|
1,267
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss on sales and
disposals of assets
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
(15
|
)
|
|
|
155
|
|
|
|
Ceramics
|
|
(1,632
|
)
|
-0.3
|
%
|
103
|
|
|
|
Film and Electrolytic
|
|
212
|
|
|
|
|
|
|
|
Total
|
|
(1,435
|
)
|
-0.3
|
%
|
258
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
Tantalum
|
|
44,972
|
|
9.1
|
%
|
8,132
|
|
2.5
|
%
|
Ceramics
|
|
24,354
|
|
4.9
|
%
|
6,909
|
|
2.1
|
%
|
Film and Electrolytic
|
|
(2,829
|
)
|
-0.6
|
%
|
(20,429
|
)
|
-6.3
|
%
|
Total
|
|
66,497
|
|
13.5
|
%
|
(5,388
|
)
|
-1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
49,817
|
|
10.1
|
%
|
59,855
|
|
18.5
|
%
|
Income (loss) before income taxes
|
|
16,680
|
|
3.4
|
%
|
(65,243
|
)
|
-20.2
|
%
|
Income tax expense
|
|
1,868
|
|
0.4
|
%
|
2,742
|
|
0.8
|
%
|
Net income (loss)
|
|
$
|
14,812
|
|
3.0
|
%
|
$
|
(67,985
|
)
|
-21.0
|
%
|
39
Table of Contents
Consolidated Comparison of the Six Month Period Ended September 30,
2010 with the Six Month Period Ended September 30, 2009
Net
Sales
Net
sales for the six month period ended September 30, 2010 increased by
$169.0 million, or 52.2% to $492.4 million compared to the same period in
fiscal year 2010.
By
region, 26% of net sales for the six month period ended September 30, 2010
were to customers in the Americas, 39% were to customers in APAC, and 35% were
to customers in EMEA. For the six month period ended September 30,
2009, 25% of net sales were to customers in the Americas, 40% were to customers
in APAC, and 35% were to customers in EMEA.
By
channel, 52% of net sales for the six month period ended September 30,
2010 were to distribution customers, 15% were to electronic manufacturing
services customers, and 33% were to original equipment manufacturing
customers. For the six month period ended September 30, 2009, 46% of
net sales were to distribution customers, 15% were to electronic manufacturing
services customers, and 39% were to original equipment manufacturing customers.
Gross
Margin
Gross
margin as a percent to net sales improved to 26.5% of net sales for the six
month period ended September 30, 2010, an increase from 13.9% of net sales
for the six month period ended September 30, 2009. The primary contributor to the higher gross
margin was the increase in volume and overall average selling prices, while
fixed cost reductions previously initiated in headcount and other manufacturing
expenses were sustained during the first half of fiscal year 2011.
Selling,
General and Administrative Expenses
SG&A
expenses for the six month period ended September 30, 2010 were $49.2
million, or 10.0% of net sales, as compared to $38.5 million, or 11.9% of net
sales for the same period in fiscal year 2010.
The $10.7 million increase in SG&A expenses includes an increase of
$3.3 million in selling expenses consistent with the increase in sales. In addition, there was an increase of $6.2
million related to incentive accruals, $0.9 million related to marketing
expenses and $0.7 million related to ERP integration costs in the second
quarter of fiscal year 2011 compared to the second quarter of fiscal year
2010. These higher expenses were offset
by a decrease in expenses associated with the cancellation of an incentive plan
of $1.1 million which were incurred in the second quarter of fiscal year 2010.
Research
and Development Expenses
R&D
expenses for the six month period ended September 30, 2010 were $12.3
million, or 2.5% of net sales, as compared to $10.3 million, or 3.2% of net
sales for the same period in fiscal year 2010.
The 18.4% increase resulted from increased activities to ensure that
products are available to support KEMETs growth and to meet customer
needs. The growth in spending also
reflects KEMETs increased focus on Specialty product development which
requires an increase in sampling, tooling, and testing.
Restructuring
Charges
During
the six month period ended September 30, 2009, we incurred $1.3 million in
restructuring charges compared to $4.1 million in restructuring charges for the
six month period ended September 30, 2010.
The restructuring charges in the six month period ended September 30,
2010 included $3.1 million in charges for the relocation of equipment to Mexico
and China as well as a distribution center relocation project and $1.0 million
for reductions in workforce, primarily in Film and Electrolytic.
Operating
Income (Loss)
Operating
income for the six month period ended September 30, 2010 was $66.5
million, compared to operating loss of $5.4 million for the six month
period ended September 30, 2009, an improvement of $71.9 million. Gross margin increased $85.6 million and Gain
(loss) on sales and disposals of assets improved $1.7 million compared to the
six months ended September 30, 2009.
These improvements were offset by the increase in operating expenses of
$12.6 million and $4.1 million in restructuring charges in the six month period
ended September 30, 2010 compared to $1.3 million during the six month
period ended September 30, 2009.
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Other
(Income) Expense, net
Other
(income) expense, net was an expense of $49.8 million in the first half of
fiscal year 2011 compared to an expense of $59.9 million in the first half of
fiscal year 2010. The improvement is
attributable to zero expense in the first half of fiscal year 2011 related to
the increase in value of warrant compared to $81.1 million of expense in the
first half of fiscal year 2010. In
addition, we granted a supplier of
tantalum powder and wire and related materials, a non-exclusive license, with a right to sublicense, concerning certain
patents and patent applications which
resulted in a net gain of $2.0 million in the first half of fiscal year
2011. Also, there was a gain on foreign
currency translation of $1.4 million in the first half of fiscal year 2011 as
compared to a loss on foreign currency translation of $5.6 million in first
half of fiscal year 2010, primarily due to the strengthening of the Euro
against the dollar. These items were
offset by a $38.2 million non-cash loss recognized on the early extinguishment
of debt in the first half of fiscal year 2011 compared to a $38.9 million
non-cash gain we recognized on the early extinguishment of debt in the first
half of fiscal year 2010. Also
offsetting these favorable items was a $2.5 million increase in net interest
expense in the six month period ended September 30, 2010 compared with the
six month period ended September 30, 2009 primarily related to the
restructuring of our debt to the 10.5% Senior Notes.
