Countries listed below represent KEMET
operations throughout the world.
Focused on Growth
Financial Highlights
AMERICAS
EMEA
ASIA-PACIFIC
Canada
Mexico
USA
Bulgaria
Finland
France
Germany
Italy
Portugal
Sweden
Switzerland
United Kingdom
China
Hong Kong
India
Indonesia
Japan
Malaysia
Singapore
Taiwan
Corporate Profile
KEMET Corporation is The Capacitance Company. We offer our customers the broadest
selection of capacitor technologies in the industry, including tantalum, ceramic, aluminum,
electrolytic, film and paper. Our vision is to be the preferred supplier of capacitance solutions
for customers demanding the highest standards of quality, delivery and service.
Whether designing hand-held devices, automotive systems or the
greenest energy technology, companies around the world rely on KEMET.
Corporate Offices
KEMET Corporation
2835 KEMET Way
Simpsonville, SC 29681
USA
864.963.6300
©2011 KEMET. All rights reserved.
KEMET Electronics S.A.
15bis chemin des Mines
1202 Geneva
Switzerland
41.22.715.0100
KEMET Electronics Marketing (S) Pte Ltd.
73 Bukit Timah Road
#05-01 Rex House
Singapore 229832
65.6586.1900
Annual Report 2011
Fiscal years ended March 31 (dollars in thousands)
2009
2010
2011
Net sales
Adjusted operating income (loss)*
Adjusted EBITDA*
Cash and cash equivalents
Stockholders’ equity
$ 804,385
$ 736,335
$ 1,018,488
(31,803)
26,327
39,204
19,987
71,042
79,199
240,039
284,272
143,391
196,127
152,051
359,753
*Adjusted operating income (loss) and Adjusted EBITDA are reconciled to GAAP measures on pages 62 and 63 of the 2011 Form 10-K.
Net cash provided by operating
activities (in millions)
LTM Adjusted EBITDA
by quarter (FY11)**
(in millions)
Total debt
(in millions)
$120.0
$200.0
$350.0
90.0
60.0
30.0
0.0
’09 ’10 ’11
175.0
150.0
125.0
100.0
Q1 Q2 Q3 Q4
325.0
300.0
275.0
250.0
**A reconciliation of Last Twelve Months
(LTM) Adjusted EBITDA to net income by
quarter for fiscal year 2011 is included
in a Form 8-K filed on June 1, 2011.
’09 ’10 ’11
w w w . k e m e t . c o m
Dear KEMET Shareholder,
KEMET is positioned for success and focused on growth.
$1.018 billion: our fiscal 2011 revenue – 38% year-over-year growth! During the same period, our Adjusted
EBITDA increased by 176% to $196.1 million!
These are, in a sense, remarkable numbers, representing a tremendous effort by all of us at KEMET. This success
is the result of the team’s unwavering focus, thorough commitment and implementation of corporate strategies
over several years. Reaching the billion dollar milestone that we set for ourselves five years ago, although it is
just a number, gives us the critical mass to explore opportunities and leverage our capabilities across the entire
enterprise. And we’ve only just begun.
Many elements went into achieving these impressive numbers. Restructuring our debt was critical to strengthening our balance sheet, and our
continued focus on improving our working capital has provided us the cash to concentrate on growing our business. Maintaining a strict adherence
to cost controls, a clear focus on managing our cost structure with programs implemented during the recession, and focusing on growing our market
share in Specialty Products & Custom Solutions has resulted in improved margins, bringing value to our shareholders. Additionally, our increased focus
on specialty capabilities has enabled us to showcase the strength we have with our customer constituency. We are partnering with our customers as
new applications emerge and as we develop innovative custom capacitance solutions. This, coupled with our highly regarded “ETBF” Easy to Buy From
service model, we believe, will continue to bring dividends in years to come.
We are, needless to say, very pleased to be back on the NYSE. Being ‘kicked out’ was, to say the least, rather embarrassing. The fact that we were
one of the last companies to be taken off the Exchange, before the rules changed, was not really very comforting. Being back has made our stock more
accessible to investors and, as such, has been an important contributing factor in the significant increase in our share price over the last year. That
said, although I might be a bit biased, I believe that KEMET represents an attractive opportunity for investors and existing shareholders as we grow for
the future.
As encouraging as the fiscal year 2011 results have been, we are actually even more excited about how we are positioned for the future. All areas of
our business are working off strategic plans that have been developed with profitable growth as the primary objective. These growth initiatives include
a relentless focus on supporting our customers, gaining market share, improving our margin, and building technologies and capabilities for the future.
Over the past few years we have had a concerted effort, and thus made a tremendous investment, in lean and six sigma capabilities. This effort will
continue. At this time we have 168 green belts, 124 black belts and two master black belts, as well as 58 lean certified professionals, making for a
total lean six sigma population of 352 people. I expect it would be hard to find another company our size with this complement of skills. More
important, however, are the projects that we have been able to implement and the results obtained. Clear examples of the impact of these projects are
the decrease in working capital, overall reduction in cycle times, and the improvements in uptime and operating efficiencies. This spells a significant
reduction in our breakeven point. Looking at the future, the individuals who represent these skills will hold an important key to our continued and
future success.
We have clearly said in the past that our growth objectives need to be achieved through both organic and inorganic means. This will include a focus on
vertically integrating our business, enabling us to firm up both our supply stream and reduce raw material costs. A recent example of this strategy is
the acquisition of the Cornell Dubilier Foil facility in Knoxville, Tennessee. Etched and formed aluminum foil is the primary feedstock for the manufacture
of aluminum electrolytic capacitors, and the reduction in upstream players made this opportunity too attractive and actually too important to pass up.
Additionally, the opportunity to improve the quality of this material, as well as being able to more efficiently develop proprietary foils for a business that
is highly customized, works well with our focus on the manufacture and sale of Specialty Products & Custom Solutions. We will continue to seek out
acquisition opportunities that will further minimize raw material risks, and/or when it makes sense to further broaden our position as The Capacitance
Company – providing a total offering portfolio that is even more attractive to our customers.
Our organic growth initiatives rely in large part on our efforts in the area of Specialty Products & Custom Solutions. At KEMET, we believe our view of
these capabilities is somewhat different from a number of our competitors. While ‘Specialty’ is certainly about margin, it goes far beyond just this one
metric. For KEMET, ‘Specialty’ is a mindset that includes an articulated collaborative customer development approach requiring a level of commitment
and relationship that goes far deeper than the sale, and lasts far longer. Consistent with this is our Global Account Management System that takes a
holistic and global view of the customer experience, thus helping us navigate the sprawling and complicated design and manufacturing landscape we
face today. The KEMET “Easy to Buy From” approach, mentioned above, combined with our industry-recognized Global Channel Management
capabilities, allows us to deliver products to each customer – whenever, wherever and however they want – in support of each individual customer’s
business objectives. Our aspiration is to deliver an unparalleled customer experience.
Our efforts in the ‘Specialty’ area are focused on key applications in high growth markets such as the ‘Green’ segment, where we continue to develop
custom products demanded by the strict performance and reliability requirements for applications such as windmills, solar power, electric and hybrid
electric vehicles, and LED lighting. In fact, we have been so successful with the hybrid transportation developments that we have already sold out the
first production line in our new facility in our Simpsonville, South Carolina headquarters. This is the facility we constructed with the matching $15.1
million stimulus grant. Continuing on this path, we are looking to better understand how the smart electrical grid will be managed and how our capacitance
solutions can make our customers even more successful. In this area smart metering comes to mind first; however, while our products are already
involved with this application, it is clear that as the thought process around the smart grid develops, there will be significant further opportunities.
These new opportunities will span not just our custom power Film & Electrolytic products but our specialty Ceramic and Tantalum products as well.
We believe we will have the wherewithal to play a very active role in the equipment and controls needed to manage the flow of power and information
across the grid.
Beyond Green we continue to see opportunities where reliability and safety are critical success factors. For instance: extreme operating conditions
such as high temperatures present a particular challenge. An example is downhole drilling applications. In times past, 150°C used to be acceptable.
Now, our Ceramics team is developing products capable of dealing with temperatures reaching 300°C. These ceramic capacitor products are
representative of the shift in focus that, over the past few years, has enabled the Ceramics Business Unit to be a very strong contributor to our
improving financial results.
Furthermore, in electric vehicles, KEMET is the first capacitor manufacturer to offer a complete line of high voltage ceramic capacitors for electric
vehicle applications, electric vehicle charging applications and advanced automotive lighting applications. These are environments unheard of a few
years ago and speak volumes to the level of expertise and achievement we continue to see coming from our scientists in our Global Innovation
Centers.
The continued growth of custom applications in the Film & Electrolytic business, combined with successful restructuring initiatives, has ensured a
positive contribution to our financial results this fiscal year, by this business. We did speak to an objective last year, as to where we expected the
financial results by the F&E business to be, by March 2012. I’m pleased to say that we reached this stated objective a year early, in half the time.
And there is more improvement to come.
Our Tantalum Business Group continues to be our largest business and biggest contributor to our bottom line. As the market leader, we do understand
our challenges. The Tantalum Business continues to innovate, across the entire product spectrum, and I would like to specifically highlight our high
voltage and high capacitance organic polymer products. These products are focused and designed to address applications that require performance
beyond current capabilities; examples are demanding communications infrastructure applications and high reliability power supplies. As a leader in
polymer technology, we will continue to push the limits of this material set. We remain convinced that we will be able to be successful in this business
going forward, combining technology innovation, manufacturing process improvements and supply chain initiatives. And let us not forget that to date,
no one has been able to develop a capacitor with better volumetric efficiency than a Tantalum capacitor. Our challenge is to keep the material costs in
check, and over time I am convinced we will!
Beyond growth through product innovation we are also focusing on aspects of our business where we are under-represented. In the Americas and
Asia there are opportunities for growth beyond the general market for our Film & Electrolytic business. In the medical market this is also true, where the
ever-present challenges for miniaturization and reliability fit well with many of our new offerings. Suffice it to say, whether the opportunities for growth
are regional, market segment or application specific, we are leaving no rock unturned.
We continue to focus on improving our business capabilities through initiatives that all fall under the ‘One KEMET’ heading. The ‘One KEMET’ campaign
is all about ensuring that we as a company are totally focused on the same goals and working with the same processes and systems, committed
to a consistent quality and service level that our customers value and have come to expect from KEMET. This effort was launched to ensure that as
we continue to grow, we not only remain grounded in our core principles, but that we use these principles, operating procedures and systems as the
foundation from which to expand. These initiatives include our global Oracle software implementation which will be largely complete by the end of this
fiscal year, our lean and six sigma culture evolution and our global customer approach and systems.
At KEMET, we take considerable pride in our work. We are working with customers and developing products that truly make the world a better, safer
and more connected place to live. Without capacitors, planes, trains and cars cannot move us around; computers and phones cannot connect us;
respirators and cardiac defibrillators cannot save us. Simply put, without capacitors our world, in most aspects, would stop.
We have regained our momentum. We are committed to building value for our shareholders and that is best accomplished by focusing on markets and
applications that are growing and where innovative, reliable products and solutions are valued.
As always, I want to thank my KEMET colleagues. What has been achieved tells a truly remarkable story, and I am proud to be on this team. I also
want to thank our customers who never stopped believing in our company, and our investors for their support and the confidence they continue to
show. Our goal is to move KEMET from a Good Company to a Great Company. All of us at KEMET look forward to your continuing support during
this journey.
Sincerely,
Per-Olof Lööf
Chief Executive Officer
Board of Directors
Officers
Frank G. Brandenberg
Chairman
Former Corporate Vice President
& Sector President
Northrop Grumman Corporation
Dr. Wilfried Backes
Former Chief Financial Officer
EPCOS AG
Gurminder S. Bedi
Former Vice President
Ford Motor Company
Joseph V. Borruso
President
AOEM Consultants, LLC
Per-Olof Lööf
Chief Executive Officer
KEMET Corporation
E. Erwin Maddrey, II
Former President & Chief Executive Officer
Delta Woodside Industries
Robert G. Paul
Former President
Base Station Subsystems Unit
Andrew Corporation
Joseph D. Swann
Former President
Rockwell Automation Power Systems
Former Senior Vice President
Rockwell Automation
Per-Olof Lööf
Chief Executive Officer & Director
William M. Lowe, Jr.
Executive Vice President
& Chief Financial Officer
Conrado Hinojosa
Executive Vice President
Tantalum Business Group
Chuck Meeks, Jr.
Executive Vice President
Ceramic, Film & Electrolytic Business Group
Robert Argüelles
Senior Vice President
Operational Excellence & Quality
Marc Kotelon
Senior Vice President
Global Sales
Dr. Phil Lessner
Senior Vice President
Chief Technology Officer & Chief Scientist
R. James Assaf
Vice President
General Counsel & Secretary
Susan B. Barkal
Vice President of Quality
& Chief Compliance Officer
Daniel E. LaMorte
Vice President & Chief Information Officer
Larry C. McAdams
Vice President
Chief Human Resources Officer
Dr. Daniel F. Persico
Vice President
Strategic Marketing and Business Development
Michael W. Boone
Vice President & Treasurer
David S. Knox
Vice President & Corporate Controller
Key Subsidiaries
KEMET Electronics Corporation
2835 KEMET Way
Simpsonville, South Carolina 29681
USA
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.
15bis chemin des Mines
1202 Geneva
Switzerland
KEMET Electronics Marketing (S) Pte Ltd.
1 Scotts Road
#15-07/10 Shaw Centre
S(228208), Singapore
KEMET Electronics Portugal, S.A.
Rua Werner von Siemens 1
Evora
Portugal 7005-639
KEMET Electronics (Suzhou) Co., Ltd.
#99 Yang Pu Road
Suzhou Industrial Park
Suzhou, Jiangsu 215126
People’s Republic of China
KEMET Electronics Oy
Stella Business Park
Lars Sonckin kaari 16
02600 Espoo
Finland
KEMET Electronics Italia, S.r.l.
Via San Lorenzo, 19
40037 Sasso Marconi
Bologna
Italy
KEMET Electronics Limited
20 Cumberland Drive
Weymouth, Dorset DT4 9TE
United Kingdom
w w w . k e m e t . c o m
Dear KEMET Shareholder,
KEMET is positioned for success and focused on growth.
$1.018 billion: our fiscal 2011 revenue – 38% year-over-year growth! During the same period, our Adjusted
EBITDA increased by 176% to $196.1 million!
These are, in a sense, remarkable numbers, representing a tremendous effort by all of us at KEMET. This success
is the result of the team’s unwavering focus, thorough commitment and implementation of corporate strategies
over several years. Reaching the billion dollar milestone that we set for ourselves five years ago, although it is
just a number, gives us the critical mass to explore opportunities and leverage our capabilities across the entire
enterprise. And we’ve only just begun.
Many elements went into achieving these impressive numbers. Restructuring our debt was critical to strengthening our balance sheet, and our
continued focus on improving our working capital has provided us the cash to concentrate on growing our business. Maintaining a strict adherence
to cost controls, a clear focus on managing our cost structure with programs implemented during the recession, and focusing on growing our market
share in Specialty Products & Custom Solutions has resulted in improved margins, bringing value to our shareholders. Additionally, our increased focus
on specialty capabilities has enabled us to showcase the strength we have with our customer constituency. We are partnering with our customers as
new applications emerge and as we develop innovative custom capacitance solutions. This, coupled with our highly regarded “ETBF” Easy to Buy From
service model, we believe, will continue to bring dividends in years to come.
We are, needless to say, very pleased to be back on the NYSE. Being ‘kicked out’ was, to say the least, rather embarrassing. The fact that we were
one of the last companies to be taken off the Exchange, before the rules changed, was not really very comforting. Being back has made our stock more
accessible to investors and, as such, has been an important contributing factor in the significant increase in our share price over the last year. That
said, although I might be a bit biased, I believe that KEMET represents an attractive opportunity for investors and existing shareholders as we grow for
the future.
As encouraging as the fiscal year 2011 results have been, we are actually even more excited about how we are positioned for the future. All areas of
our business are working off strategic plans that have been developed with profitable growth as the primary objective. These growth initiatives include
a relentless focus on supporting our customers, gaining market share, improving our margin, and building technologies and capabilities for the future.
Over the past few years we have had a concerted effort, and thus made a tremendous investment, in lean and six sigma capabilities. This effort will
continue. At this time we have 168 green belts, 124 black belts and two master black belts, as well as 58 lean certified professionals, making for a
total lean six sigma population of 352 people. I expect it would be hard to find another company our size with this complement of skills. More
important, however, are the projects that we have been able to implement and the results obtained. Clear examples of the impact of these projects are
the decrease in working capital, overall reduction in cycle times, and the improvements in uptime and operating efficiencies. This spells a significant
reduction in our breakeven point. Looking at the future, the individuals who represent these skills will hold an important key to our continued and
future success.
We have clearly said in the past that our growth objectives need to be achieved through both organic and inorganic means. This will include a focus on
vertically integrating our business, enabling us to firm up both our supply stream and reduce raw material costs. A recent example of this strategy is
the acquisition of the Cornell Dubilier Foil facility in Knoxville, Tennessee. Etched and formed aluminum foil is the primary feedstock for the manufacture
of aluminum electrolytic capacitors, and the reduction in upstream players made this opportunity too attractive and actually too important to pass up.
Additionally, the opportunity to improve the quality of this material, as well as being able to more efficiently develop proprietary foils for a business that
is highly customized, works well with our focus on the manufacture and sale of Specialty Products & Custom Solutions. We will continue to seek out
acquisition opportunities that will further minimize raw material risks, and/or when it makes sense to further broaden our position as The Capacitance
Company – providing a total offering portfolio that is even more attractive to our customers.
Our organic growth initiatives rely in large part on our efforts in the area of Specialty Products & Custom Solutions. At KEMET, we believe our view of
these capabilities is somewhat different from a number of our competitors. While ‘Specialty’ is certainly about margin, it goes far beyond just this one
metric. For KEMET, ‘Specialty’ is a mindset that includes an articulated collaborative customer development approach requiring a level of commitment
and relationship that goes far deeper than the sale, and lasts far longer. Consistent with this is our Global Account Management System that takes a
holistic and global view of the customer experience, thus helping us navigate the sprawling and complicated design and manufacturing landscape we
face today. The KEMET “Easy to Buy From” approach, mentioned above, combined with our industry-recognized Global Channel Management
capabilities, allows us to deliver products to each customer – whenever, wherever and however they want – in support of each individual customer’s
business objectives. Our aspiration is to deliver an unparalleled customer experience.
Our efforts in the ‘Specialty’ area are focused on key applications in high growth markets such as the ‘Green’ segment, where we continue to develop
custom products demanded by the strict performance and reliability requirements for applications such as windmills, solar power, electric and hybrid
electric vehicles, and LED lighting. In fact, we have been so successful with the hybrid transportation developments that we have already sold out the
first production line in our new facility in our Simpsonville, South Carolina headquarters. This is the facility we constructed with the matching $15.1
million stimulus grant. Continuing on this path, we are looking to better understand how the smart electrical grid will be managed and how our capacitance
solutions can make our customers even more successful. In this area smart metering comes to mind first; however, while our products are already
involved with this application, it is clear that as the thought process around the smart grid develops, there will be significant further opportunities.
These new opportunities will span not just our custom power Film & Electrolytic products but our specialty Ceramic and Tantalum products as well.
We believe we will have the wherewithal to play a very active role in the equipment and controls needed to manage the flow of power and information
across the grid.
Beyond Green we continue to see opportunities where reliability and safety are critical success factors. For instance: extreme operating conditions
such as high temperatures present a particular challenge. An example is downhole drilling applications. In times past, 150°C used to be acceptable.
Now, our Ceramics team is developing products capable of dealing with temperatures reaching 300°C. These ceramic capacitor products are
representative of the shift in focus that, over the past few years, has enabled the Ceramics Business Unit to be a very strong contributor to our
improving financial results.
Furthermore, in electric vehicles, KEMET is the first capacitor manufacturer to offer a complete line of high voltage ceramic capacitors for electric
vehicle applications, electric vehicle charging applications and advanced automotive lighting applications. These are environments unheard of a few
years ago and speak volumes to the level of expertise and achievement we continue to see coming from our scientists in our Global Innovation
Centers.
The continued growth of custom applications in the Film & Electrolytic business, combined with successful restructuring initiatives, has ensured a
positive contribution to our financial results this fiscal year, by this business. We did speak to an objective last year, as to where we expected the
financial results by the F&E business to be, by March 2012. I’m pleased to say that we reached this stated objective a year early, in half the time.
And there is more improvement to come.
Our Tantalum Business Group continues to be our largest business and biggest contributor to our bottom line. As the market leader, we do understand
our challenges. The Tantalum Business continues to innovate, across the entire product spectrum, and I would like to specifically highlight our high
voltage and high capacitance organic polymer products. These products are focused and designed to address applications that require performance
beyond current capabilities; examples are demanding communications infrastructure applications and high reliability power supplies. As a leader in
polymer technology, we will continue to push the limits of this material set. We remain convinced that we will be able to be successful in this business
going forward, combining technology innovation, manufacturing process improvements and supply chain initiatives. And let us not forget that to date,
no one has been able to develop a capacitor with better volumetric efficiency than a Tantalum capacitor. Our challenge is to keep the material costs in
check, and over time I am convinced we will!
Beyond growth through product innovation we are also focusing on aspects of our business where we are under-represented. In the Americas and
Asia there are opportunities for growth beyond the general market for our Film & Electrolytic business. In the medical market this is also true, where the
ever-present challenges for miniaturization and reliability fit well with many of our new offerings. Suffice it to say, whether the opportunities for growth
are regional, market segment or application specific, we are leaving no rock unturned.
We continue to focus on improving our business capabilities through initiatives that all fall under the ‘One KEMET’ heading. The ‘One KEMET’ campaign
is all about ensuring that we as a company are totally focused on the same goals and working with the same processes and systems, committed
to a consistent quality and service level that our customers value and have come to expect from KEMET. This effort was launched to ensure that as
we continue to grow, we not only remain grounded in our core principles, but that we use these principles, operating procedures and systems as the
foundation from which to expand. These initiatives include our global Oracle software implementation which will be largely complete by the end of this
fiscal year, our lean and six sigma culture evolution and our global customer approach and systems.
At KEMET, we take considerable pride in our work. We are working with customers and developing products that truly make the world a better, safer
and more connected place to live. Without capacitors, planes, trains and cars cannot move us around; computers and phones cannot connect us;
respirators and cardiac defibrillators cannot save us. Simply put, without capacitors our world, in most aspects, would stop.
We have regained our momentum. We are committed to building value for our shareholders and that is best accomplished by focusing on markets and
applications that are growing and where innovative, reliable products and solutions are valued.
As always, I want to thank my KEMET colleagues. What has been achieved tells a truly remarkable story, and I am proud to be on this team. I also
want to thank our customers who never stopped believing in our company, and our investors for their support and the confidence they continue to
show. Our goal is to move KEMET from a Good Company to a Great Company. All of us at KEMET look forward to your continuing support during
this journey.
Sincerely,
Per-Olof Lööf
Chief Executive Officer
Board of Directors
Officers
Frank G. Brandenberg
Chairman
Former Corporate Vice President
& Sector President
Northrop Grumman Corporation
Dr. Wilfried Backes
Former Chief Financial Officer
EPCOS AG
Gurminder S. Bedi
Former Vice President
Ford Motor Company
Joseph V. Borruso
President
AOEM Consultants, LLC
Per-Olof Lööf
Chief Executive Officer
KEMET Corporation
E. Erwin Maddrey, II
Former President & Chief Executive Officer
Delta Woodside Industries
Robert G. Paul
Former President
Base Station Subsystems Unit
Andrew Corporation
Joseph D. Swann
Former President
Rockwell Automation Power Systems
Former Senior Vice President
Rockwell Automation
Per-Olof Lööf
Chief Executive Officer & Director
William M. Lowe, Jr.
Executive Vice President
& Chief Financial Officer
Conrado Hinojosa
Executive Vice President
Tantalum Business Group
Chuck Meeks, Jr.
Executive Vice President
Ceramic, Film & Electrolytic Business Group
Robert Argüelles
Senior Vice President
Operational Excellence & Quality
Marc Kotelon
Senior Vice President
Global Sales
Dr. Phil Lessner
Senior Vice President
Chief Technology Officer & Chief Scientist
R. James Assaf
Vice President
General Counsel & Secretary
Susan B. Barkal
Vice President of Quality
& Chief Compliance Officer
Daniel E. LaMorte
Vice President & Chief Information Officer
Larry C. McAdams
Vice President
Chief Human Resources Officer
Dr. Daniel F. Persico
Vice President
Strategic Marketing and Business Development
Michael W. Boone
Vice President & Treasurer
David S. Knox
Vice President & Corporate Controller
Key Subsidiaries
KEMET Electronics Corporation
2835 KEMET Way
Simpsonville, South Carolina 29681
USA
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.
15bis chemin des Mines
1202 Geneva
Switzerland
KEMET Electronics Marketing (S) Pte Ltd.
1 Scotts Road
#15-07/10 Shaw Centre
S(228208), Singapore
KEMET Electronics Portugal, S.A.
Rua Werner von Siemens 1
Evora
Portugal 7005-639
KEMET Electronics (Suzhou) Co., Ltd.
#99 Yang Pu Road
Suzhou Industrial Park
Suzhou, Jiangsu 215126
People’s Republic of China
KEMET Electronics Oy
Stella Business Park
Lars Sonckin kaari 16
02600 Espoo
Finland
KEMET Electronics Italia, S.r.l.
Via San Lorenzo, 19
40037 Sasso Marconi
Bologna
Italy
KEMET Electronics Limited
20 Cumberland Drive
Weymouth, Dorset DT4 9TE
United Kingdom
w w w . k e m e t . c o m
Countries listed below represent KEMET
operations throughout the world.
Focused on Growth
Financial Highlights
AMERICAS
EMEA
ASIA-PACIFIC
Canada
Mexico
USA
Bulgaria
Finland
France
Germany
Italy
Portugal
Sweden
Switzerland
United Kingdom
China
Hong Kong
India
Indonesia
Japan
Malaysia
Singapore
Taiwan
Corporate Profile
KEMET Corporation is The Capacitance Company. We offer our customers the broadest
selection of capacitor technologies in the industry, including tantalum, ceramic, aluminum,
electrolytic, film and paper. Our vision is to be the preferred supplier of capacitance solutions
for customers demanding the highest standards of quality, delivery and service.
Whether designing hand-held devices, automotive systems or the
greenest energy technology, companies around the world rely on KEMET.
Corporate Offices
KEMET Corporation
2835 KEMET Way
Simpsonville, SC 29681
USA
864.963.6300
©2011 KEMET. All rights reserved.
KEMET Electronics S.A.
15bis chemin des Mines
1202 Geneva
Switzerland
41.22.715.0100
KEMET Electronics Marketing (S) Pte Ltd.
73 Bukit Timah Road
#05-01 Rex House
Singapore 229832
65.6586.1900
Annual Report 2011
Fiscal years ended March 31 (dollars in thousands)
2009
2010
2011
Net sales
Adjusted operating income (loss)*
Adjusted EBITDA*
Cash and cash equivalents
Stockholders’ equity
$ 804,385
$ 736,335
$ 1,018,488
(31,803)
26,327
39,204
19,987
71,042
79,199
240,039
284,272
143,391
196,127
152,051
359,753
*Adjusted operating income (loss) and Adjusted EBITDA are reconciled to GAAP measures on pages 62 and 63 of the 2011 Form 10-K.
Net cash provided by operating
activities (in millions)
LTM Adjusted EBITDA
by quarter (FY11)**
(in millions)
Total debt
(in millions)
$120.0
$200.0
$350.0
90.0
60.0
30.0
0.0
’09 ’10 ’11
175.0
150.0
125.0
100.0
Q1 Q2 Q3 Q4
325.0
300.0
275.0
250.0
**A reconciliation of Last Twelve Months
(LTM) Adjusted EBITDA to net income by
quarter for fiscal year 2011 is included
in a Form 8-K filed on June 1, 2011.
’09 ’10 ’11
w w w . k e m e t . c o m
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
! ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2011
Or
" TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number: 001-15491
KEMET Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2835 Kemet Way, Simpsonville, South Carolina
(Address of principal executive offices)
57-0923789
(I.R.S. Employer
Identification No.)
29681
(Zip Code)
Registrant’s telephone number, including area code: (864) 963-6300
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes " No !
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes " No !
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ! No "
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 332.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes " No "
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. "
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller
reporting company’’ in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer "
Accelerated filer !
Non-accelerated filer "
(Do not check if a
smaller reporting company)
Smaller reporting company "
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes " No !
Aggregate market value of voting common stock held by non-affiliates of the registrant as of September 30, 2010,
computed by reference to the closing sale price of the registrant’s common stock was approximately $264,127,461.
Number of shares of each class of common stock outstanding as of May 18, 2011: common stock, $0.01 par value,
37,146,787.
Portions of the definitive proxy statement to be delivered to stockholders in connection with the Annual Meeting of
Shareholders to be held July 27, 2011 are incorporated by reference in Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
Index
ITEM 1.
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4.
[RESERVED AND REMOVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . . . . .
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6.
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
15
22
22
24
24
24
27
29
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . .
31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . .
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE . .
ITEM 11.
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . .
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . .
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . .
65
66
66
66
67
68
68
68
68
69
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
145
2
ITEM 1. BUSINESS
General
PART I
We are a leading global manufacturer of a wide variety of capacitors. Our product offerings
include tantalum, multilayer ceramic, solid and electrolytic aluminum and film and paper capacitors.
Capacitors are fundamental components of most electronic circuits and are found in communication
systems, data processing equipment, personal computers, cellular phones, automotive electronic systems,
defense and aerospace systems, consumer electronics, power management systems and many other
electronic devices and systems. Capacitors are typically used to filter out interference, smooth the
output of power supplies, block the flow of direct current while allowing alternating current to pass and
for many other purposes. We manufacture a broad line of capacitors in many different sizes and
configurations using a variety of raw materials. Our product line consists of over 250,000 distinct part
configurations distinguished by various attributes, such as dielectric (or insulating) material,
configuration, encapsulation, capacitance level and tolerance, performance characteristics and
packaging. Most of our customers have multiple capacitance requirements, often within each of their
products. Our broad product offering allows us to meet the majority of those needs independent of
application and end use. In fiscal year 2011, 2010, and 2009 we shipped 35 billion capacitors, 31 billion
capacitors, and 32 billion capacitors, respectively. We believe the medium-to-long term demand for the
various types of capacitors we offer will continue to grow on a regional and global basis due to a
variety of factors, including increasing demand for and complexity of electronic products, growing
demand for technology in emerging markets and the ongoing development of new solutions for energy
generation and conservation. As used in this report, the terms ‘‘we’’, ‘‘us’’, ‘‘our’’, ‘‘KEMET’’ and the
‘‘Company’’ refer to KEMET Corporation and its predecessors, subsidiaries and affiliates, unless the
context indicates otherwise.
We operate 22 production facilities in Europe, Mexico, China, the United States and Indonesia
and employ nearly 11,000 employees worldwide. Our customer base includes most of the world’s major
electronics original equipment manufacturers (‘‘OEMs’’) (including Alcatel-Lucent USA Inc.,
Apple Inc., Bosch Group, Cisco Systems, Inc., Continental AG, Dell Inc., Hewlett-Packard Company,
International Business Machines Corporation, Intel Corporation, Motorola, Inc., Nokia Corporation,
and TRW Automotive Holdings Corporation), electronics manufacturing services providers (‘‘EMSs’’)
(including Celestica Inc., Elcoteq SE, Flextronics International Ltd., Jabil Circuit, Inc. and Sanmina-SCI
Corporation) and electronics distributors (including TTI, Inc., Arrow Electronics, Inc. and Avnet, Inc.).
For fiscal years 2011 and 2010, our consolidated net sales were $1,018.5 million and $736.3 million,
respectively.
Background of Company
KEMET’s operations began in 1919 as a business of Union Carbide Corporation (‘‘Union
Carbide’’) to manufacture component parts for vacuum tubes. In the 1950s, Bell Laboratories invented
solid-state transistors along with tantalum capacitors and other passive components necessary for their
operation. As vacuum tubes were gradually replaced by transistors, we changed our manufacturing
focus from vacuum tube parts to tantalum capacitors. We entered the market for tantalum capacitors in
1958 as one of approximately 25 United States manufacturers. By 1966, we were the United States’
market leader in tantalum capacitors. In 1969, we began production of ceramic capacitors as one of
approximately 35 United States manufacturers, and opened our first manufacturing facility in Mexico.
In 2003, we expanded operations into Asia, opening our first facility in Suzhou, China. In fiscal year
2007, we acquired the tantalum business unit of EPCOS AG (‘‘EPCOS’’). In fiscal year 2008, we
acquired Evox Rifa Group Oyj (‘‘Evox Rifa’’) and Arcotronics Italia S.p.A. (‘‘Arcotronics’’) and, as a
result, entered into markets for film, electrolytic and paper capacitors. We are organized into three
3
segments: the Tantalum Business Group (‘‘Tantalum’’), the Ceramic Business Group (‘‘Ceramic’’) and
the Film and Electrolytic Business Group (‘‘Film and Electrolytic’’).
