THE PREFERRED CAPACITOR SUPPLIER
2001 KEMETCORPORATION ANNUAL REPORT
Highlights of Fiscal 2001
(In thousands, except per share data)
KEMET Corporation and Subsidiaries
Years ended March 31,
2001
2000
1999
Average
Net sales
Net earnings
$1,406,147
$822,095
$565,569
$931,270
$ 352,346
$ 70,119
$ 6,150
$142,872
Net earnings/Net sales
25.1%
8.5%
1.1%
15.3%
Net earnings per share, diluted (1)
$ 4.00
$ 0.85
$ 0.08
$ 1.64
Selling, general and administrative expenses
$ 55,713
$ 48,457
$ 46,552
$ 50,241
Research and development expenditures
$ 26,188
$ 23,918
$ 21,132
$ 23,746
Fixed asset expenditures
Percent of debt to capital
13,900
Year-end employment (number of employees)
(1) Reflects the impact of the 2-for-1 stock split effective June 1, 2000.
$ 210,559
$ 82,009
$ 59,047
$117,205
10.1%
15.4%
14,000
34.3%
10,800
Net Sales
($ Millions)
Net Earnings
($ Millions)
Stockholders’ Equity
($ Millions)
1,500
1,250
1,000
750
500
250
0
360
300
240
180
120
60
0
900
750
600
450
300
150
0
FY97 FY98 FY99 FY00
FY01
FY97 FY98 FY99 FY00
FY01
FY97 FY98 FY99 FY00*
FY01
*Includes $142.6 million from secondary stock offering
KEMET Corporation is the world’s largest manufacturer of solid tantalum capacitors, the fourth largest
manufacturer of multilayer ceramic capacitors, and a leader in the development of solid aluminum capaci-
tors. These surface-mount technologies are the fastest growing segment of the capacitor industry.
Capacitors, which store, filter, and regulate electrical energy and current flow, are found in virtually all elec-
tronic applications and products. KEMET’s capacitors are used in a wide variety of electronic applications,
including Internet infrastructure, communication systems and devices, personal computers, automotive
electronic systems, and military and aerospace systems. KEMET’s strategy is to be the preferred capacitor
supplier to the world’s most successful electronics firms. The Company’s stock is traded on The New York
Stock Exchange under the symbol KEM.
Contents
Highlights of Fiscal 2001
Letter to Stockholders
Management’s Discussion and Analysis
Independent Auditors’ Report
Consolidated Financial Statements
Directors and Officers
Corporate Data
Inside front cover
7
10
19
20
40
Inside back cover
1
CARLOS VIVEROS
SENIOR PROGRAMMER ANALYST
Our vision is to establish a distinctive competence that differentiates KEMET as the
unquestioned Best-In-Class supplier. Ever ything at KEMET revolves around one
goal–earning the right to be the preferred capacitor supplier at each of the world’s most
successful electronics companies.
Electronics is a phenomenal growth industry. Measured by shipments of integrated
circuits, the electronics industry has grown 11 percent per year for the past decade. While
some sectors of electronics are maturing and others are emerging, a high long-term
growth rate for the electronics industry as a whole is expected to continue.
Capacitors are small energy storage devices that are essential components in all
electronics. Because faster, more sophisticated integrated circuits require more capaci-
tors to support them, unit shipments of capacitors have grown 20 percent per year for the
past decade.
Offering the most complete line of surface-mount capacitors, KEMET is the world’s
largest manufacturer of solid tantalum capacitors, the fourth largest manufacturer of multi-
layer ceramic capacitors, and a leader in the development of solid aluminum capacitors.
KEMET’s capacitor shipments have grown 24 percent per year for the past decade.
2
ROB NANCE
ROB NANCE
EASTERN SALES DIRECTOR
EASTERN SALES DIRECTOR
The world’s most successful electronics companies include the largest original equip-
ment manufacturers, electronics manufacturing services providers, and electronics dis-
tributors. The right to be their preferred capacitor supplier is earned by meeting their
long-term capacitor needs for the right parts with the highest quality, the most flexibility in
ordering, the most reliable delivery, and competitive prices.
Clear, effective communications with customers is vital. Unique among capacitor
manufacturers, KEMET reaches each of our key customers through direct, salaried sales
and customer service professionals.
KEMET is on the forefront of information technology required to serve customers.
Customers can place an order for any of 35,000 different types of capacitors through
KEMET’s Easy-To-Buy-From system. Within three seconds, the system schedules and
reserves manufacturing capacity and provides a target delivery date that we meet over 99
percent of the time. No matter where in the world our customers are located, we do busi-
ness with local people, in the local language, using the local currency. We are an industry
leader in the use of electronic data interchange and emerging Internet technologies.
3
FAITH THOMAS
AOPOLYWHEEL OPERATOR
K E M E T ’s ex t e n d e d p l a n t c o n c e p t
focuses each facility on being the best in
the world at performing a closely related
family of processes. KEMET’s information
technology ties facilities together into a
fa c t o r y – f r o m t h e C a r o l i n a s t o
v i r t u a l
Mexico–from order entry to shipping. This
allows KEMET to manufacture up to 35,000
different types of capacitors with near-per-
fect quality and on-time delivery, as well as
declining costs. Numerous quality awards
from our customers bear testimony to our
quality achievements.
Long-term sales relationships with our
key customers allow KEMET to sell capaci-
ty, not capacitors. Production requirements
for many of KEMET’s customers are man-
aged through schedule or forecast sharing.
B y bu i l d i n g t o a c u s t o m e r ’s fo r e c a s t ,
KEMET can provide shorter lead times and
better overall customer support from any
of our manufacturing facilities.
KEMET works hard to be a good cor-
porate neighbor in all our locations. As a
result, we have received numerous envi-
ronmental, educational, community, and
professional awards.
4
PHIL SARACIN
GLOBAL LOGISTICS MANAGER
The globalization of the world’s economy and the dramatic growth of outsourced elec-
tronics manufacturing services are increasing the demand for world-class global logistics
that maximize ordering flexibility and get the right parts to the right places at the right
times. From KEMET’s Brownsville, Texas, distribution center, finished parts can be delivered
within 72 hours to customer locations anywhere in the world. On-time deliveries are above
99 percent, which leads the industry by far. Our just-in-time logistics systems allow us to
provide the kind of personalized service customers hope for from a local supplier.
KEMET operates a state-of-the-art material handling facility in Amsterdam, Holland,
known as the Euro-Hub. This facility allows us to deliver anywhere in Europe in 48 hours
with real-time tracking and proof of delivery–performance that surpasses even the best
local suppliers. A similar facility in Guadalajara, Mexico, allows us to service the extensive
electronics manufacturing services providers in the region. Local distribution centers in
Hong Kong and Singapore provide world-class service to the Pacific Rim market.
5
GABRIELA GIL
PLANT MANAGER, CIUDAD VICTORIA
Advances in integrated circuits place new demands on capacitors–more capacitance
in smaller packages for portable electronics, lower electrical resistance to extend battery
life, and support for high processing speeds of high-end microprocessors. The fastest
growing types of capacitors are surface-mount because they can survive the rigors of
high-volume, automated printed circuit board assembly. KEMET supplies the world’s most
complete line of surface-mount capacitors.
KEMET manufactures one quarter of the tantalum capacitors consumed in the world
annually. Leading-edge tantalum products include organic tantalums and multiple-anode
tantalums, providing the highest capacitance per volume with the lowest electrical resis-
tance of any capacitors sold. KEMET’s mining joint venture, Tantalum Australia, helps
ensure that we can support our customers’ increasing demands for tantalum capacitors.
KEMET is the fourth largest manufacturer of multilayer ceramic capacitors, a fast-
growing, $6 billion market. A key fiscal 2002 goal is to be at the leading edge of technology
in high-capacitance ceramics, allowing further penetration of the ceramics market.
KEMET has recently introduced innovative solid aluminum capacitors, designed to
support high-end applications that require high capacitance at high frequencies.
6
CHARLES CULBERTSON
CHARLES CULBERTSON
PRESIDENT AND CHIEF OPERATING OFFICER
PRESIDENT AND CHIEF OPERATING OFFICER
KEMET is an eighty-year-old company. Our current business structure is the result
of a 1990 purchase from Union Carbide and a 1992 initial public offering led by David
Maguire, Chairman and CEO. David’s career with KEMET now spans forty-two years and
ten business cycles.
President and COO Charles Culbertson’s twenty-year tenure with KEMET has involved
all aspects of the manufacturing and sales operations. Senior VP and CFO Ray Cash rose
through KEMET/Union Carbide’s accounting and finance ranks over the past thirty years.
Senior VP, Technology and Engineering, Harris Crowley has a diversified background in
manufacturing and technology with KEMET spanning twenty-five years.
KEMET’s culture has resulted in longevity and consistency throughout the top man-
agement team. The average tenure of KEMET’s top ten senior managers is over 20 years.
Electronics is a high-growth, but cyclical, industry. Experience with, and the ability to
manage through, business cycles is a critical core competency at KEMET. Over the last
cycle, extending from the Asian crisis in fiscal 1999 through the industry-wide capacity
shortage in fiscal 2001, KEMET’s net income as a percentage of sales was 15.3%, demon-
strating the strengths of KEMET’s business model and the capabilities of our management
team.
7
DAVID MAGUIRE
DAVID MAGUIRE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Dear Fellow Stockholder:
Fiscal 2001 was the most successful year in KEMET’s history. Financially, we realized
record sales and earnings. Our business model, from our extended plant concept through
our industry-leading global logistics, is tuned to earning the preferred supplier position at
the world’s most successful electronics companies. Our flexibility, reliability, and customer
service set the standard for our industry. Our product development efforts have made sig-
nificant progress toward our goal of being on the leading edge of technology across the
fastest-growing capacitor segments: surface-mount tantalum, multilayer ceramic, and
solid aluminum capacitors. KEMET is poised to take the next leap in the company’s progress
over the next several years.
KEMET’s total sales for FY01 were $1.406 billion, up 71% from $822.1 million in FY00.
Net earnings for FY01 increased to a new record high of $352.3 million, or $4.00 per diluted
share, up from $70.1 million, or $0.85 per diluted share, for the prior year.
While electronics is a high growth, but cyclical, industry and last year saw tremendous
8
success, we have already entered the next
cycle. In my forty-two years with KEMET this is
cycle number ten. They are all somewhat the
same, but each is also different in its own way. I
am impressed by the rapidity with which this
inventory correction has occurred compared to
previous cycles. Rest assured, though, that
this too will pass.
The extraordinary financial results of fiscal
2001 come at the end of a cycle that began with
the Asian crisis in fiscal 1999, which was a very
challenging year. KEMET’s net income as a
percentage of revenue averaged 15.3% over the
thirty-six months from the beginning of fiscal
1999 through the end of fiscal 2001. This per-
formance validates KEMET’s successful busi-
ness model, focused on earning the preferred
supplier position at the world’s most success-
ful electronics firms, as well as the capabilities
of our experienced management team. KEMET
ended fiscal 2001 with $361 million in cash,
$100 million in long-term debt, and $886 million
in stockholders’ equity, the strongest financial
position in the company’s history. We anticipate
using these resources to take advantage of sig-
nificant market opportunities, including high-fre-
quency tantalum, high-capacitance ceramic, and
new solid aluminum capacitors.
While cycles will ebb and flow, I remain very
confident in the long-ter m prospects of the
electronics industry. To remain competitive long
term, KEMET must maintain strong relationships
with our key customers, we must be on the lead-
ing edge of technology in core products, and we
must continually drive production costs down
the learning curve while maintaining near-per-
fect quality and delivery reliability. The expenses
that suppor t this are Selling, General, and
Administrative and Research and Development.