Income
Taxes
For
the six month period ended September 30, 2010, income tax expense of $1.9
million is comprised of a $1.8 million income tax expense related to foreign
operations and $0.1 million of federal and state income tax expense. During the six month period ended September 30,
2009, we recognized net income tax expense of $2.7 million comprised of a $2.5
million income tax expense related to foreign operations and $0.2 million of
federal and state income tax expense.
The effective tax rate was 11.2% and (4.2)% for the six month
periods ended September 30, 2010 and 2009, respectively.
Business Groups Comparison of the Six Month Period Ended September 30,
2010 with the Six Month Period Ended September 30, 2009
Tantalum
Net
Sales
Net
sales increased 53.8% during the six month period ended September 30,
2010, as compared to the same period of fiscal year 2010. Unit sales
volume for the six month period ended September 30, 2010 increased 26.1%
as compared to the same six month period in fiscal year 2010. Average
selling prices increased 22.0% for the six month period ended September 30,
2010 as compared to the six month period ended September 30, 2009.
The increase in average selling prices is due primarily to a shift in regional
sales quantities to the Americas and EMEA as well as an increase in average
selling prices in most product lines.
Americas and EMEA unit sales quantities represented 49.4% of the total
units sold in the six month period ended September 30, 2010 as compared to
37.8% in the same period of fiscal year 2010.
All three regions and sectors were strong, bolstered by the automotive,
industrial, wireless and computer segments.
Gross
Margin
Gross
margin increased by $42.9 million during the six month period ended September 30,
2010, as compared to the six month period ended September 30, 2009. There was a corresponding increase in gross
margin as a percentage to Tantalum net sales which increased to 30.8% during
the six month period ended September 30, 2010 from 19.6% during the same
period of fiscal year 2010. The primary contributor to the higher gross
margin was driven by the increase in sales quantities and average selling
prices while minimizing fixed cost spending.
In addition, gross margin improved due to the cost reductions initiated
throughout fiscal year 2009 in headcount and other manufacturing expenses.
Operating
Income (Loss)
Operating
income for six month period ended September 30, 2010 was $45.0 million, as
compared to an operating income of $8.1 million in the first half of fiscal
year 2010. The improvement is attributable to the increase in gross
margin of $42.9 million when comparing the six month period ended September 30,
2010 to the six month period ended September 30, 2009 and the first half
of fiscal year 2011 had no loss on sales and disposals of assets as compared to
$0.2 million in the first half of fiscal year 2010. This increase was offset by an increase in
operating expenses of $5.6 million, and an increase in restructuring charges of
$0.7 million during the six month period ended September 30, 2010 as
compared to the six month period ended September 30, 2009.
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Ceramics
Net
Sales
Net
sales increased by 50.2% during the six month period ended September 30,
2010, as compared to the same period of fiscal year 2010. The increase
was primarily attributable to higher unit volumes and average selling
prices. Unit sales volume increased 45.2% during the six month period
ended September 30, 2010, as compared to the same period of fiscal year
2010 due to strong market demand across all regions. Average selling
prices increased 3.5% due primarily to product mix and region mix improvements
over fiscal year 2010.
Gross
Margin
Gross
margin as a percentage of Ceramics net sales increased to 33.7% from 25.0% in
the six month period ended September 30, 2009. The improvement in
gross margin can be attributed primarily to higher unit sales volume, higher
average selling prices and, to a lesser extent, increased manufacturing
efficiencies.
Operating
Income
Operating
income improved from $6.9 million in the first half of fiscal year 2010 to an
operating income of $24.4 million in the first half of fiscal year
2011. The increase in operating income of $17.4 million was attributable
to the $18.9 million increase in gross margin as well as the gain on sales and
disposals of assets of $1.6 million in the first half of fiscal year 2011
compared to a loss on sales and disposals of assets of $0.1 million in the
first half of fiscal year 2010. These
increases were offset by an increase in operating expenses of $3.0 million and
an increase in restructuring charges of $0.1 million during the six month
period ended September 30, 2010 as compared to the six month period ended
September 30, 2009.
Film and Electrolytic
Net
Sales
Net
sales increased by 51.3% from $95.1 million in the first half of fiscal year
2010 to $143.9 million in the first half of fiscal year 2011. Unit sales volume for the six month period
ended September 30, 2010 increased for almost all product lines for a
total increase of 53.4% compared to the six month period ended September 30,
2009. In addition, there was a 4.7%
increase in the average selling price in the first half of fiscal year 2011
compared to the first half of fiscal year 2010, excluding the foreign exchange
impact. Average selling prices increased
over all product lines and geographic regions, excluding the foreign exchange
impact.
Gross
Margin
Gross
margin increased $23.8 million from negative $3.7 million in the first half of
fiscal year 2010 to $20.1 million in the first half of fiscal year 2011. The increase is due to both increased unit
sales volume and the improvement in average selling prices which was partially
offset by foreign exchange.