KEMET Corporation is a Delaware corporation that was formed in 1990 by certain members of
the Company’s management at the time, Citicorp Venture Capital, Ltd. and other investors that
acquired the outstanding common stock of KEMET Electronics Corporation from Union Carbide. In
1992, we publicly issued shares of our common stock. Today, our common stock trades on the NYSE
under the symbol ‘‘KEM’’.
Recent Developments
Net sales for the quarter ended March 31, 2011 were $261.5 million, which is a 22.8% increase
over the same quarter last fiscal year. Net income was $21.1 million, or $0.57 per basic share and $0.40
per diluted share for the fourth quarter of fiscal year 2011 compared to net income of $0.3 million or
$0.01 per basic and diluted share for the same quarter last year.
On November 3, 2010, our shareholders approved a reverse stock split of our common stock (the
‘‘Reverse Stock Split’’) at a ratio of 1-for-3. The Reverse Stock Split became effective November 5,
2010 pursuant to a Certificate of Amendment to our Restated Certificate of Incorporation filed with
the Secretary of State of Delaware. We had 27.1 million shares of common stock issued and
outstanding immediately following the completion of the Reverse Stock Split. We are authorized in the
Restated Certificate of Incorporation to issue up to a total of 300.0 million shares of common stock at
a $0.01 par value per share which was unchanged by the amendment. The Reverse Stock Split did not
affect the registration of the common stock under the Securities Exchange Act of 1934, as amended
(‘‘Exchange Act’’), or the listing of the common stock, under the symbol ‘‘KEM’’, although the
post-split shares have a new CUSIP number. In the Consolidated Balance Sheets, the line item
‘‘Stockholders’ equity’’ has been retroactively adjusted to reflect the Reverse Stock Split for all periods
presented by reducing the line item ‘‘Common stock’’ and increasing the line item ‘‘Additional paid-in
capital’’, with no change to Stockholders’ equity in the aggregate. In the Statement of Shareholders’
Equity, the columns ‘‘Common Stock’’ and ‘‘Additional Paid-In Capital’’ have been retroactively
adjusted to reflect the Reverse Stock Split for all periods presented by reducing the column ‘‘Common
stock’’ and increasing the column ‘‘Additional paid-in capital’’, with no change to Stockholders’ equity
in the aggregate. All share and per share computations have been retroactively adjusted for all periods
presented to reflect the decrease in shares as a result of this transaction except as otherwise noted. Our
board of directors intends to seek stockholder approval to reduce the number of authorized shares of
common stock from 300,000,000 to 175,000,000 at our next annual meeting of stockholders.
In connection with a credit facility (as subsequently amended and restated, the ‘‘Platinum Credit
Facility’’) we entered into in May 2009 with K Financing, LLC (‘‘K Financing’’), we issued a warrant
(which we sometimes refer to herein as the ‘‘Platinum Warrant’’) to K Financing, which was
subsequently transferred to its affiliate K Equity, LLC (‘‘K Equity’’). K Financing and K Equity are
each affiliates of Platinum Equity Capital Partners II, L.P. The Platinum Warrant entitled K Equity to
purchase up to 26,848,484 shares of our common stock, subject to certain adjustments, which
represented 49.9% of our common equity at the time of issuance on a post-exercise basis. On
December 20, 2010, in connection with a secondary offering in which K Equity was the selling security
holder, K Equity sold a portion of the Platinum Warrant representing the right to purchase 10.9 million
shares of our common stock to the underwriters of the secondary offering, who exercised their full
portion of the warrant in a cashless exercise, based on an exercise price of $1.05 per share and a
closing price per share of $12.80, and received a net settlement of 10.0 million shares of our common
stock. These shares were sold as part of a secondary offering and KEMET did not receive any of the
proceeds from the transaction. K Equity retained the unsold portion of the warrant, representing the
right to purchase 16.0 million shares of our common stock. In March 2011, the Company registered
seven million shares subject to issuance upon the partial exercise of the remaining Platinum Warrant.
4
Issuance of 10.5% Senior Notes
On May 5, 2010, we completed a private placement of $230.0 million in aggregate principal
amount of our 10.5% Senior Notes due 2018 (the ‘‘10.5% Senior Notes’’). The private placement of the
10.5% Senior Notes resulted in proceeds to us of $222.2 million. We used a portion of the proceeds of
the private placement to repay all of the outstanding indebtedness under our credit facility with
K Financing, our EUR 60 million credit facility and EUR 35 million credit facility with UniCredit and
our term loan with a subsidiary of Vishay Intertechnology, Inc. (‘‘Vishay’’). We used a portion of the
remaining proceeds to fund a previously announced tender offer to purchase $40.5 million in aggregate
principal amount of our 2.25% Convertible Senior Notes (the ‘‘Convertible Notes’’) and to pay costs
incurred in connection with the private placement, the tender offer and the foregoing repayments. We
incurred $6.6 million in costs related to the execution of the offering.
On October 26, 2010, we filed a Form S-4 to offer, in exchange for our outstanding 10.5% Senior
Notes due 2018 (‘‘Old Notes’’), up to $230.0 million in aggregate principal amount of 10.5% Senior
Notes due 2018 and the guarantees thereof which have been registered under the Securities Act of
1933, as amended. The Form S-4 was declared effective on December 14, 2010 and on January 13,
2011 we completed the exchange for all of the Old Notes.
Revolving Line of Credit
On September 30, 2010, KEMET Electronics Corporation (‘‘KEC’’) and KEMET Electronics
Marketing (S) Pte Ltd. (‘‘KEMET Singapore’’) (each a ‘‘Borrower’’ and, collectively, the ‘‘Borrowers’’)
entered into a Loan and Security Agreement (the ‘‘Loan and Security Agreement’’), with Bank of
America, N.A, as the administrative agent and the initial lender. The Loan and Security Agreement
provides a $50 million revolving line of credit, which is bifurcated into a U.S. facility (for which KEC is
the Borrower) and a Singapore facility (for which KEMET Singapore is the Borrower). The size of the
U.S. facility and the Singapore facility can fluctuate as long as the Singapore facility does not exceed
$30 million and the total facility does not exceed $50 million. A portion of the U.S. facility and the
Singapore facility can be used to issue letters of credit. The Loan and Security Agreement expires on
September 30, 2014.
Listing
As announced on June 21, 2010, our common stock was approved for listing on the NYSE Amex.
Trading commenced on the NYSE Amex on June 22, 2010 under the ticker symbol ‘‘KEM’’ (NYSE
Amex: KEM).
On November 11, 2010, we provided written notice to the NYSE Amex that we intended to
transfer our listing to the New York Stock Exchange (‘‘NYSE’’). We voluntarily ceased trading on the
NYSE Amex, with the last day of trading on the NYSE Amex on November 12, 2010. Our common
stock commenced trading on November 15, 2010 on the NYSE under the ticker symbol ‘‘KEM’’
(NYSE: KEM).
Outlook
Looking out to the first quarter of fiscal year 2012, we anticipate an increase in net sales in a
range of 5% to 7% when compared to the fourth quarter of fiscal year 2011. This increase is primarily
due to Film and Electrolytic’s machinery division while we anticipate a slight increase in our
component sales. Consolidated gross margin is expected to be comparable to the fourth quarter of
fiscal year 2011.
5
Restructuring
In fiscal year 2010, the Company initiated the first phase of a plan to restructure Film and
Electrolytic and to reduce overhead within the Company as a whole. The restructuring plan includes
implementing programs to make the Company more competitive by removing excess capacity, moving
production to lower cost locations and eliminating unnecessary costs throughout the Company.
Restructuring charges in the fiscal year ended March 31, 2011 relate to this new plan and are primarily
comprised of manufacturing relocation costs of $6.0 million for relocation of equipment from various
plants to Mexico and China as well as relocation of the European distribution center. In addition, the
Company incurred $1.2 million in personnel reduction costs related to the following: headcount
reductions in Italy, $0.8 million; the closure of our Nantong, China plant expected to be completed in
the second quarter of fiscal year 2012, $0.6 million; and $1.5 million related to the Company’s initiative
to reduce overhead within the Company as a whole and headcount reductions in Mexico. These
personnel reduction charges were offset by a $1.7 million reversal of prior expenses primarily associated
with the Cassia Integrazione Guadagni Straordinaria (‘‘CIGS’’) plan as it was determined that only 107
employees are expected to participate in the program through October 2012. The agreements with the
labor unions allowed the Company to place up to 260 workers, on a rotation basis, on the CIGS plan
to save labor costs. CIGS is a temporary plan to save labor costs whereby a company may temporarily
‘‘lay off’’ employees while the government continues to pay their wages for a maximum of 36 months
for the program. The employees who are in CIGS are not working, but are still employed by the
Company. Only employees that are not classified as management or executive level personnel can
participate in the CIGS program. Upon termination of the plan, the affected employees return to work.
Our Industry
Capacitors are electronic components consisting of conducting materials separated by a dielectric,
or insulating material, which allows a capacitor to act as a filtering or an energy storage/delivery device.
We manufacture a full line of capacitors, including tantalum, multilayer ceramic, film, paper, and
aluminum (both wet electrolytic and solid polymer). We manufacture these types of capacitors in many
different sizes and configurations. These configurations include surface-mount capacitors, which are
attached directly to the circuit board without lead wires, leaded capacitors, which are attached to the
circuit board using lead wires, and chassis-mount and other pin-through-hole board-mount capacitors,
which utilize attachment methods such as screw terminal and snap-in.
The choice of capacitor dielectric is driven by the engineering specifications and the application of
the component product into which the capacitor is incorporated. Product design engineers in the
electronics industry typically select capacitors on the basis of capacitance levels, voltage requirements,
size and cost. Tantalum and ceramic capacitors are commonly used in conjunction with integrated
circuits, and the same circuit may, and frequently does, contain both ceramic and tantalum capacitors.
Generally, ceramic capacitors are more cost-effective at lower capacitance values, tantalum capacitors
are more cost-effective at higher capacitance values, and solid aluminum capacitors can be more
effective in applications requiring intermediate capacitance and very low equivalent series resistance.
Although film, paper and electrolytic capacitors can also be used to support integrated circuits, a
significant area of usage is the field of power electronics to provide energy for applications such as
motor start, power factor correction, pulse power, electromagnetic interference filtering and safety.
Capacitors account for the largest market within the passive component product grouping.
According to a December 2010 report by Paumanok Publications, Inc. (‘‘Paumanok’’), a marketing
research firm concentrating on the passive components industry, the global capacitor market in fiscal
year 2010 was $15.1 billion in revenues and 1.3 trillion units. Although this represents a significant
downturn in revenue and unit sales volume as compared to the high water mark set in fiscal year 2008
of $18 billion and 1.4 trillion units, according to the Paumanok report, the global capacitor market was
6
expected to improve substantially to achieve revenue of $18.5 billion and 1.5 trillion pieces in fiscal year
ended March 31, 2011. This represents a revenue increase of 23% over fiscal year 2010.
Because capacitors are a fundamental component of electronic circuits, demand for capacitors
tends to reflect the general demand for electronic products, as well as integrated circuits, which, though
cyclical, continues to grow. We believe that growth in the electronics market and the resulting growth in
demand for capacitors will be driven primarily by a number of recent trends which include:
• the development of new products and applications, such as global positioning devices, alternative
and renewable energy systems, hybrid transportation systems, electronic controls for engines and
industrial machinery, smart phones and mobile personal computers;
• the increase in the electronic content of existing products, such as home appliances, medical
equipment and automobiles;
• consumer desire for mobility and connectivity; and
• the enhanced functionality, complexity and convergence of electronic devices that use
state-of-the-art microprocessors.
Markets and Customers
Our products are sold to a variety of OEMs in a broad range of industries including the computer,
communications, automotive, military, consumer, industrial and aerospace industries. We also sell
products to EMS providers, which also serve OEMs in these industries. Electronics distributors are an
important channel of distribution in the electronics industry and represent the largest channel through
which we sell our capacitors. TTI, Inc., an electronics distributor, accounted for over 10% of our net
sales in fiscal years 2011, 2010 and 2009. If our relationship with TTI, Inc. were to terminate, we would
need to determine alternative means of delivering our products to the end-customers served by
TTI, Inc. Our top 50 customers accounted for 76.8% of our net sales during fiscal year 2011.
The following table presents an overview of the diverse industries that incorporate our capacitors
into their products and the general nature of those products.
Industry
Products
Automotive . . . . . . . . . . . Audio systems, tire pressure monitoring systems, power train electronics,
instrumentation, airbag systems, anti-lock braking and stability systems,
electric drive vehicles, electronic engine controls, air conditioning
controls, and security systems
Business Equipment . . . . . Copiers, point-of-sale terminals, and fax machines
Communications . . . . . . . . Cellular phones, telephones, switching equipment, relays, base stations,
and wireless infrastructure
Computer-related . . . . . . . Personal computers, workstations, mainframes, computer peripheral
equipment, power supplies, disk drives, printers, and local area networks
Industrial . . . . . . . . . . . . . Electronic controls, measurement equipment, instrumentation, solar and
wind energy generation, and medical electronics
Consumer . . . . . . . . . . . . DVD players, MP3 players, game consoles, LCD televisions, global
positioning systems and digital still cameras
Military/Aerospace . . . . . . Avionics, radar, guidance systems, and satellite communications
Alternative Energy . . . . . . Wind generation systems, solar generation systems, geothermal
generation systems, tidal generation systems and electric drive vehicles
7
We produce a small percentage of capacitors under military specification standards sold for both
military and commercial uses. We do not sell any capacitors directly to the United States government.
Certain of our customers purchase capacitors for products in the military and aerospace industries.
It is impracticable to report revenues from external customers for each of the above noted
products primarily due to approximately 50% of our external sales are to electronics distributors.
KEMET in the United States
Our corporate headquarters is located in Simpsonville, South Carolina, which is part of the greater
Greenville metropolitan area. Individual functions continue to evolve to support global activities in
Asia, Europe, and the Americas, either from Greenville, South Carolina or through locations in
appropriate parts of the world.
Commodity manufacturing in the United States has been substantially relocated to our lower-cost
manufacturing facilities in Mexico and China. Production that remains in the United States will focus
primarily on early-stage manufacturing of new products and other specialty products for which
customers are predominantly located in North America. In June 2011, we expect to begin the
production of power film capacitors in the United States to support alternative energy products and
emerging green technologies, such as hybrid electric drive vehicles. In fiscal year 2013, we expect to
begin production of electrolytic capacitors to further support alternative energy products and emerging
green technologies.
To accelerate the pace of innovations, the KEMET Innovation Center was created in July 2003.
The primary objectives of the KEMET Innovation Center are to ensure the flow of new products and
robust manufacturing processes that are expected to keep us at the forefront of our customers’ product
designs, while enabling these products to be transferred rapidly to the most appropriate KEMET
manufacturing location in the world for low-cost, high-volume production. The main campus of the
KEMET Innovation Center is located in Simpsonville, South Carolina which is part of the greater
Greenville metropolitan area.
KEMET in Mexico
We believe our Mexican operations are among the most cost efficient in the world, and they will
continue to be our primary production facilities supporting North American and European customers
for Tantalum and Ceramic. One of the strengths of KEMET Mexico is that it is a Mexican operation,
including Mexican management and workers. These facilities are responsible for maintaining KEMET’s
traditional excellence in quality, service, and delivery, while driving costs down. The facilities in Victoria
and Matamoros will remain focused primarily on tantalum capacitors, while the facilities in Monterrey
will continue to focus on ceramic capacitors. Following the Film and Electrolytic restructuring, in June
2010 we began production of standard and commodity Film and Electrolytic products in one of our
existing facilities in Monterrey, Mexico.
8
KEMET in Asia Pacific
Over the past several years, low production costs and proximity to large, growing markets have
caused many of our key customers to relocate production facilities to Asia, particularly China. We have
a well-established sales and logistics network in Asia to support our customers’ Asian operations. In
calendar year 2003, we commenced shipments from our production facility in Suzhou, China, near
Shanghai (‘‘Suzhou Plant A’’). In connection with the Evox Rifa acquisition, which was completed in
April 2007, we added another Chinese operation in Nantong, China, as well as a manufacturing
operation in Batam, Indonesia. With the Arcotronics acquisition, which was completed in October 2007,
we have further expanded our presence in China with a manufacturing operation in Anting, China.
These operations will continue to support the former Evox Rifa and Arcotronics customer bases in
Asia with top quality film and electrolytic capacitors. In the fourth quarter of fiscal year 2010, we began
to manufacture aluminum polymer products in a facility in Suzhou, China (‘‘Suzhou Plant B’’). During
the second quarter of fiscal year 2012, we expect to begin production of standard and commodity Film
and Electrolytic products in a new facility in Suzhou, China (‘‘Suzhou Plant C’’). Manufacturing
operations in China are expected to continue to grow and we anticipate that our production capacity in
China may be equivalent to Mexico in the future. The vision for KEMET China is to be a Chinese
operation, with Chinese management and workers, to help achieve our objective of being a global
company. These facilities will be responsible for maintaining our traditional excellence in quality,
service, and delivery, while accelerating cost-reduction efforts and supporting efforts to grow our
customer base in Asia.
KEMET in Europe
As previously mentioned we acquired the tantalum business unit of EPCOS in April 2006, acquired
Evox Rifa in April 2007, and acquired Arcotronics in October 2007. These acquisitions have provided
us with manufacturing operations in Europe. We currently have one or more manufacturing locations in
Bulgaria, Finland, Germany, Italy, Portugal, Sweden, and the United Kingdom. In addition, we operate
a research and development center in Farjestaden, Sweden. We will maintain and enhance our strong
European sales and customer service infrastructure, allowing us to continue to meet the local
preferences of European customers who remain an important focus for KEMET going forward.
In September 2009, we announced plans to reduce operating costs by consolidating the
manufacturing of certain products and by implementing other lean initiatives. Manufacturing
consolidation plans include the movement of certain standard, high-volume products to lower cost
manufacturing locations. We anticipate the plans will be completed in the second half of fiscal year
2014; however, the length of time required to complete the restructuring activities is dependent upon a
number of factors, including the ability to continue to manufacture products required to meet customer
demand while at the same time relocating certain production lines, and the progress of discussions with
union and government representatives in certain European locations concerning the optimization of
product mix and related headcount requirements in such manufacturing locations. In April 2010, we
reported that we reached an agreement with three labor unions in Italy and with the regional
government in Emilia Romagna, Italy to proceed with our planned restructuring process. In addition, in
July 2010, we relocated our Amsterdam Hub facility from The Netherlands to the Czech Republic as
part of our cost reduction measures. This relocation has allowed shipping lane optimization and
customer consolidation (bi-weekly or weekly) for all import and export shipments. Our European
manufacturing plants will continue to ship direct to ‘local’ customers (which are customers located in
the same country as the plant). During the remainder of this restructuring effort, we expect to spend
between $28 million to $33 million, primarily in our Film and Electrolytic Business Group. We expect
our restructuring plan to result in a reduction in our European operating cost structure of
approximately $3 million in fiscal year 2012 compared to fiscal year 2011. We anticipate that benefits
from the restructuring efforts will continue to grow during fiscal years 2013 and 2014. During fiscal year
9
2014, we expect to realize the full potential of the restructuring plan, achieving total annualized
operational cost reductions of approximately $24 million versus fiscal year 2011.
Global Sales and Logistics
In recent years, it has become more complicated to do business in the electronics industry. Market-
leading electronics manufacturers have spread their facilities globally. The growth of the electronics
manufacturing services industry has resulted in a more challenging supply chain. New Asian electronics
manufacturers are emerging rapidly. In order to drive down costs, the most successful business models
in the electronics industry are based on tightly integrated supply chain logistics. Our direct worldwide
sales force and a well-developed global logistics infrastructure distinguish us in the marketplace and will
remain a hallmark of KEMET in meeting the needs of our global customers. The North America and
South America (‘‘Americas’’) sales staff is organized into four areas supported by regional offices. The
sales staff for Europe, Middle East and Africa (‘‘EMEA’’) is organized into five areas, also supported
by regional offices. The Asia and Pacific Rim (‘‘APAC’’) sales staff is organized into four areas (China,
Singapore, Taiwan and India), and is also supported by regional offices. We also have independent sales
representatives located in seven countries worldwide including: Brazil, Puerto Rico, South Korea, and
the United States.
In our major markets, we market and sell our products primarily through a direct sales force. In
addition, we use independent commissioned representatives. We believe our direct sales force creates a
distinct competence in the marketplace and has enabled us to establish and maintain strong
relationships with our customers. With a global sales organization that is customer-focused, our direct
sales personnel from around the world serve on KEMET Global Account Teams. These teams are
committed to serving any customer location in the world with a dedicated KEMET representative. This
approach requires a blend of accountability and responsibility for specific customer locations, guided by
an overall account strategy for each customer.
Electronics distributors are an important distribution channel in the electronics industry and
accounted for 50%, 48%, and 47% of our net sales in fiscal years 2011, 2010 and 2009, respectively. In
fiscal years 2011, 2010 and 2009, TTI, Inc. accounted for more than 10% of net sales.
A portion of our net sales is made to distributors under agreements allowing certain rights of
return and price protection on unsold merchandise held by distributors. Our distributor policy includes
inventory price protection and ‘‘ship-from-stock and debit’’ (‘‘SFSD’’) programs common in the
industry.
The SFSD program provides a mechanism for the distributor to meet a competitive price after
obtaining authorization from the local Company sales office. This program allows the distributor to ship
its higher-priced inventory and debit us for the difference between our list price and the lower
authorized price for that specific transaction. We establish reserves for the SFSD program based
primarily on historical SFSD activity and the actual inventory levels of certain distributor customers.
Sales by Geography
In fiscal year 2011 and 2010, net sales by region were as follows (dollars in millions):
Fiscal Year 2011
Net Sales
% of Total
Americas . . . . . . . . . . . . .
APAC . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . .
$
254.1
381.7
382.7
25%
37%
38%
Americas . . . . . . . . . . . . .
APAC . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . .
$ 1,018.5
Fiscal Year 2010
Net Sales % of Total
$ 180.1
285.0
271.2
$ 736.3
24%
39%
37%
10
We believe our regional balance of revenues is a benefit to our business. The geographic diversity
of our net sales diminishes the impact of regional sales decreases caused by various holiday seasons.
While sales in the U.S. are the lowest of the three regions, the U.S. remains the leading region in the
world for product design-in activity where engagement with OEM design engineers determines product
placement independent of the region of the world where the final product is manufactured.
Inventory and Backlog
Although we manufacture and inventory standardized products, a portion of our products are
produced to meet specific customer requirements. Cancellations by customers of orders already in
production could have an impact on inventories. However, historically, cancellations have not been
significant.
Our customers often encounter uncertain or changing demand for their products. They historically
order products from us based on their forecast. If demand does not meet their forecasts, they may
cancel or reschedule the shipments included in our backlog, in many instances without penalty.
Additionally, many of our customers have started to require shorter lead times and ‘‘just in time’’
delivery. As a result of these factors, the twelve month order backlog is no longer a meaningful trend
indicator for us.
Competition
The market for capacitors is highly competitive. The capacitor industry is characterized by, among
other factors, a long-term trend toward lower prices, low transportation costs, and few import barriers.
Competitive factors that influence the market for our products include product quality, customer
service, technical innovation, pricing, and timely delivery. We believe that we compete favorably on the
basis of each of these factors.
Our major global competitors include AVX Corporation, EPCOS, Matsushita Electric Industrial
Company, Ltd. (Panasonic), Murata Manufacturing Co., Ltd., NEC TOKIN Corporation, Sanyo
Electric Co., Ltd., Taiyo Yuden Co., Ltd., TDK Corporation, WIMA GmbH & Co., KG and Vishay.
These competitors, among others, cover the breadth of our capacitor offerings.
Raw Materials
The principal raw materials used in the manufacture of our products are tantalum powder,
palladium, aluminum and silver. These materials are considered commodities and are subject to price
volatility.
Due to market constraints, we no longer purchase tantalum powder under long-term contracts.
Instead, we forecast our tantalum needs for the short-term (twelve weeks) and make purchases based
upon those forecasts; we currently have purchase agreements outstanding for three to six months.
While the financial impact of these decisions are short-term in nature given that we are not currently
party to any long-term supply agreements, they could impact our financial performance from period to
period given that we do not hedge any of our raw material exposure and we may be unable to pass on
to a significant number of our customers any fluctuations in our raw material costs. Additionally, any
delays in obtaining raw materials for our products could hinder our ability to manufacture our
products, negatively impacting our competitive position and our relationships with our customers.
Presently, a finite number of suppliers process tantalum ore into capacitor-grade tantalum powder.
If there are significant fluctuations in demand, based on leadtime of ore to tantalum smelter, an
increase in the price of tantalum may result. If we are unable to pass the price increase on to our
customers, it could have an adverse affect on our profitability.
11
Palladium is a precious metal used in the manufacture of multilayer ceramic capacitors (‘‘MLCC’’)
and is mined primarily in Russia and South Africa. We continue to pursue ways to reduce palladium
usage in ceramic capacitors in order to minimize the price risk. The amount of palladium that we
require has generally been available in sufficient quantities; however, the price of palladium is driven by
the market which has shown significant price fluctuations. For instance, in fiscal year 2011 the price of
palladium fluctuated between $415 and $855 per troy ounce. Price increases and the possibility of our
inability to pass such increases on to our customers could have an adverse effect on profitability.
Silver and aluminum have generally been available in sufficient quantities, and we believe there are
a sufficient number of suppliers from which we can purchase our requirements. An increase in the
price of silver and aluminum that we are unable to pass on to our customers, however, could have an
adverse affect on our profitability.
Patents and Trademarks
At March 31, 2011, we held the following patents and trademarks:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87
43
8
119
Patents
Trademarks
We believe that the success of our business is not materially dependent on the existence or
duration of any patent, license, or trademark other than the trademarks ‘‘KEMET’’ and ‘‘KEMET
Charged’’. Our engineering and research and development staffs have developed and continue to
develop proprietary manufacturing processes and equipment designed to enhance our manufacturing
facilities and reduce costs.
Research and Development
Research and development expenses were $25.9 million, $22.1 million and $29.0 million for fiscal
years 2011, 2010 and 2009, respectively. These amounts include expenditures for product development
and the design and development of machinery and equipment for new processes and cost reduction
efforts. Most of our products and manufacturing processes have been designed and developed by our
engineers. We continue to invest in new technology to improve product performance and production
efficiencies.
Segment Reporting
We are organized into three business groups: Tantalum, Ceramic, and Film and Electrolytic. Each
business group is responsible for the operations of certain manufacturing sites as well as all related
research and development efforts. The sales and marketing functions are shared by each of the business
groups, the cost of which are allocated to the business groups based on their respective budgeted net
sales. See Note 7, ‘‘Segment and Geographic Information’’ to our consolidated financial statements.
Tantalum Business Group
Our Tantalum Business Group is a leading manufacturer of solid tantalum and aluminum
capacitors. Over the past fifty years, we have made significant investments in our tantalum capacitor
business and, based on net sales, we believe that we are the largest tantalum capacitor manufacturer in
the world. We believe we have one of the broadest lines of tantalum product offerings and are one of
the leaders in the growing market for high-frequency surface mount tantalum and aluminum polymer
capacitors. For fiscal years 2011 and 2010, our Tantalum Business Group had consolidated net sales of
$486.6 million and $343.8 million, respectively.
12
Our Tantalum Business Group’s broad product portfolio, industry leading process and materials
technology, global manufacturing base and on-time delivery capabilities allow us to serve a wide range
of customers in a diverse group of end markets, including computing, telecommunications, consumer,
medical, military, automotive and general industries. This business group operates five manufacturing
sites in Portugal, Mexico and China and maintains a product innovation center in the United States.
Our Tantalum Business Group employs over 4,700 employees worldwide.
Ceramic Business Group
Our Ceramic Business Group offers an extensive line of multilayer ceramic capacitors in a variety
of sizes and configurations. We are one of the two leading ceramic capacitor manufacturers in the
United States and among the ten largest manufacturers worldwide. For fiscal years 2011 and 2010, our
Ceramic Business Group had consolidated net sales of $210.5 million and $171.2 million, respectively.
Our Ceramic Business Group high temperature and capacitance-stable product lines provide us
with what we believe to be a significant advantage over many of our competitors, especially in high
reliability markets, such as medical, industrial, defense and aerospace. Our other significant end
markets include computing, telecommunications, automotive and general industries. This business group
operates two manufacturing sites in Mexico and a finishing plant in China and maintains a product
innovation center in the United States. Our Ceramic Business Group employs over 2,500 employees
worldwide.
Film and Electrolytic Business Group
Our Film and Electrolytic Business Group produces film, paper and wet aluminum electrolytic
capacitors. We entered this market through the acquisitions of Evox Rifa and Arcotronics in fiscal year
2008. Film capacitors are preferred where high reliability is a determining factor, while wet aluminum
electrolytic capacitors are preferred when high capacitance at a reasonable cost is required. We are one
of the world’s largest suppliers of film and one of the leaders in wet aluminum electrolytic capacitors
for high-value custom applications. For fiscal years 2011 and 2010, our Film and Electrolytic Business
Group had consolidated net sales of $321.4 million and $221.4 million, respectively.
Our Film and Electrolytic Business Group primarily serves the industrial, automotive, consumer
and telecom markets. We believe that our Film and Electrolytic Business Group’s product portfolio,
technology and experience position us to significantly benefit from the continued growth in alternative
energy solutions. We operate fifteen film and electrolytic manufacturing sites throughout Europe, Asia
and Mexico and operate a product innovation center in Sweden. In June 2011, we expect to begin the
production of power film capacitors in the United States to support alternative energy products and
emerging green technologies, such as hybrid electric drive vehicles. In fiscal year 2013, we expect to
begin production of electrolytic capacitors to further support alternative energy products and emerging
green technologies. Our Film and Electrolytic Business Group employs over 2,900 employees
worldwide.
In September 2009, we announced plans to reduce operating costs by consolidating the
manufacturing of certain products and by implementing other lean initiatives. Manufacturing
consolidation plans include the movement of certain standard, high-volume products to lower cost
manufacturing locations. We anticipate the plans will be completed in the second half of fiscal year
2014; however, the length of time required to complete the restructuring activities is dependent upon a
number of factors, including the ability to continue to manufacture products required to meet customer
demand while at the same time relocating certain production lines and the progress of discussions with
union and government representatives in certain European locations concerning the optimization of
product mix and related headcount requirements in such manufacturing locations. In April 2010, we
reported that we reached an agreement with three labor unions in Italy and with the regional
13
government in Emilia Romagna, Italy to proceed with our planned restructuring process. In addition, in
July 2010, we relocated our Amsterdam Hub facility from the Netherlands to the Czech Republic as
part of our cost reduction measures. This relocation will allow shipping lane optimization and customer
consolidation (bi-weekly or weekly) for all import shipments. Our European manufacturing plants will
continue to ship direct to ‘local’ customers (which are customers located in the same country as the
plant). During the remainder of this restructuring effort, we expect to spend between $28 million to
$33 million, primarily in our Film and Electrolytic Business Group. We expect our restructuring plan to
result in a reduction in our operating cost structure in Europe of approximately $3 million in fiscal year
2012 compared to fiscal year 2011. We anticipate that benefits from the restructuring efforts will
continue to grow during fiscal years 2013 and 2014. During fiscal year 2014, we expect to realize the
full potential of the restructuring plan, achieving total annualized operational cost reductions of
approximately $24 million versus fiscal year 2011.
Environmental and Regulatory Compliance
We are subject to various North American, European, and Asian federal, state, and local
environmental laws and regulations relating to the protection of the environment, including those
governing the handling and management of certain chemicals and materials used and generated in
manufacturing electronic components. Based on the annual costs incurred over the past several years,
we do not believe that compliance with these laws and regulations will have a material adverse effect
on our capital expenditures, earnings, or competitive position. We believe, however, that it is reasonably
likely that the trend in environmental litigation, laws, and regulations will continue to be toward stricter
standards. Such changes in the laws and regulations may require us to make additional capital
expenditures which, while not currently estimable with certainty, are not presently expected to have a
material adverse effect on our financial condition.
Our Guiding Principles support a strong commitment to economic, environmental, and socially
sustainable development. As a result of this commitment, we have adopted the Electronic Industry
Code of Conduct. The Electronic Industry Code of Conduct is a comprehensive code of conduct that
addresses all aspects of corporate responsibility including Labor, Health and Safety, the Environment,
and Business Ethics. It outlines standards to ensure working conditions in the electronic industry supply
chain are safe, that workers are treated with respect and dignity, that manufacturing processes are
environmentally friendly and that materials are sourced responsibly.
Policies, programs, and procedures implemented throughout KEMET ensure compliance with legal
and regulatory requirements, the content of the Electronic Industry Code of Conduct, and customer
contractual requirements related to social and environmental responsibility.
We are committed to these business ethics, labor, health and safety, and environmental standards.