In recent years, we have maintained these
investments at roughly consistent levels regard-
less of where we are in the cycle.
FY1998 FY1999 FY2000 FY2001
(In Millions)
SG&A
R&D
$48.8
$23.8
$46.6
21.1
$48.5
$23.9
$55.7
$26.2
and to have floor space to add equipment lines
as needed to respond to mar ket demands.
“Production capacity” is equipment and other
manufacturing assets that can be added incre-
mentally during the year as market demand dic-
tates. Our willingness to invest in capacity
through the last cycle positioned us to realize
the extraordinar y gains last year during the
upstroke of the cycle.
FY1998 FY1999 FY2000 FY2001
(In Millions)
Production
Capacity
Facilities and
Cost Reduction
$85
$35
$61
$135
$30
$24
$21
$76
An added challenge to the most recent
cycle has been a significant increase in raw
material costs, particularly of tantalum powder
and palladium. In the past year the cost of tan-
talum ore increased dramatically from around
$50 per pound to over $300 per pound. The
capacitor industry responded to this increase
with a par tial cost pass-through to our cus-
tomers. KEMET entered into a tantalum mining
joint venture in Western Australia, known as
Tantalum Australia, establishing an independent
source to assure an adequate supply and to mit-
i g a t e t h e c o s t o f t a n t a l u m . To o f f s e t t h e
increased palladium costs, we have accelerated
our use of base metal electrode technologies,
displacing approximately fifty percent of our pal-
ladium usage.
Over time KEMET has persistently pursued
our vision–to establish a distinctive compe-
tence that differentiates KEMET as the
unquestioned Best-in-Class supplier. With a
high-growth industry, a proven business strate-
gy, an experienced management team, and the
contributions of the 13,900 KEMET employees
worldwide, I remain very bullish on KEMET’s
future.
We also manage capital expenditures for the
long term. “Facilities and cost reduction” capital
expenditures are long-term investments that
maintain KEMET’s ability to be cost competitive
David E. Maguire
Chairman and CEO
10
Management’s Discussion and Analysis of
Results of Operations and Financial Condition
Business Outlook
The fiscal year ended March 31, 2001, was the
most financially successful year in the history of the
Company. The Company’s net income for the year
ended March 31, 2001, of $352.3 million, exceeded
the earnings from all previous periods combined.
The Company also ended the fiscal year in the
strongest financial position in its history with $360.8
million in cash, $100.0 million in long-term debt, and
$ 8 8 6 . 2 m i l l i o n i n s t o c k h o l d e r s ’ e q u i t y . T h e
Company believes this performance validates its
business model as well as the capabilities of its
experienced management team. The Company antic-
ipates using these resources to take advantage of
significant market opportunities, including high-fre-
quency tantalum, high-capacitance ceramic, and
new solid aluminum capacitors. The electronics
industry is a high-growth, cyclical industry. The
extraordinary financial results for the fiscal year
ended March 31, 2001, coincidentally came near the
end of a cycle that began with the Asian crisis in fis-
cal year 1999.
t h e
t h a t
r a p i d i t y w i t h w h i c h
The industry is now in another correction phase
of the long-term growth trend. The Company is of the
t h i s
o p i n i o n
i n v e n t o r y / c a p a c i t y c o r r e c t i o n i s o c c u r r i n g i s
unprecedented compared to previous cycles. The
Company’s near-term visibility is limited because of
t h e g e n e r a l u n c e r t a i n t y i n t h e i n d u s t r y . T h e
Company estimates, given the high level of econom-
ic uncertainty, that revenues for the quarter ending
June 30, 2001, will be down over 40% from the quar-
ter ended March 31, 2001, due to an inventory cor-
rection in the electronics industry. The backlog
entering the quarter ending Jun e 3 0 , 2 00 1, o f
$168.6 million, is less than half that of a year ago.
Selling prices for tantalum capacitors increased sig-
nificantly during the 15 months ended March 31,
2001, due to strong demand and the dramatic rise in
the cost of tantalum ore. The Company expects sell-
ing prices for tantalum capacitors to decline indus-
try-wide during calendar 2001 as demand decreases
due to the inventory correction and shortages in the
world supply of tantalum powder are alleviated. The
Company thinks that the gross margin percentage
for the fiscal year ending March 31, 2002, will aver-
age in the range of 30% to 35%. The Company
believes the quarter ending June 30, 2001, will be
the low point in the correction phase of the current
cycle. In this environment, the Company will contin-
ue to focus its efforts on cost reduction and devel-
opment of new products so it will again be well
positioned to benefit as the industry recovers.
Please refer to the discussion under the caption
"Safe Harbor Statement" below for a discussion of
certain risks and uncertainties relating to the state-
ments made above.
During fiscal year 2001, the Company entered into
a 50/50 joint venture agreement with Australasian
Gold Mines NL (“AGM”) to establish an independent
source of tantalum to meet the increasing demand
for tantalum capacitors from key customers. This
transaction closed in April 2001. The Company’s ini-
tial investment in the joint venture is approximately
$4.9 million. The Company also acquired a 10 per-
cent interest in AGM for approximately $2.3 million.
The Company has the right to acquire all processed
tantalum products from the initial production plant,
which began operations in the March quarter, and
from any future processing operations. These tanta-
lum products are expected to be toll converted into
tantalum powder necessary for the production of
capacitors. The Company anticipates that current
mining operations will initially provide up to 15% of
its annual tantalum requirements.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
11
Comparison of Fiscal Year 2001 to Fiscal
Year 2000
Net sales for fiscal year 2001 were $1,406.1 mil-
lion, which represented a 71% increase from fiscal
year 2000 net sales of $822.1 million. The increase
in net sales was attributed to the strong growth in
demand for electronic products such as computers
and peripherals, cell phones, and automotive elec-
tronic systems. Average selling prices continued an
upward trend that began in the prior fiscal year. Unit
volumes increased approximately 15% to 36.1 bil-
lion units in fiscal year 2001, from 31.5 billion units
in fiscal year 2000. The Company experienced
growth in both domestic and export markets as
domestic sales increased 57% and export sales
increased 85%.
Cost of sales, exclusive of depreciation, for the
year ended March 31, 2001, was $693.7 million as
compared to $569.7 million for the year ended
March 31, 2000. As a percentage of net sales, cost
of sales, exclusive of depreciation, for fiscal year
2001 was 49% as compared to 69% for fiscal year
2000. The decrease in cost of sales as a percentage
of net sales was attributed to higher average selling
prices during fiscal year 2001, gains from manufac-
turing efficiencies due to higher unit volume, and
the results of the Company’s cost reduction pro-
grams such as reduced palladium usage in ceramic
capacitors.
Selling, general, and administrative expenses for
the year ended March 31, 2001, were $55.7 million,
or 4% of net sales, as compared to $48.5 million, or
6% of net sales, for the year ended March 31, 2000.
The decrease in selling, general, and administrative
expenses as a percentage of sales is primarily due
to the impact of higher sales volume and increased
average selling prices.
Research, development, and engineering expenses
were $26.2 million for fiscal year 2001, compared to
$23.9 million for fiscal year 2000. These costs reflect
the Company’s continuing commitment to the devel-
opment and introduction of new products, such as
aluminum capacitors, along with the improvement
of product performance and production efficiencies.
Depreciation and amortization for fiscal year 2001
was $63.6 million, an increase of $7.9 million, or
14%, from $55.7 million for fiscal year 2000. The
i n c r e a s e r e s u l t e d p r i m a r i l y f r o m d e p r e c i a t i o n
expense associated with increased capital expendi-
tures during the current and prior fiscal years.
Operating income was $567.0 million for fiscal
year 2001, compared to $124.3 million for fiscal year
2000. The increase in operating income resulted pri-
marily from the increase in net sales and improve-
ments in cost of sales as discussed above.
Income tax expense for fiscal year 2001 was 38%
of net earnings before income taxes. Both federal
and state taxes increased over fiscal year 2000 as
loss carryforwards and credits were not available in
fiscal year 2001 to the extent they were available in
the prior fiscal year.
12
Management’s Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
Research, development, and engineering expens-
es were $23.9 million for fiscal year 2000, compared
to $21.1 million for fiscal year 1999. These costs
reflect the Company’s continuing commitment to
the development and introduction of new products,
along with the improvement of product performance
and production efficiencies.
Depreciation and amortization for fiscal year 2000
was $55.7 million, an increase of $8.8 million, or
19%, from $46.9 million for fiscal year 1999. The
i n c r e a s e r e s u l t e d p r i m a r i l y f r o m d e p r e c i a t i o n
expense associated with increased capital expendi-
tures during the current and prior fiscal years.
Operating income was $124.3 million for fiscal
year 2000, compared to $22.6 million for fiscal year
1999. The increase in operating income resulted pri-
marily from the increase in net sales and improve-
ments in cost of sales as discussed above.
Income tax expense for fiscal year 2000 was 34%
of net earnings before income taxes. The decrease
from the federal statutory rate of 35% is primarily
the result of increased foreign sales corporation
benefits and lower state tax expense.
Comparison of Fiscal Year 2000 to Fiscal
Year 1999
Net sales for fiscal year 2000 were $822.1 million,
which represents a 45% increase from fiscal year
1999 net sales of $565.6 million. The increase in net
sales was attributed to the strong growth in demand
for electronic products such as computers and
peripherals, cell phones, and automotive electrical
systems. This growth in demand led to increased
unit volume and an improvement in the pricing envi-
ronment as average selling prices increased from
their previously depressed levels. Demand for sur-
face-mount capacitors contributed to the growth as
net sales increased 55% to $711.0 million for fiscal
year 2000. The Company experienced growth in
both domestic and export markets as domestic
sales increased 39% and export sales increased
52%, partially due to the recovery of the Asian econ-
omy.
Cost of sales, exclusive of depreciation, for the
year ended March 31, 2000, was $569.7 million as
compared to $428.4 million for the year ended
March 31, 1999. As a percentage of net sales, cost
of sales, exclusive of depreciation, for fiscal year
2000 was 69% as compared to 76% for fiscal year
1999. The decrease in cost of sales as a percentage
of net sales was attributed to higher sales in fiscal
year 2000, gains from manufacturing efficiencies
due to higher unit volume, and the results of the
C o m p a n y ’ s c o s t r e d u c t i o n p r o g r a m s s u c h a s
reduced palladium usage in ceramic capacitors.
Selling, general, and administrative expenses for
the year ended March 31, 2000, were $48.5 million,
or 6% of net sales, compared to $46.6 million, or 8%
of net sales, for the year ended March 31, 1999. The
decrease in selling, general, and administrative
expenses as a percentage of sales is primarily due
to the impact of higher sales volume and increased
average selling prices.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
13
Quarterly Results of Operations
The following table sets forth certain quarterly information for the years ended March 31, 2001 and 2000.
This information is unaudited but, in the opinion of the Company’s management, reflects all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly this information when read in
conjunction with the Consolidated Financial Statements and notes thereto included elsewhere herein.