Operating
Loss
Operating
loss was $2.8 million in the first half of fiscal year 2011 compared to an
operating loss of $20.4 million in the first half of fiscal year
2010. The improvement in operating loss
of $17.6 million was attributable primarily to the $23.8 million improvement in
gross margin. This increase was offset
by an increase in operating expenses of $4.8 million in the first half of
fiscal year 2011 as compared to the first half of fiscal year 2010, an increase
in restructuring charges of $2.0 million during the six month period ended
September 30, 2010 as compared to the six month period ended September 30,
2009, and a $0.2 million loss on sales and disposals of assets in the first
half of fiscal year 2011 as compared to zero in the first half of fiscal year
2010.
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Liquidity
and Capital Resources
Our liquidity needs arise from working
capital requirements, capital expenditures, principal and interest payments on
debt, and costs associated with the implementation of our restructuring
plans. Historically, these cash needs have been met by cash flows from
operations, borrowings under our credit agreements and existing cash balances.
Issuance of 10.5% Senior Notes
On May 5, 2010, we completed a private placement of
$230.0 million in aggregate principal amount of our 10.5% Senior Notes due
2018 (the 10.5% Senior Notes) to several Initial Purchasers (the Initial
Purchasers) represented by Banc of America Securities LLC pursuant to an
exemption from the registration requirements under the Securities Act of 1933,
as amended (the Securities Act). The Initial Purchasers subsequently sold the
10.5% Senior Notes to qualified institutional buyers pursuant to Rule 144A
under the Securities Act and to persons outside of the United States pursuant
to Regulation S under the Securities Act.
The private placement of the 10.5% Senior Notes resulted in proceeds to
us of $222.2 million. We used a portion of the proceeds of the private
placement to repay all of the outstanding indebtedness under our credit
facility with K Financing, LLC, our 60 million credit facility and
35 million credit facility with UniCredit and our term loan with
Vishay. We used a portion of the
remaining proceeds to fund a previously announced tender offer to purchase
$40.5 million in aggregate principal amount of our 2.25% Convertible
Senior Notes (the Convertible Notes) and to pay costs incurred in connection
with the private placement, the tender offer and the foregoing repayments. We
incurred approximately $6.6 million in costs related to the execution of
the offering, and these costs are capitalized and will be amortized over the
term of the 10.5% Senior Notes.
The 10.5% Senior Notes were issued pursuant to a 10.5% Senior Notes
Indenture, dated as of May 5, 2010, by and among us, our domestic
restricted subsidiaries (the Guarantors) and Wilmington Trust Company, as
trustee (the Trustee). The 10.5% Senior Notes will mature on May 1,
2018, and bear interest at a stated rate of 10.5% per annum, payable
semi-annually in cash in arrears on May 1 and November 1 of each
year, beginning on November 1, 2010. The 10.5% Senior Notes are our senior
obligations and are guaranteed by each of the Guarantors and secured by a first
priority lien on 51% of the capital stock of certain of our foreign restricted
subsidiaries.
The terms of the 10.5% Senior Notes Indenture will, among other things,
limit our ability and the ability of our restricted subsidiaries to
(i) incur additional indebtedness or issue certain preferred stock;
(ii) pay dividends on, or make distributions in respect of, our capital
stock or repurchase our capital stock; (iii) make certain investments or
other restricted payments; (iv) sell certain assets; (v) create liens
or use assets as security in other transactions; (vi) enter into sale and
leaseback transactions; (vii) merge, consolidate or transfer or dispose of
substantially all assets; (viii) engage in certain transactions with
affiliates; and (ix) designate subsidiaries as unrestricted subsidiaries.
These covenants are subject to a number of important limitations and exceptions
that are described in the 10.5% Senior Notes Indenture.
The 10.5% Senior Notes will be redeemable, in whole or in part, at any
time on or after May 1, 2014, at the redemption prices specified in the
10.5% Senior Notes Indenture. At any time prior to May 1, 2013, we may redeem
up to 35% of the aggregate principal amount of the 10.5% Senior Notes with the
net cash proceeds from certain equity offerings at a redemption price equal to
110.5% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the redemption date. In addition, at any time prior to
May 1, 2014, we may redeem the 10.5% Senior Notes, in whole or in part, at
a redemption price equal to 100% of the principal amount of the 10.5% Senior
Notes so redeemed, plus a make whole premium and together with accrued and
unpaid interest, if any, to the redemption date.
Upon the occurrence of a change of control triggering event specified
in the 10.5% Senior Notes Indenture, we must offer to purchase the 10.5% Senior
Notes at a redemption price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase.
The 10.5% Senior Notes Indenture provides for customary events of
default (subject in certain cases to customary grace and cure periods), which
include nonpayment, breach of covenants in the 10.5% Senior Notes Indenture,
payment defaults or acceleration of other indebtedness, a failure to pay
certain judgments and certain events of bankruptcy and insolvency. The 10.5%
Senior Notes Indenture also provides for events of default with respect to the
collateral, which include default in the performance of (or repudiation,
disaffirmation or judgment of unenforceability or assertion of
unenforceability) by us or a Guarantor with respect to the provision of
security documents under the 10.5% Senior Notes Indenture. These events of
default are subject to a number of important qualifications, limitations and
exceptions that are described in the 10.5% Senior Notes Indenture. Generally,
if an event of default occurs, the Trustee or holders of at least 25% in
principal amount of the then outstanding 10.5% Senior Notes may declare the
principal of and accrued but unpaid interest, including additional interest, on
all the 10.5% Senior Notes to be due and payable.