KEMET fully supports the position of the Electronic Industry Citizenship Coalition (‘‘EICC’’), the
Electronic Components, Assemblies and Materials Association (‘‘ECA’’) and the Tantalum-Niobium
International Study Center (‘‘TIC’’) to avoid the use of conflict minerals which directly or indirectly
finance or benefit armed groups in the Democratic Republic of the Congo or adjoining countries, in
line with full compliance to the EICC’s Electronic Industry Code of Conduct. KEMET’s tantalum
supply base has been and continues to be certified to be sourced from conflict free zones. All of
KEMET’s tantalum material suppliers have complied with and issued signed Letters of Certification
attesting that KEMET Corporation will not receive tantalum powders made from tantalum ores
illegally mined in the Democratic Republic of Congo. This policy and certification process is being
implemented for all conflict minerals. KEMET will immediately discontinue doing business with any
supplier found to be purchasing materials which directly or indirectly finance or benefit armed groups
in the Democratic Republic of the Congo or adjoining countries. KEMET will continue to work
through the EICC, ECA and TIC towards the goal of greater transparency in the supply chain.
14
KEMET is aware of section 1502 ‘‘Conflict Minerals’’ of the Dodd-Frank Wall Street Reform and
Consumer Protection Act and will comply with all reporting requirements.
Employees
We have approximately 11,000 employees as of March 31, 2011, of whom 600 are located in the
United States, 5,400 are located in Mexico, 2,800 in Asia and 2,200 in Europe. We believe that our
future success will depend in part on our ability to recruit, retain, and motivate qualified personnel at
all levels of the Company. The number of employees represented by labor organizations at KEMET
locations in each of the following countries is: 4,500 hourly employees in Mexico (as required by
Mexican law), 760 employees in Italy, 750 employees in Indonesia, 360 employees in Portugal, 330
employees in China, 290 employees in Bulgaria, 210 employees in Finland and 90 employees in
Sweden. In fiscal year 2011, we did not experience any major work stoppages. Our labor costs in
Mexico, Asia and various locations in Europe are denominated in local currencies, and a significant
depreciation or appreciation of the United States dollar against the local currencies would increase or
decrease our labor costs.
Securities Exchange Act of 1934 Reports
We maintain an Internet website at the following address: http://www.kemet.com. KEMET makes
available on or through our Internet website certain reports and amendments to those reports that are
filed or furnished to the Securities and Exchange Commission (‘‘SEC’’) pursuant to Section 13(a) or
15(d) in accordance with the Exchange Act. These include annual reports on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K. This information is available on our website
free of charge as soon as reasonably practicable after we electronically file the information with, or
furnish it to, the SEC.
Global Code of Conduct
On May 3, 2010, we adopted a new Global Code of Conduct (‘‘Code of Conduct’’), effective
August 1, 2010, which is applicable to all employees, officers, and directors of the Company. The Code
of Conduct addresses among other things, ethics in the workplace and marketplace, guidance for
making decisions and reporting violations of the law and the Code of Conduct, and the importance of
protecting the Company’s assets. The Code of Conduct was filed on May 6, 2010, with the SEC in our
Current Report on Form 8-K. Effective August 1, 2010, the Code of Conduct and any amendments
thereto will be immediately available at http://www.kemet.com.
ITEM 1A. RISK FACTORS.
This report contains certain statements that are forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes
and results may differ materially from those expressed in, or implied by, our forward-looking
statements. Words such as ‘‘expects,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates’’ and other similar
expressions or future or conditional verbs such as ‘‘will,’’ ‘‘should,’’ ‘‘would’’ and ‘‘could’’ are intended
to identify such forward-looking statements. Readers of this report should not rely solely on the
forward-looking statements and should consider all uncertainties and risks throughout this report. The
statements are representative only as of the date they are made, and we undertake no obligation to
update any forward-looking statement.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual
future results may differ materially from those set forth in our forward-looking statements. We face
risks that are inherent in the businesses and the market places in which we operate. While management
15
believes these forward-looking statements are accurate and reasonable, uncertainties, risks and factors,
including those described below, could cause actual results to differ materially from those reflected in
the forward-looking statements.
Factors that may cause the actual outcome and results to differ materially from those expressed in,
or implied by, these forward-looking statements include, but are not necessarily limited to the
following: (i) adverse economic conditions could impact our ability to realize operating plans if the
demand for our products declines, and such conditions could adversely affect our liquidity and ability to
continue to operate; (ii) adverse economic conditions could cause the write down of long-lived assets;
(iii) an increase in the cost or a decrease in the availability of our principal raw materials; (iv) changes
in the competitive environment; (v) uncertainty of the timing of customer product qualifications in
heavily regulated industries; (vi) economic, political, or regulatory changes in the countries in which we
operate; (vii) difficulties, delays or unexpected costs in completing the restructuring plan; (viii) inability
to attract, train and retain effective employees and management; (ix) inability to develop innovative
products to maintain customer relationships and offset potential price erosion in older products;
(x) exposure to claims alleging product defects; (xi) the impact of laws and regulations that apply to
our business, including those relating to environmental matters; (xii) volatility of financial and credit
markets affecting our access to capital; (xiii) needing to reduce the total costs of our products to
remain competitive; (xiv) potential limitation on the use of net operating losses to offset possible future
taxable income; (xv) restrictions in our debt agreements that limit our flexibility in operating our
business; (xvi) additional exercise of the warrant by K Equity which could potentially result in the
existence of a significant stockholder who could seek to influence our corporate decisions; and
(xvii) recent events in Japan could negatively impact our sales and supply chain.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations and could cause actual results to differ materially from those
included, contemplated or implied by the forward-looking statements made in this report, and the
reader should not consider the above list of factors to be a complete set of all potential risks or
uncertainties.
Adverse economic conditions could impact our ability to realize operating plans if the demand for our
products declines; and such conditions could adversely affect our liquidity and ability to continue to operate.
While our operating plans provide for cash generated from operations to be sufficient to cover our
future operating requirements, many factors, including reduced demand for our products, currency
exchange rate fluctuations, increased raw material costs, and other adverse market conditions could
cause a shortfall in net cash generated from operations. As an example, the electronics industry is a
highly cyclical industry. The demand for capacitors tends to reflect the demand for products in the
electronics market. Customers’ requirements for our capacitors fluctuate as a result of changes in
general economic activity and other factors that affect the demand for their products. During periods of
increasing demand for their products, they typically seek to increase their inventory of our products to
avoid production bottlenecks. When demand for their products peaks and begins to decline, they may
rapidly decrease orders for our products while they use up accumulated inventory. Business cycles vary
somewhat in different geographical regions, such as Asia, and within customer industries. We are also
vulnerable to general economic events beyond our control and our sales and profits may suffer in
periods of weak demand.
TTI, Inc., an electronics distributor, accounted for over 10% of our net sales in fiscal years 2011,
2010 and 2009. If our relationship with TTI, Inc. were to terminate, we would need to determine
alternative means of delivering our products to the end-customers served by TTI, Inc.
Our ability to realize operating plans is also dependent upon meeting our payment obligations and
complying with any applicable financial covenants under our debt agreements. If cash generated from
16
operating, investing and financing activities is insufficient to pay for operating requirements and to
cover interest payment obligations under debt instruments, planned operating and capital expenditures
may need to be reduced.
Adverse economic conditions could cause the write down of long-lived assets.
Long-lived assets and intangible assets subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset or
group of assets may not be recoverable. In the event that the test shows that the carrying value of
certain long-lived assets is impaired, we would be required to take an impairment charge to earnings
under U.S. generally accepted accounting principles. However, such a charge would have no direct
effect on our cash.
An increase in the cost or decrease in the availability of our principal raw materials could adversely
affect profitability.
The principal raw materials used in the manufacture of our products are tantalum powder,
palladium, aluminum and silver. These materials are considered commodities and are subject to price
volatility. Due to market constraints, we no longer purchase tantalum powder under long-term
contracts. Instead, we forecast our tantalum needs for the short-term (twelve weeks) and make
purchases based upon those forecasts; we currently have purchase agreements outstanding for three to
six months. While the financial impact of these decisions is short-term in nature given that we are not
currently party to any long-term supply agreements, they could impact our financial performance from
period to period given that we do not hedge any of our raw material exposure and we may be unable
to pass any fluctuations in our raw material costs on to our customers. Additionally, any delays in
obtaining raw materials for our products could hinder our ability to manufacture our products,
negatively impacting our competitive position and our relationships with our customers.
Presently, a finite number of suppliers process tantalum ore into capacitor-grade tantalum powder.
If there are significant fluctuations in demand, based on leadtime of ore to tantalum smelter, an
increase in the price of tantalum may result. If we are unable to pass the price increase on to our
customers it could have an adverse affect on our profitability.
Palladium is a precious metal used in the manufacture of multilayer ceramic capacitors and is
mined primarily in Russia and South Africa. We continue to pursue ways to reduce palladium usage in
ceramic capacitors in order to minimize the price risk. The amount of palladium that we require has
generally been available in sufficient quantities; however the price of palladium is driven by the market
which has shown significant price fluctuations. For instance, in fiscal year 2011 the price of palladium
fluctuated between $415 and $855 per troy ounce. Price increases and the possibility of our inability to
pass such increases on to our customers could have an adverse effect on profitability.
Silver and aluminum have generally been available in sufficient quantities, and we believe there are
a sufficient number of suppliers from which we can purchase our requirements. An increase in the
price of silver and aluminum that we are unable to pass on to our customers, however, could have an
adverse affect on our profitability.
Changes in the competitive environment could harm our business.
The capacitor business is highly competitive worldwide, with low transportation costs and few
import barriers. Competition is based on factors such as product quality and reliability, availability,
customer service, timely delivery and price. The industry has become increasingly consolidated and
globalized in recent years, and our primary U.S. and non-U.S. competitors, some of which are larger
than us, have significant financial resources. The greater financial resources of such competitors may
enable them to commit larger amounts of capital in response to changing market conditions. Some
17
competitors may also have the ability to use profits from other operations to subsidize losses sustained
in their businesses with which we compete. Certain competitors may also develop product or service
innovations that could put us at a disadvantage.
Uncertainty of the timing of customer product qualifications in heavily regulated industries could affect
the timing of product revenues and profitability arising from these industries.
Our capacitors are incorporated into products used in diverse industries. Certain of these
industries, such as military, aerospace and medical, are heavily regulated, with long and sometimes
unpredictable product approval and qualification processes. Due to such regulatory compliance issues,
there can be no assurances as to the timing of product revenues and profitability arising from our
product development and sales efforts in these industries.
We manufacture many capacitors in Europe, Mexico and Asia and economic political or regulatory
changes in any of these regions could adversely affect our profitability.
Our international operations are subject to a number of special risks, in addition to the same risks
as our domestic business. These risks include currency exchange rate fluctuations, differing protections
of intellectual property, trade barriers, labor unrest, exchange controls, regional economic uncertainty,
differing (and possibly more stringent) labor regulation, risk of governmental expropriation, domestic
and foreign customs and tariffs, current and changing regulatory regimes, differences in the availability
and terms of financing, political instability and potential increases in taxes. These factors could impact
our production capability or adversely affect our results of operations or financial condition.
We may experience difficulties, delays or unexpected costs in completing our restructuring plan.
In the second quarter of fiscal year 2010, we initiated a restructuring plan designed to improve the
operating performance of our Film and Electrolytic business group. However, any anticipated benefits
of this restructuring activity will not be realized until future periods. We anticipate the plan will be
completed in the second half of fiscal year 2014.
We may not realize, in full or in part, the anticipated benefits of the restructuring plan without
encountering difficulties, which may include complications in the transfer of production knowledge, loss
of key employees and/or customers, the disruption of ongoing business and possible inconsistencies in
standards, controls and procedures. We are party to collective bargaining agreements in certain
jurisdictions in which we operate which could potentially prevent or delay execution of parts of our
restructuring plan.
Our inability to attract, train and retain effective employees and management could harm our business.
Our success depends upon the continued contributions of our executive officers and certain other
employees, many of whom have many years of experience with us and would be extremely difficult to
replace. We must also attract and retain experienced and highly skilled engineering, sales and
marketing and managerial personnel. Competition for qualified personnel is intense in our industry,
and we may not be successful in hiring and retaining these people. If we lost the services of our
executive officers or our other highly qualified and experienced employees or cannot attract and retain
other qualified personnel, our business could suffer through less effective management due to loss of
accumulated knowledge of our business or through less successful products due to a reduced ability to
design, manufacture and market our products.
18
We must continue to develop innovative products to maintain relationships with our customers and to
offset potential price erosion in older products.
While most of the fundamental technologies used in the passive components industry have been
available for a long time, the market is nonetheless typified by rapid changes in product designs and
technological advances allowing for better performance, smaller size and/or lower cost. New
applications are frequently found for existing technologies, and new technologies occasionally replace
existing technologies for some applications or open up new business opportunities in other areas of
application. We believe that successful innovation is critical for maintaining profitability in the face of
potential erosion of selling prices for existing products and to ensure the flow of new products and
robust manufacturing processes that will keep us at the forefront of our customers’ product designs.
Non-customized commodity products are especially vulnerable to price pressure, but customized
products have also experienced price pressure in recent years. Developing and marketing new products
requires start-up costs that may not be recouped if these products or production techniques are not
successful. There are numerous risks inherent in product development, including the risks that we will
be unable to anticipate the direction of technological change or that we will be unable to develop and
market new products and applications in a timely fashion to satisfy customer demands. If this occurs,
we could lose customers and experience adverse effects on our results of operations.
We may be exposed to claims alleging product defects.
Our business exposes us to claims alleging product defects or nonconformance with product
specifications. We may be held liable for, or incur costs related to, such claims if any of our products,
or products in which our products are incorporated, are found to have caused end market product
application failures, product recalls, property damage or personal injury. Provisions in our agreements
with our customers and distributors which are designed to limit our exposure to potential material
product defect claims, including warranty, indemnification, waiver and limitation of liability provisions,
may not be effective under the laws of some jurisdictions. If we cannot successfully defend ourselves
against product defect claims, we may incur substantial liabilities. Regardless of the merits or eventual
outcome, defect claims could entail substantial expense and require the time and attention of key
management personnel.
Our commercial general liability insurance may not be adequate to cover all liabilities arising out
of product defect claims and, at any time, insurance coverage may not be available on commercially
reasonable terms or at all. If liability coverage is insufficient, a product defect claim could result in
liability to us which could materially and adversely affect our results of operations or financial
condition. Even if we have adequate insurance coverage, product defect claims or recalls could result in
negative publicity or force us to devote significant time and attention to those matters.
Various laws and regulations that apply to our business, including those relating to environmental
matters, could limit our ability to operate as we are currently and could result in additional costs.
We are subject to various laws and regulations of federal, state and local authorities in the
countries in which we operate regarding a wide variety of matters, including environmental,
employment, land use, anti-trust, and others that affect the day-to-day operations of our business. The
liabilities and requirements associated with the laws and regulations that affect us may be costly and
time-consuming. There can be no assurance that we have been or will be at all times in compliance
with such applicable laws and regulations. Failure to comply may result in the assessment of
administrative, civil and criminal penalties, the issuance of injunctions to limit or cease operations, the
suspension or revocation of permits and other enforcement measures that could have the effect of
limiting our operations. If we are pursued for sanctions, costs or liabilities in respect of these matters,
our operations and, as a result, our profitability could be materially and adversely affected.
19
We are subject to a variety of U.S. federal, state and local, as well as foreign, environmental laws
and regulations relating, among other things, to wastewater discharge, air emissions, handling of
hazardous materials, disposal of solid and hazardous wastes, and remediation of soil and groundwater
contamination. We use a number of chemicals or similar substances, and generate wastes, that are
considered hazardous. We are required to hold environmental permits to conduct many of our
operations. Violations of environmental laws and regulations could result in substantial fines, penalties,
and other sanctions. Changes in environmental laws or regulations (or in their enforcement) affecting
or limiting, for example, our chemical uses, certain of our manufacturing processes, or our disposal
practices, could restrict our ability to operate as we are currently operating or impose additional costs.
In addition, we may experience releases of certain chemicals or discover existing contamination, which
could cause us to incur material cleanup costs or other damages.
Volatility of financial and credit markets could affect our access to capital.
The continued uncertainty in the global financial and credit markets could impact our ability to
implement new financial arrangements or to modify our existing financial arrangements. An inability to
obtain new financing or to further modify existing financing could adversely impact the execution of
our restructuring plans and delay the realization of the expected cost reductions. Our ability to
generate adequate liquidity will depend on our ability to execute our operating plans and to manage
costs in light of developing economic conditions. An unanticipated decrease in sales, or other factors
that would cause the actual outcome of our plans to differ from expectations, could create a shortfall in
cash available to fund our liquidity needs. Being unable to access new capital, experiencing a shortfall
in cash from operations to fund our liquidity needs and the failure to implement an initiative to offset
the shortfall in cash would likely have a material adverse effect on our business.
We must consistently reduce the total costs of our products to remain competitive.
Our industry is intensely competitive and prices for existing commodity products tend to decrease
steadily over their life cycle. There is substantial and continuing pressure from customers to reduce the
total cost of using our parts. To remain competitive, we must achieve continuous cost reductions
through process and product improvements.
We must also be in a position to minimize our customers’ shipping and inventory financing costs
and to meet their other goals for rationalization of supply and production. Our growth and the profit
margins of our products will suffer if our competitors are more successful in reducing the total cost to
customers of their products than we are. We must also continue to introduce new products that offer
performance advantages over our existing products and can thereby achieve premium prices, offsetting
the price declines in our more mature products.
Our use of net operating losses to offset possible future taxable income could be limited by ownership
changes.
In addition to the general limitations on the carryback and carryforward of net operating losses
under Section 172 of the Internal Revenue Code (the ‘‘Code’’), Section 382 of the Code imposes
further limitations on the utilization of net operating losses by a corporation following ownership
changes which result in more than a 50 percentage point change in ownership of a corporation within a
three year period. Therefore, the future utilization of our net operating losses may be subject to
limitation for federal income tax purposes related to regular and alternative minimum tax.
The issuance of the Platinum Warrant to K Financing, as described above, may be deemed to have
been an ‘‘ownership change’’ for purposes of Section 382 of the Code. If such an ownership change is
deemed to have occurred, the amount of our taxable income that can be offset by our net operating
loss carryforwards in taxable years after the ownership change will be severely limited. While we believe
20
that the issuance of the Platinum Warrant did not result in an ownership change for purposes of
Section 382 of the Code, there is no assurance that our view will be unchallenged. Moreover, the
exercise of part or all of the Platinum Warrant may be deemed to have given rise to an ownership
change in the future.
The application of Section 382 of the Code now or in the future could limit a substantial part of
our future utilization of available net operating losses. Such limitation could require us to pay
substantial additional federal and state taxes and interest. Such tax and interest liabilities may adversely
affect our liquidity and financial position.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
The agreement governing our new revolving credit facility and the indenture governing the
Exchange Notes and certain of our other debt agreements contain various covenants that limit our
ability to engage in specified types of transactions. These covenants limit our and our restricted
subsidiaries’ ability to, among other things:
• incur additional indebtedness or issue certain preferred stock;
• pay dividends on, or make distributions in respect of, capital stock or repurchase capital stock;
• make certain investments or other restricted payments;
• sell certain assets;
• create liens or use assets as security in other transactions;
• enter into sale and leaseback transactions;
• merge, consolidate or transfer or dispose of substantially all of our assets; and
• engage in transactions with affiliates.
The agreement governing our new revolving credit facility also includes a fixed charge coverage
ratio covenant that we must satisfy if an event of default occurs or in the event that we do not meet
certain excess availability requirements under our new revolving credit facility. Our ability to comply
with this covenant is dependent on our future performance, which may be subject to many factors,
some of which are beyond our control.
K Equity may obtain significant influence over all matters submitted to a stockholder vote, which may
limit the ability of other shareholders to influence corporate activities and may adversely affect the market
price of our common stock.
As part of the consideration for entering into the Platinum Credit Facility, K Financing received
the Platinum Warrant to purchase up to 26,848,484 shares of our common stock (subject to certain
adjustments), representing 49.9% of our outstanding common stock at the time of issuance on a
post-exercise basis. This Platinum Warrant was subsequently transferred to K Equity, an affiliate of
K Financing. On December 20, 2010, K Equity sold a portion of the Platinum Warrant equal to
10,893,608 shares which was exercised on a net exercise basis and the resulting 10,000,000 shares of
which were sold by underwriters in an offering, leaving a remainder of 15,954,876 shares subject to the
Platinum Warrant. To the extent that K Equity exercises the remainder of the Platinum Warrant in
whole or in part but does not sell all or a significant part of the shares it acquires upon exercise,
K Equity may own up to 30.1% of our outstanding common stock. As a result, K Equity may have
substantial influence over the outcome of votes on all matters requiring approval by our stockholders,
including the election of directors, the adoption of amendments to our restated certificate of
incorporation and by-laws and approval of significant corporate transactions. K Equity could also take
actions that have the effect of delaying or preventing a change in control of us or discouraging others
21
from making tender offers for our shares, which could prevent stockholders from receiving a premium
for their shares. These actions make be taken even if other stockholders oppose them. Moreover, this
concentration of stock ownership may make it difficult for stockholders to replace management. In
addition, this significant concentration of stock ownership may adversely affect the trading price for our
common stock because investors often perceive disadvantages in owning stock in companies with
controlling stockholders. This concentration of control could be disadvantageous to other stockholders
with interests different from those of our officers, directors and principal stockholders, and the trading
price of shares of our common stock could be adversely affected.
Recent events in Japan could negatively impact our sales and supply chain.
To date, we have not experienced any decrease in our customers’ demands for our products as a
result of the recent earthquake and tsunami in Japan. However, these events might impact the supply
chains of our customers which could result in delays or cancellations of orders by our customers. Such
delays or cancellations would adversely affect our results of operations.
We currently have enough supply on hand to meet our short term needs. However, we could
experience supply shortages or delays in receiving supplies in the future due to the recent events in
Japan. Such shortages or delays could impact our ability to meet our customers’ demands.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
We are headquartered in Simpsonville, South Carolina, which is part of the greater Greenville
metropolitan area, and have a total of 22 manufacturing plants located in the United States, Mexico,
Europe and Asia. Some of our plants manufacture products for multiple business groups. Our existing
manufacturing and assembly facilities have approximately 3 million square feet of floor space and are
highly automated with proprietary manufacturing processes and equipment.
Our facilities in Mexico operate under the Maquiladora Program. In general, a company that
operates under this program is afforded certain duty and tax preferences and incentives on products
brought into the United States. Our manufacturing standards, including compliance with worker safety
laws and regulations, are essentially identical in the United States, Mexico, Europe and Asia. Our
Mexican, European and Asian operations, similar to our United States operations, have won numerous
quality, environmental and safety awards.
We have developed just-in-time manufacturing and sourcing systems. These systems enable us to
meet customer requirements for faster deliveries while minimizing the need to carry significant
inventory levels. We continue to emphasize flexibility in all of our manufacturing operations to improve
product delivery response times.
We believe that substantially all of our property and equipment is in good condition, and that
overall, we have sufficient capacity to meet our current and projected manufacturing and distribution
needs.
22
The following table provides certain information regarding our principal facilities:
Location(1)
Square
Footage
(in thousands)
Type of
Interest
Description
of Use
Simpsonville, South Carolina(2) . . . . .
372
Owned Headquarters, Innovation Center and
Advanced Tantalum Manufacturing
Tantalum Business Group
Matamoros, Mexico . . . . . . . . . . . . .
Suzhou, China(3) . . . . . . . . . . . . . . .
Ciudad Victoria, Mexico . . . . . . . . . .
Evora, Portugal . . . . . . . . . . . . . . . . .
Ceramic Business Group
Monterrey, Mexico(4) . . . . . . . . . . . .
Film and Electrolytic Business Group
Sasso Marconi, Italy . . . . . . . . . . . . .
Suzhou, China . . . . . . . . . . . . . . . . .
Granna, Sweden . . . . . . . . . . . . . . . .
Suomussalmi, Finland . . . . . . . . . . . .
Batam, Indonesia . . . . . . . . . . . . . . .
Kyustendil, Bulgaria . . . . . . . . . . . . .
Landsberg, Germany . . . . . . . . . . . . .
Weymouth, United Kingdom . . . . . . .
Vergato, Italy . . . . . . . . . . . . . . . . . .
Monghidoro, Italy . . . . . . . . . . . . . . .
Anting, China . . . . . . . . . . . . . . . . . .
Nantong, China . . . . . . . . . . . . . . . .
Farjestaden, Sweden . . . . . . . . . . . . .
Northampton, United Kingdom . . . . .
286
353
265
233
532
215
134
132
121
86
82
81
96
78
71
38
30
28
8
Owned Manufacturing
Leased Manufacturing
Owned Manufacturing
Owned Manufacturing
Owned Manufacturing
Owned Manufacturing
Leased Manufacturing
Owned Manufacturing
Leased Manufacturing
Owned Manufacturing
Owned Manufacturing
Leased Manufacturing
Leased Manufacturing
Owned Manufacturing
Owned Manufacturing
Owned Manufacturing
Leased Manufacturing
Leased Manufacturing
Leased Manufacturing
(1) In addition to the locations listed within this table, the company has acquired land in Italy to be
used as the site for a new manufacturing facility in order to consolidate our Italian operations.
(2) In June 2011, we expect to begin the production of power film capacitors in this facility to support
alternative energy products and emerging green technologies, such as hybrid electric drive vehicles.
In fiscal year 2013, we expect to begin production of electrolytic capacitors to further support
alternative energy products and emerging green technologies.
(3) Includes two manufacturing facilities, one of which also performs finishing for Ceramic products.
(4) Includes two manufacturing facilities and houses production of F&E product lines.
Over the past several years, low production costs and proximity to large, growing markets have
caused many of our key customers to relocate production facilities to Asia, particularly China. We have
a well-established sales and logistics network in Asia to support our customers’ Asian operations. In
calendar year 2003, we commenced shipments from our production facility in Suzhou, China near
Shanghai (‘‘Suzhou Plant A’’). In connection with the Evox Rifa acquisition, which was completed in
April 2007, we added another Chinese operation in Nantong, China as well as a manufacturing
operation in Batam, Indonesia. With the Arcotronics acquisition, which was completed in October 2007,
we have further expanded our presence in China with a manufacturing operation in Anting, China.
These operations will continue to support the former Evox Rifa and Arcotronics customer bases in
Asia with top quality film and electrolytic capacitors. In the fourth quarter of fiscal year 2010, we began
23
to manufacture aluminum polymer products in a new leased facility in Suzhou Plant B. During the
second quarter of fiscal year 2012, we expect to begin production of standard and commodity Film and
Electrolytic products in a new leased facility in Suzhou, China (‘‘Suzhou Plant C’’).
ITEM 3. LEGAL PROCEEDINGS.
We or our subsidiaries are at any one time parties to a number of lawsuits arising out of their
respective operations, including workers’ compensation or work place safety cases, some of which
involve claims of substantial damages. Although there can be no assurance, based upon information
known to us, we do not believe that any liability which might result from an adverse determination of
such lawsuits would have a material adverse effect on our financial condition or results of operations.
ITEM 4.
[RESERVED AND REMOVED]
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age, business experience, positions and offices held and period served in such positions
or offices for each of the executive officers and certain key employees of the Company is as listed
below.
Name
Age
Position
Per-Olof Loof . . . . . . . . . .
. . . .
William M. Lowe, Jr.
Robert R. Arg¨uelles . . . . .
60 Chief Executive Officer and Director
58 Executive Vice President and Chief Financial Officer
44
Senior Vice President, Operational Excellence and
Quality
Conrado Hinojosa . . . . . .
Marc Kotelon . . . . . . . . . .
Charles C. Meeks, Jr.
. . . .
. . . . . . . .
Susan B. Barkal
Senior Vice President Sales—Global Sales
46 Executive Vice President, Tantalum Business Group
47
50 Executive Vice President, Ceramic Business Group
48 Vice President, Corporate Quality and Chief
Compliance Officer
Daniel E. LaMorte . . . . . .
Dr. Phillip M. Lessner . . .
Larry C. McAdams . . . . . .
Dr. Daniel F. Persico . . . .
Senior Vice President and Chief Technology Officer
65 Vice President and Chief Information Officer
52
59 Vice President, Human Resources
55 Vice President, Strategic Marketing and Business
R. James Assaf . . . . . . . . .
Michael W. Boone . . . . . .
David S. Knox . . . . . . . . .
51 Vice President, General Counsel and Secretary
60 Vice President and Treasurer
47 Vice President and Corporate Controller
Development
Years with
Company(1)
6
3
3
12
17
27
11
7
15
27
10
3
24
3
(1) Includes service with Union Carbide Corporation.
Executive Officers
Per-Olof Loof, Chief Executive Officer and Director, was named such in April 2005. Mr. Loof was
previously the Managing Partner of QuanStar Unit LLC, a management consulting firm. Prior to this,
he served as Chief Executive Officer of Sensormatic Electronics Corporation and in various
management roles with Andersen Consulting, Digital Equipment Corporation, AT&T and NCR.
Mr. Loof serves as a board member of Global Options Inc., and Devcon International Corporation. He
received a ‘‘civilekonom examen’’ degree in economics and business administration from the Stockholm
School of Economics.
William M. Lowe, Jr., Executive Vice President and Chief Financial Officer, was named such in
July 2008. Mr. Lowe was previously the Vice President, Chief Operating Officer and Chief Financial
24
Officer of Unifi, Inc., a producer and processor of textured synthetic yarns from January 2004 to
October 2007. Prior to holding that position, he was Executive Vice President and Chief Financial
Officer for Metaldyne, an automotive components manufacturer. He also held various financial
management positions with ArvinMeritor, Inc., a premier global supplier of integrated automotive
components. He received his Bachelor of Science degree in business administration with a major in
accounting from Tri-State University and is a Certified Public Accountant.
Robert R. Arg¨uelles, Senior Vice President, Operational Excellence and Quality, joined KEMET
as such in September 2008. Mr. Arg¨uelles previously served as Vice President and Plant Manager with
Continental Automotive Systems, which followed his role as a top research and development executive
in Continental’s North American Chassis & Safety division. Prior to Continental Automotive,
Mr. Arg¨uelles worked at Valeo Electronics/ITT Automotive where he was the Product Line Director
for Valeo’s North American Sensors and Electronics product lines. Mr. Arg¨uelles began his career
serving in technical roles at Electronic Data Systems in the Delco Chassis Division. He received a
Bachelor of Science degree in Mechanical Engineering, Dynamics and Controls, from Old Dominion
University in Norfolk, Virginia.
Conrado Hinojosa, Executive Vice President, Tantalum Business Group, was named such in May
2011. He joined KEMET in 1999 in the position of Plant Manager of the Monterrey 3 plant in Mexico.
Mr. Hinojosa later served as the Operations Director for the Tantalum Division in Matamoros, Mexico
and was later named Vice President, Tantalum Business Group in June 2005 and Senior Vice President,
Tantalum Business Group in October 2007. Prior to joining KEMET, Mr. Hinojosa held numerous
manufacturing positions with IBM de Mexico and had previous experience with Kodak. Mr. Hinojosa
received a Masters of Business Administration degree from Instituto Technologico de Estudios
Superiores de Monterrey and a Bachelor of Science degree in Mechanical Engineering from
Universidad Autonoma de Guadalajara.
Marc Kotelon, Senior Vice President, Global Sales, was named such in August 2008. He joined
KEMET in 1994 and has held various positions of increased responsibility in the sales area prior to the
appointment to his current position. Mr. Kotelon received a Bachelor of Science degree in Electronics
from Ecole Centrale d’Electronique/Paris.
Charles C. Meeks, Jr., Executive Vice President, Ceramic, Film and Electrolytic Business Group,
was named such in May 2011. He joined Union Carbide/KEMET in 1983 in the position of Process
Engineer, and has held various positions of increased responsibility including the positions of Plant
Manager and Director of Operations, Ceramic Business Group. He was named Vice President, Ceramic
Business Group in June 2005, Senior Vice President, Ceramic Business Group in October 2007 and
Senior Vice President, Ceramic, Film and Electrolytic Business Group in March 2010. In addition, since
January 2000, Mr. Meeks has served as President of Top Notch Inc., a private company that offers
stress management therapy services. Mr. Meeks received a Masters of Business Administration degree
and a Bachelor of Science degree in Ceramic Engineering from Clemson University.
Susan B. Barkal, Vice President of Quality and Chief Compliance Officer, was named such in
December 2008. Ms. Barkal joined KEMET in November 1999, and has served as Quality Manager for
Tantalum Business Group, Technical Product Manager for all Tantalum product lines and Director of
Tantalum Product Management. Ms. Barkal holds a Bachelor of Science degree in Chemical
Engineering from Clarkson University and a Master of Science degree in Mechanical Engineering from
California Polytechnic University.
Daniel E. LaMorte, Vice President and Chief Information Officer, joined KEMET as such in May
2004. Prior to joining KEMET, Mr. LaMorte held numerous Information Technology positions with
Keycorp, Elf Acquitaine, Fisher Scientific and U.S. Steel Corp. Mr. LaMorte had previously served as
Vice President of Worldwide Marketing and Sales for Chemcut, a manufacturer of capital equipment
and chemicals in the electronics industry. Prior to Keycorp, Mr. LaMorte served as Chief Information
25
Officer at Submit Order, an E-commerce start-up in Columbus, Ohio. Mr. LaMorte holds a Bachelor
of Science degree from the University of Pittsburgh and a Master of Business Administration from
Fairleigh Dickinson University.