Dollars in Thousands (except per share data)
Net sales
Gross profit (exclusive of depreciation) (1)
Net earnings
Net earnings per common share (basic)
Net earnings per common share (diluted)
Fiscal year ended March 31, 2001
First
Quarter
$329,169
$159,333
$80,235
$0.92
$0.90
Second
Quarter
$364,049
$187,875
$96,264
$1.10
$1.08
Third
Quarter
$374,930
$194,011
$97,403
$1.11
$1.10
Fourth
Quarter
Total
$337,999
$1,406,147
$171,269
$78,444
$0.91
$0.90
$712,488
$352,346
$4.05
$4.00
Weighted average shares outstanding (basic)
87,324,021
87,414,074
87,416,454
86,362,252
86,930,965
Weighted average shares outstanding (diluted)
88,915,974
88,804,300
88,678,409
87,414,105
88,181,118
Dollars in Thousands (except per share data)
Net sales
Gross profit (exclusive of depreciation) (1)
Net earnings
Net earnings per common share (basic)
Net earnings per common share (diluted)
Fiscal year ended March 31, 2000
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$162,649
$186,187
$215,139
$258,120
$39,665
$4,694
$0.06
$0.06
$49,794
$9,199
$0.12
$0.11
$65,501
$18,160
$0.23
$0.22
$97,429
$38,066
$0.44
$0.44
Total
$822,095
$252,389
$70,119
$0.87
$0.85
Weighted average shares outstanding (basic)
78,571,116
78,822,996
79,713,170
85,554,814
80,650,376
Weighted average shares outstanding (diluted)
79,778,122
80,614,798
81,199,048
87,379,088
82,411,634
(1) Gross profit (exclusive of depreciation) as a percentage of net sales fluctuates from quarter to quarter due to a num-
ber of factors, including net sales fluctuations, product mix, the timing and expense of moving product lines to lower
cost locations, and the relative mix of sales between distributors and original equipment manufacturers.
14
Management’s Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
Liquidity and Capital Resources
The Company’s liquidity needs arise from working
capital requirements, capital expenditures, and prin-
cipal and interest payments on its indebtedness.
The Company intends to satisfy its liquidity require-
ments primarily with funds provided by operations
and borrowings under its bank credit facilities.
During fiscal year 2001, the Company generated
$385.5 million in net cash from operating activities
as compared to $177.7 million in fiscal year 2000. In
turn, this led to a significant increase in cash and
s h o r t - t e r m i n v e s t m e n t s t o $ 3 6 0 . 8 m i l l i o n f r o m
$199.4 million at March 31, 2001 and 2000, respec-
tively. The increase in cash flow from operating
activities was primarily a result of the increase in
net income and, to a lesser extent, the timing of
cash flows from current assets and liabilities, such
as accounts receivable, inventory, accounts payable,
accrued liabilities, and income taxes payable.
Inventories increased to $202.3 million at March
31, 2001, from $131.0 million at March 31, 2000, due
to an increase in units as well as higher raw material
prices. Current liabilities increased to $285.1 million
at March 31, 2001, versus $189.1 million at March 31,
2000, commensurate with the increase in business
activity in fiscal year 2001 versus fiscal year 2000.
The Company invested $210.6 million in capital
expenditures in fiscal year 2001 versus $82.0 million
in fiscal year 2000, and expects to invest approxi-
mately $100.0 to $150.0 million in fiscal year 2002.
The fiscal year 2001 capital was primarily invested
in surface-mount manufacturing capacity as the
Company expects continued future growth in capac-
itor demand.
The Company is subject to restrictive covenants
which, among others, restrict its ability to make
loans or advances or to make investments, and
require it to meet financial tests related principally
to funded debt, cash flows, and net worth. At March
31, 2001, the Company was in compliance with such
covenants. Borrowings are secured by guarantees
of certain of the Company’s wholly-owned sub-
sidiaries.
During fiscal year 2000, the Company’s long-term
debt decreased $44.0 million, as the Company
reduced its indebtedness with the proceeds from
the January 2000 Secondary Offering. At March 31,
2001, the Company had unused availability under its
revolving credit facility and its swingline credit facili-
ty, both of which expire in October 2002, of $150.0
million and $10.0 million, respectively.
On January 20, 2000, the Company sold 6,500,000
shares of its common stock in a public offering for
$142.6 million in net cash proceeds after deducting
underwriting fees and offering expenses. Included
in the offering were 2,193,220 shares sold by a
stockholder of the Company which were shares of
non-voting common stock that were converted into
common stock on a share-for-share basis. The net
proceeds were used to repay outstanding debt
under the Company’s short-term credit facility and
to fund capital expenditures.
In August 2000, the Company announced that its
Board of Directors had authorized a program to pur-
chase up to 4.0 million shares of its common stock
in the open market. As of March 31, 2001, the
Company had made direct purchases of 1.6 million
shares for $29.3 million and had outstanding put
option obligations for 1.9 million shares with an
average exercise price of $18.31 under the program.
The program was fulfilled in April 2001, at which
time the Company announced that its Board of
Directors had authorized a second 4.0 million stock
purchase program. The amount and timing of pur-
chases will depend on market conditions and other
factors. The program will be funded from existing
cash, and a combination of direct purchases and
put options may be used to execute the program.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
15
Additional liquidity is generated by the Company
t h r o u g h i t s a c c o u n t s r e c e i v a b l e d i s c o u n t i n g
arrangements. For the past several years, KEMET
Electronics, S.A., a wholly-owned subsidiary of the
Company, has been a party to accounts receivable
discounting agreements with both Swiss Bank
Corporation and Union Bank of Switzerland. As a
result of the merger of these two entities in 1998,
KEMET Electronics, S.A., entered into a single
replacement discounting agreement with UBS AG
on November 19, 1998, which allows for the sale of
up to $80.0 million of accounts receivable at any
one time outstanding at a discount rate of .60%
above LIBOR.
In May 1998, the Company sold $100.0 million of
its Senior Notes pursuant to the terms of a Note
Purchase Agreement dated as of May 1, 1998,
between the Company and the eleven purchasers of
the Senior Notes named therein. These Senior
Notes have a final maturity date of May 4, 2010, with
required principal repayments beginning on May 4,
2006. The Senior Notes bear interest at a fixed rate
of 6.66%, with interest payable semiannually begin-
ning November 4, 1998. The terms of the Note
Purchase Agreement include various restrictive
covenants typical of transactions of this type, and
require the Company to meet certain financial tests
including a minimum net worth test and a maximum
ratio of debt to total capitalization. The net pro-
ceeds from the sale of the Senior Notes were used
to repay existing indebtedness and for general cor-
porate purposes.
The Company presently has a total of eight manu-
facturing facilities in Matamoros, Monterrey, and
Ciudad Victoria, Mexico, with over 60% of the
Company’s employees located there. In fiscal year
2001, the volatility of the Mexican peso did not have
a material impact on the Company’s performance.
As discussed in Note 12 to the Consolidated
Financial Statements, the Company or its sub-
sidiaries are at any one time parties to a number of
lawsuits arising out of their respective operations,
including workers’ compensation or work place safe-
ty cases and environmental issues, some of which
involve claims of substantial damages. Although
there can be no assurance, based upon information
known to the Company, the Company does not
believe that any liability which might result from an
adverse determination of such lawsuits would have
a material adverse effect on the Company.
The Company believes its strong financial posi-
tion will permit the financing of its business needs
and opportunities. It is anticipated that ongoing
operations will be financed primarily by internally
generated funds. In addition, the Company has the
flexibility to meet short-term working capital and
other temporary requirements through utilization of
borrowings under its bank credit facilities.
Adoption of Accounting Standards
Effective October 1, 2000, the Company adopted
S F A S N o . 1 3 3 ,
f o r D e r i v a t i v e
“ A c c o u n t i n g
Instruments and Hedging Activities,” as amended
by SFAS No.138.
SFAS No.133 establishes accounting and report-
ing standards for derivative instruments, including
certain derivative instruments embedded in other
contracts and hedging activities. It requires the
recognition of all derivative instruments as either
assets or liabilities in the consolidated balance
sheet and measurement of those instruments at fair
value. The accounting treatment of changes in fair
value is dependent upon whether or not a derivative
instrument is designated as a hedge and, if so, the
type of hedge. For derivatives designated as cash
flow hedges, to the extent effective, changes in fair
value are recognized in accumulated other compre-
hensive income (“AOCI”) until the hedged item is
16
Management’s Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
recognized in earnings. Ineffectiveness is recog-
nized immediately in earnings. For derivatives des-
ignated as fair value hedges, changes in fair value
are recognized in earnings.
Prior to adoption of SFAS No.133, the Company
recorded gains and losses related to the hedges of
forecasted foreign currency transactions directly to
earnings (“Other income and expense”), and gains
and losses related to hedges of firm commitments
were deferred and recognized in earnings as adjust-
ments of carrying amounts when the transactions
occurred.
The adoption of SFAS No.133 did not result in a
significant transition adjustment and is therefore
not separately captioned in the statement of earn-
ings as cumulative effect of a change in accounting
principle. The transition adjustment as of October 1,
2000, was a gain of approximately $0.9 million net of
tax, and is included in cost of goods sold for the
period.
T h e C o m p a n y a d o p t e d t h e S e c u r i t i e s a n d
Exchange Commission’s Staff Accounting Bulletin
No.101 (the “SAB”) effective January 1, 2001. The
SAB requires that a company recognize revenue
only when all of the following criteria are met: (1)
Persuasive evidence of an arrangement exists; (2)
Delivery has occurred or services have been ren-
dered; (3) The seller’s price to the buyer is fixed or
determinable; and (4) Collectibility is reasonably
assured. Upon adoption of the SAB, there was no
impact on the Company’s results of operations or
financial condition.
Safe Harbor Statement
This Annual Report on Form 10-K contains for-
ward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934,
as amended. The Company intends that these for-
ward-looking statements be subject to the safe har-
bor created by that provision. These forward look-
i n g statements involve risks and uncertainties
beyond the Company’s control. The inclusion of
t h i s forward-looking information should not be
regarded as a representation by the Company that
the future events, plans, or expectations contemplat-
ed by the Company will be achieved. Furthermore,
past performance in operations and share price is
not necessarily predictive of future performance.
Finally, the Company cannot assume responsibility
for certain information that is based upon market
estimates.