On May 17, 2010, we consummated a tender offer to purchase
$40.5 million in aggregate principal amount of our Convertible Notes. We
used $37.9 million from the bond offering discussed above to extinguish
the tendered notes. We incurred
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Table of Contents
approximately
$0.2 million in costs related to the execution of this tender offer, and
these costs were included in the line item (Gain) loss on early extinguishment
of debt on the Condensed Consolidated Statements of Operations.
Registration Rights Agreement
On May 5, 2010, in connection with the private placement of the
10.5% Senior Notes, we, the Guarantors and the Initial Purchasers of the 10.5%
Senior Notes entered into the Registration Rights Agreement. The terms of the
Registration Rights Agreement require the Company and the Guarantors to
(i) use their commercially reasonable efforts to file with the Securities
and Exchange Commission within 210 days after the date of the initial
issuance of the 10.5% Senior Notes, a registration statement with respect to an
offer to exchange the 10.5% Senior Notes for a new issue of debt securities
registered under the Securities Act, with terms substantially identical to
those of the 10.5% Senior Notes (except for provisions relating to the transfer
restrictions and payment of additional interest); (ii) use our
commercially reasonable efforts to consummate such exchange offer within 270 days
after the date of the initial issuance of the 10.5% Senior Notes; and
(iii) in certain circumstances, file a shelf registration statement
for the resale of the 10.5% Senior Notes. If we and the Guarantors fail to
satisfy our registration obligations under the Registration Rights Agreement,
then we will be required to pay additional interest to the holders of the 10.5%
Senior Notes, up to a maximum additional interest rate of 1.0% per annum.
The foregoing description of the 10.5% Senior Notes Indenture and the
Registration Rights Agreement does not purport to be complete and is qualified
in its entirety by reference to the full text of the 10.5% Senior Notes
Indenture and Registration Rights Agreement.
On
October 26, 2010, the Company filed a Form S-4 to offer, in exchange
for our outstanding 10.5% Senior Notes due 2018 ( Old Notes), up to $230.0
million in aggregate principal amount of 10.5% Senior Notes due 2018 and the
guarantees thereof which have been registered under the Securities Act of 1933,
as amended.
Revolving Line of Credit
On September 30, 2010, KEMET Electronics Corporation (KEC) and
KEMET Electronics Marketing (S) Pte Ltd. (KEMET Singapore) (each a
Borrower and, collectively, the Borrowers) entered into a Loan and Security
Agreement (the Loan and Security Agreement), with Bank of America, N.A, as
the administrative agent and the initial lender. The Loan and Security
Agreement provides a $50 million revolving line of credit, which is bifurcated
into a U.S. facility (for which KEC is the Borrower) and a Singapore facility
(for which KEMET Singapore is the Borrower). The size of the U.S.
facility and Singapore facility can fluctuate as long as the Singapore facility
does not exceed $30 million and the total facility does not exceed $50
million. A portion of the U.S. facility and of the Singapore facility can
be used to issue letters of credit. The facilities expire on
September 30, 2014.
Revolving
loans may be used to pay fees and transaction expenses associated with the closing
of the credit facilities, to pay obligations outstanding under the Loan and
Security Agreement and for working capital and other lawful corporate purposes
of KEC and KEMET Singapore. Borrowings under the U.S. and Singapore
facilities are subject to a borrowing base. The borrowing base consists
of:
·
in the case of the U.S. facility, (A) 85% of KECs accounts
receivable that satisfy certain eligibility criteria plus (B) the lesser
of $4 million and 40% of the net book value of inventory of KEC that satisfy
certain eligibility criteria plus (C) the lesser of $3 million and 70% of
the net orderly liquidation percentage of the appraised value of equipment that
satisfies certain eligibility criteria less (D) certain reserves,
including certain reserves imposed by the administrative agent in its permitted
discretion; and
·
in the case of the Singapore facility, (A) 85% of KEMET
Singapores accounts receivable that satisfy certain eligibility criteria less
(B) certain reserves, including certain reserves imposed by the
administrative agent in its permitted discretion.
Interest
is payable on borrowings monthly at a rate equal to the London Interbank Offer
Rate (LIBOR) or the base rate, plus an applicable margin, as selected by the
Borrower. Depending upon the fixed charge coverage ratio of KEMET Corporation
and its subsidiaries on a consolidated basis as of the latest test date, the
applicable margin under the U.S. facility varies between 3.00% and 3.50% for
LIBOR advances and 2.00% and 2.50% for base rate advances, and under the
Singapore facility varies between 3.25% and 3.75% for LIBOR advances and 2.25%
and 2.75% for base rate advances.
The
base rate is subject to a floor that is 100 basis points above LIBOR.
An
unused line fee is payable monthly in an amount equal to 0.75% per annum of the
average daily unused portion of the facilities during any month; provided, that
such percentage rate is reduced to (a) 0.50% per annum for any month in
which the average
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Table of Contents
daily
balance of the facilities is greater than 33.3% of the total revolving
commitment and less than 66.6% of the total revolving commitment, and
(b) 0.375% per annum for any month in which the average daily balance of
the facilities is greater than or equal to 66.6% of the total revolving
commitment. A customary fee is also payable to the administrative agent on a
quarterly basis.
KECs
ability to draw funds under the U.S. facility and KEMET Singapores ability to
draw funds under the Singapore facility are conditioned upon, among other
matters:
·
the absence of the existence of a Material Adverse Effect (as defined
in the Loan and Security Agreement);
·
the absence of the existence of a default or an event of default under
the Loan and Security Agreement; and
·
the representations and warranties made by
KEC and KEMET Singapore in the Loan and Security Agreement continuing to be
correct in all material respects.