Dr. Philip M. Lessner, Senior Vice President, Chief Technology Officer and Chief Scientist, was
named such in May 2011. He joined KEMET in 1996 as a Technical Associate in the Tantalum
Technology Group. He has held several positions of increased responsibility in the Technology and
Product Management areas including Senior Technical Associate, Director Tantalum Technology,
Director Technical Marketing Services, Vice President Tantalum Technology and Vice President, Chief
Technology Officer and Chief Scientist prior to his appointment to his current position. Mr. Lessner
received a Ph.D. in Chemical Engineering from the University of California, Berkeley and a Bachelor
of Engineering in Chemical Engineering from Cooper Union.
Larry C. McAdams, Vice President and Chief Human Resources Officer, joined Union Carbide/
KEMET in 1983. He previously served as the site Human Resources Manager at the Columbus, GA;
Shelby, NC; and Fountain Inn, SC, plants. Since 1991, he has been assigned to the corporate HR staff,
where he was appointed a Director in 1999, Senior Director in 2002, and Vice President in 2003.
Mr. McAdams received a Bachelor of Arts in Political Science from Clemson University and attended
the University of South Carolina School of Law.
Dr. Daniel F. Persico, Vice President, Strategic Marketing and Business Development, joined
KEMET in November 1997, and served as Director of Tantalum Technology, Vice President of
Tantalum Technology, and Vice President of Organic Process Technology. Prior to his return to
KEMET in December 2006, he held the position of the Executive Vice President and Chief Technology
Officer of H.W. Sands Corporation, a manufacturer and distributor of specialty chemicals. Dr. Persico
holds a Ph.D. in Chemistry from the University of Texas and a Bachelor of Science degree in Chemistry
from Boston College.
Other Key Employees
R. James Assaf, Vice President, General Counsel and Secretary, was named such in July 2008.
Mr. Assaf joined KEMET as Vice President, General Counsel in March 2008. Prior to joining KEMET,
Mr. Assaf served as General Manager for InkSure Inc., a start-up seller of product authentication
solutions. He had also previously held several positions with Sensormatic Electronics Corporation,
including Associate General Counsel and Director of Business Development, Mergers & Acquisitions.
Prior to Sensormatic, Mr. Assaf served as an Associate Attorney with the international law firm Squire
Sanders & Dempsey. Mr. Assaf received his Bachelor of Arts degree from Kenyon College and his
Juris Doctor degree from Case Western Reserve University School of Law.
Michael W. Boone, Vice President and Treasurer, was named such in July 2008. Mr. Boone joined
KEMET in June 1987 as Manager of Credit and Cash Management and has previously held the
positions of Senior Director of Finance and Corporate Secretary before his appointment to his current
position. Mr. Boone holds a Bachelor of Business Administration degree in Banking and Finance from
the University of Georgia.
David S. Knox, Vice President and Corporate Controller, joined KEMET as such in February
2008. From November 1999 through February 2008, Mr. Knox held various financial positions at
Unifi, Inc. and was the Corporate Controller from August 2002 through February 2008. Mr. Knox
received a Bachelor of Science degree in Business Administration from the University of North
Carolina at Chapel Hill and is a Certified Public Accountant.
26
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
On November 5, 2010, the Company filed with the Secretary of State of Delaware a Certificate of
Amendment to its Restated Certificate of Incorporation to effect the Reverse Stock Split of the
Company’s common stock at a ratio equal to one-for-three. The Reverse Stock Split was approved at a
special meeting of our stockholders on November 3, 2010. All share and per share data in this
Form 10-K gives effect to the Reverse Stock Split. On November 15, 2010, our common stock
commenced trading on the NYSE under the ticker symbol ‘‘KEM’’ (NYSE: KEM).
We had 73 stockholders of record as of April 30, 2011. The following table represents the high and
low sale prices of our common stock for the periods indicated:
Quarter
Fiscal Year 2011
Fiscal Year 2010
High
Low
High
Low
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7.35
11.88
14.82
16.49
$
4.20
6.78
8.31
12.90
$ 0.84
1.60
1.60
1.74
$ 0.24
0.45
1.15
1.24
We have not declared or paid any cash dividends on our common stock since our initial public
offering in October 1992. We do not anticipate paying dividends in the foreseeable future. Any future
determination to pay dividends will be at the discretion of our Board and will depend upon, among
other factors, the capital requirements, operating results, and our financial condition. See
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity
and Capital Resources.’’
In fiscal year 2008, we reactivated our share buyback program and repurchased 1.2 million shares
of our common stock. In fiscal year 2009, we indefinitely suspended the share buyback program and
since that time we have not repurchased any shares of our common stock.
27
PERFORMANCE GRAPH
The following graph compares our cumulative total stockholder return for the past five fiscal years,
beginning on April 1, 2006, with the Russell Microcap Index and a peer group (the ‘‘Peer Group’’)
comprised of certain companies which manufacture capacitors and with which we generally compete.
The Peer Group is comprised of AVX Corporation, Thomas & Betts Corporation and Vishay
Intertechnology, Inc.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among KEMET Corporation, the Russell MicroCap Index
and a Peer Group
$120
$100
$80
$60
$40
$20
$0
2006
2007
2008
2009
2010
2011
Kemet Corporatin
Russell MicroCap
17MAY201121293754
Peer Group
*
$100 invested on 3/31/06 in stock or index, including reinvestment of dividends. Fiscal year ended
March 31.
Kemet Corporatin . . . . . . . . . . . . . . . . . . . . . . . . . .
Russell MicroCap . . . . . . . . . . . . . . . . . . . . . . . . . .
Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
100.00
100.00
80.78
103.05
92.96
42.66
82.27
69.82
2.59
47.97
43.25
14.78
79.22
78.39
52.20
99.27
114.21
Cummulative Total Return, Fiscal Years Ended
2006
2007
2008
2009
2010
2011
28
Equity Compensation Plan Disclosure
The following table summarizes equity compensation plans approved by stockholders and equity
compensation plans that were not approved by stockholders as of March 31, 2011:
(a)
(b)
(c)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants,
and rights
Weighted-average
exercise price of
outstanding
options, warrants,
and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
Plan category
Equity compensation plans approved by
stockholders . . . . . . . . . . . . . . . . . . . . . . . .
1,626,380
$ 15.03
Equity compensation plans not approved by
stockholders . . . . . . . . . . . . . . . . . . . . . . . .
—
1,626,380
—
$ 15.03
568,995
—
568,995
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes our selected historical consolidated financial information for each
of the last five years. The selected financial information under the captions ‘‘Income Statement Data,’’
‘‘Per Share Data,’’ ‘‘Balance Sheet Data,’’ and ‘‘Other Data’’ shown below has been derived from our
audited consolidated financial statements. This selected financial information reflects the Reverse Stock
Split of the Company’s common stock at a ratio equal to one-for-three. This table should be read in
conjunction with other consolidated financial information of KEMET, including ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations’’ and the consolidated
financial statements, included elsewhere herein. The data set forth below may not be indicative of our
29
future financial condition or results of operations (see Item 1A, ‘‘Risk Factors’’) (amounts in thousands
except per share amounts):
Income Statement Data:
Net sales . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . .
Net income (loss)(7) . . . . . . . . . . . . .
Per Share Data:
Net income (loss) per share—basic . . .
Net income (loss) per share—diluted . .
Balance Sheet Data:
Total assets . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . .
Long-term debt(2)(4)(5)(6) . . . . . . . . .
Other non-current obligations . . . . . . .
Stockholders’ equity(7) . . . . . . . . . . . .
Other Data:
Cash flow provided by (used in)
operating activities . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . .
Research and development . . . . . . . . .
Fiscal Years Ended March 31,
2011
2010
2009
2008(3)
2007(1)
$ 1,018,488
129,261
(218)
30,175
63,044
$ 736,335
7,697
(188)
26,008
(69,447)
$ 804,385
(271,112)
(618)
29,789
(285,209)
$
850,120
(8,881)
(6,061)
21,696
(25,215)
$ 658,714
7,078
(6,283)
9,865
4,206
$
$
$
$
2.11
1.22
$
$
(2.57) $
(2.57) $
(10.62) $
(10.62)
(0.91) $
(0.91)
0.15
0.15
884,309
316,866
231,215
59,727
359,753
$ 740,961
226,600
231,629
55,626
284,272
$ 714,151
195,142
280,752
57,316
240,039
$ 1,250,999
239,059
269,354
80,130
576,831
$ 942,373
337,943
195,931
19,587
577,419
113,968
34,989
25,864
$ 54,620
12,921
22,064
$
5,725
30,541
28,956
$
(20,563) $ 21,933
28,670
43,605
33,385
35,699
(1) In fiscal year 2007, the Company acquired the EPCOS tantalum business unit.
(2) In fiscal year 2007, the Company issued $175.0 million in Convertible Notes.
(3) In fiscal year 2008, the Company acquired Evox Rifa on April 24, 2007 and Arcotronics on
October 12, 2007.
(4) In fiscal year 2008, the Company entered into two Senior Facility Agreements with UniCredit
whereby it borrowed a total of A96.8 million.
(5) In fiscal year 2009, the Company paid the outstanding balance on its Senior Notes and refinanced
Facility A with UniCredit totaling A60.0 million ($79.8 million). On April 3, 2009, the Company
extended Facility B with UniCredit totaling A35.0 million ($46.6 million). The scheduled
amortization of Facility A was amended effective June 30, 2009.
(6) In fiscal year 2010, the Company repurchased $93.9 million in face value of Convertible Notes and
incurred additional borrowings of $57.8 million with K Financing.
(7) In fiscal year 2010, the Platinum Warrant was initially classified as a derivative and the Company
recorded a mark-to-market adjustment of $81.1 million through earnings. As of September 29,
2009, the strike price of the Platinum Warrant became fixed and the Company reevaluated the
Platinum Warrant concluding that the Platinum Warrant is indexed to the Company’s own stock
and should be classified as a component of equity. The Company reclassified the warrant liability
of $112.5 million into the line item ‘‘Additional paid-in capital’’ on the Consolidated Balance
Sheets and the Platinum Warrant was no longer marked-to-market.
30
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis provides information that we believe is useful in
understanding our operating results, cash flows, and financial condition for the three fiscal years ended
March 31, 2011. The discussion should be read in conjunction with, and is qualified in its entirety by
reference to, the consolidated financial statements and related notes appearing elsewhere in this report.
Except for the historical information contained herein, the discussions in this document contain
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995
and involve risks and uncertainties. Our actual future results could differ materially from those
discussed here. Factors that could cause or contribute to such differences include, but are not limited
to, those discussed under the Item 1A, ‘‘Risk Factors’’ and, from time to time, in our other filings with
the Securities and Exchange Commission.
Business Overview
We are a leading global manufacturer of a wide variety of capacitors. Our product offerings
include tantalum, multilayer ceramic, solid and electrolytic aluminum and film and paper capacitors.
Capacitors are fundamental components of most electronic circuits and are found in communication
systems, data processing equipment, personal computers, cellular phones, automotive electronic systems,
defense and aerospace systems, consumer electronics, power management systems and many other
electronic devices and systems. Capacitors are typically used to filter out interference, smooth the
output of power supplies, block the flow of direct current while allowing alternating current to pass and
for many other purposes. We manufacture a broad line of capacitors in many different sizes and
configurations using a variety of raw materials. Our product line consists of over 250,000 distinct part
configurations distinguished by various attributes, such as dielectric (or insulating) material,
configuration, encapsulation, capacitance level and tolerance, performance characteristics and
packaging. Most of our customers have multiple capacitance requirements, often within each of their
products. Our broad product offering allows us to meet the majority of those needs independent of
application and end use. In fiscal year 2011, fiscal year 2010 and fiscal year 2009, we shipped 35 billion,
31 billion and 32 billion capacitors, respectively. We believe the medium-to-long term demand for the
various types of capacitors we offer will continue to grow on a regional and global basis due to a
variety of factors, including increasing demand for and complexity of electronic products, growing
demand for technology in emerging markets and the ongoing development of new solutions for energy
generation and conservation.
Our Competitive Strengths
We believe that we benefit from the following competitive strengths:
Strong Customer Relationships. We have a large and diverse customer base. We believe that our
persistent emphasis on quality control and history of performance establishes loyalty with OEMs, EMSs
and distributors. Our customer base includes most of the world’s major electronics OEMs (including
Alcatel-Lucent USA, Inc., Apple Inc., Cisco Systems, Inc., Dell Inc., Hewlett-Packard Company,
International Business Machines Corporation, Intel Corporation, Motorola, Inc. and Nokia
Corporation), EMSs (including Celestica Inc., Elcoteq SE, Flextronics International LTD, Jabil
Circuit, Inc. and Sanmina-SCI Corporation) and distributors (including TTI, Inc., Arrow Electronics,
Inc. and Avnet, Inc.). Our strong, extensive and efficient worldwide distribution network is one of our
differentiating factors. We believe our ability to provide innovative and flexible service offerings,
superior customer support and focus on speed-to-market result in a more rewarding customer
experience, earning us a high degree of customer loyalty.
31
Breadth of Our Diversified Product Offering and Markets. We believe that we have the most
complete line of primary capacitor types, across a full spectrum of dielectric materials including
tantalum, ceramic, solid and electrolytic aluminum, film and paper. As a result, we believe we can
satisfy virtually all of our customers’ capacitance needs, thereby strengthening our position as their
supplier of choice. We sell our products into a wide range of different end markets, including
computing, industrial, telecommunications, transportation, consumer, defense and healthcare markets
across all geographic regions. No single end market segment accounted for more than 30% and only
one customer, TTI, Inc., accounted for more than 10% of our net sales in fiscal year 2011. Our largest
customer is a distributor, and no single end use customer accounted for more than 5% of our net sales
in fiscal year 2011. We believe that well-balanced product, geographic and customer diversification help
us mitigate some of the negative financial impact through economic cycles.
Leading Market Positions and Operating Scale. Based on net sales, we believe that we are the
largest manufacturer of tantalum capacitors in the world and one of the largest manufacturers of direct
current film capacitors in the world and have a significant market position in the specialty ceramics and
custom wet aluminum electrolytic markets. We believe that our leading market positions and operating
scale allow us to realize production efficiencies, leverage economies of scale and capitalize on growth
opportunities in the global capacitor market.
Strong Presence in Specialty Products. We engage in design collaboration with our customers in
order to meet their specific needs and provide them with customized products satisfying their
engineering specifications. During fiscal years 2011 and 2010, respectively, specialty products accounted
for 36.5% and 29.6% of our revenue. By allocating an increasing portion of our management resources
and research and development investment to specialty products, we have established ourselves as one of
the leading innovators in this fast growing emerging segment of the market, which includes healthcare,
renewable energy, telecom infrastructure and oil and gas. For example, in August 2009, we were
selected as one of thirty companies to receive a grant from the Department of Energy. Our
$15.1 million award will enable us to produce film and electrolytic capacitors within the United States
to support alternative energy products and emerging green technologies such as hybrid electric drive
vehicles. Producing these parts in the United States will allow us to compete effectively in the
alternative energy market in North America and South America.
Low-Cost Production. We believe we have some of the lowest cost production facilities in the
industry. Many of our key customers have relocated their production facilities to Asia, particularly
China. We believe our manufacturing facilities in China have low production costs and are in close
proximity to the large and growing Chinese market; in addition, we have the ability to increase capacity
and change product mix to meet our customers’ needs. We believe our operations in Mexico, which are
our primary production facilities supporting our North American and, to a larger extent, European
customers, are among the most cost-efficient in the world.
Our Brand. Founded by Union Carbide in 1919 as KEMET Laboratories, we believe that we have
a reputation as a high quality, efficient and affordable partner that sets our customers’ needs as the top
priority. This has allowed us to successfully attract loyal clientele and enabled us to expand our
operations and market share over the past few years. We believe our commitment to addressing the
needs of the industry in which we operate has differentiated us from our competitors and established
us as the ‘‘Easy-To-Buy-From’’ company.
Our People. We believe that we have successfully developed a unique corporate culture based on
innovation, customer focus and commitment. We have a strong, highly experienced and committed
team in each of our markets. Many of our professionals have developed unparalleled experience in
building leadership positions in new markets, as well as successfully integrating acquisitions. Our
16 member management team has an average of over 12 years of experience with us and an average of
over 25 years of experience in the manufacturing industry.
32
Business Strategy
Our strategy is to use our position as a leading, high-quality manufacturer of capacitors to
capitalize on the increasingly demanding requirements of our customers. Key elements of our strategy
include:
One KEMET Campaign. We continue to focus on improving our business capabilities through
various initiatives that all fall under our One KEMET campaign. The One KEMET campaign aims to
ensure that we as a company are focused on the same goals and working with the same processes and
systems to ensure consistent quality and service. This effort was launched to ensure that as we continue
to grow we not only remain grounded in our core principles but that we use those principles, operating
procedures and systems as the foundation from which to expand. These initiatives include our global
Oracle software implementation which is on schedule, our Lean and Six Sigma culture evolution and
our global customer accounts management system which is now in place and growing.
Develop Our Significant Customer Relationships and Industry Presence. We intend to continue to be
responsive to our customers’ needs and requirements and to make order entry and fulfillment easier,
faster, more flexible and more reliable for our customers, by focusing on building products around
customers’ needs, by giving decision making authority to customer-facing personnel and by providing
purpose-built systems and processes, such as our Easy-To-Buy-From order entry system.
Continue to Pursue Low-Cost Production Strategy. We are actively pursuing measures that will
allow us to maintain our position as a low-cost producer of capacitors with facilities close to our
customers. We have shifted and will continue to shift production to low cost locations in order to
reduce material and labor costs. Additionally, we are focused on developing more cost-efficient
manufacturing equipment and processes, designing manufacturing plants for more efficient production
and reducing work-in-process (‘‘WIP’’) inventory by building products from start to finish in one
factory. Furthermore, we are implementing the Lean and Six Sigma methodology to drive towards zero
product defects so that quality remains a given in the minds of our customers.
Leverage Our Technological Competence and Expand Our Leadership in Specialty Products. We
continue to leverage our technological competence to introduce new products in a timely and
cost-efficient manner and generate an increasing portion of our sales from new and customized
solutions to meet our customers’ varied and evolving capacitor needs as well as to improve financial
performance. We believe that by continuing to build on our strength in the higher growth and higher
margin specialty segments of the capacitor market, we will be well positioned to achieve our long-term
growth objectives while also improving our profitability. During fiscal year 2011, we introduced 14,947
new products of which 129 were first to market, and specialty products accounted for 36.5% of our
revenue over this period.
Further Expand Our Broad Capacitance Capabilities. We define ourselves as ‘‘The Capacitance
Company’’ and strive to be the supplier of choice for all our customers’ capacitance needs across the
full spectrum of dielectric materials including tantalum, ceramic, solid and electrolytic aluminum, film
and paper. While we believe we have the most complete line of capacitor technologies across these
primary capacitor types, we intend to continue to research and pursue additional capacitance
technologies and solutions in order to maximize the breadth of our product offerings.
Selectively Target Complementary Acquisitions. We expect to continue to evaluate and pursue
strategic acquisition opportunities, some of which may be significant in size, which would enable us to
enhance our competitive position and expand our market presence. Our strategy is to acquire
complementary capacitor and other related businesses that would allow us to leverage our business
model, potentially including those involved in other passive components that are synergistic with our
customers’ technologies and our current product offerings.
33
Promote the KEMET Brand Globally. We are focused on promoting the KEMET brand globally
by highlighting the high-quality and high reliability of our products and our superior customer service.
We will continue to market our products to new and existing customers around the world in order to
expand our business. We continue to be recognized by our customers as a leading global supplier. For
example, in calendar year 2010, we received the ‘‘Supplier Excellence Award’’ from TTI, Inc., an
electronics distributor.
Global Sales & Marketing Strategy. Our motto ‘‘Think Global Act Local’’ describes our approach
to sales and marketing. Each of our three sales regions (Americas, EMEA and APAC) has account
managers, field application engineers and strategic marketing managers in the region. In addition, we
also have local customer and quality-control support in each region. This organizational structure allows
us to respond to the needs of our customers on a timely basis and in their native language. The regions
are managed locally and report to a senior manager who is on the KEMET Leadership Team.
Furthermore, this organizational structure ensures the efficient communication of our global goals and
strategies and allows us to serve the language, cultural and other region-specific needs of our
customers.
KEMET is organized into three business groups: Tantalum, Ceramic, and Film and Electrolytic.
Each business group is responsible for the operations of certain manufacturing sites as well as all
related research and development efforts. The sales and marketing functions are shared by each of the
business groups, the costs of which are allocated to the business groups. In addition, all corporate costs
are allocated to the business groups. See Note 7, ‘‘Segment and Geographic Information’’ to our
consolidated financial statements.
Recent Developments and Trends
Net sales for the quarter ended March 31, 2011 were $261.5 million, which is a 22.8% increase
over the same quarter last fiscal year. Net income was $21.1 million, or $0.57 per basic share and
$0.40 per diluted share for the fourth quarter of fiscal year 2011 compared to net income of
$0.3 million or $0.01 per basic and diluted share for the same quarter last year.
On November 3, 2010, our shareholders approved a Reverse Stock Split of our common stock at a
ratio of 1-for-3. The Reverse Stock Split became effective November 5, 2010, pursuant to a Certificate
of Amendment to our Restated Certificate of Incorporation filed with the Secretary of State of
Delaware. We had 27.1 million shares of common stock issued and outstanding immediately following
the completion of the Reverse Stock Split. We are authorized in the Restated Certificate of
Incorporation to issue up to a total of 300.0 million shares of common stock at a $0.01 par value per
share, which was unchanged by the amendment. The Reverse Stock Split did not affect the registration
of the common stock under the Exchange Act or the listing of the common stock, under the symbol
‘‘KEM’’, although the post-split shares have a new listing with a new CUSIP number. In the
Consolidated Balance Sheets, the line item ‘‘Stockholders’ equity’’ has been retroactively adjusted to
reflect the Reverse Stock Split for all periods presented by reducing the line item ‘‘Common stock’’ and
increasing the line item ‘‘Additional paid-in capital’’, with no change to Stockholders’ equity in the
aggregate. All share and per share computations have been retroactively adjusted for all periods
presented to reflect the decrease in shares as a result of this transaction except as otherwise noted.
On December 20, 2010, in connection with a secondary offering in which K Equity was the selling
security holder, K Equity sold a portion of the Platinum Warrant representing the right to purchase
10.9 million shares of our common stock to the underwriters of the secondary offering, who exercised
their full portion of the warrant in a cashless exercise, based on an exercise price of $1.05 per share
and a closing price of $12.80, and received a net settlement of 10.0 million shares of our common
stock. These shares were sold as part of a secondary offering and KEMET did not receive any of the
proceeds from the transaction. K Equity retained the unsold portion of the warrant, representing the
34
right to purchase 16.0 million shares of our common stock. In March 2011, the Company registered
seven million shares subject to issuance upon the partial exercise of the remaining Platinum Warrant.
On April 8, 2010, we reported that we had reached an agreement with three labor unions in Italy
and with the regional government in Emilia Romagna, Italy to proceed with the first phase of our
restructuring plan. We intend to focus on producing specialty products in Europe and the U.S. and shift
standard and commodity production to lower cost regions.
Issuance of 10.5% Senior Notes
On May 5, 2010, we completed a private placement of $230.0 million in aggregate principal
amount of our 10.5% Senior Notes due 2018 (the ‘‘10.5% Senior Notes’’). The private placement of the
10.5% Senior Notes resulted in proceeds to us of $222.2 million. We used a portion of the proceeds of
the private placement to repay all of the outstanding indebtedness under our credit facility with
K Financing, LLC, our EUR 60 million credit facility and EUR 35 million credit facility with UniCredit
and our term loan with a subsidiary of Vishay. We used a portion of the remaining proceeds to fund a
previously announced tender offer to purchase $40.5 million in aggregate principal amount of our
2.25% Convertible Senior Notes (the ‘‘Convertible Notes’’) and to pay costs incurred in connection with
the private placement, the tender offer and the foregoing repayments. We incurred $6.6 million in costs
related to the execution of the offering.
On October 26, 2010, we filed a Form S-4 to offer, in exchange for our Old Notes, up to
$230.0 million in aggregate principal amount of 10.5% Senior Notes due 2018 and the guarantees
thereof which have been registered under the Securities Act of 1933, as amended (‘‘Securities Act’’).
The Form S-4 was declared effective on December 14, 2010 and on January 13, 2011 we completed the
exchange for all of the Old Notes.
Revolving Line of Credit
On September 30, 2010, KEMET Electronics Corporation (‘‘KEC’’) and KEMET Electronics
Marketing (S) Pte Ltd. (‘‘KEMET Singapore’’) (each a ‘‘Borrower’’ and, collectively, the ‘‘Borrowers’’)
entered into a Loan and Security Agreement (the ‘‘Loan and Security Agreement’’), with Bank of
America, N.A, as the administrative agent and the initial lender. The Loan and Security Agreement
provides a $50 million revolving line of credit, which is bifurcated into a U.S. facility (for which KEC is
the Borrower) and a Singapore facility (for which KEMET Singapore is the Borrower). The size of the
U.S. facility and the Singapore facility can fluctuate as long as the Singapore facility does not exceed
$30 million and the total facility does not exceed $50 million. A portion of the U.S. facility and the
Singapore facility can be used to issue letters of credit. The Loan and Security Agreement expires on
September 30, 2014.
Listing
As announced on June 21, 2010, our common stock was approved for listing on the NYSE Amex.
Trading commenced on the NYSE Amex on June 22, 2010, under the ticker symbol ‘‘KEM’’ (NYSE
Amex: KEM).
On November 11, 2010, we provided written notice to the NYSE Amex that we intended to
transfer our listing to the New York Stock Exchange (‘‘NYSE’’). We voluntarily ceased trading on the
NYSE Amex, with the last day of trading on the NYSE Amex being on November 12, 2010. Our
common stock commenced trading on November 15, 2010, on the NYSE under the ticker symbol
‘‘KEM’’ (NYSE: KEM).
35
Outlook
Looking out to the first quarter of fiscal year 2012, we anticipate an increase in net sales in a
range of 5% to 7% when compared to the fourth quarter of fiscal year 2011. This increase is primarily
due to Film and Electrolytic’s machinery division while we anticipate a slight increase in our
component sales. Consolidated gross margin is expected to be comparable to the fourth quarter of
fiscal year 2011.
Off-Balance Sheet Arrangements
Other than operating lease commitments, we are not a party to any material off-balance sheet
financing arrangements that have, or are reasonably likely to have, a current or future material effect
on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or
capital resources.
Critical Accounting Policies
Our accounting policies are summarized in Note 1, ‘‘Organization and Significant Accounting
Policies’’ to the consolidated financial statements. The following identifies a number of policies which
require significant judgments and estimates, or are otherwise deemed critical to our financial
statements.
Our estimates and assumptions are based on historical data and other assumptions that we believe
are reasonable. These estimates and assumptions affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements. In
addition, they affect the reported amounts of revenues and expenses during the reporting period.
Our judgments are based on our assessment as to the effect certain estimates, assumptions, or
future trends or events may have on the financial condition and results of operations reported in the
consolidated financial statements. Readers should understand that actual future results could differ
from these estimates, assumptions, and judgments.
A quantitative sensitivity analysis is provided where that information is reasonably available, can be
reliably estimated and provides material information to investors. The amounts used to assess sensitivity
(i.e., 1%, 10%, etc.) are included to allow readers of this Annual Report on Form 10-K to understand a
general cause and effect of changes in the estimates and do not represent our predictions of variability.
For all of these estimates, it should be noted that future events rarely develop exactly as forecast, and
estimates require regular review and adjustment. We believe the following critical accounting policies
contain the most significant judgments and estimates used in the preparation of the consolidated
financial statements:
REVENUE RECOGNITION. We recognize revenue only when all of the following criteria
are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or
services have been rendered, (3) the price to the buyer is fixed or determinable, and
(4) collectability is reasonably assured.
A portion of sales consists of products designed to meet customer specific requirements.
These products typically have stricter tolerances making them useful to the specific customer
requesting the product and to customers with similar or less stringent requirements. Products
with customer specific requirements are tested and approved by the customer before we mass
produce and ship the products. We recognize revenue at shipment as the sales terms for
products produced with customer specific requirements do not contain a final customer
acceptance provision or other provisions that are unique and would otherwise allow the
customer different acceptance rights.
36
A portion of sales is made to distributors under agreements allowing certain rights of return
and price protection on unsold merchandise held by distributors. Our distributor policy
includes inventory price protection and ‘‘ship-from-stock and debit’’ (‘‘SFSD’’) programs
common in the industry. The price protection policy protects the value of the distributors’
inventory in the event we reduce our published selling price to distributors. This program
allows the distributor to debit us for the difference between our list price and the lower
authorized price for specific parts. We establish price protection reserves on specific parts
residing in distributors’ inventories in the period that the price protection is formally
authorized by KEMET.
The SFSD program provides a mechanism for the distributor to meet a competitive price after
obtaining authorization from the local Company sales office. This program allows the
distributor to ship its higher-priced inventory and debit us for the difference between our list
price and the lower authorized price for that specific transaction. We establish reserves for our
SFSD program based primarily on historical SFSD activity and certain distributors’ actual
inventory levels comprising approximately 80% of the total global distributor inventory related
to customers which participate in the SFSD program. Estimates are evaluated on a quarterly
basis. If these estimates were changed by 1% in fiscal year 2011, Net sales would be impacted
by $0.7 million.
The establishment of these reserves is recognized as a component of the line item ‘‘Net sales’’
on the Consolidated Statements of Operations, while the associated reserves are included in
the line item ‘‘Accounts receivable’’ on the Consolidated Balance Sheets.
INVENTORIES.
Inventories are valued at the lower of cost or market, with cost determined
under the first-in, first-out method and market based upon net realizable value. The valuation
of inventories requires us to make estimates. We also must assess the prices at which we
believe the finished goods inventory can be sold compared to its cost. A sharp decrease in
demand could adversely impact earnings as the reserve estimates could increase.
PENSION AND POST-RETIREMENT BENEFITS. Our management, with the assistance of
actuarial firms, performs actuarial valuations of the fair values of our pension and
post-retirement plans’ benefit obligations. We make certain assumptions that have a significant
effect on the calculated fair value of the obligations such as the:
• weighted-average discount rate—used to arrive at the net present value of the obligation;
• salary increases—used to calculate the impact future pay increases will have on
post-retirement obligations; and
• medical cost inflation—used to calculate the impact future medical costs will have on
post-retirement obligations.
We understand that these assumptions directly impact the actuarial valuation of the
obligations recorded on the Consolidated Balance Sheets and the income or expense that
flows through the Consolidated Statements of Operations.
We base our assumptions on either historical or market data that we consider reasonable.
Variations in these assumptions could have a significant effect on the amounts reported in
Consolidated Balance Sheets and the Consolidated Statements of Operations. The most
critical assumption relates to the discount rate. A 25 basis point increase or decrease in the
discount rate would result in changes to the projected benefit obligation of $(1.5) million and
$1.6 million, respectively.
ASSET IMPAIRMENT—GOODWILL AND LONG-LIVED ASSETS. Goodwill, which
represents the excess of purchase price over fair value of net assets acquired, and intangible
37
assets with indefinite useful lives are no longer amortized but are tested for impairment at
least on an annual basis. We perform our impairment test during the first quarter of each
fiscal year and when otherwise warranted.
We evaluate our goodwill on a reporting unit basis. This requires us to estimate the fair value
of the reporting units based on the future net cash flows expected to be generated. The
impairment test involves a comparison of the fair value of each reporting unit, with the
corresponding carrying amounts. If the reporting unit’s carrying amount exceeds its fair value,
then an indication exists that the reporting unit’s goodwill may be impaired. The impairment
to be recognized is measured by the amount by which the carrying value of the reporting
unit’s goodwill being measured exceeds its implied fair value. The implied fair value of
goodwill is the excess of the fair value of the reporting unit over the sum of the amounts
assigned to identified net assets. As a result, the implied fair value of goodwill is generally the
residual amount that results from subtracting the value of net assets including all tangible
assets and identified intangible assets from the fair value of the reporting unit’s fair value. We
determine the fair value of our reporting units using an income-based, discounted cash flow
(‘‘DCF’’) analysis, and market-based approaches (Guideline Publicly Traded Company Method
and Guideline Transaction Method) which examine transactions in the marketplace involving
the sale of the stocks of similar publicly-owned companies, or the sale of entire companies
engaged in operations similar to KEMET. In addition to the above described reporting unit
valuation techniques, our goodwill impairment assessment also considers our aggregate fair
value based upon the value of our outstanding shares of common stock.
Long-lived assets and intangible assets subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of a long-lived
asset or group of assets may not be recoverable. A long-lived asset classified as held for sale is
initially measured and reported at the lower of its carrying amount or fair value less cost to
sell. Long-lived assets to be disposed of other than by sale are classified as held and used until
the long-lived asset is disposed of.
Tests for the recoverability of a long-lived asset to be held and used are performed by
comparing the carrying amount of the long-lived asset to the sum of the estimated future
undiscounted cash flows expected to be generated by the asset. In estimating the future
undiscounted cash flows, we use future projections of cash flows directly associated with, and
which are expected to arise as a direct result of, the use and eventual disposition of the assets.