The Company wishes to caution readers that the
following important factors, among others, in some
cases have affected, and in the future could affect,
KEMET’s actual results and could cause KEMET’s
actual consolidated results for the first quarter of
fiscal year 2002 and beyond to differ materially from
those expressed in any forward-looking statements
made by, or on behalf of, the Company whether
contained herein, in other documents subsequently
filed by the Company with the SEC, or in oral state-
ments:
A moderating growth rate in end-use products
which incorporate the Company’s products and the
effects of a downturn in the general economy or in
general business conditions;
Underutilization of KEMET’s plants and factories,
or of any plant expansion or new plant, including,
but not limited to, those in Mexico, resulting in pro-
duction inefficiencies and higher costs; start-up
expenses, inefficiencies, delays, and increased
depreciation costs in connection with the start of
production in new plants and expansions; capacity
constraints that could limit the ability to continue to
meet rising demand for surface-mount capacitors;
O c c u r r e n c e s a f f e c t i n g t h e s l o p e o r s p e e d o f
decline of the pricing curve for the Company’s prod-
ucts, or affecting KEMET’s ability to reduce product
Management’s Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
17
and other costs and to increase productivity; the
effect of changes in the mix of products sold and
the resulting effects on gross margins;
Difficulties in obtaining raw materials, supplies,
power, natural resources, and any other items need-
ed for the production of capacitors; the effects of
quality deviations in raw materials, particularly tanta-
lum powder and ceramic dielectric materials; the
effects of significant price increases for tantalum or
palladium, or an inability to obtain adequate supplies
of tantalum from the limited number of suppliers;
The amount and rate of growth in the Company’s
selling, general, and administrative expenses, and
the impact of unusual items resulting from KEMET’s
ongoing evaluation of its business strategies, asset
valuations, and organizational structure;
The acquisition of fixed assets and other assets,
including inventories and receivables; the making
or incurring of any expenditures and expenses,
i n c l u d i n g , b u t n o t l i m i t e d t o , d e p r e c i a t i o n a n d
research and development expenses; any revalua-
tion of assets or related expenses; and the amount
of and any changes to tax rates;
The effect of any changes in trade, monetary, and
fiscal policies, laws, and regulations; other activities
of governments, agencies, and similar organiza-
tions; social and economic conditions, such as
trade restrictions or prohibitions, inflation, and
monetary fluctuations; import and other charges or
taxes; the ability or inability of KEMET to obtain, or
hedge against, foreign currency; foreign exchange
rates and fluctuations in those rates, particularly a
strengthening of the U.S. dollar; nationalization;
unstable governments and legal systems; intergov-
ernmental disputes; the costs and other effects of
legal and administrative cases and proceedings
(whether civil, such as environmental and product-
related, or criminal); settlements, investigations,
claims, and changes in those items; developments
or assertions by or against the Company relating to
intellectual property rights and intellectual property
licenses; adoptions of new or changes in account-
ing policies and practices and the application of
such policies and practices; the effects of changes
within KEMET’s organization, particularly at the
executive officer level, or in compensation and ben-
efit plans; the amount, type, and cost of the financ-
ing which the Company has and any changes to that
financing; the effects of severe weather on KEMET’s
operations, including disruptions at manufacturing
facilities; the effects of a disruption in KEMET’s
computerized ordering systems; and the effects of a
disruption in KEMET’s communications systems.
Effect of Inflation
I n f l a t i o n g e n e r a l l y a f f e c t s t h e C o m p a n y b y
increasing the cost of labor, equipment, and raw
materials. The Company does not believe that infla-
tion has had any material effect on the Company’s
business over the past three years.
Quantitative and Qualitative Disclosure
About Market Risk
Interest Rate Risk
T h e C o m p a n y ’ s d e b t f i n a n c i n g a l t e r n a t i v e s
include a revolving credit agreement which is priced
on a floating rate basis at a spread over U.S. dollar
LIBOR. Accordingly, any movement in U.S. dollar
L I B O R w o u l d i m p a c t t h e C o m p a n y ’ s i n t e r e s t
expense, except for the fact that the outstanding
balance under this facility at March 31, 2001, was $0.
The Company has not historically used interest rate
swaps, interest rate caps, or other derivative finan-
cial instruments for the purpose of hedging fluctua-
tions in interest rates on its floating rate debt.
18
Management’s Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
Foreign Currency Exchange Rate Risk
A portion of the Company’s sales to its customers
in Europe are denominated in local European cur-
rencies, thereby creating an exposure to foreign
currency exchange rate risk. Also, a portion of the
C o m p a n y ’ s c o s t i n i t s M e x i c a n o p e r a t i o n s i s
denominated in Mexican pesos, creating an expo-
sure to exchange rate risk. In order to minimize its
exposure to such risk, the Company will periodically
enter into forward foreign exchange contracts in
w h i c h t h e n e t l o n g o r s h o r t p o s i t i o n i n a l o c a l
E u r o p e a n c u r r e n c y o r M e x i c o p e s o i s h e d g e d
against the U.S. dollar.
The impact of changes in the relationship of other
currencies to the U.S. dollar has historically not
been significant, and such changes in the future are
not expected to have a material impact on the
Company’s results of operations or cash flows. The
Company does not use derivative financial instru-
ments for speculative purposes or if there is no
underlying business transaction supporting or relat-
ed to the derivative financial instrument.
Commodity Price Risk
The Company purchases various precious metals
used in the manufacture of capacitors and is there-
fore exposed to certain commodity price risks.
These precious metals consist primarily of palladium
and tantalum.
Palladium is a precious metal used in the manu-
facture of multilayer ceramic capacitors and is
m i n e d p r i m a r i l y i n R u s s i a a n d S o u t h A f r i c a .
Currently, the Company uses forward contracts and
spot buys to secure the acquisition of palladium
and manage the price volatility in the market. There
has been a dramatic increase in the price of palladi-
um attributed to delays from the Russian supply of
the metal which has caused the price to fluctuate
between $554 and $1,090 per troy ounce during fis-
cal year 2001. As a result, the Company is aggres-
sively pursuing ways to reduce palladium usage in
ceramic capacitors and minimize the price risk.
Tantalum powder is a metal used in the manufac-
ture of tantalum capacitors and is primarily purchased
under annual contracts. Management believes the
tantalum needed has generally been available in suf-
ficient quantities to meet manufacturing requirements.
However, the increase in demand for tantalum
capacitors during fiscal year 2001, along with the
limited number of tantalum powder suppliers, led to
increases in tantalum prices and impacted availabili-
ty. Tight supplies of tantalum raw material and some
tantalum powders caused the price to increase from
under $50 per pound early in calendar 2000 to over
$300 per pound late in the year. The Company was
able to pass price increases to its customers due to
the strong demand for capacitors but may not be
able to do so in the future. Although the price of tan-
talum is down from its peak, the Company is explor-
ing various alternative sources of supply to ensure a
supply of tantalum at reasonable prices.
Independent Auditors’ Report
19
The Board of Directors
KEMET Corporation:
We have audited the accompanying consolidated balance sheets of KEMET Corporation
and subsidiaries as of March 31, 2001 and 2000, and the related consolidated statements
of earnings, stockholders’ equity and comprehensive income, and cash flows for each of
the years in the three-year period ended March 31, 2001. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence suppor ting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of KEMET Corporation and subsidiaries as of
March 31, 2001 and 2000, and the results of their operations and their cash flows for each
of the years in the three-year period ended March 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
Greenville, South Carolina
April 27, 2001
20
KEMET Corporation and Subsidiaries
Consolidated Balance Sheets
Dollars in Thousands Except per Share Data
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments (note 15)
Accounts receivable, net (notes 10 and 11)
Inventories:
Raw materials and supplies
Work in process
Finished goods
Total inventories
Prepaid expenses and other current assets (note 15)
Deferred income taxes (note 7)
Total current assets
Property and equipment, net (note 11)
Intangible assets, net (note 2)
Other assets
March 31,
2001
2000
$ 360,758
-
96,583
79,002
81,975
41,300
202,277
50,493
35,018
745,129
567,262
44,027
10,112
$ 75,735
123,687
94,127
53,532
58,220
19,207
130,959
4,688
20,099
449,295
423,399
46,198
8,364
Total assets
$1,366,530
$927,256
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade (note 10)
Accrued expenses (notes 11)
Income taxes payable
Total current liabilities
Long-term debt, excluding current installments (note 3)
Other non-current obligations (note 4)
Deferred income taxes (note 7)
Total liabilities
Stockholders' equity (notes 8, 13 and 16):
Common stock, par value $.01, authorized 300,000,000 shares,
issued 87,619,517 and 87,025,908 shares
at March 31, 2001 and 2000, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost (1,600,040 shares at March 31, 2001)
Total stockholders' equity
$ 201,767
49,229
34,078
285,074
100,000
51,084
44,196
480,354
876
322,068
590,192
2,355
(29,315)
886,176
$123,708
42,045
23,388
189,141
100,000
54,757
35,902
379,800
870
308,724
237,846
16
-
547,456
Contingencies and commitments (notes 10 and 12)
Total liabilities and stockholders' equity
$1,366,530
$927,256
See accompanying notes to consolidated financial statements.
KEMET Corporation and Subsidiaries
Consolidated Statement of Earnings
21
Dollars in Thousands Except per Share Data
2001
2000
1999
Years ended March 31,
Net sales
Operating costs and expenses:
Cost of goods sold, exclusive of depreciation
Selling, general and administrative expenses
Research and development
Depreciation and amortization
$1,406,147
$822,095
$565,569
693,659
55,713
26,188
63,601
569,706
48,457
23,918
55,699
428,409
46,552
21,132
46,872
Total operating costs and expenses
839,161
697,780
542,965
Operating income
Other income and expense:
Interest income
Interest expense
Other (note 11)
Earnings before income taxes
Income tax expense (note 7)
566,986
124,315
22,604
(16,713)
7,507
7,892
568,300
215,954
(2,079)
9,135
11,695
105,564
35,445
-
9,287
4,273
9,044
2,894
Net earnings
$ 352,346
$ 70,119
$ 6,150
Net earnings per share (notes 13, 14 and 16):
Basic
Diluted
$4.05
$4.00
$0.87
$0.85
$0.08
$0.08
Weighted-average shares outstanding:
Basic
Diluted
86,930,965
88,181,118
80,650,376
82,411,634
78,441,440
79,027,860
See accompanying notes to consolidated financial statements.
22
KEMET Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
and Comprehensive Income
Dollars in Thousands
Balance at March 31, 1998
Comprehensive income:
Net earnings
Foreign currency translation gain
Total comprehensive income
Exercise of stock options (note 8)
Tax benefit on exercise of stock options
Balance at March 31, 1999
Comprehensive income:
Net earnings
Foreign currency translation loss
Total comprehensive income
Purchases of stock by Employee Savings Plan
135,322
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Retained
Earnings
Comprehensive Treasury
Income
Stock
78,321,358 $783
$143,908
$161,577
$ (8)
-
-
53,120
-
-
-
-
-
2
-
-
164
72
946
6,150
-
-
-
-
-
80
-
-
-
78,509,800
785
145,090
167,727
72
-
-
-
-
-
-
Exercise of stock options (note 8)
1,944,260
20
11,052
Tax benefit on exercise of stock options
-
Purchases of stock by Employee Savings Plan
71,848
-
-
9,315
724
Secondary offering (note 16)
6,500,000
65
142,543
87,025,908
870
308,724
237,846
Balance at March 31, 2000
Comprehensive income:
Net earnings
Unrealized gain on foreign exchange contracts,
net of tax $1,398
Foreign currency translation loss
Total comprehensive income
Exercise of stock options (note 8)
Tax benefit on exercise of stock options
-
-
-
549,720
-
Purchases of stock by Employee Savings Plan
43,889
Put options proceeds (note 13)
-
Treasury stock purchases (note 16)
(1,600,040)
-
-
-
5
-
1
-
-
-
-
-
3,204
4,325
1,094
4,721
-
352,346
-
-
-
-
-
-
-
70,119
-
-
-
-
-
-
(56)
-
-
-
-
16
-
2,594
(255)
-
-
-
-
-
Total
Stockholders’
Equity
$306,260
6,150
80
6,230
164
72
948
313,674
70,119
(56)
70,063
11,072
9,315
724
142,608
547,456
352,346
2,594
(255)
354,685
3,209
4,325
1,095
4,721
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(29,315)
(29,315)
Balance at March 31, 2001
86,019,477 $876
$322,068
$590,192 $2,355
$(29,315)
$886,176
See accompanying notes to consolidated financial statements.