The
parent corporation of KEC - KEMET Corporation - and the Guarantors guarantee
the U.S. facility obligations and the U.S. facility obligations are secured by
a lien on substantially all of the assets of KEC and the Guarantors (other than
assets that secure the 10.5% Senior Notes due 2018). The collection accounts of
the Borrowers and Guarantors are subject to a daily sweep into a concentration
account and the concentration account will become subject to full cash dominion
in favor of the administrative agent (i) upon an event of default,
(ii) if for five consecutive business days, aggregate availability of all
facilities has been less than the greater of (A) 15% of the aggregate
revolver commitments at such time and (B) $7.5 million, or (iii) if
for five consecutive business days, availability of the U.S. facility has been
less than $3.75 million (each such event, a Cash Dominion Trigger Event).
KEC
and the Guarantors guarantee the Singapore facility obligations. In
addition to the assets that secure the U.S. facility, the Singapore obligations
are also secured by a pledge of 100% of the stock of KEMET Singapore and a
security interest in substantially all of KEMET Singapores assets.
Within 90 days after the closing date, KEMET Singapores bank accounts will be
transferred over to Bank of America and upon a Cash Dominion Trigger Event will
become subject to full cash dominion in favor of the administrative agent.
A
fixed charge coverage ratio of at least 1.1:1.0 must be maintained as at the
last day of each fiscal quarter ending immediately prior to or during any
period in which any of the following occurs and is continuing until none of the
following occurs for a period of at least forty-five consecutive days:
(i) an event of default, (ii) aggregate availability of all
facilities has been less than the greater of (A) 15% of the aggregate
revolver commitments at such time and (B) $7.5 million, or
(iii) availability of the U.S. facility has been less than $3.75
million. The fixed charge coverage ratio tests the EBITDA and fixed
charges of KEMET Corporation and its subsidiaries on a consolidated basis.
In
addition, the Loan and Security Agreement includes negative covenants that,
subject to exceptions, limit the ability of KEMET Corporation and its direct
and indirect subsidiaries to, among other things:
·
incur additional indebtedness;
·
create liens on assets;
·
make capital expenditures;
·
engage in mergers, consolidations, liquidations and dissolutions;
·
sell assets (including pursuant to sale leaseback transactions);
·
pay dividends and distributions on or repurchase capital stock;
·
make investments (including acquisitions), loans, or advances;
·
prepay certain junior indebtedness;
·
engage in certain transactions with affiliates;
·
enter into restrictive agreements;
·
amend material agreements governing certain junior indebtedness; and
·
change its lines of business.
The
Loan and Security Agreement includes certain customary representations and
warranties, affirmative covenants and events of default, which are set forth in
more detail in the Loan and Security Agreement.
Short Term Liquidity
Based on our current operating plans management believes that cash
generated from operations will be sufficient to cover our operating
requirements for the next twelve months, including principal and interest
payments and expected capital expenditures for fiscal year 2011 of in the range
of $28 million to $35 million.
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Our cash and cash equivalents increased by
$38.3 million for the six month period ended September 30, 2010 as
compared with an increase of $18.2 million during the six month period ended
September 30, 2009.
The following table provides a summary of
cash flows for the periods presented (amounts in thousands):
|
|
Six Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
Cash provided by operating activities
|
|
$
|
56,445
|
|
$
|
20,756
|
|
Cash used in investing activities
|
|
(8,396
|
)
|
(3,730
|
)
|
Cash provided by (used in) financing activities
|
|
(10,556
|
)
|
910
|
|
Effects of foreign currency fluctuations on cash
|
|
762
|
|
272
|
|
Net increase in cash and cash equivalents
|
|
$
|
38,255
|
|
$
|
18,208
|
|
Operations
Cash provided by operating activities
improved $35.7 million in the six month period ended September 30, 2010
compared to the six month period ended September 30, 2009. This improvement is primarily a result of an
increase of $76.1 million related to operations (net income adjusted for
non-cash items) for the six month period ended September 30, 2010 compared
to the six month period ended September 30, 2009. Offsetting this increase was a decrease in
cash from working capital of $38.4 million.
The decrease in cash from working capital when comparing the first half
of fiscal year 2011 to the first half of fiscal year 2010 is primarily due to
an increase in accounts receivable and inventory related to the increase in
sales and demand for our products.
Accounts receivables increased $11.1 million in the first half of fiscal
year 2011 compared to an increase of $3.6 million in the first half of fiscal
year 2010 primarily due to an increase in sales. In the six month period ended September 30,
2010, we used $30.2 million in cash due to an increase in our inventories. For the first half of fiscal year 2011, raw
material inventory increased $20.6 million, due primarily to price increases in
Tantalum raw materials as well an increase in the volume of raw materials. The increase in raw material quantities was
driven by increased sales levels and accelerating purchases of raw materials
that are expected to increase in price.
The $38.2 million loss on early extinguishment of debt was a non-cash
item and did not affect cash provided by operations in the first half of fiscal
year 2011. Likewise, the $38.9 million
gain on early extinguishment of debt and the $81.1 million increase in warrant
value were non-cash items which did not affect cash provided by operations in
the first half of fiscal year 2010. In
the six month period ended September 30, 2009, we generated $14.5 million
in cash as we focused on reducing our inventories.
Investing
Cash
used in investing activities was $8.4 million in the six month period ended
September 30, 2010 compared to $3.7 million in the six month period ended
September 30, 2009 due to an increase in capital expenditures. The capital expenditure amount for the first
half of fiscal year 2011 included $2.7 million for the acquisition of land in
Italy to be used as the site for a new manufacturing facility in order to
consolidate our Italian operations. The
remaining purchase price for the land in Italy will be paid in seven annual
payments of EUR 500 thousand ($600
thousand) beginning on April 28, 2013. Capital expenditures were offset by proceeds
from the sale of assets in the six month period ended September 30, 2010
of $5.4 million. There were no proceeds
from the disposal of assets in the six month period ended September 30,
2009.