These assumptions include, among other estimates, periods of operation and projections of
sales and cost of sales. Changes in any of these estimates could have a material effect on the
estimated future undiscounted cash flows expected to be generated by the asset. If it is
determined that the book value of a long-lived asset is not recoverable, an impairment loss
would be calculated equal to the excess of the carrying amount of the long-lived asset over its
fair value. The fair value is calculated as the discounted cash flows of the underlying assets.
We perform impairment tests on our goodwill and intangible assets with indefinite useful life
during the first quarter of each fiscal year and when otherwise warranted. In the first quarter
of fiscal year 2011, we completed our impairment test on our intangible assets with indefinite
useful life and concluded that no further impairment existed. A one percent increase or
decrease in the discount rate used in the valuation would have resulted in changes in the fair
value of ($7.0) million and $8.5 million, respectively.
In the first quarter of fiscal year 2009, we hired an independent appraisal firm to test goodwill
for impairment. We recorded a goodwill impairment charge of $88.6 million based on the
annual impairment test, which represented all of the Ceramic goodwill balance and
$76.2 million of the Film and Electrolytic goodwill balance. Also occurring in the first quarter
38
of fiscal year 2009, and in part as a result of the goodwill impairment testing, we hired an
independent appraisal firm to test the long-lived assets of Ceramic for impairment. As a result
of this testing, Ceramic recorded a $5.3 million impairment charge to write off all of its other
intangible assets and recorded a $58.6 million impairment charge to write down long-lived
assets. We hired an independent appraisal firm to test goodwill and our long-lived assets
groups for impairment as of September 30, 2008. These impairment tests resulted in a second
quarter goodwill impairment charge of $85.7 million to write off all of the remaining goodwill
of Film and Electrolytic and Tantalum. Utilizing an independent appraisal firm, we also
completed long-lived asset impairment tests in the third and fourth quarters of fiscal year 2009
and concluded that no further impairment existed. The goodwill impairment and long-lived
asset charge to earnings were non-cash in nature.
The goodwill and long-lived asset impairment reviews are highly subjective and involve the use
of significant estimates and assumptions in order to calculate the impairment charges.
Estimates of business enterprise fair value use discounted cash flow and other fair value
appraisal models and involve making assumptions for future sales trends, market conditions,
growth rates, cost reduction initiatives and cash flows for the next several years. Future
changes in assumptions may negatively impact future valuations. In future tests for
recoverability, adverse changes in undiscounted cash flow assumptions could result in an
impairment of certain long-lived assets that would require a non-cash charge to the
Consolidated Statements of Operations and may have a material effect on our financial
condition and operating results.
Income taxes are accounted for under the asset and liability method.
INCOME TAXES.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates. Valuation allowances
are recognized to reduce deferred tax assets to the amount that is more likely than not to be
realized.
We believe that it is more likely than not that a portion of the deferred tax assets in various
jurisdictions will not be realized, based on the scheduled reversal of deferred tax liabilities, the
recent history of cumulative losses, and the insufficient evidence of projected future taxable
income to overcome the loss history. We have provided a valuation allowance related to any
benefits from income taxes resulting from the application of a statutory tax rate to the
deferred tax assets. We continue to have net deferred tax assets (future tax benefits) in several
jurisdictions which we expect to realize assuming, based on certain estimates and assumptions,
sufficient taxable income can be generated to utilize these deferred tax benefits. If these
estimates and related assumptions change in the future, we may be required to reduce the
value of the deferred tax assets resulting in additional tax expense.
The accounting rules require that we recognize in our financial statements, the impact of a tax
position, if that position is ‘‘more likely than not’’ of being sustained on audit, based on the
technical merits of the position. Any accruals for estimated interest and penalties would be
recorded as a component of income tax expense.
To the extent that the provision for income taxes changed by 1% of income before income
taxes, consolidated net income would change by $0.7 million in fiscal year 2011.
39
Results of Operations
Historically, revenues and earnings may or may not be representative of future operating results
due to various economic and other factors. The following table sets forth the Consolidated Statements
of Operations for the periods indicated (amounts in thousands):
Fiscal Years Ended March 31,
2011
2010
2009
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,018,488
$ 736,335
$ 804,385
Operating costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill Impairment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write down of long-lived assets . . . . . . . . . . . . . . . . . . . . . .
Net gain on sales and disposals of assets
. . . . . . . . . . . . . . .
Curtailment gains on benefit plans . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit)
752,846
104,607
25,864
7,171
—
—
(1,261)
—
129,261
63,513
65,748
2,704
611,638
86,085
22,064
9,198
—
656
(1,003)
—
736,551
93,505
28,956
30,874
174,327
67,624
(25,505)
(30,835)
7,697
(271,112)
72,108
(64,411)
5,036
17,299
(288,411)
(3,202)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
63,044
$ (69,447) $ (285,209)
Comparison of Fiscal Year 2011 to Fiscal Year 2010
Overview:
Net sales:
Net sales for fiscal year 2011 were $1,018.5 million, which represents a 38.3% increase from fiscal
year 2010 net sales of $736.3 million. Tantalum, Ceramic and Film and Electrolytic sales increased by
$142.8 million, $39.4 million and $100.0 million, respectively. Unit sales volume for fiscal year 2011
increased 12.6% as compared to fiscal year 2010. Unit sales volume and revenue were positively
affected by the global economic recovery which resulted in an increase in demand for capacitors.
Average selling prices increased 22.8% for fiscal year 2011 as compared to fiscal year 2010 primarily
due to a positive region mix shift to the Americas and EMEA and we increased prices to offset the
increase in raw material prices. Improving economic conditions led to higher sales in the first three
quarters of fiscal year 2011. Net sales for the first quarter of fiscal year 2011 improved to
$243.8 million, a 14.5% increase over the fourth quarter of fiscal year 2010, and our net sales improved
to $248.6 million in the second quarter of fiscal year 2011, a 2.0% increase compared to first fiscal
quarter of fiscal year 2011. Similarly, our net sales further improved to $264.7 million in the third
quarter of fiscal year 2011, a 6.5% increase compared to the second quarter of fiscal year 2011. The
fourth quarter of fiscal year 2011 showed a 1.2% decrease in our net sales to $261.5 million compared
to the third quarter of fiscal year 2011.
40
In fiscal year 2011 and 2010, net sales by region were as follows (dollars in millions):
Fiscal Year 2011
Net Sales
% of Total
Americas . . . . . . . . . . . . . .
APAC . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . .
$
254.1
381.7
382.7
25% Americas . . . . . . . . . . . . . .
37% APAC . . . . . . . . . . . . . . . .
38% EMEA . . . . . . . . . . . . . . . .
$ 1,018.5
In fiscal year 2011 and 2010, net sales by channel were as follows:
Fiscal Year 2010
Net Sales % of Total
$ 180.1
285.0
271.2
$ 736.3
24%
39%
37%
Distributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50%
14%
36%
48%
15%
37%
Fiscal Year
2011
Fiscal Year
2010
Gross Margin:
Gross margin for the fiscal year ended March 31, 2011 increased to 26.1% of net sales from 16.9%
of net sales in the prior fiscal year. Several factors contributed to the increase in gross margin
percentage in fiscal year 2011. The primary contributor to the higher gross margin was the increase in
unit sales volume and overall average selling prices. During the remainder of this restructuring effort,
we expect to spend between $28 million to $33 million, primarily in our Film and Electrolytic Business
Group. We expect our restructuring plan to result in a reduction in our European operating cost
structure of approximately $3 million in fiscal year 2012 compared to fiscal year 2011. We anticipate
that benefits from the restructuring efforts will continue to grow during fiscal years 2013 and 2014.
During fiscal year 2014, we expect to realize the full potential of the restructuring plan, achieving total
annualized operational cost reductions of approximately $24 million versus fiscal year 2011.
Selling, general and administrative expenses (‘‘SG&A’’):
SG&A expenses were $104.6 million, or 10.3% of net sales for fiscal year 2011 compared to
$86.1 million, or 11.7% of net sales for fiscal year 2010. The $18.5 million increase in SG&A expenses
for fiscal year 2011 compared to fiscal year 2010 includes the following increases: $8.0 million in selling
expenses consistent with the increase in sales, $5.1 million related to incentive accruals, $2.6 million
related to marketing expenses, $1.9 million related to ERP integration costs and $1.5 million in debt
and stock registration related fees in fiscal year 2011 compared to fiscal year 2010. These higher
expenses were offset by a decrease in expenses associated with the cancellation of an incentive plan of
$0.9 million which was incurred in the second quarter of fiscal year 2010 and a $1.8 million decrease in
depreciation in fiscal year 2011 compared to fiscal year 2010.
Restructuring charges:
During fiscal year 2011, we incurred $7.2 million in restructuring charges compared to $9.2 million
in restructuring charges in fiscal year 2010. The restructuring charges in fiscal year 2011 included
$6.0 million in charges for the relocation of equipment to Mexico and China as well as relocation of
the European distribution center, and $1.2 million for reductions in workforce. The $1.2 million in
personnel reduction costs related to the following: headcount reductions in Italy, $0.8 million; the
closure of our Nantong, China plant expected to be completed in the second quarter of fiscal year
2012, $0.6 million; and $1.5 million related to the Company’s initiative to reduce overhead within the
Company as a whole and headcount reductions in Mexico. These personnel reduction charges were
41
offset by a $1.7 million reversal of prior expenses primarily associated with the Cassia Integrazione
Guadagni Straordinaria (‘‘CIGS’’) plan as it was determined that only 107 employees are expected to
participate in the program through October 2012. The agreements with the labor unions allowed the
Company to place up to 260 workers, on a rotation basis, on the CIGS plan to save labor costs. CIGS
is a temporary plan to save labor costs whereby a company may temporarily ‘‘lay off’’ employees while
the government continues to pay their wages for a maximum of 36 months for the program. The
employees who are in CIGS are not working, but are still employed by the Company. Only employees
that are not classified as management or executive level personnel can participate in the CIGS
program. Upon termination of the plan, the affected employees return to work.
During fiscal year 2010, we recognized charges of $9.2 million for reductions in workforce
primarily associated with a headcount reduction of 32 employees in Portugal, a headcount reduction of
57 employees in Finland, and a headcount reduction of 85 employees in Italy. There were also
headcount reductions at the executive level related to our initiative to reduce overhead within the
Company as a whole. In addition to the headcount reduction in Portugal, management incurred charges
related to the relocation of equipment from Portugal to Mexico. Machinery not used for production in
Portugal and not relocated to Mexico was disposed of and as such the Company recorded an
impairment charge of $0.7 million to write down the equipment to scrap value. Overall, we incurred
charges of $1.6 million related to the relocation of equipment to Mexico from Portugal and various
other locations. The restructuring plan includes implementing programs to make the Company more
competitive, removing excess capacity, moving production to lower cost locations, and eliminating
unnecessary costs throughout the Company.
Research and development:
Research and development expenses were $25.9 million, or 2.5% of net sales for fiscal year 2011,
compared to $22.1 million, or 3.0% of net sales for fiscal year 2010. The 17.2% increase resulted from
increased activities to ensure that products are available to support KEMET’s growth and to meet
customers’ needs. The growth in spending also reflects KEMET’s increased focus on specialty product
development which requires an increase in sampling, tooling, and testing.
Operating income:
Operating income for fiscal year 2011 was $129.3 million compared to $7.7 million in the prior
fiscal year. Increased average selling prices and volume led to a gross margin increase of $140.9 million
in fiscal year 2011 as compared to fiscal year 2010. Additionally, in fiscal year 2011 compared to fiscal
year 2010, restructuring charges were $2.0 million lower, gain on disposal of assets improved
$0.2 million and write down of long lived assets improved $0.7 million. These favorable items were
offset by a $22.3 million increase in operating expenses in fiscal year 2011 compared to fiscal year 2010.
Other (income) expense, net:
Other (income) expense, net was $63.5 million in fiscal year 2011 compared to $72.1 million in
fiscal year 2010, a decrease of $8.6 million. The improvement is primarily attributable to the Platinum
Warrant no longer being marked to market in fiscal year 2011 compared to a non-cash $81.1 million
charge related to the increase in value of the Platinum Warrant in fiscal year 2010. In addition, we
granted a supplier of tantalum powder and wire and related materials, a non-exclusive license, with a
right to sublicense, concerning certain patents and patent applications which resulted in a net gain of
$2.0 million in fiscal year 2011. Also, there was a gain on foreign currency translation of $(2.9) million
in fiscal year 2011 as compared to a $4.1 million loss on foreign currency translation in fiscal year 2010,
primarily due to the change in the value of the Euro compared to the dollar. These items were offset
by a $38.2 million non-cash loss recognized on the early extinguishment of debt in fiscal year 2011
compared to a $38.9 million non-cash gain recognized on the early extinguishment of debt in fiscal year
42
2010. Also offsetting the favorable items was a $4.1 million increase in net interest expense in fiscal
year 2011 compared with fiscal year 2010 primarily related to the restructuring of our debt to the
10.5% Senior Notes.
Income taxes:
The effective income tax rate for fiscal year 2011 was 4.1%, resulting in an income tax expense of
$2.7 million. This compares to an effective income tax rate of (7.8)% for fiscal year 2010 that resulted
in an income tax expense of $5.0 million. The fiscal year 2011 income tax expense is primarily
comprised of an income tax expense resulting from operations in certain foreign jurisdictions totaling
$2.5 million and state income tax expense of $0.2 million. The $2.5 million income tax expense from
foreign operations includes a $4.4 million benefit from a net decrease in the valuation allowance
reserve of certain foreign subsidiaries. No federal income tax expense is recognized for the U.S. taxable
income for fiscal year 2011 due to the utilization of a portion of the federal net operating loss
carryforward resulting in a partial release of the valuation allowance.
Segment Review:
The following table sets forth the operating income (loss) for each of our business segments for
the fiscal years 2011 and 2010. The table also sets forth each of the segments’ net sales as a percentage
43
of total net sales, the net income (loss) components as a percentage of total net sales (amounts in
thousands, except percentages):
For the Fiscal Years Ended
March 31, 2011
March 31, 2010
Amount
% to Total
Sales
Amount
% to Total
Sales
Net sales
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . . . . . . . . . . . .
$
486,595
210,509
321,384
47.8% $ 343,797
171,153
20.7%
221,385
31.6%
46.7%
23.2%
30.1%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,018,488
100.0% $ 736,335
100.0%
Gross margin
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SG&A expenses
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . . . . . . . . . . . .
147,298
67,864
50,480
265,642
45,275
23,845
35,487
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104,607
10.3%
R&D expenses
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write down of long-lived assets
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sales and disposals of assets
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss)
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . . . . . . . . . . . .
12,678
6,362
6,824
25,864
864
444
5,863
7,171
—
—
25
(1,578)
292
(1,261)
88,456
38,791
2,014
2.5%
0.7%
—
(0.1)%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
129,261
12.7%
$ 77,882
50,490
(3,675)
26.1%
124,697
16.9%
36,948
19,223
29,914
86,085
11,139
6,167
4,758
22,064
1,941
543
6,714
9,198
656
656
(1,226)
183
40
(1,003)
28,424
24,374
(45,101)
7,697
72,108
(64,411)
5,036
11.7%
3.0%
1.2%
0.0%
(0.1)%
1.0%
9.8%
(8.7)%
0.7%
(9.4)%
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
63,513
65,748
2,704
63,044
44
6.2%
6.5%
0.3%
6.2% $ (69,447)
Tantalum
The table sets forth Net sales, Gross margin, Gross margin as a percentage of net sales, Operating
income and Operating income as a percentage of net sales for our Tantalum business group for the
fiscal years 2011 and 2010 (amounts in thousands, except percentages):
Net sales . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . .
For the Fiscal Years Ended
March 31, 2011
March 31, 2010
Amount
$ 486,595
147,298
88,456
% to
Net Sales
30.3%
18.2%
Amount
$ 343,797
77,882
28,424
% to
Net Sales
22.7%
8.3%
Net sales—Net sales increased $142.8 million or 41.5% during fiscal year 2011, as compared to
fiscal year 2010. Unit sales volume for fiscal year 2011 increased 11.5% as compared to fiscal year
2010. Average selling prices increased 26.9% in fiscal year 2011 as compared to fiscal year 2010. The
increase in revenue was primarily driven by an increase in regional unit sales volumes in the Americas
and EMEA as shown in the following table:
Unit Sales
Volumes
as a % of
Total Unit
Sales
2011
2010
Change in
Units Sold
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20.6% 16.4% 40.0%
27.8% 25.4% 21.8%
51.6% 58.1% (1.1)%
Gross Margin—Gross margin increased $69.4 million during fiscal year 2011 as compared to fiscal
year 2010. The primary contributors to the higher gross margin percentage were the increase in unit
sales volume and average selling prices.
Operating income—Operating income for fiscal year 2011 was $88.5 million as compared to an
operating income of $28.4 million for fiscal year 2010. Operating income was favorably impacted by a
$69.4 million increase in gross margin, a $1.1 million decrease in restructuring costs, and a $0.7 million
reduction in the write down of long-lived assets in fiscal year 2011 compared to fiscal year 2010. These
improvements were offset by a $9.9 million increase in operating expenses in fiscal year 2011 compared
to fiscal year 2010 as well as a decrease of $1.3 million primarily related to the receipt of $1.5 million
in fiscal year 2011 that was held in escrow related to the fiscal year 2010 sale of wet tantalum
capacitors .
45
Ceramic
The table sets forth Net sales, Gross margin, Gross margin as a percentage of net sales, Operating
income and Operating income as a percentage of net sales for our Ceramic business group for the
fiscal years 2011 and 2010 (amounts in thousands, except percentages):
Net sales . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . .
For the Fiscal Years Ended
March 31, 2011
March 31, 2010
Amount
$ 210,509
67,864
38,791
% to
Net Sales
32.2%
18.4%
Amount
$ 171,153
50,490
24,374
% to
Net Sales
29.5%
14.2%
Net sales—Net sales increased $39.4 million or 23.0% during fiscal year 2011, as compared to fiscal
year 2010. The increase was primarily attributable to higher unit sales volumes and average selling
prices. Unit sales volume increased 12.2% during fiscal year 2011, as compared to fiscal year 2010 due
to strong market demand across all regions. Average selling prices increased 9.2% due primarily to
region mix improvements over fiscal year 2010. The increase in revenue was primarily driven by an
increase in regional unit sales volume in EMEA and Americas as shown in the following table:
Unit Sales
Volumes
as a % of
Total Unit
Sales
2011
2010
Change in
Units Sold
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.6%
32.1% 33.1%
34.3% 27.3% 41.2%
33.5% 39.6% (5.2)%
Gross Margin—Gross margin increased $17.4 million during fiscal year 2011 as compared to fiscal
year 2010. The improvement in gross margin can be attributed primarily to higher unit sales volume
and higher average selling prices.
Operating income—Operating income improved to $38.8 million in fiscal year 2011 from
$24.4 million during fiscal year 2010. The $14.4 million increase in operating income was attributable to
the $17.4 million increase in gross margin as well as the gain on sales and disposals of assets of
$1.6 million related to the sale of an idle U.S. facility in fiscal year 2011 compared to the $0.2 million
loss on sales and disposals of assets in fiscal year 2010. These improvements were offset by a
$4.8 million increase in operating expenses during fiscal year 2011 as compared to fiscal year 2010.
46
Film and Electrolytic
The table sets forth Net sales, Gross margin, Gross margin as a percentage of net sales, Operating
income (loss) and Operating income (loss) as a percentage of net sales for our Tantalum business
group for the fiscal years 2011 and 2010 (amounts in thousands, except percentages):
Net sales . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . .
For the Fiscal Years Ended
March 31, 2011
March 31, 2010
Amount
$ 321,384
50,480
2,014
% to Net
Sales
15.7%
0.6%
Amount
$ 221,385
(3,675)
(45,101)
% to Net
Sales
(1.7)%
(20.4)%
Net sales—Net sales increased by $100.0 million or 45.2% in fiscal year 2011, as compared to fiscal
year 2010. Unit sales volume for the fiscal year 2011 increased 27.6% as compared to fiscal year 2010.
Average selling prices increased 13.8% for fiscal year 2011 as compared to fiscal year 2010. The net
sales increase relates to an increase in the automotive and industrial customer base across all regions,
particularly by EMEA and APAC. Our increase in average selling prices was partially attributed to our
effort to expand into alternative and energy saving products.
Gross Margin—Gross margin increased $54.2 million during fiscal year 2011 as compared to fiscal
year 2010. The increase was due to both improved average selling prices across all regions and product
lines and increased unit sales volume. The manufacturing restructuring plan is ongoing with benefits
expected beginning in fiscal year 2012.
Operating income (loss)—Operating income was $2.0 million in fiscal year 2011, compared to a
$45.1 million operating loss in fiscal year 2010. The improvement in operating income of $47.8 million
was attributable primarily to the $54.9 million improvement in gross margin as well as the $0.9 million
decrease in restructuring charges. These increases were offset by a $7.6 million increase in operating
expenses and a $0.3 million increase in loss on sales and disposals of assets.
Comparison of Fiscal Year 2010 to Fiscal Year 2009
Overview:
Net sales:
Net sales for fiscal year 2010 were $736.3 million, which represented an 8.5% decrease from fiscal
year 2009 net sales of $804.4 million. Film and Electrolytic sales decreased $40.4 million while
Tantalum and Ceramic sales decreased by $22.9 million and $4.8 million, respectively. Unit sales
volume for fiscal year 2010 decreased 18.8% as compared to fiscal year 2009. Unit sales volume and
revenue were negatively affected by the global economic downturn that adversely impacted all regions
as well as the weak automotive market, a decline in the DC Film product line due to lower demand in
the consumer, lighting, and automotive industries and a softening in the High Capacitance Value
(‘‘Hi-CV’’) market in Asia. Average selling prices increased 10.8% for fiscal year 2010 as compared to
fiscal year 2009 primarily due to a positive product mix shift to polymer products for Tantalum. This
increase was partially offset by an unfavorable product mix shift in Film and Electrolytic as our most
significant sales decrease occurred with industrial customers who purchase our highest technology
products that typically have the highest average selling price. Improving economic conditions led to
higher sales in each of the quarters following the fourth quarter of fiscal year 2009 when the impact of
the economic downturn had its most adverse affect on our sales and net sales declined to
$136.0 million. Net sales for the first quarter of fiscal year 2010 improved to $150.2 million, a
10.4% increase over the fourth quarter of fiscal year 2009, and our net sales improved to $173.3 million
47
in the second quarter of fiscal year 2010, a 15.4% increase compared to first fiscal quarter of fiscal year
2010. Similarly, our net sales further improved to $199.9 million in the third quarter of fiscal year 2010,
a 15.3% increase compared to the second quarter of fiscal year 2010, and our net sales improved to
$213.0 million in the fourth quarter of fiscal year 2010, a 6.5% increase compared to the third fiscal
quarter of fiscal year 2010.
By region, 24% of net sales for the year ended March 31, 2010 were to customers in the Americas,
39% were to customers in APAC, and 37% were to customers in EMEA. For the year ended March 31,
2009, 25% of net sales were to customers in the Americas, 35% were to customers in APAC, and 40%
were to customers in EMEA.
By channel, 48% of net sales for the year ended March 31, 2010, were to distribution customers,
15% were to EMS customers, and 37% were to OEM customers. For the year ended March 31, 2009,
47% of net sales were to distribution customers, 20% were to EMS customers, and 33% were to OEM
customers.
Gross Margin:
Gross margin for the fiscal year ended March 31, 2010 increased to 16.9% of net sales from 8.4%
of net sales in the prior year. Several factors contributed to the increase in gross margin percentage in
fiscal year 2010. Cost savings from several cost reduction plans that were initiated throughout fiscal
year 2009 were partially responsible for the improvement. In fiscal year 2009, we incurred costs in
conjunction with the relocation and start up of equipment in China and a $7.5 million lower of cost or
market charge to adjust Ceramic Hi-CV inventory to its net realizable value. In addition, there was an
overall increase in average selling prices which contributed to the increase in gross margin. These
improvements were offset by the negative gross margin in Film and Electrolytic.
Selling, general and administrative expenses:
SG&A expenses were $86.1 million, or 11.7% of net sales for fiscal year 2010 compared to
$93.5 million, or 11.6% of net sales for fiscal year 2009. The $7.4 million decrease in SG&A expenses
for fiscal year 2010 compared to fiscal year 2009 includes a decrease of $5.9 million in selling expenses
primarily attributable to cost reductions resulting from our reduction in workforce, a 10% wage
reduction for all salaried employees effective January 1, 2009 (where possible) and the temporary
suspension of the match in our U.S. defined contribution retirement plan, reducing it from 6% to 0%.
Effective August 1, 2009, we reactivated our U.S. defined contribution retirement plan match, and in
Mexico and China we retracted the 10% wage reduction. Effective October 1, 2009, we also retracted
our 10% wage reduction in the U.S. In addition, during fiscal year 2010, costs related to integrating our
acquisitions were $5.2 million lower, bad debt expense was $1.3 million lower and pension charges were
$2.8 million lower. In addition, we reduced redundant administrative expenses primarily within Film
and Electrolytic and reduced legal expenses. The reduction in these costs was offset by an increase of
$10.0 million related to incentive accruals, information systems, and depreciation.
Restructuring charges:
During fiscal year 2010, we recognized charges of $9.2 million for reductions in workforce
primarily associated with a headcount reduction of 32 employees in Portugal, a headcount reduction of
57 employees in Finland, and a headcount reduction of 85 employees in Italy. There were also
headcount reductions at the executive level related to our initiative to reduce overhead within the
Company as a whole. In addition to the headcount reduction in Portugal, management incurred charges
related to the relocation of equipment from Portugal to Mexico. Machinery not used for production in
Portugal and not relocated to Mexico was disposed of and, as such, the Company recorded an
impairment charge of $0.7 million to write down the equipment to scrap value. Overall, we incurred
48
charges of $1.6 million related to the relocation of equipment to Mexico from Portugal and various
other locations. The restructuring plan includes implementing programs to make the Company more
competitive, removing excess capacity, moving production to lower cost locations, and eliminating
unnecessary costs throughout the Company. During fiscal year 2009, we recognized charges of
$30.9 million for reductions in workforce worldwide related to three cost reduction plans. We
recognized charges of $4.9 million primarily for reductions in workforce in Film and Electrolytic. We
recognized charges of $3.5 million related primarily to the reduction of approximately 1,500
manufacturing positions representing approximately 14% of our workforce. We recognized charges of
$16.1 million related to the rationalization of corporate staff and manufacturing support functions in
the U.S., Europe, Mexico, and Asia. Approximately 640 employees were affected by this action.
Additionally, during fiscal year 2009, we incurred expenses of $5.5 million for the relocation of
equipment.
Goodwill Impairment and Write Down of Long-Lived Assets:
We tested goodwill for impairment during the first and second quarters of fiscal year 2009. Due to
reduced earnings and cash flows caused by macro-economic factors, excess capacity issues and delays in
integrating recently acquired businesses, we reduced our earnings forecast in conjunction with such
testing. As a result, our impairment testing for fiscal year 2009 led to a $174.3 million non-cash
goodwill impairment charge to write off all of the carrying value of our goodwill. We determined the
business enterprise fair value by using both an income approach and a market approach. Film and
Electrolytic recorded a $137.5 million impairment charge, Tantalum recorded a $24.4 million
impairment charge, and Ceramic recorded a $12.4 million impairment charge.
In addition, and partially as a result of the goodwill impairment testing, Ceramic recorded a
$5.3 million impairment charge to write off all of its other intangible assets and recorded a
$58.6 million impairment charge to write down its long-lived assets. Also, we closed a research and
development facility located in Heidenheim, Germany that served Tantalum. As part of this closure, we
abandoned certain long-lived assets and incurred $1.2 million in impairment charges related to the
abandonment.
In fiscal year 2010, the Company recorded an impairment charge of $0.7 million to write down
equipment that was not being used in Portugal to scrap value.
Research and development:
Research and development expenses were $22.1 million, or 3.0% of net sales for fiscal year 2010,
compared to $29.0 million, or 3.6% of net sales for fiscal year 2009. The 23.8% decrease resulted from
savings from our reduction in workforce, a 10% wage reduction for all salaried employees effective
January 1, 2009 (where possible) and the temporary suspension of the match in our U.S. defined
contribution retirement plan, reducing it from 6% to 0%.
Operating income (loss):
Operating income for the fiscal year 2010 was $7.7 million compared to an operating loss of
$271.1 million in the prior fiscal year. In fiscal year 2009, we incurred non-cash charges of
$242.0 million for goodwill impairment and the write down of long-lived assets compared to
$0.7 million in fiscal year 2010. Increased average selling prices and decreased costs led to a gross
margin increase of $56.9 million in fiscal year 2010 as compared to fiscal year 2009. Additionally,
operating expenses were $14.3 million lower than in fiscal year 2009 and restructuring charges were
$21.7 million lower than fiscal year 2009. These favorable items were partially offset by a decrease in
gains on the sales and disposals of assets of $24.5 million in fiscal year 2009 compared to fiscal year
2010 and curtailment gains on benefit plans of $30.8 million in fiscal year 2009.
49
Other (income) expense, net:
Other (income) expense, net was $72.1 million in fiscal year 2010 compared to $17.3 million in
fiscal year 2009, an increase of $54.8 million. The increase in expense primarily related to an
$81.1 million increase in value of the Platinum Warrant, an increase of $18.2 million in foreign currency
translation losses and a $0.4 million decrease in interest income. These increases in expense and
decrease in income were partially offset by a $3.8 million decrease in interest expense and a gain on
early extinguishment of debt of $38.9 million in fiscal year 2010 compared to a loss on early
extinguishment of debt of $2.2 million in fiscal year 2009.
Income taxes:
The effective income tax rate for fiscal year 2010 was (7.8)%, resulting in an income tax expense
of $5.0 million. This compares to an effective income tax rate of 1.1% for fiscal year 2009 that resulted
in an income tax benefit of $3.2 million. The fiscal year 2010 income tax expense is primarily comprised
of an income tax expense resulting from operations in certain foreign jurisdictions totaling $4.1 million.
The $4.1 million income tax expense from foreign operations includes a $2.8 million increase in the
valuation allowance reserve of a subsidiary operating in Italy. In addition, there is a $1.0 million state
income tax expense, primarily due to the gain on the early extinguishment of debt. No federal income
tax expense is recognized for the U.S. taxable income for fiscal year 2010 due to the utilization of a
portion of the federal net operating loss carryforward resulting in a partial release of the valuation
allowance. Future fluctuations in the valuation allowance are expected to result in an income tax rate
below the 30% to 36% historical average.
50
Segment Review:
The following table sets forth the operating income (loss) for each of our business segments for
the fiscal years 2010 and 2009 respectively. The table also sets forth each of the segments’ net sales as
a percentage of total net sales, the net income (loss) components as a percentage of total net
sales(amounts in thousands, except percentages):
For the Fiscal Years Ended
March 31, 2010
March 31, 2009
Amount
% to Total
Sales
Amount
% to Total
Sales
Net sales
Tantalum . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . .
$ 343,797
171,153
221,385
46.7% $ 366,675
175,916
23.2%
261,794
30.1%
45.6%
21.9%
32.5%
Total . . . . . . . . . . . . . . . . . . . . .
$ 736,335
100.0% $ 804,385
100.0%
Gross margin
Tantalum . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . .
$
77,882
50,490
(3,675)
$
Total . . . . . . . . . . . . . . . . . . . . .
124,697
16.9%
SG&A expenses
Tantalum . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
R&D expenses
Tantalum . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
Restructuring charges
Tantalum . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment charges
Tantalum . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
36,948
19,223
29,914
86,085
11,139
6,167
4,758
22,064
1,941
543
6,714
9,198
—
—
—
—
11.7%
3.0%
1.2%
—
52,709
9,874
5,251
67,834
37,062
21,803
34,640
93,505
13,999
8,291
6,666
28,956
11,388
7,143
12,343
30,874
24,378
12,418
137,531
174,327
8.4%
11.6%
3.6%
3.8%
21.7%
51
Write down of long-lived assets
Tantalum . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sales and disposals of
assets
Tantalum . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
Curtailment gain on benefit plans
Tantalum . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
Operating income (loss)
Tantalum . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . .
Income tax expense (benefit) . . . . . . .
For the Fiscal Years Ended
March 31, 2010
March 31, 2009
Amount
% to Total
Sales
Amount
% to Total
Sales
656
—
656
(1,226)
183
40
(1,003)
8.4%
0.1%
1,855
65,769
67,624
(26,435)
1,123
(193)
(0.1)%
(25,505)
(3.2)%
—
—
—
—
—
—
—
—
(22,856)
(7,979)
—
(30,835)
13,318
(98,694)
(185,736)
(3.8)%
1.0%
9.8%
(271,112)
(33.7)%
17,299
2.2%
(8.7)% (288,411)
(3,202)
0.7%
(35.9)%
(0.4)%
28,424
24,374
(45,101)
7,697
72,108
(64,411)
5,036
Net loss . . . . . . . . . . . . . . . . . . . . . .