KEMET Corporation and Subsidiaries
Consolidated Statements of Cash Flows
23
Dollars in Thousands
Sources (uses) of cash:
Operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash from
operating activities:
Depreciation and amortization
Postretirement and unfunded pension
Loss on sale and disposal of equipment
Deferred income taxes
Changes in other non-current assets and liabilities
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable, trade
Accrued expenses and income taxes
Net cash from operating activities
Investing activities:
Purchase of short-term investments
Proceeds from maturity of short-term investments
Additions to property and equipment
Other
Net cash used by investing activities
Financing activities:
Proceeds from sale of common stock to Employee Savings Plan
Proceeds from exercise of stock options including related tax benefit
Proceeds from secondary offering
Proceeds from put options (note 13)
Purchases of treasury stock
Net proceeds from (payments to) revolving loan and demand note
Issuance of senior notes, net of debt issue costs
Net cash provided by financing activities
Net increase (decrease) in cash
Cash and cash equivalents at beginning of period
Years ended March 31,
2000
2001
1999
$ 352,346
$ 70,119
$ 6,150
63,601
(3,662)
5,266
(6,625)
(1,759)
(2,456)
(71,318)
(45,805)
78,059
17,874
385,521
(202,354)
326,041
(210,559)
2,339
(84,533)
1,095
7,534
-
4,721
(29,315)
-
-
(15,965)
285,023
75,735
55,699
(14,586)
11,579
2,931
(2,950)
(38,025)
(5,140)
(55)
58,958
39,187
177,717
(123,687)
-
(82,009)
81
(205,615)
724
20,387
142,608
-
-
(64,000)
-
99,719
71,821
3,914
46,872
(236)
985
9,997
(782)
4,256
(11,136)
(36)
(23,961)
(11,292)
20,817
-
-
( 59,047)
( 197)
( 59,244)
947
236
-
-
-
(60,000)
99,357
40,540
2,113
1,801
Cash and cash equivalents at end of period
$ 360,758
$ 75,735
$ 3,914
Supplemental Cash Flow Statement Information:
Interest paid
Income taxes paid
See accompanying notes to consolidated financial statements.
$7,361
$ 209,186
$ 9,477
$ 7,179
$ 7,730
$ 3,065
24
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
Note 1: Organization and Significant Accounting Policies
Nature of Business and Organization: KEMET
C o r p o r a t i o n a n d s u b s i d i a r i e s ( “ K E M E T ” o r t h e
“Company”) is the world’s largest manufacturer of
solid tantalum capacitors, the fourth largest manufac-
turer of multilayer ceramic capacitors, and a leader
in the development of solid aluminum capacitors.
The Company is headquartered in Greenville, South
Carolina, and has thirteen manufacturing plants
located in South Carolina, North Carolina, and
Mexico. Additionally, the Company has wholly-
owned foreign subsidiaries which primarily sell
KEMET’s products in foreign markets.
Principles of Consolidation: The accompanying
consolidated financial statements of the Company
i n c l u d e t h e a c c o u n t s o f i t s w h o l l y - o w n e d s u b -
sidiaries. Intercompany balances and transactions
have been eliminated in consolidation.
Cash Equivalents: Cash equivalents consist of
direct obligations of U.S. government agencies and
investment-grade commercial paper with an initial
term of less than three months. For purposes of the
statements of cash flows, the Company considers
all highly liquid debt instruments with original matu-
rities of three months or less to be cash equivalents.
Short-Term Investments: Short-term investments
consist of direct obligations of U.S. government
agencies and investment-grade commercial paper
w i t h o r i g i n a l m a t u r i t i e s o f g r e a t e r t h a n t h r e e
months, but less than one year. These investments
are considered to be held-to-maturity and are there-
fore stated at cost that approximates market value.
Derivative Financial Instruments: Derivative finan-
cial
instruments are utilized by the Company to
reduce exposures to volatility of foreign currencies
and commodities impacting the cost of its products.
The Company does not enter into financial instru-
ments for trading or speculative purposes. Effective
O c t o b e r 1 , 2 0 0 0 , t h e C o m p a n y a d o p t e d S F A S
No.133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No.138.
SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including cer-
tain derivative instruments embedded in other con-
t r a c t s a n d h e d g i n g a c t i v i t i e s . I t r e q u i r e s t h e
recognition of all derivative instruments as either
assets or liabilities in the consolidated balance
sheet and measurement of those instruments at fair
value. The accounting treatment of changes in fair
value is dependent upon whether or not a derivative
instrument is designated as a hedge and, if so, the
type of hedge. For derivatives designated as cash
flow hedges, to the extent effective, changes in fair
value are recognized in accumulated other compre-
hensive income until the hedged item is recognized
in earnings. Ineffectiveness is recognized immedi-
ately in earnings. For derivatives designated as fair
value hedges, changes in fair value are recognized
in earnings. Prior to adoption of SFAS No.133, the
Company recorded gains and losses related to the
hedges of forecasted foreign currency transactions
directly to earnings ("Other income and expense"),
and gains and losses related to hedges of firm com-
mitments were deferred and recognized in earnings
as adjustments of carrying amounts when the trans-
actions occurred. The adoption of SFAS No. 133 did
not result in a significant transition adjustment and is
therefore not separately captioned in the statement
of earnings as cumulative effect of a change in
accounting principle. The transition adjustment as of
October 1, 2000, was a gain of approximately $0.9
million net of tax, and is included in cost of goods
sold for the period.
Inventories: Inventories are stated at the lower of
cost or market. These costs do not include depreci-
ation or amortization, the impact of which is not
material to the consolidated financial statements.
The cost of most inventories is determined by the
“first-in, first-out”(FIFO) method. Approximately 7%
and 6% of inventory costs of certain raw materials
at March 31, 2001 and 2000, respectively, have been
determined on the “last-in, first-out”(LIFO) basis. It
is estimated that if all inventories had been costed
using the FIFO method, they would have been
approximately $902 and $854 higher than reported
at March 31, 2001 and 2000, respectively.
Property and Equipment: Property and equipment
are carried at cost. Depreciation is calculated princi-
pally using the straight-line method over the esti-
m a t e d u s e f u l l i v e s o f t h e r e s p e c t i v e a s s e t s .
Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated
useful lives of the assets or the terms of the respec-
tive leases. Expenditures for maintenance are
expensed; expenditures for renewals and improve-
ments are generally capitalized. Upon sale or retire-
ment of property and equipment, the related cost
and accumulated depreciation are removed and any
gain or loss is recognized. Reviews are regularly
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
25
performed to determine whether facts and circum-
s t a n c e s e x i s t w h i c h i n d i c a t e t h a t t h e c a r r y i n g
amount of assets may not be recoverable. The
Company assesses the recoverability of its assets
by comparing the projected undiscounted net cash
flows associated with the related asset or group of
assets over their remaining life against their respec-
tive carrying amounts. Impairment, if any, is based
on the excess of the carrying amount over the fair
value of those assets.
Intangible Assets: Patents and technology are
amortized using the straight-line method over twen-
ty-five years. Goodwill and trademarks are amor-
t i z e d u s i n g t h e s t r a i g h t - l i n e m e t h o d o v e r a
forty-year period. The Company assesses the recov-
erability of its intangible assets by determining
whether the amortization of the intangible’s balance
over its remaining life can be recovered through
undiscounted future operating cash flows of the
acquired assets. The amount of intangible impair-
ment, if any, is measured based on projected dis-
c o u n t e d
f l o w s . T h e
assessment of the recoverability of intangibles will
be impacted if estimated future operating cash
flows are not achieved.
f u t u r e o p e r a t i n g c a s h
Other Assets: Other assets consist principally of
the cash surrender value of life insurance policies.
Deferred Income Taxes: I n c o m e t a x e s a r e
accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differ-
ences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabili-
ties are measured using enacted tax rates expected
to apply to taxable income in the years in which
those temporary differences are expected to be
recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is rec-
ognized in income in the period that includes the
enactment date.
Stock-based Compensation: T h e C o m p a n y
a p p l i e s t h e i n t r i n s i c v a l u e - b a s e d m e t h o d o f
accounting prescribed by Accounting Principles
Board Opinion No.25, “Accounting for Stock Issued
to Employees,” and its related interpretations in
accounting for stock options. As such, compensation
expense would be recorded on the date of grant
only if the current market price of the underlying
stock exceeded the exercise price. The Company
has elected the “disclosure only” provisions of
S F A S N o . 1 2 3 , “ A c c o u n t i n g f o r S t o c k B a s e d
Compensation,” which provide pro forma disclosure
of earnings as if stock compensation were recog-
nized on the fair value basis.
Concentrations of Credit Risk: The Company sells
to customers located throughout the United States
and the world. Credit evaluations of its customers’
financial conditions are performed periodically, and
the Company generally does not require collateral
from its customers.
Foreign Operations: Financial statements of the
Company’s Mexican operations are prepared using
the U.S. dollar as its functional currency. Translation
of the Mexican operations, as well as gains and
losses from non-U.S. dollar foreign currency trans-
actions, such as those resulting from the settlement
of foreign receivables or payables, are reported in
t h e C o n s o l i d a t e d S t a t e m e n t s o f E a r n i n g s .
Translation of other foreign operations to U.S. dol-
lars occurs using the current exchange rate for bal-
ance sheet accounts and an average exchange rate
for results of operations. Such translation gains or
losses are recognized as a component of equity in
“Accumulated Other Comprehensive Income.”
Comprehensive Income: Comprehensive income
consists of net earnings and foreign currency trans-
lation gains or losses and unrealized gains and
losses from forward contracts and is presented in
t h e C o n s o l i d a t e d S t a t e m e n t s o f S t o c k h o l d e r s '
Equity and Comprehensive Income.
Revenue Recognition: Revenue is recognized
from sales when a product is shipped. A portion of
sales is made to distributors under agreements
allowing certain rights of return and price protection
on unsold merchandise held by distributors (see
note 10). The Company adopted the Securities and
Exchange Commission's Staff Accounting Bulletin
No.101 (the "SAB") effective January 1, 2001. The
SAB requires that a company recognize revenue
only when all of the following criteria are met: (1)
Persuasive evidence of an arrangement exists; (2)
Delivery has occurred or services have been ren-
dered; (3) The seller's price to the buyer is fixed or
determinable; and (4) Collectibility is reasonably
26
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
gent assets and liabilities at the date of the financial
statements. In addition, they affect the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ from
these estimates and assumptions.
Reclassification: Certain prior year amounts have
been reclassified to conform to 2001 presentation
and for the effect of the June 1, 2000, stock split
(see note 16).
Note 2: Intangible Assets
Intangible assets consist of the following:
March 31,
Dollars in Thousands
2001
2000
Goodwill
Trademarks
Patents and technology
Other
Accumulated amortization
$40,709
$40,709
10,000
12,000
1,143
63,852
19,825
10,000
12,000
1,143
63,852
17,654
Net intangible assets
$44,027
$46,198
assured. Upon adoption of the SAB, there was no
impact on the Company's results of operations or
financial condition.
Earnings per Share: The Company calculates
e a r n i n g s p e r s h a r e i n a c c o r d a n c e w i t h S F A S
No.128, “Earnings per Share.” Basic earnings per
share is computed using the weighted-average
number of shares outstanding. Diluted earnings per
share is computed using the weighted-average
number of shares outstanding adjusted for the
i n c r e m e n t a l s h a r e s a t t r i b u t e d t o o u t s t a n d i n g
options to purchase common stock. On June 1,
2000, the Company issued additional shares in con-
nection with the two-for-one stock split. The per
c o m m o n s h a r e a m o u n t s i n t h e C o n s o l i d a t e d
Financial Statements and accompanying notes have
been adjusted to reflect the stock splits.
Environmental Cost: The Company recognizes lia-
bilities for environmental remediation when it is
probable that a liability has been incurred and can
be reasonably estimated. The Company determines
its liability on a site-by-site basis, and it is not dis-
counted or reduced for possible recoveries from
insurance carriers. Expenditures that extend the life
of the related property or mitigate or prevent future
environmental contamination are capitalized.