Financing
Cash used in financing activities was $10.6 million in the six month
period ended September 30, 2010 as compared to cash provided by financing
activities of $0.9 million in the six month period ended September 30,
2009. In the first half of fiscal year
2011, proceeds from the issuance of debt resulted from the private placement of
$230.0 million in aggregate principal amount of our 10.5% Senior Notes due
2018. The proceeds of $182.5 million were used to repay all of the outstanding
indebtedness under our credit facilities with K Financing, LLC, our
60 million credit facility and 35 million credit facility with
UniCredit and our term loan with Vishay.
We used $38.1 million to retire $40.5 million in aggregate principal
amount of our Convertible Notes and $6.6 million to pay costs incurred in
connection with the private placement, the tender offer and the foregoing
repayments. We made a principal payment related to UniCredit Facility A on
April 1, 2010 for 7.7 million ($10.4 million). Our next
significant maturity is November 15, 2011 when the Convertible Note
holders have the right to require us to repurchase for cash all or a portion of
the Convertible Notes outstanding of $40.6 million.
In the first half of fiscal year 2010,
proceeds from the issuance of debt resulted primarily from the Platinum Term
Loan and the Platinum Line of Credit Loan.
Approximately $37.8 million in proceeds from the Platinum Term Loan were
used to retire $93.9 million in aggregate principal amount of the Convertible
Notes (representing 53.7% of the outstanding Convertible Notes) which were
validly tendered on June 26, 2009.
Proceeds of $10.0 million from the Platinum Line of Credit Loan were
used primarily to pay the
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Table of Contents
fees and
expenses related to execution of the tender offer. Proceeds of $10.0
million from the Platinum Working Capital Loan were used for general corporate
purposes. The gain on the early
extinguishment of the Convertible Notes is shown on the line item (Gain) loss
on early extinguishment of debt on the Condensed Consolidated Statements of
Operations.
In
the first half of fiscal year 2010, payments of debt relate primarily to
retirement of the Convertible Notes discussed above as well as a principal
payment on UniCredit Facility A.
Commitments
At
September 30, 2010, we had contractual obligations in the form of debt and
interest payments as follows (amounts in thousands):
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
Year 1
|
|
Years 2-3
|
|
Years 4-5
|
|
5 years
|
|
Debt obligations(1)
|
|
$
|
279,955
|
|
$
|
5,457
|
|
$
|
43,844
|
|
$
|
654
|
|
$
|
230,000
|
|
Interest obligations
|
|
184,426
|
|
25,151
|
|
48,515
|
|
48,305
|
|
62,455
|
|
|
|
$
|
464,381
|
|
$
|
30,608
|
|
$
|
92,359
|
|
$
|
48,959
|
|
$
|
292,455
|
|
(1)
Holders of the Convertible
Notes have the right to require us to repurchase for cash all or a portion of
the Convertible Notes on November 15, 2011, 2016 and 2021 at a repurchase
price equal to 100% of the principal amount of the Convertible Notes to be
repurchased plus accrued and unpaid interest, if any, in each case, up to but
not including, the date of repurchase.
The $40.6 million of Convertible Notes have been included in the Years
2-3 column above.
Our
operating lease obligations, European social security, and pension benefit and
other postretirement benefit obligations have not changed materially from those
disclosed in the Companys 2010 Annual Report.
Non-GAAP Financial Measures
To
complement our Condensed Consolidated Statements of Operations and Cash Flows,
we use non-GAAP financial measures of Adjusted operating income (loss),
Adjusted net income (loss) and Adjusted EBITDA. Management believes
that Adjusted operating income (loss), Adjusted net income (loss) and Adjusted
EBITDA are complements to U.S. GAAP amounts and such measures are useful to
investors. The presentation of these non-GAAP measures is not meant
to be considered in isolation or as an alternative to net income as an indicator
of our performance, or as an alternative to cash flows from operating
activities as a measure of liquidity.