$ (69,447)
(9.4)% $ (285,209)
(35.5)%
52
Tantalum
The table sets forth Net sales, Gross margin, Gross margin as a percentage of net sales, Operating
income and Operating income as a percentage of net sales for our Tantalum business group for the
fiscal years 2011 and 2010 (amounts in thousands, except percentages):
Net sales . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . .
For the Fiscal Years Ended
March 31, 2010
March 31, 2009
Amount
$ 343,797
77,882
28,424
% to Net
Sales
22.7%
8.3%
Amount
$ 366,675
52,709
13,318
% to Net
Sales
14.4%
3.6%
Net sales—Net sales decreased $22.9 million or 6.2% during fiscal year 2010, as compared to fiscal
year 2009. Unit sales volume for fiscal year 2010 decreased 18.2% as compared to fiscal year 2009. Unit
sales volume and revenue were negatively affected by the global economic downturn that adversely
impacted all regions as well as the weak automotive market in the U.S. and Europe. Average selling
prices increased 14.6% for fiscal year 2010 as compared to fiscal year 2009 due to a favorable product
mix shift to polymer products. Volumes for Tantalum products continued to be very strong in Asia,
where sales represented 47.9% of total tantalum revenue.
Gross Margin—Gross margin increased $25.2 million during fiscal year 2010 as compared to fiscal
year 2009. The primary contributors to the higher gross margin percentage were the cost savings
initiated throughout fiscal year 2009 through reductions in headcount and other manufacturing
expenses, which were realized in fiscal year 2010. Additionally, there was an increase in sales of higher
margin polymer and specialty products which contributed to the increase in gross margin percentage.
Operating income—Operating income for fiscal year 2010 was $28.4 million as compared to an
operating income of $13.3 million for fiscal year 2009. Operating income was favorably impacted by a
$25.2 million increase in gross margin, a $9.4 million decrease in restructuring costs, no charges for
goodwill impairment in fiscal year 2010 compared to charges of $24.4 million in fiscal year 2009, a
reduction of $1.2 million in the write down of long-lived assets in fiscal year 2010 compared to fiscal
year 2009, the reduction in operating expenses of $3.0 million related to the closure of a research and
development facility located in Heidenheim, Germany, and company-wide restructuring efforts. Offsets
to the gains were a decrease of $25.2 million in gains on the sales and disposals of assets and a
decrease of $22.9 million in curtailment gains on benefit plans.
Ceramic
The table sets forth Net sales, Gross margin, Gross margin as a percentage of net sales, Operating
income (loss) and Operating income (loss) as a percentage of net sales for our Ceramic business group
for the fiscal years 2011 and 2010 (amounts in thousands, except percentages):
Net sales . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . .
For the Fiscal Years Ended
March 31, 2010
March 31, 2009
Amount
$ 171,153
50,490
24,374
% to Net
Sales
29.5%
14.2%
Amount
$ 175,916
9,874
(98,694)
% to Net
Sales
5.6%
(56.1)%
Net sales—Net sales decreased $4.8 million or 2.7% during fiscal year 2010, as compared to fiscal
year 2009. The decrease was attributable to lower volumes. Volumes decreased 2.8% during fiscal year
53
2010, as compared to fiscal year 2009 due primarily to the lingering effects of the global economic
downturn as well as softening in the Hi-CV market in Asia and a weakening of the automotive markets
in the U.S. and Europe. Average selling prices in fiscal year 2010 increased 1% compared to fiscal year
2009.
Gross Margin—Gross margin increased $40.6 million during fiscal year 2010 as compared to fiscal
year 2009. A significant contributor to the lower gross margin in fiscal year 2009 was a $7.5 million
lower-of-cost-or-market charge to adjust Hi-CV inventory to its net realizable value. Price decreases in
Hi-CV products in Asia caused the net realizable value of the inventory to fall below its carrying value.
Additionally, we continue to improve our gross margin through cost reductions, product and region mix
improvements and improvements in production efficiencies.
Operating income (loss)—Operating income improved from a loss of $98.7 million during fiscal year
2009 to an operating income of $24.4 million during fiscal year 2010. The increase in operating income
of $123.1 million was attributable to the $40.6 million increase in gross margin as well as the absence in
fiscal year 2010 of charges for goodwill impairment and the write down of long-lived assets compared
to charges of $78.2 million in fiscal year 2009. In addition, compared to fiscal year 2009, restructuring
charges decreased by $6.6 million, operating expenses decreased $4.7 million, and loss on sales and
disposals of assets decreased $0.9 million in fiscal year 2010.
Film and Electrolytic
The table sets forth Net sales, Gross margin, Gross margin as a percentage of net sales, Operating
loss and Operating loss as a percentage of net sales for our Film and Electrolytic business group for
the fiscal years 2011 and 2010
For the Fiscal Years Ended
March 31, 2010
March 31, 2009
Amount
% to Net
Sales
Amount
% to Net
Sales
Net sales . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . .
Operating (loss) . . . . . . . . . . . . . . . . . .
$ 221,385
(3,675)
(45,101)
$ 261,794
5,251
(20.4)% (185,736)
(1.7)%
2.0%
(70.9)%
Net sales—Net sales decreased by $40.4 million or 15.4% in fiscal year 2010, as compared to fiscal
year 2009. Unit sales volume for the fiscal year 2010 decreased 19.1% as compared to fiscal year 2009.
Average selling prices decreased 2.0% for fiscal year 2010 as compared to fiscal year 2009. Sales
volumes declined in the DC Film product line due to lower demand in the consumer, lighting, and
automotive industries. The average sales price decreased due to a mix shift in Film and Electrolytic as
our most significant sales decrease occurred with industrial customers who purchase our highest
technology products that typically have the highest average selling price.
Gross Margin—Gross margin decreased $8.9 million during fiscal year 2010 as compared to fiscal
year 2009. The primary contributors to the lower gross margin percent were the decline in volume and
average selling prices mentioned above. The lower sales levels were not sufficient to cover fixed costs;
and therefore, gross margin declined by $8.9 million in fiscal year 2010 as compared to fiscal year 2009.
In fiscal year 2010, we initiated a restructuring plan primarily designed to improve the operating results
of Film and Electrolytic. We anticipate the plan will be completed in the second half of fiscal year
2014.
Operating loss—Operating loss was $45.1 million in fiscal year 2010, compared to an operating loss
of $185.7 million in fiscal year 2009. The improvement in operating loss of $140.6 million was
attributable primarily to the non-cash goodwill impairment charge of $137.5 million taken in fiscal year
54
2009. Additionally, operating expenses decreased $6.6 million and restructuring charges decreased
$5.6 million in fiscal year 2010 compared to fiscal year 2009. Offsetting these items was a decrease of
$8.9 million in gross margin in fiscal year 2010, compared to fiscal year 2009, and no losses on the sales
and disposals of assets in fiscal year 2010 compared to a loss on sales and disposals of assets of
$0.2 million in fiscal year 2009.
Liquidity and Capital Resources
Our liquidity needs arise from working capital requirements, acquisitions, capital expenditures,
principal and interest payments on debt, and costs associated with the implementation of our
restructuring plan. Historically, these cash needs have been met by cash flows from operations,
borrowings under credit agreements and existing cash balances.
Issuance of 10.5% Senior Notes
On May 5, 2010, we completed a private placement of $230.0 million in aggregate principal
amount of our 10.5% Senior Notes due 2018 (the ‘‘10.5% Senior Notes’’) to several Initial Purchasers
(the ‘‘Initial Purchasers’’) represented by Banc of America Securities LLC pursuant to an exemption
from the registration requirements under the Securities Act of 1933, as amended. The Initial
Purchasers subsequently sold the 10.5% Senior Notes to qualified institutional buyers pursuant to
Rule 144A under the Securities Act and to persons outside of the United States pursuant to
Regulation S under the Securities Act.
The private placement of the 10.5% Senior Notes resulted in proceeds to us of $222.2 million. We
used a portion of the proceeds of the private placement to repay all of the outstanding indebtedness
under our credit facility with K Financing, LLC, our EUR 60 million credit facility and EUR 35 million
credit facility with UniCredit and our term loan with a subsidiary of Vishay. We used a portion of the
remaining proceeds to fund a previously announced tender offer to purchase $40.5 million in aggregate
principal amount of our 2.25% Convertible Senior Notes (the ‘‘Convertible Notes’’) and to pay costs
incurred in connection with the private placement, the tender offer and the foregoing repayments. We
incurred approximately $6.6 million in costs related to the execution of the offering, and these costs are
capitalized and will be amortized over the term of the 10.5% Senior Notes.
The 10.5% Senior Notes were issued pursuant to a 10.5% Senior Notes Indenture, dated as of
May 5, 2010, by and among us, our domestic restricted subsidiaries (the ‘‘Guarantors’’) and Wilmington
Trust Company, as trustee (the ‘‘Trustee’’). The 10.5% Senior Notes will mature on May 1, 2018, and
bear interest at a stated rate of 10.5% per annum, payable semi-annually in cash in arrears on May 1
and November 1 of each year, beginning on November 1, 2010. The 10.5% Senior Notes are our senior
obligations and are guaranteed by each of the Guarantors and secured by a first priority lien on 51% of
the capital stock of certain of our foreign restricted subsidiaries.
The terms of the 10.5% Senior Notes Indenture, among other things, limit our ability and the
ability of our restricted subsidiaries to (i) incur additional indebtedness or issue certain preferred stock;
(ii) pay dividends on, or make distributions in respect of, our capital stock or repurchase our capital
stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create
liens or use assets as security in other transactions; (vi) enter into sale and leaseback transactions;
(vii) merge, consolidate or transfer or dispose of substantially all assets; (viii) engage in certain
transactions with affiliates; and (ix) designate subsidiaries as unrestricted subsidiaries. These covenants
are subject to a number of important limitations and exceptions that are described in the 10.5% Senior
Notes Indenture.
The 10.5% Senior Notes are redeemable, in whole or in part, at any time on or after May 1, 2014,
at the redemption prices specified in the 10.5% Senior Notes Indenture. At any time prior to May 1,
2013, we may redeem up to 35% of the aggregate principal amount of the 10.5% Senior Notes with the
55
net cash proceeds from certain equity offerings at a redemption price equal to 110.5% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the redemption date. In addition,
at any time prior to May 1, 2014, we may redeem the 10.5% Senior Notes, in whole or in part, at a
redemption price equal to 100% of the principal amount of the 10.5% Senior Notes so redeemed, plus
a ‘‘make whole’’ premium and together with accrued and unpaid interest, if any, to the redemption
date.
Upon the occurrence of a change of control triggering event specified in the 10.5% Senior Notes
Indenture, we must offer to purchase the 10.5% Senior Notes at a redemption price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase.
The 10.5% Senior Notes Indenture provides for customary events of default (subject in certain
cases to customary grace and cure periods), which include nonpayment, breach of covenants in the
10.5% Senior Notes Indenture, payment defaults or acceleration of other indebtedness, a failure to pay
certain judgments and certain events of bankruptcy and insolvency. The 10.5% Senior Notes Indenture
also provides for events of default with respect to the collateral, which include default in the
performance of (or repudiation, disaffirmation or judgment of unenforceability or assertion of
unenforceability) by us or a Guarantor with respect to the provision of security documents under the
10.5% Senior Notes Indenture. These events of default are subject to a number of important
qualifications, limitations and exceptions that are described in the 10.5% Senior Notes Indenture.
Generally, if an event of default occurs, the Trustee or holders of at least 25% in principal amount of
the then outstanding 10.5% Senior Notes may declare the principal of and accrued but unpaid interest,
including additional interest, on all the 10.5% Senior Notes to be due and payable.
On May 17, 2010, we consummated a tender offer to purchase $40.5 million in aggregate principal
amount of our Convertible Notes. We used $37.9 million from the bond offering discussed above to
extinguish the tendered notes. We incurred approximately $0.2 million in costs related to the execution
of this tender offer, and these costs were included in the line item ‘‘(Gain) loss on early extinguishment
of debt’’ on the Consolidated Statements of Operations.
Registration Rights Agreement
On May 5, 2010, in connection with the private placement of the 10.5% Senior Notes, we, the
Guarantors and the Initial Purchasers of the 10.5% Senior Notes entered into the Registration Rights
Agreement. The terms of the Registration Rights Agreement require the Company and the Guarantors
to (i) use our commercially reasonable efforts to file with the Securities and Exchange Commission
within 210 days after the date of the initial issuance of the 10.5% Senior Notes, a registration statement
with respect to an offer to exchange the 10.5% Senior Notes for a new issue of debt securities
registered under the Securities Act, with terms substantially identical to those of the 10.5% Senior
Notes (except for provisions relating to the transfer restrictions and payment of additional interest);
(ii) use our commercially reasonable efforts to consummate such exchange offer within 270 days after
the date of the initial issuance of the 10.5% Senior Notes; and (iii) in certain circumstances, file a shelf
registration statement for the resale of the 10.5% Senior Notes. On October 26, 2010, we filed a
Form S-4 to offer, in exchange for our Old Notes, up to $230.0 million in aggregate principal amount
of 10.5% Senior Notes due 2018 and the guarantees thereof which have been registered under the
Securities Act of 1933, as amended. The Form S-4 was declared effective on December 14, 2010, and
on January 13, 2011, we completed the exchange for all of the Old Notes.
The foregoing description of the 10.5% Senior Notes Indenture and the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by reference to the full text
of the 10.5% Senior Notes Indenture and Registration Rights Agreement.
56
Revolving Line of Credit
On September 30, 2010, KEMET Electronics Corporation (‘‘KEC’’) and KEMET Electronics
Marketing (S) Pte Ltd. (‘‘KEMET Singapore’’) (each a ‘‘Borrower’’ and, collectively, the ‘‘Borrowers’’)
entered into a Loan and Security Agreement (the ‘‘Loan and Security Agreement’’), with Bank of
America, N.A, as the administrative agent and the initial lender. The Loan and Security Agreement
provides a $50 million revolving line of credit, which is bifurcated into a U.S. facility (for which KEC is
the Borrower) and a Singapore facility (for which KEMET Singapore is the Borrower). The size of the
U.S. facility and the Singapore facility can fluctuate as long as the Singapore facility does not exceed
$30 million and the total facility does not exceed $50 million. A portion of the U.S. facility and the
Singapore facility can be used to issue letters of credit. The Loan and Security Agreement expires on
September 30, 2014.
Revolving loans may be used to pay fees and transaction expenses associated with the closing of
the credit facilities, to pay obligations outstanding under the Loan and Security Agreement and for
working capital and other lawful corporate purposes of KEC and KEMET Singapore. Borrowings
under the U.S. and Singapore facilities are subject to a borrowing base. The borrowing base consists of:
• in the case of the U.S. facility, (A) 85% of KEC’s accounts receivable that satisfy certain
eligibility criteria plus (B) the lesser of $4 million and 40% of the net book value of inventory of
KEC that satisfy certain eligibility criteria plus (C) the lesser of $3 million and 70% of the net
orderly liquidation percentage of the appraised value of equipment that satisfies certain
eligibility criteria less (D) certain reserves, including certain reserves imposed by the
administrative agent in its permitted discretion; and
• in the case of the Singapore facility, (A) 85% of KEMET Singapore’s accounts receivable that
satisfy certain eligibility criteria less (B) certain reserves, including certain reserves imposed by
the administrative agent in its permitted discretion.
Interest is payable on borrowings monthly at a rate equal to the London Interbank Offer Rate
(‘‘LIBOR’’) or the base rate, plus an applicable margin, as selected by the Borrower. Depending upon
the fixed charge coverage ratio of KEMET Corporation and its subsidiaries on a consolidated basis as
of the latest test date, the applicable margin under the U.S. facility varies between 3.00% and 3.50%
for LIBOR advances and 2.00% and 2.50% for base rate advances, and under the Singapore facility
varies between 3.25% and 3.75% for LIBOR advances and 2.25% and 2.75% for base rate advances.
The base rate is subject to a floor that is 100 basis points above LIBOR.
An unused line fee is payable monthly in an amount equal to 0.75% per annum of the average
daily unused portion of the facilities during any month; provided, that such percentage rate is reduced
to (a) 0.50% per annum for any month in which the average daily balance of the facilities is greater
than 33.3% of the total revolving commitment and less than 66.6% of the total revolving commitment,
and (b) 0.375% per annum for any month in which the average daily balance of the facilities is greater
than or equal to 66.6% of the total revolving commitment. A customary fee is also payable to the
administrative agent on a quarterly basis.
KEC’s ability to draw funds under the U.S. facility and KEMET Singapore’s ability to draw funds
under the Singapore facility are conditioned upon, among other matters:
• the absence of the existence of a Material Adverse Effect (as defined in the Loan and Security
Agreement);
• the absence of the existence of a default or an event of default under the Loan and Security
Agreement; and
57
• the representations and warranties made by KEC and KEMET Singapore in the Loan and
Security Agreement continuing to be correct in all material respects.
The parent corporation of KEC—KEMET Corporation—and the Guarantors guarantee the U.S.
facility obligations and the U.S. facility obligations are secured by a lien on substantially all of the
assets of KEC and the Guarantors (other than assets that secure the 10.5% Senior Notes). The
collection accounts of the Borrowers and Guarantors are subject to a daily sweep into a concentration
account and the concentration account will become subject to full cash dominion in favor of the
administrative agent (i) upon an event of default, (ii) if for five consecutive business days, aggregate
availability of all facilities has been less than the greater of (A) 15% of the aggregate revolver
commitments at such time and (B) $7.5 million, or (iii) if for five consecutive business days, availability
of the U.S. facility has been less than $3.75 million (each such event, a ‘‘Cash Dominion Trigger
Event’’).
KEC and the Guarantors guarantee the Singapore facility obligations. In addition to the assets that
secure the U.S. facility, the Singapore obligations are also secured by a pledge of 100% of the stock of
KEMET Singapore and a security interest in substantially all of KEMET Singapore’s assets. As
required by the Loan and Security Agreement, KEMET Singapore’s bank accounts were transferred
over to Bank of America and upon a Cash Dominion Trigger Event (as defined in the Loan and
Security Agreement) will become subject to full cash dominion in favor of the administrative agent.
A fixed charge coverage ratio of at least 1.1:1.0 must be maintained as of the last day of each
fiscal quarter ending immediately prior to or during any period in which any of the following occurs
and is continuing until none of the following occurs for a period of at least forty-five consecutive days:
(i) an event of default, (ii) aggregate availability of all facilities has been less than the greater of
(A) 15% of the aggregate revolver commitments at such time and (B) $7.5 million, or (iii) availability
of the U.S. facility has been less than $3.75 million. The fixed charge coverage ratio tests the EBITDA
and fixed charges of KEMET Corporation and its subsidiaries on a consolidated basis.
In addition, the Loan and Security Agreement includes negative covenants that, subject to
exceptions, limit the ability of KEMET Corporation and its direct and indirect subsidiaries to, among
other things:
• incur additional indebtedness;
• create liens on assets;
• make capital expenditures;
• engage in mergers, consolidations, liquidations and dissolutions;
• sell assets (including pursuant to sale leaseback transactions);
• pay dividends and distributions on or repurchase capital stock;
• make investments (including acquisitions), loans, or advances;
• prepay certain junior indebtedness;
• engage in certain transactions with affiliates;
• enter into restrictive agreements;
• amend material agreements governing certain junior indebtedness; and
• change its lines of business.
58
The Loan and Security Agreement includes certain customary representations and warranties,
affirmative covenants and events of default, which are set forth in more detail in the Loan and Security
Agreement.
As of March 31, 2011, there were no borrowings against the Loan and Security Agreement.
Short Term Liquidity
Based on our current operating plans management believes that cash generated from operations
will be sufficient to cover our operating requirements for the next twelve months, including
$43.7 million in principal and $25.2 million interest payments and expected capital expenditures in the
range of $50 million to $60 million.
Our cash and cash equivalents increased by $72.9 million for the year ended March 31, 2011, and
$40.0 million for the year ended March 31, 2010 and decreased by $42.2 million for the year ended
March 31, 2009 as follows (amounts in thousands):
Fiscal Years Ended March 31,
2011
2010
2009
Cash provided by operating activities . . . . . . . . .
Cash provided by (used in) investing activities . .
Cash used in financing activities . . . . . . . . . . . .
Effects of foreign currency fluctuations on cash .
$ 113,968
(29,564)
(13,338)
1,786
$ 54,620
(11,421)
(2,912)
(292)
$
5,725
7,229
(53,495)
(1,638)
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . .
$
72,852
$ 39,995
$ (42,179)
Fiscal Year 2011 compared to Fiscal Year 2010
Operations:
Cash flows from operations were $114.0 million which was an improvement of $59.3 million in
fiscal year 2011 as compared to fiscal year 2010. The improvement is primarily a result of
$119.7 million increase related to operations (net income adjusted for: the loss on early extinguishment
of debt, depreciation and amortization, amortization of debt discount and debt issuance costs, write
down of long-lived assets and stock-based compensation) for fiscal year 2011 compared to fiscal year
2010. In addition, we generated $18.6 million by increasing our operating liabilities (primarily our
accrued expenses) in fiscal year 2011 compared to $5.9 million in fiscal year 2010. Offsetting these
increases was a $48.8 million increase in inventories in fiscal year 2011 compared to a decrease in
inventories of $7.2 million in fiscal year 2010. In fiscal year 2011, raw material inventories increased
$14.0 million primarily due to price increases in raw materials as well as an increase in the volume of
raw material purchases. The increase in raw material quantities was driven by increased sales levels and
accelerated purchases of raw materials that were expected to increase in price. Work in process and
finished goods increased $37.5 million as a result of the increase in sales and demand for our products
and an increase in raw material prices. In addition in fiscal year 2010 we increased accounts payable
through the negotiation of better terms by $26.6 million compared to only $9.6 million in fiscal year
2011.
Investing:
Cash used in investing activities increased $18.1 million in fiscal year 2011 compared to fiscal year
2010 due primarily to a $22.1 million increase in capital expenditures. The capital expenditure amount
for fiscal year 2011 included EUR 2.1 million ($2.9 million) for the acquisition of land in Italy to be
used as the site for a new manufacturing facility in order to consolidate our Italian operations. The
59
remaining purchase price for the land in Italy will be paid in seven equal annual payments of
EUR 489 thousand ($694 thousand) beginning on April 28, 2013. The remainder of the increase in
capital expenditures is primarily due to machinery and equipment purchases to increase capacity, to
assist in new product development and improve product quality. Capital expenditures were offset by
$5.4 million in proceeds from the sale of assets in fiscal year 2011 compared to $1.5 million in proceeds
from the disposal of assets in fiscal year 2010.
Financing:
Cash used in financing activities was $13.3 million in fiscal year 2011 as compared to $2.9 million
in fiscal year 2010.
In fiscal year 2011, proceeds from the issuance of debt resulted from the private placement of
$230.0 million in aggregate principal amount of our 10.5% Senior Notes. Proceeds of $182.5 million
were used to repay all of the outstanding indebtedness under our credit facilities with
K Financing, LLC ($62.9 million including the Success Fee), outstanding indebtedness of EUR 45.5
million ($60.7 million) under the EUR 60 million credit facility and outstanding indebtedness of
EUR 33 million ($44.0 million) under the EUR 35 million credit facility with UniCredit and the term
loan with a subsidiary of Vishay ($15.0 million). In addition, we used $38.1 million of the proceeds to
retire $40.5 million in aggregate principal amount of our Convertible Notes and $6.6 million of the
proceeds to pay costs incurred in connection with the private placement, the tender offer and the
foregoing repayments. We made a principal payment related to UniCredit Facility A on April 1, 2010
for EUR 7.7 million ($10.3 million), $1.5 million to pay costs incurred in connection with the revolving
line of credit and $2.5 million in payments related to short term debt. Our next significant maturity is
November 15, 2011 when the Convertible Note holders have the right to require us to repurchase for
cash all or a portion of the Convertible Notes outstanding of $40.6 million.
In fiscal year 2010, proceeds from the issuance of debt resulted primarily from the Platinum Term
Loan, the Platinum Line of Credit Loan, and the Platinum Working Capital Loan. Approximately
$37.8 million in proceeds from the Platinum Term Loan were used to retire $93.9 million in aggregate
principal amount of the Convertible Notes (representing 53.7% of the outstanding Convertible Notes)
that were validly tendered on June 26, 2009. Proceeds of $10.0 million from the Platinum Line of
Credit Loan were used primarily to pay the fees and expenses related to execution of the tender offer.
Proceeds of $10.0 million from the Platinum Working Capital Loan were used for general corporate
purposes. The gain on the early extinguishment of the Convertible Notes is shown on the line item
‘‘(Gain) loss on early extinguishment of debt’’ on the Consolidated Statements of Operations.
In fiscal year 2010, payments of debt related primarily to retirement of the Convertible Notes
discussed above as well as principal payments on UniCredit Facility A and Facility B.
In fiscal year 2009, our payments of debt related primarily to the outstanding portion of the senior
notes that the Company sold in May 1998 (‘‘Senior Notes’’). In the first quarter of fiscal year 2009, we
paid $20.0 million of the outstanding principal balance on our Senior Notes in accordance with the
Senior Note agreement. On September 19, 2008, we prepaid our remaining obligations under the
Senior Notes, including the outstanding principal balance of $40.0 million, a make-whole amount of
$2.0 million and a prepayment fee of $0.2 million. The make-whole amount and prepayment fee are
shown on the line item ‘‘Loss on early retirement of debt’’ on the Consolidated Statements of
Operations.
60
In fiscal year 2009, our proceeds from the issuance of debt related primarily to a loan from a
subsidiary of Vishay. As part of the sale of the wet tantalum capacitor assets to a subsidiary of Vishay,
we entered into a three-year term loan agreement. The loan was for $15 million and carried an interest
rate of LIBOR plus 4% which was payable monthly. The entire principal amount of $15 million was
scheduled to mature on September 15, 2011 and could be prepaid without penalty. The loan was
secured by certain accounts receivable of KEMET. On May 5, 2010, the Vishay loan was paid in full.
Commitments
At March 31, 2011, we had contractual obligations in the form of non-cancelable operating leases
and debt, including interest payments (see Note 2, ‘‘Debt’’ to our consolidated financial statements),
European social security, pension benefits, and other post-retirement benefits as follows (amounts in
thousands):
Contractual obligations
Total
Year 1
Years 2 - 3
Years 4 - 5
Debt obligations(1) . . . . . . . . . . . . . . . . . . .
Interest obligations(1) . . . . . . . . . . . . . . . . .
European social security . . . . . . . . . . . . . . .
Employee separation liability . . . . . . . . . . . .
Pension benefits(2) . . . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . .
Purchase commitments . . . . . . . . . . . . . . . .
Other post-retirement benefits(2) . . . . . . . . .
$ 277,677
172,258
7,417
20,989
24,704
24,726
3,841
1,281
$ 43,670
25,217
5,343
1,279
4,173
8,759
3,841
150
$
3,397
48,361
2,074
568
3,580
11,815
—
297
$
610
48,301
—
568
4,151
3,509
—
280
More than
5 years
$ 230,000
50,379
—
18,574
12,800
643
—
554
$ 532,893
$ 92,432
$ 70,092
$ 57,419
$ 312,950
(1) Holders of the Convertible Notes have the right to require us to repurchase for cash all or a
portion of their Convertible Notes on November 15, 2011, 2016 and 2021 at a repurchase price
equal to 100% of the principal amount of the Convertible Notes to be repurchased plus accrued
and unpaid interest, if any, in each case, up to but not including, the date of repurchase. The
$40.6 million of Convertible Notes have been included in the ‘‘Year 1’’ column above.
(2) Reflects the expected benefit payments through 2020.
Non-GAAP Financial Measures
To complement our consolidated statements of operations and cash flows, we use non-GAAP
financial measures of Adjusted operating income (loss), Adjusted net income (loss) and Adjusted
EBITDA. We believe that Adjusted operating income (loss), Adjusted net income (loss) and Adjusted
EBITDA are complements to U.S. GAAP amounts and such measures are useful to investors. The
presentation of these non-GAAP measures is not meant to be considered in isolation or as an
alternative to net income as an indicator of our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity.
61
Adjusted operating income (loss) is calculated as follows (amounts in thousands):
Fiscal Years Ended March 31,
2011
2010
2009
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 129,261
$
7,697
$ (271,112)
Adjustments:
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt and stock registration related fees . . . . . . . . . . . . . . . . . . . .
ERP integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sales and disposals of assets . . . . . . . . . . . . . . . . . . . . . .
Inventory write downs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write down of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of incentive plan . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write off of capitalized advisor fees . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment gains on benefit plans . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,171
1,531
1,915
1,783
(1,261)
2,991
—
—
—
—
—
—
9,198
—
—
1,865
(1,003)
—
656
1,161
413
—
—
—
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,130
12,290
30,874
—
—
1,070
(25,505)
16,500
67,624
—
—
174,327
(30,835)
5,254
239,309
Adjusted operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . .
$ 143,391
$ 19,987
$
(31,803)
Adjusted net income (loss) is calculated as follows (amounts in thousands):
Fiscal Years Ended March 31,
2011
2010
2009
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 63,044
$ (69,447) $ (285,209)
Adjustments:
Amortization included in interest expense . . . . . . . . . . . . . . . . . .
Net foreign exchange (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt and stock registration related fees . . . . . . . . . . . . . . . . . . .
ERP integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on licensing of patents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sales and disposals of assets . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on early extinguishment of debt
. . . . . . . . . . . . . . . .
Write down of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in value of warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of incentive plan . . . . . . . . . . . . . . . . . . . . . . . . . .
Write off of capitalized advisor fees . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment gains on benefit plans . . . . . . . . . . . . . . . . . . . . . . .
Inventory write downs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,930
(2,888)
1,783
7,171
1,531
1,915
(2,000)
(1,261)
38,248
—
—
—
—
—
—
2,991
—
(1,256)
51,164
13,392
4,106
1,865
9,198
—
—
—
(1,003)
(38,921)
656
81,088
1,161
413
—
—
—
—
65
72,020
9,918
(14,079)
1,070
30,874
—
—
—
(25,505)
2,212
67,624
—
—
—
174,327
(30,835)
16,500
5,254
(10,140)
227,220
Adjusted net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 114,208
$
2,573
$
(57,989)
62
Adjusted EBITDA is calculated as follows (amounts in thousands):
Fiscal Years Ended March 31,
2011
2010
2009(1)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 63,044
$ (69,447) $ (285,209)
Adjustments:
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt and stock registration related fees . . . . . . . . . . . . . . . . . . .
ERP integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on licensing of patents . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sales and disposals of assets . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on early extinguishment of debt . . . . . . . . . . . . . . . .
Net foreign exchange (gain)/loss . . . . . . . . . . . . . . . . . . . . . . . .
Inventory write downs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write down of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in value of warrant
. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment
Curtailment gains on benefit plans . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,704
29,957
52,932
1,783
7,171
1,531
1,915
(2,000)
(1,261)
38,248
(2,888)
2,991
—
—
—
—
—
5,036
25,820
52,644
1,865
9,198
—
—
—
(1,003)
(38,921)
4,106
—
656
81,088
—
—
—
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
133,083
140,489
(3,202)
29,171
58,125
1,070
30,874
—
—
—
(25,505)
2,212
(14,079)
16,500
67,624
—
174,327
(30,835)
5,254
311,536
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 196,127
$
71,042
$
26,327
(1) Certain prior periods have been adjusted to conform to current period presentation which is
determined by management.
Adjusted operating income (loss) represents operating income (loss), excluding adjustments which
are outlined in the quantitative reconciliation provided above. We use Adjusted operating income (loss)
to facilitate our analysis and understanding of our business operations and believe that Adjusted
operating income (loss) is useful to investors because it provides a supplemental way to understand the
underlying operating performance of the Company. Adjusted operating income (loss) should not be
considered as an alternative to operating income or any other performance measure derived in
accordance with U.S. GAAP.
Adjusted net income (loss) represents net loss, excluding adjustments which are more specifically
outlined in the quantitative reconciliation provided above. We use Adjusted net loss to evaluate the
Company’s operating performance and believe that Adjusted net loss is useful to investors because it
provides a supplemental way to understand the underlying operating performance of the Company.
Adjusted net loss should not be considered as an alternative to net income, operating income or any
other performance measures derived in accordance with U.S. GAAP.
Adjusted EBITDA represents net income (loss) before income tax expense, interest expense, net,
and depreciation and amortization, adjusted to exclude restructuring charges, debt and stock
registration related fees, ERP integration costs, gain on licensing of patents, write down of long-lived
assets, stock-based compensation expense, increase in value of warrant, curtailment gains on benefit
plans, gain on sales and disposals of assets, gain/loss on the early extinguishment of debt, net foreign
exchange gain/loss, inventory write downs and acquisitions integration costs. We present Adjusted
EBITDA as a supplemental measure of our performance and ability to service debt. We also present
63
Adjusted EBITDA because we believe such measure is frequently used by securities analysts, investors
and other interested parties in the evaluation of companies in our industry.
We believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity
because cash expenditures on interest are, by definition, available to pay interest, and tax expense is
inversely correlated to interest expense because tax expense goes down as deductible interest expense
goes up; depreciation and amortization are non-cash charges. The other items excluded from Adjusted
EBITDA are excluded in order to better reflect our continuing operations.
In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses
similar to the adjustments noted above. Our presentation of Adjusted EBITDA should not be
construed as an inference that our future results will be unaffected by these types of adjustments.
Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should
not be considered as an alternative to net income, operating income or any other performance
measures derived in accordance with U.S. GAAP or as an alternative to cash flow from operating
activities as a measure of our liquidity.
Our Adjusted EBITDA measure has limitations as an analytical tool, and you should not consider
it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these
limitations are:
• it does not reflect our cash expenditures, future requirements for capital expenditures or
contractual commitments;
• it does not reflect changes in, or cash requirements for, our working capital needs;
• it does not reflect the significant interest expense or the cash requirements necessary to service
interest or principal payments on our debt;
• although depreciation and amortization are non-cash charges, the assets being depreciated and
amortized will often have to be replaced in the future, and our Adjusted EBITDA measure does
not reflect any cash requirements for such replacements;
• it is not adjusted for all non-cash income or expense items that are reflected in our statements
of cash flows;
• it does not reflect the impact of earnings or charges resulting from matters we consider not be
indicative of our ongoing operations;
• it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to
us; and
• other companies in our industry may calculate this measure differently than we do, limiting its
usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered as a measure of
discretionary cash available to us to invest in the growth of our business or as a measure of cash that
will be available to us to meet our obligations. You should compensate for these limitations by relying
primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standard Update (‘‘ASU’’) No. 2010-06, ‘‘Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements’’. The
updated guidance (i) requires separate disclosure of significant transfers in and out of Levels 1 and 2
fair value measurements, (ii) requires disclosure of Level 3 fair value measurements activity on a gross
basis, (iii) clarifies existing disaggregation requirements and (iv) clarifies existing input and valuation
64
technique disclosure requirements. The updated guidance was effective for interim and annual periods
beginning after December 15, 2009, except for the Level 3 fair value measurement disclosure
requirements, which are effective for fiscal years beginning after December 15, 2010. The adoption of
ASU No. 2010-06 did not have an impact on our consolidated results of operations or financial
position.
In December 2010, the FASB issued ASU No. 2010-29, ‘‘Business Combinations (Topic 805)’’, that
updates existing disclosure requirements related to supplementary pro forma information for business
combinations. Under the updated guidance, a public entity that presents comparative financial
statements should disclose revenue and earnings of the combined entity as though the business
combination that occurred during the current year had occurred as of the beginning of the comparable
prior annual reporting period only. The guidance also expands the supplemental pro forma disclosures
to include a description of the nature and amount of material, nonrecurring pro forma adjustments
directly attributable to the business combination included in the reported pro forma revenue and
earnings. This guidance was effective for us on April 1, 2011, and will be applied prospectively to any
business combinations that have an acquisition date on or after April 1, 2011.
Effect of Inflation
Inflation generally affects us by increasing the cost of labor, equipment, and raw materials. We do
not believe that inflation has had any material effect on our business over the past three fiscal years
except for the following discussion in Commodity Price Risk.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
We are exposed to interest rate risk through our other borrowing activities, which had an
outstanding balance as of March 31, 2011, of $7.1 million. The other debt has a variable interest rate
and a 1% change in the interest rate would yield a $0.1 million change in interest expense.
Foreign Currency Exchange Rate Risk
Given our international operations and sales, we are exposed to movements in foreign exchange
rates. Of these, the most significant are currently the Euro and the Mexican peso. A portion of our
sales to our customers and operating costs in Europe are denominated in Euro creating an exposure to
foreign currency exchange rates. Also, a portion of our costs in our Mexican operations are
denominated in Mexican pesos, creating an exposure to foreign currency exchange rates. Additionally,
certain of our non-U.S. subsidiaries make sales denominated in U.S. dollars which expose them to
foreign currency transaction gains and losses. Historically, in order to minimize our exposure, we
periodically entered into forward foreign exchange contracts in which the future cash flows were
hedged against the U.S. dollar. The Company does not presently have in place any forward foreign
exchange contracts, but does periodically evaluate the use of such contracts as a means of hedging its
foreign exchange exposure.
Commodity Price Risk
The principal raw materials used in the manufacture of our products are tantalum powder,
palladium, aluminum and silver. These materials are considered commodities and are subject to price
volatility. Due to market constraints, we no longer purchase tantalum powder under long-term
contracts. Instead, we forecast our tantalum needs for the short-term (twelve weeks) and make
purchases based upon those forecasts; we currently have purchase agreements outstanding for three to
six months. While the financial impact of these decisions are short-term in nature given that we are not
currently party to any long-term supply agreements, they could impact our financial performance from
65
period to period given that we do not hedge any of our raw material exposure and we may be unable
to pass on to a significant number of our customers any fluctuations in our raw material costs.
Additionally, any delays in obtaining raw materials for our products could hinder our ability to
manufacture our products, negatively impacting our competitive position and our relationships with our
customers.
Presently, a finite number of suppliers process tantalum ore into capacitor grade tantalum powder.
If there are significant fluctuations in demand, based on leadtime of ore to tantalum smelter, an
increase in the price of tantalum may result. If we are unable to pass the price increase on to our
customers, it could have an adverse effect on our profitability.
Palladium is a precious metal used in the manufacture of multilayer ceramic capacitors and is
mined primarily in Russia and South Africa. We continue to pursue ways to reduce palladium usage in
ceramic capacitors in order to minimize the price risk. The amount of palladium that we require has
generally been available in sufficient quantities, however the price of palladium is driven by the market
which has shown significant price fluctuations. For instance, in fiscal year 2011 the price of palladium
fluctuated between $415 and $855 per troy ounce. Price increases and the possibility of our inability to
pass such increases on to our customers could have an adverse effect on profitability.
Silver and aluminum have generally been available in sufficient quantities, and we believe there are
a sufficient number of suppliers from which we can purchase our requirements. An increase in the
price of silver and aluminum that we are unable to pass on to our customers, however, could have an
adverse effect on our profitability.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted as a separate section of this Form 10-K. See Item 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As of March 31, 2011, an evaluation of the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) was
performed under the supervision and with the participation of the Company’s management, including
the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls
and procedures are effective to ensure that information required to be disclosed by the Company in its
reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commission rules and forms,
and that information required to be disclosed by the Company in the reports the Company files or
submits under the Exchange Act is accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the
Exchange Act). Internal control over financial reporting is a process, designed by, or under the
66
supervision of, an entity’s principal executive and principal financial officers, and effected by an entity’s
board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of consolidated financial statements for external
purposes in accordance with generally accepted accounting principles. Internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and the dispositions of the assets of the
entity; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the entity are being made only in accordance with authorizations of
the management and directors of the entity; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have
a material effect on its consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of the Company’s management, including the
Company’s Chief Executive Officer and Chief Financial Officer, the Company’s management conducted
an assessment of the effectiveness of its internal control over financial reporting based on the criteria
set forth in the Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on that assessment, as of March 31, 2011, the Company’s management concluded that its
internal control over financial reporting was effective.
Ernst & Young LLP, our independent registered public accounting firm has issued an attestation
report on the Company’s internal control over financial reporting, which is on page 74 of this annual
report on Form 10-K.
(d) Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting during the fiscal
quarter ended March 31, 2011, that has materially affected, or is reasonably likely to materially affect,
the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
67
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
Other than the information under ‘‘Executive Officers’’ and ‘‘Key Employees’’ under Part I,
Item 4A, the other information required by Item 10 is incorporated by reference from the Company’s
definitive proxy statement for its annual stockholders meeting to be held on July 27, 2011 under the
headings ‘‘Nominees for Board of Directors,’’ ‘‘Continuing Directors,’’ ‘‘Section 16(a) Beneficial
Ownership Reporting Compliance’’ and ‘‘Information about the Board of Directors.’’
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference from the Company’s definitive
proxy statement for its annual stockholders’ meeting to be held on July 27, 2011 under the headings
‘‘Compensation Discussion & Analysis,’’ ‘‘Summary Compensation Table,’’ ‘‘Grants of Plan-Based
Awards Table,’’ ‘‘Outstanding Equity Awards at Fiscal Year-End Table,’’ ‘‘Options Exercises and Stock
Vested Table,’’ ‘‘Pension Benefits Table,’’ ‘‘Nonqualified Deferred Compensation Table,’’ ‘‘Potential
Payments Upon Termination or Change in Control Table,’’ ‘‘Director Compensation Table,’’ ‘‘All Other
Compensation Table,’’ ‘‘Perquisites Table,’’ ‘‘Compensation Committee Report,’’ and ‘‘Compensation
Committee Interlocks and Insider Participation.’’
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The information required by Item 12 is incorporated by reference from the Company’s definitive
proxy statement for its annual stockholders’ meeting to be held on July 27, 2011 under the heading
‘‘Security Ownership’’, and from ‘‘Equity Compensation Plan Disclosure’’ in Item 5 hereof.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
The information required by Item 13 is incorporated by reference from the Company’s definitive
proxy statement for its annual stockholders’ meeting to be held on July 27, 2011 under the headings
‘‘Review, Approval or Ratification of Transactions with Related Persons’’ and ‘‘Information about the
Board of Directors.’’
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by Item 14 is incorporated by reference from the Company’s definitive
proxy statement for its annual stockholders’ meeting to be held on July 27, 2011 under the heading
‘‘Audit and Non-Audit Fees.’’
68
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) (1) Financial Statements
The following financial statements are filed as a part of this report:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended March 31, 2011, 2010, and 2009 . . .
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss)
for the years ended March 31, 2011, 2010, and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended March 31, 2011, 2010, and 2009 . . .
Notes to Consolidated Financial Statements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
79
80
82
83
84
85
86
87
69
(a) (2) Financial Statement Schedules
Financial statement schedules are omitted because they are not applicable or because the required
information is included in the consolidated financial statements or notes thereto.
(a) (3) List of Exhibits
The following exhibits are filed herewith or are incorporated by reference to exhibits previously
filed with the SEC:
2.1 Asset and Share Purchase Agreement dated December 12, 2005, between EPCOS AG,
KEMET Electronics GmbH, KEMET Electronics S.A., and KEMET Corporation (the
‘‘Company’’ or KEMET Corporation) (incorporated by reference to Exhibit 99.2 to the
Company’s Current Report on Form 8-K/A dated April 20, 2006).
2.2 Amendment Agreement dated April 13, 2006, to the Asset and Share Purchase Agreement
dated December 12, 2005 between EPCOS AG, KEMET Electronics GmbH, KEMET
Electronics S.A., and the Company (incorporated by reference to Exhibit 99.7 to the Company’s
Current Report on Form 8-K/A dated April 20, 2006).
2.3 Asset Purchase Agreement dated December 12, 2005, as amended on April 13, 2006, between
EPCOS AG, KEMET Electronics (Suzhou) Co., Ltd., and the Company (incorporated by
reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K/A dated April 20,
2006).
2.4 Restated Heidenheim Manufacturing and Supply Agreement dated April 13, 2006, between
EPCOS AG, EPCOS Portugal, the Company, and KEMET Electronics Corporation
(incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K/A
dated April 20, 2006).
2.5
2.6
2.7
Substitution Agreement (Asset and Share Purchase Agreement) dated April 13, 2006, between
EPCOS AG, KEMET Electronics GmbH, KEMET Electronics S.A., the Company, and
KEMET Electronics Corporation (incorporated by reference to Exhibit 99.5 to the Company’s
Current Report on Form 8-K/A dated April 20, 2006).
Substitution Agreement (regarding Asset Purchase Agreement dated December 12, 2005) dated
April 13, 2006, between EPCOS AG, KEMET Electronics (Suzhou) Co., Ltd., KEMET
Electronics Corporation, and the Company (incorporated by reference to Exhibit 99.6 to the
Company’s Current Report on Form 8-K/A dated April 20, 2006).
Sale and Purchase Agreement dated August 10, 2007 between Blue Skye (Lux) S.a r.l. and
KEMET Electronics Corporation (incorporated by reference to Exhibit 99.2 to the Company’s
Current Report on Form 8-K dated August 16, 2007).
3.1 Restated Certificate of Incorporation of the Company, as amended to date (incorporated by
reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3, filed with the
SEC on October 21, 2010 (File No. 333-170073)).
3.2 Certificate of Amendment to Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated
November 4, 2010).
3.3 Amended and Restated By-laws of KEMET Corporation, effective June 5, 2008 (incorporated
by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated June 3, 2008).
70
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.3 to the Company’s
registration statement on Form S-3, filed with the SEC on October 21, 2010 (File
No. 333-170073)).
4.2 Registration Rights Agreement, dated as of November 1, 2006, by and among the Company,
Credit Suisse Securities (USA) LLC, and Deutsche Bank Securities Inc. (incorporated by
reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-3 [Reg.
No. 333-140943] filed on February 28, 2007).
4.3
Indenture, dated as of November 1, 2006, by and among the Company and Wilmington Trust
Company, as Trustee (incorporated by reference to Exhibit 4.3 to the Company’s Registration
Statement on Form S-3 [Reg. No. 333-140943] filed on February 28, 2007).
4.4 Form of 2.25% Convertible Senior Note due 2026 (included in Exhibit 4.3).
4.5
Indenture, dated May 5, 2010, by and among the Company, certain subsidiary guarantors
named therein and Wilmington Trust Company, as trustee (incorporated by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 5, 2010).
4.6 Registration Rights Agreement, dated May 5, 2010, by and among the Company, certain
subsidiary guarantors named therein and the initial purchasers named therein (incorporated by
reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated May 5, 2010).
10.1 Registration Agreement, dated as of December 21, 1990, by and among the Company and each
of the investors and executives listed on the schedule of investors and executives attached
thereto (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on
Form S-1 [Reg. No. 33-48056]).
10.2 Form of Amendment No. 1 to Registration Agreement, dated as of April 28, 1994
(incorporated by reference to Exhibit 10.3.1 to the Company’s Registration Statement on
Form S-1 [Reg. No. 33-61898]).
10.3
Services Agreement, dated as of December 21, 1990, as amended as of March 30, 1992, by and
between the Company and KEMET Electronics Corporation (incorporated by reference to
Exhibit 10.4 to the Company’s Registration Statement on Form S-1 [Reg. No. 33-48056]).
10.4 Form of Grant of Nonqualified Stock Option, dated April 6, 1992, by and between the
Company and each of the executives listed on the schedule attached thereto (incorporated by
reference to Exhibit 10.12.1 to the Company’s Registration Statement on Form S-1 [Reg.
No. 33-48056]).*
10.5 Form of KEMET Electronics Corporation Distributor Agreement (incorporated by reference to
Exhibit 10.16 to the Company’s Registration Statement on Form S-1 [Reg. No. 33-48056]).
10.6 Form of KEMET Electronics Corporation Standard Order Acknowledgment, Quotation, and
Volume Purchase Agreement (incorporated by reference to Exhibit 10.17 to the Company’s
Registration Statement on Form S-1 [Reg. No. 33-48056]).
10.7 Form of KEMET Electronics Corporation Product Warranty (incorporated by reference to
Exhibit 10.18 to the Company’s Registration Statement on Form S-1 [Reg. No. 33-48056]).
10.8 Amendment No. 1 to Stock Purchase and Sale Agreement, dated as of December 21, 1990. The
Company agrees to furnish supplementally to the SEC a copy of any omitted schedule or
exhibit to the Agreement upon Request by the SEC (incorporated by reference to
Exhibit 10.20.1 to the Company’s Registration Statement on Form S-1 [Reg. No. 33-48056]).
71
10.9 Form of Deferred Compensation Plan for Key Managers effective as of January 1, 1995
(incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for
the year ended March 31, 1995).*
10.10 Form of Collateral Assignment and Split Dollar Insurance (incorporated by reference to
Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the year ended March 31,
1995).
10.11
1995 Executive Stock Option Plan by and between the Company and each of the executives
listed on the schedule attached thereto (incorporated by reference to Exhibit 10.33 to the
Company’s Annual Report on Form 10-K for the year ended March 31, 1996).*
10.12 Executive Bonus Plan by and between the Company and each of the executives listed on the
schedule attached thereto (incorporated by reference to Exhibit 10.34 to the Company’s Annual
Report on Form 10-K for the year ended March 31, 1996).*
10.13 Amendment No. 2 to Services Agreement by and between the Company and KEMET
Electronics Corporation (incorporated by reference to Exhibit 10.4.1 to the Company’s Annual
Report on Form 10-K for the year ended March 31, 1996).
10.14 Amendment No. 3 to Services Agreement dated as of January 1, 1996, by and between the
Company and KEMET Electronics Corporation (incorporated by reference to Exhibit 10.4.2 to
the Company’s Annual Report on Form 10-K for the year ended March 31, 1996).
10.15 Amendment No. 4 to Services Agreement dated as of March 1, 1996, by and between the
Company and KEMET Electronics Corporation (incorporated by reference to Exhibit 10.4.3 to
the Company’s Annual Report on Form 10-K for the year ended March 31, 1996).
10.16
1992 Key Employee Stock Option Plan (incorporated by reference to Exhibit 10.16 to the
Company’s Annual Report on Form 10-K for the year ended March 31, 2009).*
10.17 Amendment No. 1 to KEMET Corporation 1992 Key Employee Stock Option Plan effective
October 23, 2000 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report
on Form 10-Q for the quarter ended December 31, 2000).*
10.18
10.19
1992 Executive Stock Option Plan (incorporated by reference to Exhibit 10.12 to the
Company’s Registration Statement on Form S-1 [Reg. No. 33-48056]).*
2004 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 4.3 to the
Company’s Registration Statement on Form S-8 [Reg. No. 333-123308]).*
10.20 Purchase Agreement, dated as of November 1, 2006, by and among the Company, Credit Suisse
Securities (USA) LLC, and Deutsche Bank Securities Inc. (incorporated by reference to
Exhibit 1.01 to the Company’s Registration Statement on Form S-3 [Reg. No. 333-140943] filed
on February 28, 2007).
10.21 Amendment to the Compensation Plan of the Chief Executive Officer and other executive
officers effective May 3, 2006 (incorporated by reference to the Company’s Current Report on
Form 8-K dated May 9, 2006).*
10.22 Amendment to the Compensation Plan of the Chief Executive Officer and other executive
officers effective July 19, 2006 (incorporated by reference to the Company’s Current Report on
Form 8-K dated July 25, 2006).*
10.23 Amendment to the Compensation Plan of Chief Executive Officer and other executive officers
effective March 28, 2007 (incorporated by reference to the Company’s Current Report on
Form 8-K dated April 3, 2007).*
72
10.24 Amendment to the Compensation Plan of the Chief Executive Officer and other executive
officers effective May 8, 2007 (incorporated by reference to the Company’s Current Report on
Form 8-K dated May 14, 2007).*
10.25 Amendment to the Compensation Plan of the Chief Executive Officer and other executive
officers effective May 16, 2007 (incorporated by reference to the Company’s Current Report on
Form 8-K dated May 23, 2007).*
10.26 Amendment to the Compensation Plan of the Chief Executive Officer and other executive
officers dated May 5, 2008 (incorporated by reference to the Company’s Current Report on
Form 8-K dated May 5, 2008).*
10.27 Confidential Separation Agreement between David E. Gable and KEMET Corporation, dated
as of June 1, 2008 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report
on Form 8-K dated June 13, 2008).*
10.28 Loan Agreement by Certified Private Agreement dated September 29, 2008 between UniCredit
Corporate Banking S.p.A. and KEMET Corporation (English translation) (incorporated by
reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated October 21,
2008).
10.29 Mortgage Deed dated September 29, 2008 between UniCredit Corporate Banking S.p.A. and
Arcotronics Industries S.r.l. (English translation) (incorporated by reference to Exhibit 99.2 to
the Company’s Current Report on Form 8-K dated October 21, 2008).
10.30 Addendum dated April 3, 2009, to Mortgage Deed dated September 29, 2008 between
UniCredit Corporate Banking S.p.A. and Arcotronics Industries S.r.l. (English translation)
(incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K for
the year ended March 31, 2009).
10.31 Deed of Pledge of Stocks dated October 21, 2008 among UniCredit Corporate Banking S.p.A.,
KEMET Electronics Corporation and Arcotronics Italia S.p.A. (English translation)
(incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K
dated October 21, 2008).
10.32 Deed of Pledge of Shares dated October 21, 2008 among UniCredit Corporate Banking S.p.A.,
Arcotronics Italia S.p.A. and Arcotronics Industries S.r.l. (English translation) (incorporated by
reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K dated October 21,
2008).
10.33 Deed of Assignment of Credit for Guaranty Purposes dated October 21, 2008 among UniCredit
Corporate Banking S.p.A., KEMET Corporation, KEMET Electronics Corporation, Arcotronics
Italia S.p.A., Arcotronics Industries S.r.l., Arcotronics Hightech S.r.l. and Arcotronics
Technologies S.r.l. (English translation) (incorporated by reference to Exhibit 99.5 to the
Company’s Current Report on Form 8-K dated October 21, 2008).
10.34 Letter of Extension Agreement dated April 3, 2009 to Credit Line Granted by UniCredit
Corporate Banking S.p.A. to KEMET Corporation dated October, 2007 (incorporated by
reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the year ended
March 31, 2009).
10.35 Loan Agreement, dated as of September 15, 2008 between KEMET Electronics Corporation
and Vishay Intertechnology, Inc. (incorporated by reference to Exhibit 10.6 to the Company’s
Quarterly Report Form 10-Q for the quarter ended September 30, 2008).
73
10.36 Pledge and Security Agreement, dated as of September 15, 2008 made by KEMET Electronics
Corporation in favor of Vishay Intertechnology, Inc. (incorporated by reference to Exhibit 10.7
to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).
10.37 Asset Purchase Agreement, dated as of September 15, 2008, by and between KEMET
Electronics Corporation and Siliconix Technology C.V. (incorporated by reference to
Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2008).
10.38
Summary of Non-Employee Director Compensation (incorporated by reference to Exhibit 10.1
to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008).*
10.39 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated April 22, 2009).*
10.40 Credit Agreement, dated as of May 5, 2009, by and among the Company, K Financing, LLC
and the other guarantor parties thereto (incorporated by reference to Exhibit (b)(1) filed with
the Company’s Schedule TO, filed on May 5, 2009).
10.41 Amended and Restated Credit Agreement, dated as of June 7, 2009, by and among the
Company, K Financing, LLC and the other parties thereto (incorporated by reference to
Exhibit (b)(1) filed with the Company’s Amendment No. 3 to Schedule TO, filed on June 8,
2009).
10.42 Amendment No. 1 to Amended and Restated Credit Agreement entered into on June 7, 2009,
by and among the Company, K Financing, LLC and the other parties thereto, dated June 21,
2009 (incorporated by reference to Exhibit (b)(2) filed with the Company’s Amendment No. 5
to Schedule TO, filed with the SEC on June 22, 2009).
10.43 Amendment No. 2 to Amended and Restated Credit Agreement entered into on June 7, 2009,
by and among the Company, K Financing, LLC and other parties thereto, dated September 30,
2009 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K, filed on October 6, 2009).
10.44 Amendment Agreement to the Credit Line Agreement entered into on October 3, 2007 by and
between UniCredit Corporate Banking S.p.A. and the Company, dated April 30, 2009
(incorporated by reference to Exhibit (d)(12) filed with the Company’s Schedule TO, filed on
June 15, 2009).
10.45 Amendment to the Credit Line Agreement entered into on October 3, 2007 as amended on
April 30, 2009 and May 25, 2009, by and between UniCredit Corporate Banking S.p.A. and the
Company, dated May 25, 2009 (incorporated by reference to Exhibit (d)(13) filed with the
Company’s Schedule TO, filed on June 15, 2009).
10.46 Amendment to the Loan Agreement entered into on April 30, 2009, by and between UniCredit
Corporate Banking S.p.A. and the Company, dated June 1, 2009 (incorporated by reference to
Exhibit (d)(14) filed with the Company’s Schedule TO, filed on June 15, 2009).
10.47 Commitment Letter to the Company by UniCredit Corporate Banking S.p.A., dated April 30,
2009 (incorporated by reference to Exhibit (d)(15) filed with the Company’s Schedule TO, filed
on June 15, 2009).
10.48 Amendment to the Loan Agreement by Certified Private Agreement entered into
September 29, 2008 by and between UniCredit Corporate Banking S.p.A. and the Company,
dated April 30, 2009 (English translation) (incorporated by reference to Exhibit (d)(16) filed
with the Company’s Schedule TO, filed on June 15, 2009).
74
10.49 Amendment to the Loan Agreement by Certified Private Agreement entered into
September 29, 2008 as amended on April 30, 2009 by and between UniCredit Corporate
Banking S.p.A. and the Company, dated June 1, 2009 (English translation) (incorporated by
reference to Exhibit (d)(17) filed with the Company’s Schedule TO, filed on June 15, 2009).
10.50 Amendment No. 2 to Amended and Restated Credit Agreement entered into on June 7, 2009,
by and among the Company, K Financing, LLC and other parties thereto, dated September 30,
2009 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
dated September 30, 2009).
10.51 Amendment to the Loan Agreement by Certified Private Agreement entered into
September 29, 2008 by and between UniCredit Corporate Banking S.p.A. and the Company,
dated October 1, 2009 (English translation) (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K dated September 30, 2009).
10.52 Amendment to the Compensation Plan of the Company’s executive officers (incorporated by
reference to the Company’s Current Report on Form 8-K dated July 29, 2009).*
10.53 Warrant to Purchase Common Stock, dated June 30, 2009, issued by the Company to
K Financing, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K dated June 30, 2009).
10.54
Investor Rights Agreement, dated June 30, 2009, between the Company and K Financing, LLC
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
dated June 30, 2009).
10.55 Corporate Advisory Services Agreement, dated June 30, 2009, between the Company and
Platinum Equity Advisors, LLC (incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K dated June 30, 2009).
10.56 Purchase Agreement, dated April 21, 2010, by and among the Company, certain subsidiary
guarantors named therein and Banc of America Securities LLC, as representative of the several
initial purchasers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K dated April 21, 2010).
10.57 Employment Agreement between the Company and Per Olof-Loof dated January 27, 2010
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
dated January 27, 2010).*
10.58 Change in Control Severance Compensation Agreement dated July 28, 2008, between the
Company and Per-Olof Loof (incorporated by reference to Exhibit 10.45 to the Company’s
Annual Report on Form 10-K for the year ended March 31, 2009).*
10.59 Change in Control Severance Compensation Agreement dated July 28, 2008, between the
Company and William M. Lowe, Jr. (incorporated by reference to Exhibit 10.46 to the
Company’s Annual Report on Form 10-K for the year ended March 31, 2009).*
10.60 Change in Control Severance Compensation Agreement dated September 8, 2008, between the
Company and Robert Arg¨uelles (incorporated by reference to Exhibit 10.47 to the Company’s
Annual Report on Form 10-K for the year ended March 31, 2009).*
10.61 Change in Control Severance Compensation Agreement dated July 28, 2008, between the
Company and Conrado Hinojosa (incorporated by reference to Exhibit 10.48 to the Company’s
Annual Report on Form 10-K for the year ended March 31, 2009).*
75
10.62 Change in Control Severance Compensation Agreement dated July 28, 2008, between the
Company and Marc Kotelon (incorporated by reference to Exhibit 10.49 to the Company’s
Annual Report on Form 10-K for the year ended March 31, 2009).*
10.63 Change in Control Severance Compensation Agreement dated July 28, 2008, between the
Company and Charles C. Meeks, Jr. (incorporated by reference to Exhibit 10.50 to the
Company’s Annual Report on Form 10-K for the year ended March 31, 2009).*
10.64 Change in Control Severance Compensation Agreement dated July 28, 2008, between the
Company and Kirk D. Shockley (incorporated by reference to Exhibit 10.51 to the Company’s
Annual Report on Form 10-K for the year ended March 31, 2009).*
10.65 Change in Control Severance Compensation Agreement dated July 28, 2008, between the
Company and Daniel E. LaMorte (incorporated by reference to Exhibit 10.52 to the Company’s
Annual Report on Form 10-K for the year ended March 31, 2009).*
10.66 Change in Control Severance Compensation Agreement dated July 28, 2008, between the
Company and Dr. Philip M. Lessner (incorporated by reference to Exhibit 10.53 to the
Company’s Annual Report on Form 10-K for the year ended March 31, 2009).*
10.67 Change in Control Severance Compensation Agreement dated July 28, 2008, between the
Company and Larry C. McAdams (incorporated by reference to Exhibit 10.54 to the Company’s
Annual Report on Form 10-K for the year ended March 31, 2009).*
10.68 Change in Control Severance Compensation Agreement dated July 28, 2008, between the
Company and Daniel F. Persico (incorporated by reference to Exhibit 10.55 to the Company’s
Annual Report on Form 10-K for the year ended March 31, 2009).*
10.69
Second Amended and Restated KEMET Corporation Deferred Compensation Plan
(incorporated by reference to Exhibit 10.56 to the Company’s Annual Report on Form 10-K for
the year ended March 31, 2009).*
10.70 Amendment No. 1 to Change in Control Severance Compensation Agreement—William M.
Lowe, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2010).*
10.71 Amendment No. 1 to Change in Control Severance Compensation Agreement—
Robert R. Arg¨uelles (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2010).*
10.72 Amendment No. 1 to Change in Control Severance Compensation Agreement—Conrado
Hinojosa (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2010).*
10.73 Amendment No. 1 to Change in Control Severance Compensation Agreement—Marc Kotelon
(incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2010).*
10.74 Amendment No. 1 to Change in Control Severance Compensation Agreement—Charles C.
Meeks, Jr. (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2010).*
10.75 Amendment No. 1 to Change in Control Severance Compensation Agreement—Daniel E.
LaMorte (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2010).*
76
10.76 Amendment No. 1 to Change in Control Severance Compensation Agreement—Dr. Philip M.
Lessner (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2010).*
10.77 Amendment No. 1 to Change in Control Severance Compensation Agreement—Larry C.
McAdams (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2010).*
10.78 Amendment No. 1 to Change in Control Severance Compensation Agreement—Dr. Daniel F.
Persico (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2010).*
10.79 Loan and Security Agreement, dated as of September 30, 2010, by and among KEMET
Electronics Corporation, KEMET Electronics Marketing (S) Pte Ltd., and Bank of America,
N.A., as agent and Banc of America Securities LLC, as lead arranger and bookrunner
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
dated September 30, 2010).
10.80 KEMET Executive Secured Benefit Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2010).*
21.1
Subsidiaries of KEMET Corporation
23.1 Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP
23.2 Consent of Independent Registered Public Accounting Firm, KPMG LLP
23.3 Consent of Independent Registered Public Accounting Firm, Deloitte & Touche S.P.A.
23.4 Consent of Paumanok Publications, Inc.
31.1 Certification of the Chief Executive Officer Pursuant to Section 302
31.2 Certification of the Chief Financial Officer Pursuant to Section 302
32.1 Certification of the Chief Executive Officer Pursuant to Section 906
32.2 Certification of the Chief Financial Officer Pursuant to Section 906
101 The following financial information from KEMET Corporation’s Annual Report on Form 10-K
for the year ended March 31, 2011, formatted in XBRL (eXtensible Business Reporting
Language): (i) Consolidated Balance Sheets at March 31, 2011, and March 31, 2010,
(ii) Consolidated Statements of Income for the years ended March 31, 2011, 2010 and 2009,
(iii) Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income
(Loss) for the years ended March 31, 2011, 2010 and 2009, (iv) Consolidated Statements of
Cash Flows for the years ended March 31, 2011, 2010 and 2009 and (v) the Notes to
Condensed Consolidated Financial Statements, tagged as blocks of text.
*
Exhibit is a management contract or a compensatory plan or arrangement.
77
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of KEMET Corporation
We have audited the accompanying consolidated balance sheets of KEMET Corporation and
subsidiaries as of March 31, 2011 and 2010 and the related consolidated statements of operations,
stockholders’ equity and comprehensive income (loss), and cash flows for the two years in the period
ended March 31, 2011. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the consolidated financial position of KEMET Corporation and subsidiaries at March 31, 2011 and
2010, and the consolidated results of their operations and their cash flows for the two years ended
March 31, 2011, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), KEMET Corporation’s internal control over financial reporting as of
March 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 20,
2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Greenville, South Carolina
May 20, 2011
78
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of KEMET Corporation
We have audited KEMET Corporation’s internal control over financial reporting as of March 31,
2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the COSO criteria). KEMET Corporation’s
management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, KEMET Corporation maintained, in all material respects, effective internal control
over financial reporting as of March 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of KEMET Corporation and
subsidiaries as of March 31, 2011, and the related consolidated statements of operations, stockholders’
equity, and cash flows for the year then ended, and our report dated May 20, 2011 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Greenville, South Carolina
May 20, 2011
79
Report of Independent Registered Public Accounting Firm
The Board of Directors
KEMET Corporation:
We have audited the accompanying consolidated statements of operations, stockholders’ equity and
comprehensive income (loss), and cash flows of KEMET Corporation for the year ended March 31,
2009. 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
audit. We did not audit the consolidated financial statements of Arcotronics Italia S.p.A and
subsidiaries (Arcotronics Group), a wholly-owned subsidiary, which statements reflect total net sales
constituting approximately 19 percent in 2009, of the related consolidated total net sales. Those
statements were audited by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Arcotronics Group, is based solely on the report of the
other auditors.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audit and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, 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, 2009, and the results of their operations and their cash
flows for the year ended March 31, 2009 in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 10 to the consolidated financial statements as previously filed November 5,
2009, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes-an interpretation of FASB Statement No. 109), as of April 1, 2007.