Business Segments: The Company has deter-
m i n e d , u s i n g t h e c r i t e r i a i n S F A S N o . 1 3 1 ,
"Disclosures about Segments of an Enterprise and
Related Information," that it operates in a single
reporting segment. The Company's products may
be categorized generally based upon primary raw
material (tantalum or ceramic) or method of attach-
ment (surface-mount or leaded), and are sold to
original equipment manufacturers, electronics man-
ufacturing services providers, and electronics dis-
tributors. Two customers each accounted for more
than 10% of net sales in the fiscal year ended March
31, 2001, and one customer accounted for more
than 10% of net sales in the fiscal years ended
March 31, 2000 and 1999. Geographic information is
included in note 9.
Use of Estimates: The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to
make estimates and assumptions. These estimates
and assumptions affect the reported amounts of
assets and liabilities and the disclosure of contin-
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
27
Note 3: Debt
A summary of long-term debt follows:
Dollars in Thousands
Senior notes, interest payable semiannually at a rate of 6.66% with
a final maturity date of May 4, 2010
March 31,
2001
2000
$100,000
100,000
-
$100,000
100,000
-
Less current installments
Long-term debt, excluding current installments
In May 1998, the Company sold $100,000 of its
S e n i o r N o t e s p u r s u a n t t o t h e t e r m s o f a N o t e
Purchase Agreement dated May 1, 1998, between
the Company and the eleven purchasers of the
Senior Notes named therein. The Senior Notes have
a final maturity date of May 4, 2010, and begin amor-
tizing on May 4, 2006. The Senior Notes bear inter-
est at a fixed rate of 6.66%, with interest payable
semiannually beginning November 4, 1998. The
aggregate maturities of the debt subsequent to
March 31, 2001, follow: 2007, $20,000; 2008, $20,000;
2009, $20,000; 2010, $20,000; and 2011, $20,000.
The Company had two unsecured and unused credit
facilities during the fiscal year ended March 31,
Note 4: Other Non-Current Obligations
Non-current obligations are summarized as follows:
Dollars in Thousands
Unfunded projected pension benefit obligation (note 5)
Unfunded postretirement medical plans (note 6)
Other
Other non-current obligations
$100,000
2001: a $150.0 million revolving credit facility and a
$10.0 million swingline credit facility. The annual fee
for the revolving credit facility is approximately
$190 and both facilities expire on October 18, 2002.
$100,000
The Company is subject to restrictive covenants
under its loan agreements which, among others,
restrict its ability to make loans or advances or to
make investments and require it to meet financial
tests related principally to funded debt, cash flows,
and net worth. At March 31, 2001, the Company was
in compliance with such covenants. Borrowings
a r e s e c u r e d b y g u a r a n t e e s o f c e r t a i n o f t h e
Company's wholly owned subsidiaries.
March 31,
2001
$12,098
36,820
2,166
$51,084
2000
$18,337
34,243
2,177
$54,757
Included as a part of other non-current obligations is the Company's accrual for environmental liabilities.
28
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
Note 5: Employee Pension and Savings Plans
The Company has a non-contributory pension plan
(Plan) which covers substantially all employees in the
United States who meet age and service require-
ments. The Plan provides defined benefits that are
based on years of credited service, average compen-
sation (as defined), and the primary social security
benefit. The effective date of the Plan is April 1, 1987.
The cost of pension benefits under the Plan is deter-
mined by an independent actuarial firm using the
“ p r o j e c t e d u n i t c r e d i t ” a c t u a r i a l c o s t m e t h o d .
Currently payable contributions to the Plan are limited
to amounts that are currently deductible for income
tax reporting purposes, and are included in accrued
expenses in the consolidated balance sheets.
Components of net periodic pension cost include the following:
Dollars in Thousands
Service cost
Interest cost
Expected return on assets
Amortization of:
Transition asset
Prior service cost
Actuarial loss
Gain on curtailment of employee benefit plan
Years ended March 31,
2001
$4,246
8,462
(8,862)
(6)
(84)
-
-
2000
$4,544
8,071
(6,323)
(6)
(83)
650
-
Total net periodic pension cost
$3,756
$6,853
The weighted-average rates used in determining pension cost for the Plan are as follows:
Discount rate
Rate of compensation increase
Expected return on plan assets
Years ended March 31,
2001
7.0%
5.0%
9.0%
2000
7.50%
5.00%
9.00%
1999
$3,472
6,494
(6,084)
(6)
(90)
-
(1,818)
$1,968
1999
7.00%
4.00%
9.50%
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
29
A reconciliation of the Plan’s projected benefit obligation, fair value of the Plan assets, and funding status is
as follows:
Dollars in Thousands
Projected benefit obligation:
March 31,
2001
2000
Net obligation at beginning of year
$111,698
$ 96,830
Service cost
Interest cost
Actuarial (gain) loss
Gross benefits paid
Net benefit obligation at end of year
Fair value of plan assets:
4,246
8,462
8,991
(4,739)
$128,658
4,544
8,071
7,164
(4,911)
$111,698
Fair value of plan assets at beginning of year
$ 94,880
$ 62,153
Actual return on plan assets
Employer contributions
Gross benefits paid
(7,743)
11,500
(4,739)
11,343
26,295
(4,911)
Fair value of plan assets at end of year
$ 93,898
$ 94,880
Funding status:
Funded status at end of year
Unrecognized net actuarial (gain) loss
Unrecognized prior service cost
Unrecognized net transition obligation (asset)
$ (34,760)
$ (16,818)
31,687
(399)
-
6,091
(482)
(7)
Net amount recognized at end of year
$ (3,472)
$ (11,216)
T h e C o m p a n y s p o n s o r s a n u n f u n d e d D e f e r r e d
Compensation Plan for key managers. This plan is
non-qualified and provides certain key employees
defined pension benefits which would equal those
provided by the Company’s non-contributory pen-
sion plan if the plan was not limited by the Employee
Retirement Security Act of 1974 and the Internal
Revenue Code. Expenses related to the deferred
compensation plan totaled $1,504 in fiscal 2001, $988
in fiscal 2000, and $885 in fiscal 1999. Total benefits
accrued under this plan were $8,626 at March 31,
2001, and $7,121 at March 31, 2000.
In addition, the Company has a defined contribution
plan (Savings Plan) in which all U. S. employees who
meet certain eligibility requirements may participate.
A participant may direct the Company to contribute
amounts, based on a percentage of the participant’s
compensation, to the Savings Plan through the exe-
cution of salary reduction agreements. In addition,
the participants may elect to make after-tax contribu-
tions. The Company will make annual matching con-
tributions to the Savings Plan of 30% to 50%. The
Company contributed $2,061 in fiscal 2001, $1,801 in
fiscal 2000, and $1,786 in fiscal 1999.
30
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
Note 6: Postretirement Medical and Life Insurance Plans
The Company provides health care and life insurance benefits for certain retired employees who reach retire-
ment age while working for the Company. The components of the expense for postretirement medical and life
insurance benefits are as follows:
Dollars in Thousands
Service cost
Interest cost
Amortization of actuarial gain
Curtailment gain
Total net periodic benefits cost
Years ended March 31,
2001
$1,268
2,985
111
-
$4,364
2000
$1,479
2,834
248
-
$4,561
1999
$ 701
2,086
(23)
(611)
$2,153
A reconciliation of the postretirement medical and life insurance plan’s projected benefit obligation, fair value
of plan assets, and funding status is as follows:
Dollars in Thousands
Projected benefit obligation:
March 31,
2001
2000
Net obligation at beginning of year
$ 40,396
$ 29,241
Service cost
Interest cost
Actuarial (gain) loss
Gross benefits paid
Net benefit obligation at end of year
Fair value of plan assets:
Employer contributions
Gross benefits paid
Fair value of plan assets at end of year
Funding status:
Funded status at end of year
Unrecognized net actuarial (gain) loss
Net amount recognized at end of year
1,268
2,985
347
(1,786)
$ 43,210
$ 1,786
(1,786)
$ -
$(43,210)
6,390
$(36,820)
1,479
2,834
8,880
(2,038)
$ 40,396
$ 2,038
(2,038)
$ -
$(40,396)
6,153
$(34,243)
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
31
The weighted-average rates used in determining postretirement medical and life insurance costs are as follows:
Dollars in Thousands
Discount rate
Rate of compensation increase
Years ended March 31,
2001
7.00%
5.00%
2000
7.50%
5.00%
1999
7.00%
4.00%
Health care cost trend on covered charges
8.0% decreasing to
9.5% decreasing to
8.0% decreasing to
ultimate trend of
ultimate trend of
ultimate trend of
6.0% in 2008
7.0% in 2008
7.0% in 2008
Sensitivity of retiree welfare results:
Effect of a one percentage point increase in assumed
health care cost trend:
(cid:127) on total service and interest cost components
(cid:127) on postretirement benefit obligation
Effect of a one percentage point decrease in assumed
health care cost trend:
(cid:127) on total service and interest cost components
(cid:127) on postretirement benefit obligation
$ 143
$ 933
$(131)
$(885)
Note 7: Income Taxes
The components of earnings before income taxes consist of:
$ 538
$3,487
$ (472)
$(3,196)
Dollars in Thousands
Domestic
Foreign
Years ended March 31,
2001
$530,128
38,172
$568,300
2000
$ 91,373
14,191
$105,564
$ 140
$1,023
$ (128)
$ (970)
1999
$4,449
4,595
$9,044
The provision for income tax expense for continuing operations:
Dollars in Thousands
2001
2000
1999
Years ended March 31,
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Provision for income taxes
$197,522
16,384
10,071
223,977
(7,859)
(499)
335
(8,023)
$215,954
$27,342
1,051
4,121
32,514
2,568
193
170
2,931
$35,445
$(9,810)
232
2,475
(7,103)
9,969
447
(419)
9,997
$ 2,894
32
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
Statutory federal income tax rate
State income taxes, net of federal taxes
Foreign sales corporation
Goodwill amortization
Other
Effective income tax rate
Years ended March 31,
2001
35.0%
1.9
(1.8)
.1
2.8
2000
35.0%
.8
(1.9)
.3
(0.6)
38.0%
33.6%
1999
35.0%
4.9
(10.7)
3.8
(1.0)
32.0%
The components of deferred tax assets and liabilities are as follows:
Dollars in Thousands
Deferred tax assets:
Pension benefits
Medical benefits
Sales and product allowances
All other
Deferred tax liabilities:
Depreciation and differences in basis
Amortization of intangibles
Tax effect of hedging
All other
Net deferred income tax liability
March 31,
2001
2000
$ 4,424
$ 6,768
14,296
35,853
1,896
56,469
(57,095)
(4,678)
(1,398)
(2,476)
(65,647)
$ (9,178)
12,116
15,911
5,365
40,160
(50,892)
(5,071)
-
-
(55,963)
$(15,803)
The net deferred income tax liability is reflected in the
accompanying 2001 and 2000 balance sheets as a
$35,018 and $20,099 current asset and a $44,196 and
$35,902 non-current liability, respectively.
Based on the scheduled reversal of deferred tax liabili-
ties and projected future taxable income, the Company
believes that the deferred tax assets will ultimately be
realized. Accordingly, no valuation allowance has been
provided for in 2001 or 2000.