Adjusted
operating income (loss) is calculated as follows (amounts in thousands):
|
|
Quarters Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Operating income (loss)
|
|
$
|
37,962
|
|
$
|
(2,887
|
)
|
$
|
66,497
|
|
$
|
(5,388
|
)
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
2,303
|
|
1,267
|
|
4,095
|
|
1,267
|
|
(Gain) loss on sales and disposals of assets
|
|
(1,770
|
)
|
52
|
|
(1,435
|
)
|
258
|
|
Cancellation of incentive plan
|
|
|
|
1,161
|
|
|
|
1,161
|
|
Write off of capitalized advisor fees
|
|
|
|
413
|
|
|
|
413
|
|
ERP integration costs
|
|
375
|
|
|
|
655
|
|
|
|
Total adjustments
|
|
908
|
|
2,893
|
|
3,315
|
|
3,099
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income (loss)
|
|
$
|
38,870
|
|
$
|
6
|
|
$
|
69,812
|
|
$
|
(2,289
|
)
|
47
Table of Contents
Adjusted net income (loss) is calculated as follows (amounts in
thousands):
|
|
Quarters Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net income (loss)
|
|
$
|
34,911
|
|
$
|
(93,075
|
)
|
$
|
14,812
|
|
$
|
(67,985
|
)
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
(Gain) loss on early extinguishment of debt
|
|
|
|
|
|
38,248
|
|
(38,921
|
)
|
Restructuring charges
|
|
2,303
|
|
1,267
|
|
4,095
|
|
1,267
|
|
Amortization included in interest expense
|
|
830
|
|
3,319
|
|
2,754
|
|
5,883
|
|
(Gain) loss on sales and disposals of assets
|
|
(1,770
|
)
|
52
|
|
(1,435
|
)
|
258
|
|
Gain on licensing of patents
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
|
|
Cancellation of incentive plan
|
|
|
|
1,161
|
|
|
|
1,161
|
|
Write off of capitalized advisor fees
|
|
|
|
413
|
|
|
|
413
|
|
ERP integration costs
|
|
375
|
|
|
|
655
|
|
|
|
Increase in value of warrant
|
|
|
|
81,088
|
|
|
|
81,088
|
|
Income tax impact of adjustments
|
|
(364
|
)
|
(67
|
)
|
(632
|
)
|
671
|
|
Total adjustments
|
|
(626
|
)
|
87,233
|
|
41,685
|
|
51,820
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income (loss)
|
|
$
|
34,285
|
|
$
|
(5,842
|
)
|
$
|
56,497
|
|
$
|
(16,165
|
)
|
Adjusted
EBITDA is calculated as follows (amounts in thousands):
|
|
Quarters Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net income (loss)
|
|
$
|
34,911
|
|
$
|
(93,075
|
)
|
$
|
14,812
|
|
$
|
(67,985
|
)
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
593
|
|
1,712
|
|
1,868
|
|
2,742
|
|
Interest expense, net
|
|
7,250
|
|
6,389
|
|
14,687
|
|
12,177
|
|
Depreciation and amortization expense
|
|
14,132
|
|
13,226
|
|
28,642
|
|
25,490
|
|
(Gain) loss on early extinguishment of debt
|
|
|
|
|
|
38,248
|
|
(38,921
|
)
|
Increase in value of warrant
|
|
|
|
81,088
|
|
|
|
81,088
|
|
Restructuring charges
|
|
2,303
|
|
1,267
|
|
4,095
|
|
1,267
|
|
Foreign exchange transaction (gain) loss
|
|
(2,679
|
)
|
1,416
|
|
(1,407
|
)
|
5,635
|
|
Stock-based compensation expense
|
|
333
|
|
1,379
|
|
482
|
|
1,628
|
|
(Gain) loss on sales and disposals of assets
|
|
(1,770
|
)
|
52
|
|
(1,435
|
)
|
258
|
|
ERP integration costs
|
|
375
|
|
|
|
655
|
|
|
|
Gain on licensing of patents
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
|
|
Total adjustments
|
|
18,537
|
|
106,529
|
|
83,835
|
|
91,364
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
53,448
|
|
$
|
13,454
|
|
$
|
98,647
|
|
$
|
23,379
|
|
Adjusted operating income (loss) represents operating income (loss),
excluding adjustments which are outlined in the quantitative reconciliation
provided above. We use Adjusted operating income (loss) to facilitate our
analysis and understanding of our business operations and believe that Adjusted
operating income (loss) is useful to investors because it provides a
supplemental way to understand our underlying operating performance. Adjusted
operating income (loss) should not be considered as an alternative to operating
income or any other performance measure derived in accordance with
U.S. GAAP.
Adjusted net income (loss) represents net income (loss), excluding
adjustments which are more specifically outlined in the quantitative
reconciliation provided above. We use Adjusted net income (loss) to evaluate
our operating performance and believe that Adjusted net income (loss) is useful
to investors because it provides a supplemental way to understand our
underlying operating
48
Table of Contents
performance.
Adjusted net income (loss) should not be considered as an alternative to net
income, operating income or any other performance measures derived in
accordance with U.S. GAAP.
Adjusted EBITDA represents net income (loss) before income tax expense,
interest expense, net, and depreciation and amortization expense, adjusted to
exclude increase in value of warrant, restructuring charges, stock-based
compensation expense, (gain) loss on sales and disposals of assets, (gain) loss
on the early extinguishment of debt, foreign exchange transaction (gain) loss,
ERP integration costs and gain on licensing of patents. We present Adjusted
EBITDA as a supplemental measure of our performance and ability to service
debt. We also present Adjusted EBITDA because we believe such measure is
frequently used by securities analysts, investors and other interested parties
in the evaluation of companies in our industry.
We believe Adjusted EBITDA is an appropriate supplemental measure of
debt service capacity, because cash expenditures on interest are, by
definition, available to pay interest, and tax expense is inversely correlated
to interest expense because tax expense goes down as deductible interest
expense goes up; and depreciation and amortization are non-cash charges. The
other items excluded from Adjusted EBITDA are excluded in order to better
reflect our continuing operations.
In evaluating Adjusted EBITDA, you should be aware that in the future
we may incur expenses similar to the adjustments noted above. Our presentation
of Adjusted EBITDA should not be construed as an inference that our future
results will be unaffected by these types of adjustments. Adjusted EBITDA is
not a measurement of our financial performance under U.S. GAAP and should
not be considered as an alternative to net income, operating income or any
other performance measures derived in accordance with U.S. GAAP or as an
alternative to cash flow from operating activities as a measure of our
liquidity.