Note 8: Stock Option Plans
The Company has two option plans that reserve shares
of common stock for issuance to executives and key
employees. The Company has adopted the disclosure-
At March 31, 2001, unremitted earnings of the sub-
sidiaries outside the United States were deemed to be
permanently invested. No deferred tax liability was rec-
ognized with regard to such earnings. It is not practica-
ble to estimate the income tax liability that might be
incurred if such earnings were remitted to the United
States.
only provisions of Statement of Financial Accounting
S t a n d a r d s N o . 1 2 3 , " A c c o u n t i n g f o r S t o c k - B a s e d
Compensation." On July 1, 2000, the Company adopted
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
33
I n t e r p r e t a t i o n N o . 4 4 ,
t h e p r o v i s i o n s o f F A S B
"Accounting for Certain Transactions Involving Stock
Compensation," which requires variable accounting
treatment on certain re-priced options. This requires
that any increase in the stock price above the July 1,
2000, adoption date stock price be recognized immedi-
ately as compensation expense. For fiscal years 2001,
2000, and 1999, no compensation cost has been recog-
Years ended March 31,
Dollars in Thousands Except per Share Data
Net earnings
Earnings per share:
Basic
Diluted
As reported
Pro forma
As reported
Pro forma
As reported
Pro forma
The pro forma amounts indicated above recognize
compensation expense on a straight-line basis over
the vesting period of the grant. The pro forma effect
on net income for fiscal year 2001 is not representa-
tive of the pro forma effects on net income in future
years because it does not take into consideration
pro forma compensation expense related to grants
made prior to 1996.
The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option
pricing model with the following weighted average
assumptions: expected life of 5 years for 2001, 2000,
and 1999; a risk-free interest rate of 5.1% for 2001,
6.8% for 2000, and 5.4% for 1999; expected volatility
of 58.0% for 2001, 49.7% for 2000, and 45.1% for
1999; and a dividend yield of 0.0% for all three
years.
U n d e r t h e 1 9 9 2 E x e c u t i v e S t o c k O p t i o n P l a n
approved by the Company in April 1992, 1,905,120
options were granted to certain executives. In May
1992, the Company also approved the 1992 Key
Employee Stock Option Plan, which authorizes the
granting of options to purchase 2,310,000 shares of
Common Stock. In addition, stockholders approved
the 1995 Executive Stock Option Plan at the 1996
Annual Meeting. This plan provides for the issuance
nized for the stock option plans. Had compensation
costs for the Company's two stock option plans been
determined based on the fair value at the grant date for
awards in fiscal years 2001, 2000, and 1999, consistent
with the provisions of SFAS No. 123, the Company's net
earnings and earnings per share would have been
reduced to the pro forma amounts indicated below:
2001
$352,346
$348,628
$4.05
$4.01
$4.00
2000
$70,119
$64,286
$0.87
$0.80
$0.85
1999
$6,150
$4,203
$0.08
$0.06
$0.08
$3.95
$0.78
of options to purchase 3,800,000 shares of common
stock to certain executives.
$0.06
These plans provide that shares granted come from
the Company’s authorized but unissued common
stock. The price of the options granted thus far pur-
suant to these plans is no less than 100% of the
value of the shares on the date of grant. Also, the
options may not be exercised within two years from
the date of grant and no options will be exercisable
after ten years from the date of grant.
In fiscal 1999, the Company’s Board of Directors
approved an option re-price program for the Key
Employee Stock Option Plan and Executive Stock
Option Plan, effective February 1, 1999, and April 1,
1999, respectively. Under this program, options to
purchase 658,260 shares under the Key Employee
Stock Option Plan and 1,048,000 shares under the
Executive Stock Option Plan at prices ranging from
$9.63 to $16.07 per share were canceled and reis-
sued at $5.00 and $6.00 per share, respectively. The
reissued price was the fair market value at the time.
The vesting date of the options originally granted in
1995 and 1996 was changed to April 2000. The vest-
ing date for those options originally issued in 1997
remains at October 1999.
34
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
A summary of the status of the Company’s three stock option plans as of March 31, 2001, 2000, and 1999, and
changes during the years ended on those dates, is presented below:
Fixed Options
Options outstanding at beginning of year
Options granted
Options exercised
Options canceled
2001
Weighted-
Average
Exercisable
Price
Shares
March 31,
2000
Weighted-
Average
Exercisable
Price
Shares
1999
Weighted-
Average
Exercisable
Price
Shares
2,632,020 $10.09
3,286,000 $ 6.81
2,502,040 $10.10
828,000
17.51
2,379,000
10.71
1,869,140
(549,720)
5.62
(1,944,260)
(69,280)
11.10
(1,088,720)
5.83
9.66
(53,120)
(1,032,060)
12.55
5.48
3.51
Options outstanding at end of year
2,841,020 $13.12
2,632,020 $10.09
3,286,000
$6.81
Option price range at end of year
$2.50 to $19.38
$2.50 to $16.07
$2.50 to $16.07
Option price range for exercised shares
$2.50 to $16.07
$2.50 to $16.07
$2.50 to $7.10
Options available for grant at end of year
Options exercisable at year-end
Weighted-average fair value of options
2,647,870
723,020
1,412,590
504,210
2,414,580
624,860
granted during the year
$9.61
$7.54
$2.69
The following table summarizes information about stock options outstanding at March 31, 2001:
Range of
Exercisable
Prices
$2.50
$5.00 to $6.75
$14.50 to $19.38
Options Outstanding
Options Exercisable
Number
Outstanding at
3/31/01
9,200
Weighted-Average
Remaining
Contractual Life
1.6 years
Weighted-Average
Exercisable Price
$ 2.50
713,820
2,118,000
2,841,020
6.0 years
9.0 years
8.2 years
$ 5.62
$15.70
$13.12
Number
Exercisable at
3/31/01
9,200
713,820
-
723,020
Weighted-Average
Exercisable Price
$2.50
$5.62
-
$5.58
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
35
Note 9: Geographic Information
The following geographic information includes net sales based on product shipment destination (1):
Dollars in Thousands
United States
Asia Pacific
Germany
Mexico (2)
Other countries (3)
2001
$ 642,406
273,853
124,980
86,779
278,129
$1,406,147
Years ended March 31,
2000
$408,890
190,289
49,670
-
173,246
$822,095
1999
$293,427
119,938
34,142
-
118,062
$565,569
(1) Revenues are attributed to countries or regions based on the location of the customer. The Company sold $231,801 and $148,158
to two customers and each accounted for more than 10% of net sales in the fiscal year ended March 31, 2001. One customer
accounted for more than 10% of net sales as the Company sold $129,600 and $59,367 to it in the fiscal years ended March 31, 2000
and 1999, respectively.
(2) Did not exceed 5% of sales in 2000 and 1999 and included with "Other countries."
(3) No country in this group exceeded 5% of consolidated net sales.
The following geographic information includes long-lived assets based on physical location:
March 31,
2000
Dollars in Thousands
2001
United States
Mexico
Other
$314,980
251,331
951
$243,385
179,092
922
1999
$247,966
157,795
974
Note 10: Commitments
(a) The Company has agreements with distributor cus-
tomers which, under certain conditions, allow for returns of
overstocked inventory and provide protection against price
reductions initiated by the Company. Allowances for these
commitments are included in the consolidated balance
sheets as reductions in trade accounts receivable (note 11).
The Company adjusts sales to distributors through the use
of allowance accounts based on historical experience.
(b) A subsidiary of the Company sells certain receivables
discounted at .60 of 1% above LIBOR for the number of
days the receivables are outstanding, with a recourse pro-
vision not to exceed 5% of the face amount of the factored
receivables. The Company has issued a joint and several
guarantee in an aggregate amount up to but not to exceed
$4,000 to guarantee this recourse provision. The Company
transferred receivables and incurred factoring costs of
$529,946 and $5,236 in fiscal 2001, $372,656 and $3,444 in
fiscal 2000, and $258,619 and $2,988 in fiscal 1999.
Included in accounts payable, trade, is $30,310 and $44,212
at March 31, 2001 and 2000, respectively, which represents
factored receivables collected but not remitted.
$567,262
$423,399
$406,735
(c) The Company’s leases consist primarily of manufactur-
ing equipment and expire principally between 2001 and
2006. A number of leases require that the Company pay
certain executory costs (taxes, insurance, and mainte-
nance) and certain renewal and purchase options. Annual
rental expense for operating leases are included in results
of operations and were approximately $7,346 in fiscal 2001,
$8,300 in fiscal 2000, and $10,229 in fiscal 1999. Future min-
imum lease payments over the next five years under non-
cancelable operating leases at March 31, 2001, are as
follows:
Dollars in Thousands
2002
2003
2004
2005
2006
Total
$3,997
2,245
852
422
50
$7,566
36
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
Note 11: Supplementary Balance Sheet and Income Statement Detail
Dollars in Thousands
Accounts receivable:
Trade
Other
Total accounts receivable
Less:
Allowance for doubtful accounts
Allowance for price protection and customer returns (note 10)
March 31,
2001
2000
$143,681
$103,139
6,273
149,954
882
52,489
6,767
109,906
262
15,517
Net accounts receivable
$ 96,583
$ 94,127
Property and equipment, at cost
Land and land improvements
Buildings
Machinery and equipment
Furniture and fixtures
Construction in progress
Total property and equipment
Accumulated depreciation
Useful Life
20 years
20-40 years
10 years
4-10 years
$ 12,817
$ 12,946
94,462
653,645
41,368
75,894
878,186
310,924
86,465
522,514
36,989
41,326
700,240
276,841
Net property and equipment
$567,262
$423,399
Accrued expenses:
Salaries, wages and related employee costs
Vacation
Other
Total accrued expenses
Dollars in Thousands
Other (income)/expense:
Loss on retirement of assets
Accounts receivable discounting
Unrealized gain on foreign currency forward contracts
Other
$ 23,795
$ 18,254
9,526
15,908
8,752
15,039
$ 49,229
$ 42,045
Years ended March 31,
2001
2000
1999
$3,380
5,236
(941)
217
$ 9,405
3,444
(1,682)
528
$ 985
2,988
-
300
$7,892
$11,695
$4,273
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
37
Note 12: Legal Proceedings
T h e C o m p r e h e n s i v e E n v i r o n m e n t a l R e s p o n s e ,
Compensation and Liability Act of 1980, as amended
(CERCLA) and certain analogous state laws impose
retroactive, strict liability upon certain defined classes
of persons associated with releases of hazardous sub-
stances into the environment. Among those liable
under CERCLA (known collectively as “potentially
responsible parties” or “PRPs”) is any person who
“arranged for disposal” of hazardous substances at a
site requiring response action under the statute. While
a company’s liability under CERCLA is often based
upon its proportionate share of overall waste volume
or other equitable factors, CERCLA has been widely
held to permit imposition of joint and several liabilities
on each PRP. The Company has periodically incurred,
and may continue to incur, liability under CERCLA and
analogous state laws with respect to sites used for off-
site management or disposal of Company-derived
wastes. The Company has been named as a PRP at
the Seaboard Chemical Site in Jamestown, North
Carolina. The Company is participating in the clean-up
as a “de minimis” party and does not expect its total
exposure to be material. In addition, Union Carbide
Corporation (Union Carbide), the former owner of the
Company, is a PRP at certain sites relating to the off-
site disposal of wastes from properties presently
owned by the Company. The Company is participating
in coordination with Union Carbide in certain PRP-initi-
ated activities related to these sites. The Company
expects that it will bear some portion of the liability
with respect to these sites; however, any such share
is not presently expected to be material to the
Company’s financial condition or results of opera-
tions. In connection with the acquisition in 1990, Union
Carbide agreed, subject to certain limitations, to
indemnify the Company with respect to the foregoing
sites.
The Company or its subsidiaries are at any one time
parties to a number of lawsuits arising out of their
respective operations, including workers’ compensa-
tion or work place safety cases, some of which involve
claims of substantial damages. Although there can be
no assurance, based upon information known to the
Company, the Company does not believe that any lia-
bility which might result from an adverse determina-
tion of such lawsuits would have a material adverse
effect on the Company's financial condition or results
of operations.
Note 13: Put Options
During the fiscal year ended March 31, 2001, the
Company sold put options to institutional parties as
part of a program to purchase up to 4.0 million (note
16) of its common shares. Premiums generated from
the sale of the put options were $4.7 million and have
been accounted for as Additional Paid-In Capital. The
fair value of the put options at March 31, 2001, totaled
$4.4 million. The Company had the maximum potential
obligation to purchase 1.9 million shares of its com-
mon stock at a weighted average purchase price of
$18.31 for an aggregate of $34.8 million at March 31,
2001. The put options are exercisable only at maturity
and expire between April and October 2001. The
Company has the right to settle the put options
through physical settlement or net share settlement
using shares of the Company's common stock.
38
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
Note 14: Earnings Per Share
Basic and diluted earnings per share (EPS) are calculated as follows:
Dollars in Thousands Except per Share Data
2001
2000
1999
Years ended March 31,
Net earnings
$352,346
$70,119
$6,150
Weighted-average shares outstanding (Basic)
86,930,965
80,650,376
78,441,440
Stock options
1,250,153
1,761,258
586,420
Weighted-average shares outstanding (Diluted)
88,181,118
82,411,634
79,027,860
Basic earnings per share
$4.05
$0.87
$0.08
Diluted earnings per share
$4.00
$0.85
$0.08
Note 15: Derivatives, Hedging, and Financial
Instruments
The Company uses certain derivative financial
instruments to reduce exposures to volatility of for-
eign currencies and commodities impacting the
costs of its products.
Hedging Foreign Currencies
C e r t a i n o p e r a t i n g e x p e n s e s a t t h e C o m p a n y ' s
Mexican facilities are paid in Mexican pesos. In
order to hedge these forecasted cash flows, man-
a g e m e n t p u r c h a s e s f o r w a r d c o n t r a c t s t o b u y
Mexican pesos for periods and amounts consistent
with the related underlying cash flow exposures.
These contracts are designated as hedges at incep-
tion and monitored for effectiveness on a routine
basis. At March 31, 2001, the Company had out-
standing forward exchange contracts that mature
within one year to purchase Mexican pesos with
notional amounts of $89.3 million. The fair values of
these contracts at March 31, 2001, totaled $5.0 mil-
lion, which is recorded as a derivative asset on the
Company's balance sheet as other current assets.
Changes in the derivatives' fair values are deferred
and recorded as a component of "Accumulated
Other Comprehensive Income (Loss)" (AOCI), until
the underlying transaction is recorded in earnings.
When the hedged item affects earnings, gains or
losses are reclassified from AOCI to the consolidat-
ed statement of earnings as cost of goods sold.
The Company anticipates all amounts in AOCI as of
March 31, 2001, will be reclassified into earnings
w i t h i n o n e y e a r . A n y i n e f f e c t i v e n e s s i n t h e
Company's hedging relationships is recognized
immediately in earnings.
Prior to adoption of SFAS No.133 (as amended by
SFAS No.138), the Company recorded gains from
foreign currency contracts of $0.9 million, $1.7 mil-
lion, and $0 in fiscal 2001, fiscal 2000, and fiscal
1999, respectively, as a component of other income
a n d e x p e n s e i n i t s s t a t e m e n t o f e a r n i n g s .
Subsequent to adoption of the new standard, the
Company recorded $2.8 million of gains from foreign
currency contracts as a component of cost of goods
sold in fiscal 2001. The Company formally docu-
ments all relationships between hedging instru-
m e n t s a n d h e d g e d i t e m s , a s w e l l a s r i s k
management objectives and strategies for undertak-
ing various hedge transactions.
KEMET Corporation and Subsidiaries
Notes To Consolidated Financial Statements
(continued)
39
Hedging Commodity Prices
The Company occasionally enters into contracts for
the purchase of its raw materials, primarily palladi-
u m , w h i c h a r e c o n s i d e r e d t o b e d e r i v a t i v e s o r
embedded derivatives with underlyings not clearly
and closely related to the host contract. As such,
the fair values of these embedded derivatives are
recorded on the balance sheet as derivative assets
or liabilities and the change in fair values is record-
e d a s a c o m p o n e n t o f c o s t o f g o o d s s o l d . A t
March 31, 2001, the Company had derivative assets
from these embedded derivatives of $3.7 million
included in other current assets on the balance sheet,
and the change in fair values of such derivatives since
adoption of the new standard in fiscal 2001 was a
gain of $2.1 million. All other contracts to purchase
raw materials qualify for the normal purchases
exclusion and are not accounted for as derivatives.
Other Financial Instruments
The carrying values of cash and cash equivalents,
short-term investments, accounts receivable, and
accounts payable approximate their fair values. The
fair value of the Company's debt outstanding at
March 31, 2001 and 2000, was $96.5 million and
$92.1 million, respectively, which was determined
based on quotes from lending institutions.
Note 16: Common Stock
In August 2000, the Company announced that its
Board of Directors had authorized a program to pur-
chase up to 4.0 million shares of its common stock
in the open market. Through March 31, 2001, the
Company had acquired 1.6 million shares for $29.3
million and had outstanding put option obligations
for 1.9 million shares with an average exercise price
of $18.31. The program was fulfilled in April 2001, at
which time the Company announced that its Board
of Directors had authorized a second 4.0 million
stock purchase program. The amount and timing of
purchases will depend on market conditions and
other factors. The program will be funded from
existing cash and a combination of direct purchases
and/or put options may be used to execute the pro-
gram.
On May 15, 2000, the Company's Board of Directors
declared a two-for-one stock split. The record date
for the split was May 24, 2000, with distribution of
the additional shares on June 1, 2000. All references
in the consolidated financial statements to number
of shares outstanding, price per share, per share
amounts, and stock option plan data have been
restated to reflect the split.
On January 20, 2000, the Company sold 6,500,000
shares of its common stock in a public offering for
$142.6 million in net cash proceeds after deducting
underwriting fees and offering expenses. Included
in the offering were 2,193,220 shares sold by a
stockholder of the Company which were shares of
non-voting common stock that were converted into
common stock on a share-for-share basis. The net
proceeds were used to repay outstanding debt
under the Company's short-term credit facility and to
fund capital expenditures.
Note 17: Joint Venture
During the fiscal year ended March 31, 2001, the
Company entered into a 50/50 joint venture agree-
ment with Australasian Gold Mines NL (AGM) to
establish an independent source of tantalum to
meet the increasing demand for tantalum capacitors
from key customers. This transaction closed in April
2001. The Company's initial investment in the joint
venture is approximately $4.9 million. The Company
also acquired a 10 percent interest in AGM for
approximately $2.3 million. The Company has the
right to acquire all processed tantalum products
from the initial production plant, which began oper-
ations in the quarter ended March 31, 2001, and
from any future processing operations of the joint
venture. These tantalum products are expected to
be toll converted into tantalum powder necessary
for the production of capacitors.
40
Board of Directors
Officers
David E. Maguire
Chairman and Chief Executive Officer
Charles M. Culbertson II
President and Chief Operating Officer
Glenn H. Spears (Retired 4/01)
Executive Vice President and Secretary
Harris L. Crowley
Senior Vice President, Technology
and Engineering
D. Ray Cash
Senior Vice President and Chief
Financial Officer
William W. Johnson
Vice President, Sales Worldwide
Raymond L. Beck
Vice President, Quality and Marketing
C. Ross Patterson
Vice President and Chief
Information Officer
Larry W. Sheppard
Vice President, Human Resources
James A. Bruorton
Vice President, Worldwide Distribution
Eugene J. DiCianni
Vice President, Sales Americas
Derek Payne
Vice President/Managing Director, Europe
Ravi G. Sastry
Vice President International Sales
Manuel A. Cappella
Vice President/Managing Director,
Mexico Tantalum
James P. McClintock
Vice President, Ceramic Operations
Dr. Larry A. Mann
Vice President, Ceramic Technology
Dr. Daniel F. Persico
Vice President, Tantalum Technology
Michael W. Boone
Treasurer/Director of Finance
and Secretary
David E. Maguire
Chairman and Chief
Executive Officer
Charles M. Culbertson II
President and Chief
Operating Officer
E. Erwin Maddrey, II
Chief Executive Officer
Maddrey and Associates, an
investment and consulting firm
Charles E. Volpe
Former President and
Chief Operating Officer
Paul C. Schorr IV
Managing Director Citicorp
Venture Capital, Ltd.
Stewart A. Kohl
Managing General Partner
The Riverside Company
Stock Information
Dividend Policy
The common stock of KEMET Corporation is traded
on The New York Stock Exchange under the symbol
KEM.
Registrar and Transfer Agent
Boston EquiServe
Limited Partnership
150 Royall Street
Canton, Massachusetts 02021
Inquiries regarding stock transfers, lost certificates,
or address changes should be directed to the Stock
Transfer Department at the address above.
Independent Auditors
KPMG LLP
Greenville, South Carolina
Stockholder Inquiries and
Availability of Form 10-K Report
A copy of the Company’s annual report on Form 10-K
for the year ended March 31, 2001, filed with the
Securities and Exchange Commission is available to
stockholders free of charge from the following:
John Warner,
Director of Investor and Public Relations
KEMET Corporation
Post Office Box 5928
Greenville, South Carolina 29606
Email: investorrelations@kemet.com
Website: http://www.kemet.com
The Company has not declared or paid any cash
dividends on its Common Stock. The Company cur-
rently intends to retain earnings to support its
growth strategy and does not anticipate paying divi-
dends in the foreseeable future. Any future determi-
nation to pay dividends will be at the discretion of
the Company’s Board of Directors and will depend
upon, among other factors, the capital require-
ments, operating results, and financial condition of
the Company from time to time.
Price Range of Common Stock
As of December 9, 1999, the Company’s Common
S t o c k b e g a n t r a d i n g o n t h e N e w Y o r k S t o c k
Exchange under the symbol KEM. Prior to that date,
the Common Stock was traded on the Nasdaq Stock
Market under the symbol KMET. The following table
represents the high and low sale prices of the
Common Stock as reported by the appropriate
exchange for the periods indicated:
High
Low
Fiscal Year Ended March 31, 2001:
$44.22
$24.19
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
33.94
29.19
23.31
Fiscal Year Ended March 31, 2000:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$11.63
16.50
22.69
40.00
On June 1, 2001, the last sale price of the Common
Stock as reported on The New York Stock Exchange
was $19.00.
22.50
13.75
14.25
$5.72
10.57
13.19
16.00
CORPORATE OFFICES
KEMET Corporation
Post Office Box 5928
Greenville, South Carolina 29606
(864) 963-6300
SUBSIDIARIES
KEMET Electronics Corporation
2835 Kemet Way
Simpsonville, South Carolina 29681
KEMET de Mexico S.A. de C.V.
Av. Carlos Salazar y Blv. Manuel
Cavazos Lerma #15
Matamoros, Tamaulipas, Mexico 87380
KEMET Electronics S.A.
1-3, Avenue de la Paix
Ch-1211 Geneva 20
Switzerland
KEMET Electronics Asia Ltd.
4A Chuan Hing Industrial Building
14 Wang Tai Road
Kowloon Bay, Hong Kong