Our Adjusted EBITDA measure has limitations as an analytical tool, and
you should not consider it in isolation or as a substitute for analysis of our
results as reported under U.S. GAAP. Some of these limitations are:
·
it does not reflect our cash
expenditures, future requirements for capital expenditures or contractual
commitments;
·
it does not reflect changes
in, or cash requirements for, our working capital needs;
·
it does not reflect the
significant interest expense or the cash requirements necessary to service
interest or principal payments on our debt;
·
although depreciation and
amortization are non-cash charges, the assets being depreciated and amortized
will often have to be replaced in the future, and our Adjusted EBITDA measure
does not reflect any cash requirements for such replacements;
·
it is not adjusted for all
non-cash income or expense items that are reflected in our statements of cash
flows;
·
it does not reflect the
impact of earnings or charges resulting from matters we consider not be
indicative of our ongoing operations;
·
it does not reflect
limitations on or costs related to transferring earnings from our subsidiaries
to us; and
·
other companies in our
industry may calculate this measure differently than we do, limiting its
usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered
as a measure of discretionary cash available to us to invest in the growth of
our business or as a measure of cash that will be available to us to meet our
obligations. You should compensate for these limitations by relying primarily
on our U.S. GAAP results and using Adjusted EBITDA only supplementally.
Off-Balance
Sheet Arrangements
Other
than operating lease commitments, we are not a party to any material
off-balance sheet financing arrangements that have, or are reasonably likely to
have, a current or future material effect on our financial condition, revenues,
expenses, results of operations, liquidity, capital expenditures or capital
resources.
Impact
of Recently Issued Accounting Standards
New accounting standards adopted
There were no accounting standards adopted in the second quarter of
fiscal year 2011.
New accounting standards issued but not yet adopted
49
Table of Contents
There are currently no accounting standards that have been issued that
will have a significant impact on the Companys financial position, results of
operations or cash flows upon adoption.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There
has been no material changes regarding the Companys market risk position from
the information included in the Companys 2010 Annual Report.
Item 4. Controls and Procedures
Evaluation of Disclosure
Controls and Procedures
As
of September 30, 2010, an evaluation of the effectiveness of the Companys
disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act)) was performed under the supervision and with the
participation of the Companys management, including the Chief Executive
Officer and Chief Financial Officer. Based on that evaluation, the
Companys Chief Executive Officer and Chief Financial Officer have concluded
that the Companys disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in its reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms, and
that information required to be disclosed by the Company in the reports the
Company files or submits under the Exchange Act is accumulated and communicated
to the Companys management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal
Control Over Financial Reporting
There
has been no change in the Companys internal control over financial reporting
(as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act)
during the quarter ended September 30, 2010 that has materially affected,
or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
PART IIOTHER INFORMATION
Item 1. Legal Proceedings
We or our subsidiaries are at any one time parties to a number of
lawsuits arising out of our respective operations, including workers
compensation or work place safety cases, some of which involve claims of
substantial damages. Although there can be no assurance, based upon information
known to us, we do not believe that any liability which might result from an
adverse determination of such lawsuits would have a material adverse effect on
our financial condition or results of operations.
Item 1A. Risk Factors
There
have been no material changes in our risk factors from those disclosed in
Part I, Item 1A, of the Companys 2010 Annual Report.
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. [Removed and Reserved]
Item 5. Other Information
None.
50
Table of Contents
Item 6. Exhibits
Exhibit 10.1 Loan and Security Agreement, dated as of
September 30, 2010, by and among KEMET Electronics Corporation, KEMET
Electronics Marketing (S) Pte Ltd., and Bank of America, N.A., as agent
and Banc of America Securities LLC, as lead arranger and bookrunner
(incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K dated September 30, 2010).
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification - Principal Executive Officer
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification - Principal Financial Officer
Exhibit 32.1
Section 1350 Certification - Principal Executive Officer
Exhibit 32.2
Section 1350 Certification - Principal Financial Officer
Exhibit 101
The following financial information from KEMET Corporations Quarterly Report
on Form 10-Q for the quarter ended September 30, 2010, formatted in
XBRL (eXtensible Business Reporting Language): (i) Condensed
Consolidated Statements of Income for the three and six months ended
September 30, 2010 and 2009, (ii) Condensed Consolidated Balance
Sheets at September 30, 2010, and March 31, 2010,
(iii) Condensed Consolidated Statements of Cash Flows for the six months
ended September 30, 2010 and 2009, and (iv) the Notes to Condensed
Consolidated Financial Statements, tagged as blocks of text.
SIGNATURE
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date:
October 29, 2010
|
|
|
KEMET
Corporation
|
|
|
|
/s/
WILLIAM M. LOWE, JR.
|
|
William
M. Lowe, Jr.
|
|
Executive
Vice President and Chief Financial Officer
|
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
(Duly
Authorized Officer)
|
51
Table of Contents
EXHIBIT INDEX
Exhibit 10.1 Loan and Security Agreement, dated as of
September 30, 2010, by and among KEMET Electronics Corporation, KEMET
Electronics Marketing (S) Pte Ltd., and Bank of America, N.A., as agent
and Banc of America Securities LLC, as lead arranger and bookrunner
(incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K dated September 30, 2010).
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification - Principal Executive Officer
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification - Principal Financial Officer
Exhibit 32.1
Section 1350 Certification - Principal Executive Officer
Exhibit 32.2
Section 1350 Certification - Principal Financial Officer
Exhibit 101
The following financial information from KEMET Corporations Quarterly Report
on Form 10-Q for the quarter ended September 30, 2010, formatted in
XBRL (eXtensible Business Reporting Language): (i) Condensed
Consolidated Statements of Income for the three and six months ended
September 30, 2010 and 2009, (ii) Condensed Consolidated Balance
Sheets at September 30, 2010, and March 31, 2010,
(iii) Condensed Consolidated Statements of Cash Flows for the six months
ended September 30, 2010 and 2009, and (iv) the Notes to Condensed
Consolidated Financial Statements, tagged as blocks of text.
52
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