As discussed in Note 2b to the consolidated financial statements as previously filed November 5,
2009, the Company adopted the provisions of FASB Staff Position No. APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement), as of April 1, 2009, and accordingly, adjusted the previously issued consolidated balance
sheets as of March 31, 2009 and 2008 and related statements of operations, stockholders’ equity and
comprehensive income (loss) and cash flows for each of the years in the three-year period ended
March 31, 2009.
The accompanying consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2a to the consolidated financial
statements as previously filed November 5, 2009, the Company has experienced a decline in net sales,
profitability and liquidity during the year ended March 31, 2009. As further disclosed in Note 2a, the
Company currently forecasts that it will meet the financial covenants required by its debt agreements
with lenders at each of the measurement dates during fiscal year 2010. Given the degree of uncertainty
with respect to the near-term outlook for the global economy and the possible effects on the
Company’s operations, there is significant uncertainty as to whether the Company’s forecasts will be
achieved. Furthermore, the Company currently anticipates that it will continue to experience severe
pressure on its liquidity during fiscal year 2010. These matters raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard to these matters are
also described in Note 2a to the consolidated financial statements as previously filed November 5, 2009.
80
The consolidated financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG LLP
KPMG LLP
Greenville, South Carolina
June 30, 2009, except with respect to the change in accounting for convertible debt to reflect the
adoption of the provisions of FASB Staff Position No. APB 14-1, as to which the date is as of
November 5, 2009 and with respect to Note 19 as to which the date is as of October 26, 2010.
81
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder of
ARCOTRONICS ITALIA S.p.A.
Sasso Marconi, Italy
We have audited the consolidated statements of operations, stockholders’ equity (deficit), and cash
flows of Arcotronics Italia S.p.A. (which has since changed its legal name to Kemet Electronics S.p.A.)
and subsidiaries (the ‘‘Company’’) (a wholly owned subsidiary of KEMET Electronics Corporation, the
‘‘Parent Company’’) for the year ended March 31, 2009 (all expressed in euros and not separately
presented herein). These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the
results of operations and cash flows of Arcotronics Italia S.p.A. and subsidiaries for the year ended
March 31, 2009, in conformity with accounting principles generally accepted in the United States of
America.
The consolidated financial statements for the year ended March 31, 2009, have been prepared
assuming that the Company will continue as a going concern. The Company’s recurring losses from
operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations
and sustain its operations, including restructuring plans, raise substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
DELOITTE & TOUCHE S.p.A.
/s/ DELOITTE & TOUCHE S.p.A.
Bologna, Italy
June 29, 2009
82
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands except per share data)
March 31,
2011
2010
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 152,051
160,708
206,440
18,020
5,301
542,520
310,412
20,092
11,285
$
79,199
137,385
150,508
18,790
2,129
388,011
319,878
21,806
11,266
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 884,309
$ 740,961
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,101
90,997
88,291
4,265
$
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
225,654
231,215
59,727
7,960
17,880
78,829
63,606
1,096
161,411
231,629
55,626
8,023
Stockholders’ equity:
Common stock, par value $0.01, authorized 300,000 shares, issued 39,508
and 29,508 shares at March 31, 2011 and 2010, respectively . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost (2,370 and 2,463 shares at March 31, 2011 and 2010,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
395
479,322
(87,745)
22,555
295
479,705
(150,789)
11,990
(54,774)
(56,929)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
359,753
284,272
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 884,309
$ 740,961
See accompanying notes to consolidated financial statements.
83
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands except per share data)
Fiscal Years Ended March 31,
2011
2010
2009
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,018,488
$ 736,335
$
804,385
Operating costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain on sales and disposals of assets . . . . . . . . . . . . . . . .
Write down of long-lived assets . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment gains on benefit plans . . . . . . . . . . . . . . . . . . . .
Total operating costs and expenses . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense and amortization of debt discount . . . . . . . .
(Gain) loss on early extinguishment of debt
. . . . . . . . . . . . .
Increase in value of warrant . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
752,846
104,607
25,864
7,171
(1,261)
—
—
—
889,227
129,261
(218)
30,175
38,248
—
(4,692)
65,748
2,704
611,638
86,085
22,064
9,198
(1,003)
656
—
—
736,551
93,505
28,956
30,874
(25,505)
67,624
174,327
(30,835)
728,638
1,075,497
7,697
(271,112)
(188)
26,008
(38,921)
81,088
4,121
(64,411)
5,036
(618)
29,789
2,212
—
(14,084)
(288,411)
(3,202)
63,044
$ (69,447) $ (285,209)
2.11
1.22
$
$
(2.57) $
(2.57) $
(10.62)
(10.62)
See accompanying notes to consolidated financial statements.
84
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss)
KEMET CORPORATION AND SUBSIDIARIES
(Amounts in thousands)
Additional Retained
Accumulated
Other
Total
Shares
Outstanding
Common
Stock
Paid-In
Capital
Earnings Comprehensive Treasury Stockholders’
(Deficit)
Income (Loss)
Equity
Stock
Balance at March 31, 2008 . . . . . . . . .
Adjustment to reflect reverse stock split .
80,290
(53,527)
$ 882
(588)
$ 367,711 $ 203,867
—
588
$ 65,565
—
$ (61,194)
—
$ 576,831
—
Comprehensive income (loss):
Net loss
Unrealized gain (loss) on foreign
. . . . . . . . . . . . . . . . . . .
exchange contracts, net
. . . . . . . .
Changes in pension net prior service
credit and actuarial gains, net
. . . .
Changes in retirement plan net prior
service credit and actuarial gains,
net . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . .
Total comprehensive income (loss) . . . .
Vesting of restricted stock . . . . . . . . . .
Stock-based compensation expense . . . .
Purchases of stock by employee savings
plan . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
79
—
95
—
—
—
—
—
—
—
1
— (285,209)
—
—
—
—
(1,770)
1,070
248
—
—
—
—
—
—
—
—
(763)
(2,677)
(19,209)
(30,253)
—
—
—
—
—
—
—
—
1,770
—
—
(285,209)
(763)
(2,677)
(19,209)
(30,253)
(338,111)
—
1,070
249
Balance at March 31, 2009 . . . . . . . . .
26,937
295
367,847
(81,342)
12,663
(59,424)
240,039
Comprehensive income (loss):
Net loss
Unrealized gain (loss) on foreign
. . . . . . . . . . . . . . . . . . .
exchange contracts, net
. . . . . . . .
Changes in pension net prior service
credit and actuarial gains, net
. . . .
Changes in retirement plan net prior
service credit and actuarial gains,
net . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . .
Total comprehensive income (loss) . . . .
Issuance of warrant . . . . . . . . . . . . . .
Vesting of restricted stock . . . . . . . . . .
Stock-based compensation expense . . . .
—
—
—
—
—
—
108
—
—
—
—
—
—
—
—
—
—
—
—
—
—
112,488
(2,495)
1,865
(69,447)
—
—
—
—
—
—
—
—
—
(560)
(2,090)
1,977
—
—
—
—
—
—
—
—
—
2,495
—
(69,447)
—
(560)
(2,090)
1,977
(70,120)
112,488
—
1,865
Balance at March 31, 2010 . . . . . . . . .
27,045
295
479,705
(150,789)
11,990
(56,929)
284,272
Comprehensive income (loss):
Net income . . . . . . . . . . . . . . . . .
Changes in pension net prior service
credit and actuarial gains, net
. . . .
Changes in retirement plan net prior
service credit and actuarial gains,
net . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . .
Total comprehensive income . . . . . . . .
Vesting of restricted shares . . . . . . . . .
Stock-based compensation expense . . . .
Issuance of shares to K Equity, LLC . . .
Exercise of stock options . . . . . . . . . .
Balance at March 31, 2011 . . . . . . . . .
—
—
—
—
47
—
10,000
46
37,138
—
—
—
—
—
—
100
—
—
—
—
—
(1,078)
1,783
(100)
(988)
63,044
—
—
—
—
—
—
—
—
(300)
(2,019)
12,884
—
—
—
—
—
—
—
—
1,078
—
—
1,077
63,044
(300)
(2,019)
12,884
73,609
—
1,783
—
89
$ 395
$ 479,322 $ (87,745)
$ 22,555
$ (54,774)
$ 359,753
See accompanying notes to consolidated financial statements.
85
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
Fiscal Years Ended March 31,
2011
2010
2009
$
63,044
$ (69,447) $ (285,209)
Sources (uses) of cash and cash equivalents
Operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount and debt issuance costs . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Net gain on sales and disposals of assets
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
Pension and other post-retirement benefits . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
(Gain) loss on early extinguishment of debt
Write down of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in value of warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment gains on benefit plans . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,932
4,930
(1,261)
1,783
(2,319)
(3,403)
38,248
—
—
—
—
(2,446)
(14,466)
(48,817)
(6,647)
9,567
4,315
18,508
52,644
13,392
(1,003)
1,865
(2,716)
2,051
(38,921)
656
—
81,088
—
339
(18,263)
7,168
(5,647)
26,605
421
4,388
Net cash provided by operating activities . . . . . . . . . . . . . . . . . .
113,968
54,620
Investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash received . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(34,989)
5,425
—
—
(12,921)
1,500
—
—
Net cash provided by (used in) investing activities . . . . . . . . . . . .
(29,564)
(11,421)
Financing activities:
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of debt
Payment of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (payments) borrowings under other credit facilities . . . . . . . . . . .
Debt issuance costs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt extinguishment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . .
Effect of foreign currency fluctuations on cash . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of fiscal year . . . . . . . . . . . . . .
227,525
(230,413)
(2,479)
(7,853)
(207)
89
—
(13,338)
71,066
1,786
79,199
58,949
(54,525)
475
(4,206)
(3,605)
—
—
(2,912)
40,287
(292)
39,204
Cash and cash equivalents at end of fiscal year . . . . . . . . . . . . . . . . . .
$ 152,051
$ 79,199
Supplemental Cash Flow Statement Information:
Interest paid, net of capitalized interest
. . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
17,304
2,408
$ 16,107
3,910
$
$
See accompanying notes to the consolidated financial statements.
86
58,125
9,918
(25,505)
1,070
(3,742)
(8,146)
—
67,624
174,327
—
(30,835)
—
44,777
71,308
4,055
(67,356)
(490)
(4,196)
5,725
(30,541)
34,870
(1,000)
3,900
7,229
16,190
(67,949)
(411)
(1,574)
—
—
249
(53,495)
(40,541)
(1,638)
81,383
39,204
21,255
5,199
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1: Organization and Significant Accounting Policies
Nature of Business and Organization
KEMET Corporation which together with its subsidiaries is referred to herein as ‘‘KEMET’’ or the
‘‘Company’’ is a leading manufacturer of tantalum capacitors, multilayer ceramic capacitors, film
capacitors, electrolytic capacitors, paper capacitors and solid aluminum capacitors. The Company is
headquartered in Simpsonville, South Carolina, which is part of the greater Greenville metropolitan
area, and has manufacturing plants and distribution centers located in the United States, Mexico,
Europe and Asia. Additionally, the Company has wholly-owned foreign subsidiaries which primarily
provide sales support for KEMET’s products in foreign markets.
KEMET is organized into three business groups: the Tantalum Business Group (‘‘Tantalum’’), the
Ceramic Business Group (‘‘Ceramic’’) and the Film and Electrolytic Business Group (‘‘Film and
Electrolytic’’). Each business group is responsible for the operations of certain manufacturing sites as
well as all related research and development efforts. The sales and marketing functions are shared by
each of the business groups and the costs of which are allocated to the business groups based on the
business groups’ respective budgeted net sales.
During fiscal year 2009, the Company had experienced declines in net sales, profitability and
liquidity and had forecasted that it would meet the financial covenants required by its debt agreements
with lenders at each of the measurement dates during fiscal year 2010 by a narrow margin. Given the
degree of uncertainty at the time with respect to the near-term outlook for the global economy and the
possible effects on the Company’s operations, there was significant uncertainty as to whether the
Company’s forecasts would be achieved. Furthermore, the Company anticipated that it would continue
to experience severe pressure on its liquidity during fiscal year 2010. These matters raised substantial
doubt about the Company’s ability to continue as a going concern. The Company’s previous
independent registered public accounting firms included an explanatory paragraph in their audit reports
for the Company’s 2009 consolidated financial statements and the consolidated financial statements of
Arcotronics Italia S.p.A. (‘‘Arcotronics’’) that indicated there was uncertainty that the Company would
continue as a going concern.
Basis of Presentation
Certain amounts for fiscal years 2010 and 2009 have been reclassified to conform to the fiscal year
2011 presentation. On November 5, 2010, the Company filed with the Secretary of State of Delaware a
Certificate of Amendment to its Restated Certificate of Incorporation to effect a reverse stock split of
the Company’s common stock at a ratio equal to one-for-three (the ‘‘Reverse Stock Split’’). The
Reverse Stock Split was approved at a special meeting of our stockholders on November 3, 2010. All
share and per share data in this Form 10-K gives effect to the Reverse Stock Split.
The Company has evaluated events and material transactions for potential recognition or
disclosure occurring between the end of the Company’s most recent fiscal year end and through the
time that this Form 10-K was filed with the SEC.
Principles of Consolidation
The accompanying consolidated financial statements of the Company include the accounts of its
wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated
in consolidation.
87
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
Cash Equivalents
Cash equivalents of $51.2 million and $28.8 million at March 31, 2011 and 2010, respectively,
consist of money market accounts with an original term of three months or less. For purposes of the
Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
Restricted Cash
A guarantee was issued by a European bank on behalf of the Company in August 2006 in
conjunction with the establishment of a Valued-Added Tax (‘‘VAT’’) registration in The Netherlands.
The bank guarantee is in the amount of A1.5 million ($2.0 million). An interest-bearing deposit was
placed with a European bank for A1.7 million ($2.3 million). The deposit is in KEMET’s name and
KEMET receives all interest earned by this deposit. However, the deposit is pledged to the European
bank, and the bank can use the money should a valid claim be made. The bank guarantee will remain
valid until it is discharged by the beneficiary.
Inventories
Inventories are stated at the lower of cost or market. The carrying value of inventory is reviewed
and adjusted based on slow moving and obsolete items, historical shipments, customer forecasts and
backlog and technology developments. Inventory costs include material, labor and manufacturing
overhead and are determined by the ‘‘first-in, first-out’’ (‘‘FIFO’’) method. The Company has consigned
inventory at certain customer locations totaling $7.6 million at March 31, 2011 and 2010.
Property and Equipment
Property and equipment are carried at cost. Depreciation is calculated principally using the
straight-line method over the estimated useful lives of the respective assets. Leasehold improvements
are amortized using the straight-line method over the shorter of the estimated useful lives of the assets
or the terms of the respective leases. Maintenance costs are expensed; expenditures for renewals and
improvements are generally capitalized. Upon sale or retirement of property and equipment, the
related cost and accumulated depreciation are removed and any gain or loss is recognized. A long-lived
asset classified as held for sale is initially measured and reported at the lower of its carrying amount or
fair value less cost to sell. Long-lived assets to be disposed of other than by sale are classified as held
and used until the long-lived asset is disposed of. Depreciation expense was $50.6 million, $50.0 million
and $54.5 million for the fiscal years ended March 31, 2011, 2010 and 2009, respectively.
The Company evaluates long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Reviews are
regularly performed to determine whether facts and circumstances exist which indicate that the carrying
amount of assets may not be recoverable. The Company assesses the recoverability of its assets by
comparing the projected undiscounted net cash flows associated with the related asset or group of
assets over their remaining lives against their respective carrying amounts. If it is determined that the
book value of a long-lived asset is not recoverable, an impairment loss would be calculated equal to the
excess of the carrying amount of the long-lived asset over its fair value. The fair value is calculated as
the discounted cash flows of the underlying assets. The Company has to make certain assumptions as to
88
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
the future cash flows to be generated by the underlying assets. Those assumptions include the amount
of volume increases, average selling price decreases, anticipated cost reductions, and the estimated
remaining useful life of the equipment. Future changes in assumptions may negatively impact future
valuations. Fair market value is based on the undiscounted cash flows that the assets will generate over
their remaining useful lives or other valuation techniques. In future tests for recoverability, adverse
changes in undiscounted cash flow assumptions could result in an impairment of certain long-lived
assets that would require a non-cash charge to the Consolidated Statements of Operations and may
have a material effect on the Company’s financial condition and operating results. The Company
recorded $0.0 million, $0.7 million and $62.3 million in impairment charges for fiscal years 2011, 2010
and 2009, respectively.
Goodwill
Goodwill and other intangible assets with indefinite useful lives are not amortized but are subject
to annual impairment tests during the first quarter of each fiscal year and when otherwise warranted.
During fiscal year 2009, the Company recorded an impairment for its entire goodwill balance.
The Company is organized into three business groups: Tantalum, Ceramic, and Film and
Electrolytic. The Company evaluates its goodwill and intangible asset with indefinite useful lives on a
reporting unit basis. This requires the Company to estimate the fair value of the reporting units based
on the future net cash flows expected to be generated. The impairment test involves a comparison of
the fair value of each reporting unit, with the corresponding carrying amounts. If the reporting unit’s
carrying amount exceeds its fair value, then an indication exists that the reporting unit’s goodwill and
intangible asset with indefinite useful lives may be impaired. The impairment to be recognized is
measured by the amount by which the carrying value of the reporting unit’s goodwill being measured
exceeds its implied fair value. The implied fair value of goodwill is the excess of the fair value of the
reporting unit over the sum of the amounts assigned to identified net assets. As a result, the implied
fair value of goodwill is generally the residual amount that results from subtracting the value of net
assets including all tangible assets and identified intangible assets from the fair value of the reporting
unit’s fair value. The Company determined the fair value of its reporting units using an income-based,
discounted cash flow (‘‘DCF’’) analysis, and market-based approaches (Guideline Publicly Traded
Company Method and Guideline Transaction Method) which examine transactions in the marketplace
involving the sale of the stocks of similar publicly owned companies, or the sale of entire companies
engaged in operations similar to KEMET. In addition to the above described reporting unit valuation
techniques, the Company’s goodwill and intangible asset with indefinite useful lives impairment
assessment also considers the Company’s aggregate fair value based upon the value of the Company’s
outstanding shares of common stock.
The impairment review of goodwill and intangible assets with indefinite useful lives are highly
subjective and involve the use of significant estimates and assumptions in order to calculate the
impairment charges. Estimates of business enterprise fair value use discounted cash flow and other fair
value appraisal models and involve making assumptions for future sales trends, market conditions,
growth rates, cost reduction initiatives and cash flows for the next several years. Future changes in
assumptions may negatively impact future valuations.
89
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
Deferred Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax basis and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in fiscal years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date. A valuation
allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than
not that such assets will be realized.
Stock-based Compensation
The value of each equity-based award is estimated on the date of grant using the Black-Scholes
option-pricing model. The Black-Scholes model takes into account volatility in the price of the
Company’s stock, the risk-free interest rate, the estimated life of the equity-based award, the closing
market price of the Company’s stock on the grant date and the exercise price. The estimates utilized in
the Black-Scholes calculation involve inherent uncertainties and the application of management
judgment. In addition, we are required to estimate the expected forfeiture rate and only recognize
expense for those options expected to vest.
Concentrations of Credit and Other Risks
The Company sells to customers globally. Credit evaluations of its customers’ financial condition
are performed periodically, and the Company generally does not require collateral from its customers.
TTI, Inc., an electronics distributor, accounted for over $133.5 million, $86.5 million and $81.6 million
of the Company’s net sales in fiscal years 2011, 2010 and 2009, respectively. There were no customers’
accounts receivable balances exceeding 10% of gross accounts receivable at March 31, 2011 or
March 31, 2010.
The Company, as well as the industry, utilizes electronics distributors for a large percentage of its
sales. Electronics distributors are an effective means to distribute the products to the end-users. For
fiscal years ended March 31, 2011, 2010, and 2009, net sales to electronics distributors accounted for
50%, 48%, and 47%, respectively, of the Company’s total net sales.
Foreign Subsidiaries
Financial statements of certain of the Company’s foreign subsidiaries are prepared using the U.S.
dollar as their functional currency. Translation of these foreign operations, as well as gains and losses
from non-U.S. dollar foreign currency transactions, such as those resulting from the settlement of
foreign receivables or payables, are reported in the Consolidated Statements of Operations.
Translation of other foreign operations to U.S. dollars occurs using the current exchange rate for
balance sheet accounts and an average exchange rate for results of operations. Such translation gains or
losses are recognized as a component of equity in accumulated other comprehensive income (‘‘AOCI’’).
90
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (losses), currency forward contract gains
(losses), currency translation gains (losses), unrealized investment gains (losses) from available-for-sale
securities, defined benefit plan adjustments including those adjustments which result from changes in
net prior service credit and actuarial gains (losses), and is presented in the Consolidated Statements of
Changes in Stockholders’ Equity and Comprehensive Income (Loss).
The following summary sets forth the components of accumulated other comprehensive income
(loss) contained in the stockholders’ equity section of the Consolidated Balance Sheets (amounts in
thousands):
Foreign
Currency
Translation
Gains (Losses)
Defined Benefit
Post-retirement
Plan
Adjustments
Defined
Benefit
Pension
Plans
Net
Accumulated
Other
Comprehensive
Income (Loss)
Balance at March 31, 2009 . . . . . . . . . . . . . . . .
2010 Activity(1) . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,215
1,977
$ 2,971
(560)
$ (2,523)
(2,090)
$ 12,663
(673)
Balance at March 31, 2010 . . . . . . . . . . . . . . . .
2011 Activity(2) . . . . . . . . . . . . . . . . . . . . . . . .
14,192
12,884
2,411
(300)
(4,613)
(2,019)
11,990
10,565
Balance at March 31, 2011 . . . . . . . . . . . . . . . .
$ 27,076
$ 2,111
$ (6,632)
$ 22,555
(1) Activity within the defined benefit pension plans is net of a tax benefit of $1.1 million.
(2) Activity within the defined benefit pension plans is net of a tax benefit of $1.5 million.
Warrant Liability
Concurrent with the consummation of the tender offer as discussed in Note 2, ‘‘Debt’’, the
Company issued K Financing, LLC (‘‘K Financing’’) a warrant (the ‘‘Platinum Warrant’’) to purchase
up to 26,848,484 shares of the Company’s common stock, subject to certain adjustments, representing
approximately 49.9% of the Company’s outstanding common stock at the time of issuance on a
post-exercise basis. The Platinum Warrant was subsequently transferred to K Equity, LLC (‘‘K Equity’’).
The Platinum Warrant was exercisable at a purchase price of $1.50 per share, subject to an adjustment
which reduced the exercise price to a floor of $1.05 per share based on a sliding scale once the
aggregate borrowings under the Platinum Line of Credit Loan (as defined below) and the Platinum
Working Capital Loan (as defined below) exceeded $12.5 million, at any time prior to the tenth
anniversary of the Platinum Warrant’s date of issuance. The floor exercise price was reached on
September 29, 2009 when the aggregate borrowings under the Platinum Line of Credit Loan and the
Platinum Working Capital Loan reached $20.0 million. The Platinum Warrant may be exercised in
exchange for cash, by means of net settlement of a corresponding portion of amounts owed by the
Company under the Revised Amended and Restated Platinum Credit Facility, by cashless exercise to
the extent of appreciation in the value of the Company’s common stock above the exercise price of the
Platinum Warrant, or by combination of the preceding alternatives.
Warrants may be classified as assets or liabilities (derivative accounting), temporary equity, or
permanent equity, depending on the terms of the specific warrant agreement. The Platinum Warrant
91
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
issued to K Financing under the Platinum Credit Facility (as defined below) was reviewed as of
June 30, 2009, the date of issuance, to determine whether it met the definition of a derivative. The
Company’s evaluation of the Platinum Warrant as of the date of issuance concluded that it was not
indexed to the Company’s stock since the strike price was not fixed and as such was treated as a
freestanding derivative liability. On September 29, 2009, the Company borrowed $10.0 million from the
Platinum Working Capital Loan for general corporate purposes. As a result of this additional
borrowing, the strike price of the Platinum Warrant was fixed at $1.05 per share as of September 29,
2009 and the Company assessed whether the Platinum Warrant still met the definition of a derivative.
The Company’s evaluation of the Platinum Warrant as of September 29, 2009, concluded that the
Platinum Warrant is indexed to the Company’s own stock and should be classified as a component of
equity. The Company valued the Platinum Warrant immediately prior to the strike price becoming fixed
and recorded a mark-to-market adjustment of $81.1 million through earnings. Subsequent to the strike
price becoming fixed, the Company reclassified the warrant liability of $112.5 million into the line item
‘‘Additional paid-in capital’’ on the Consolidated Balance Sheets and the Platinum Warrant will no
longer be marked-to-market.
The Company estimated the fair value of the Platinum Warrant using the Black-Scholes option
pricing model using the following assumptions:
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2009
9.75 years
66.0%
3.5%
0%
On December 20, 2010, in connection with a secondary offering in which K Equity was the selling
security holder, K Equity exercised a portion of the Platinum Warrant representing the right to
purchase 10.9 million shares of the Company’s common stock to the underwriters of the secondary
offering, who exercised their full portion of the warrant in a cashless exercise, based on an exercise
price of $1.05 per share and a closing price per share of $12.80, and received a net settlement of
10.0 million shares of the Company’s common stock. These shares were sold as part of the secondary
offering, and KEMET did not receive any of the proceeds from the transaction. K Equity retained the
remaining portion of the warrant, representing the right to purchase 16.0 million shares of the
Company’s common stock.
Fair Value Measurement
The Company utilizes three levels of inputs to measure the fair value of (a) nonfinancial assets
and liabilities that are recognized or disclosed at fair value in the Company’s consolidated financial
statements on a recurring basis (at least annually) and (b) all financial assets and liabilities. Fair value
is defined as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the use of unobservable
inputs.
92
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
The first two inputs are considered observable and the last is considered unobservable. The levels
of inputs are as follows:
• Level 1—Quoted prices in active markets for identical assets or liabilities.
• Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or
other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
• Level 3—Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
Assets measured at fair value on a recurring basis as of March 31, 2011 are as follows (amounts in
thousands):
Fair Value
March 31,
2011
Fair Value Measurement Using
Level 1(3) Level 2(2) Level 3
Fair Value
March 31,
2010
Fair Value Measurement Using
Level 1
Level 2(2) Level 3
Assets:
Money markets(1) . . . . . . $
Long-term debt . . . . . . . .
51,157 $
307,543
51,157 $ — $ — $
301,379
6,164 — 260,496
28,761 $ 28,761 $
70,492
— $ —
190,004 —
(1) Included in the line item ‘‘Cash and cash equivalents’’ on the Consolidated Balance Sheets.
(2) The valuation approach used to calculate fair value was a discounted cash flow for each respective
debt facility.
(3) In the third quarter of fiscal year 2011, the Company utilized a bid quote to quantify the fair value
of its 10.5% Senior Notes which was considered a Level 2. In the fourth quarter of fiscal year
2011, the fair value of the 10.5% Senior Notes was transferred to Level 1 since they are now
publicly traded.
Revenue Recognition
The Company recognizes revenue only when all of the following criteria are met: (1) persuasive
evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the
seller’s price to the buyer is fixed or determinable, and (4) collectability is reasonably assured. Net sales
is presented net of any taxes collected from customers and remitted to government entities.
A portion of sales is related to products designed to meet customer specific requirements. These
products typically have stricter tolerances making them useful to the specific customer requesting the
product and to customers with similar or less stringent requirements. Products with customer specific
requirements are tested and approved by the customer before the Company mass produces and ships
the product. The Company recognizes revenue at shipment as the sales terms for products produced
with customer specific requirements do not contain a final customer acceptance provision or other
provisions that are unique and would otherwise allow the customer different acceptance rights.
A portion of sales is made to distributors under agreements allowing certain rights of return and
price protection on unsold merchandise held by distributors. The Company’s distributor policy includes
93
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
inventory price protection and ‘‘ship-from-stock and debit’’ (‘‘SFSD’’) programs common in the
industry.
The SFSD program provides a mechanism for the distributor to meet a competitive price after
obtaining authorization from the local Company sales office. This program allows the distributor to ship
its higher-priced inventory and debit the Company for the difference between KEMET’s list price and
the lower authorized price for that specific transaction. The Company establishes reserves for its SFSD
program based primarily on historical SFSD activity and on the actual inventory levels of certain
distributor customers. The actual inventory levels at these distributors comprise approximately 80% of
the total global distributor inventory related to customers who participate in the SFSD Program.
Substantially all of the Company’s distributors have the right to return to KEMET a certain
portion of the purchased inventory, which, in general, will not exceed 6% of their purchases from the
previous fiscal quarter. KEMET estimates future returns based on historical patterns of the distributors
and records an allowance on the Consolidated Balance Sheets. The Company also offers volume based
rebates.
The establishment of sales allowances is recognized as a component of the line item ‘‘Net sales’’
on the Consolidated Statements of Operations, while the associated reserves are included in the line
item ‘‘Accounts receivable, net’’ on the Consolidated Balance Sheets.
The Company provides a limited warranty to its customers that the products meet certain
specifications. The warranty period is generally limited to one year, and the Company’s liability under
the warranty is generally limited to a replacement of the product or refund of the purchase price of the
product. Warranty costs were less than 1% of net sales for the fiscal years ended March 31, 2011, 2010
and 2009. The Company recognizes warranty costs when losses are both probable and reasonably
estimable.
Allowance for Doubtful Accounts
The Company evaluates the collectability of trade receivables through the analysis of customer
accounts. When the Company becomes aware that a specific customer has filed for bankruptcy, has
begun closing or liquidation proceedings, has become insolvent or is in financial distress, the Company
records a specific allowance for the doubtful account to reduce the related receivable to the amount
the Company believes is collectible. If circumstances related to specific customers change, the
Company’s estimates of the recoverability of receivables could be adjusted. Accounts are written off
after all means of collection, including legal action, have been exhausted.
Factoring of Receivables
Film and Electrolytic factors a portion of its accounts receivables through factoring transactions.
As of March 31, 2011 and 2010 all factoring transactions were with recourse to the seller. These
transactions do not meet the derecognition requirements. Consequently, as of March 31, 2011 and
2010, respectively, A0.4 million ($0.6 million) and A1.7 million ($2.3 million) of receivables sold through
factoring transactions are recorded on the Consolidated Balance Sheets in the line item ‘‘Accounts
receivable, net.’’ A corresponding liability, amounting to zero and A1.1 million ($1.5 million) as of
March 31, 2011 and 2010, respectively related to the advanced cash received from the factoring agent,
is recorded in the line item ‘‘Current portion of long-term debt’’ on the Consolidated Balance Sheets.
94
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
Shipping and Handling Costs
The Company’s shipping and handling costs are reflected in the line item ‘‘Cost of sales’’ on the
Consolidated Statements of Operations. Shipping and handling costs were $24.8 million, $21.1 million,
and $26.6 million in the fiscal years ended March 31, 2011, 2010, and 2009, respectively.
Income (Loss) per Share
Basic income (loss) per share is computed using the weighted-average number of shares
outstanding. Diluted income (loss) per share is computed using the weighted-average number of shares
outstanding adjusted for the incremental shares attributed to the Platinum Warrant, outstanding options
to purchase common stock and for any put options issued by the Company, if such effects are dilutive.
Environmental Cost
The Company recognizes liabilities for environmental remediation when it is probable that a
liability has been incurred and can be reasonably estimated. The Company determines its liability on a
site-by-site basis, and it is not discounted or reduced for anticipated recoveries from insurance carriers.
In the event of anticipated insurance recoveries, such amounts would be presented on a gross basis in
other current or non-current assets, as appropriate. Expenditures that extend the life of the related
property or mitigate or prevent future environmental contamination are capitalized.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted
accounting principles requires management to make a number of estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements. In addition, they affect the
reported amounts of revenues and expenses during the reporting period. Significant items subject to
such estimates and assumptions include impairment of property and equipment, intangibles and
goodwill; valuation allowances for accounts receivables, price protection and customers’ returns, and
deferred income taxes; environmental liabilities; valuation of derivative instruments and assets and
obligations related to employee benefits. Actual results could differ from these estimates and
assumptions.
Impact of Recently Issued Accounting Standards
In January 2010, the FASB issued Accounting Standard Update (‘‘ASU’’) No. 2010-06, ‘‘Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements’’. The
updated guidance (i) requires separate disclosure of significant transfers in and out of Levels 1 and 2
fair value measurements, (ii) requires disclosure of Level 3 fair value measurements activity on a gross
basis, (iii) clarifies existing disaggregation requirements and (iv) clarifies existing input and valuation
technique disclosure requirements. The updated guidance was effective for interim and annual periods
beginning after December 15, 2009, except for the Level 3 fair value measurement disclosure
requirements, which are effective for fiscal years beginning after December 15, 2010. The adoption of
ASU No. 2010-06 did not have an impact on the Company’s consolidated results of operations or
financial position.
95
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
In December 2010, the FASB issued ASU No. 2010-29, ‘‘Business Combinations (Topic 805)’’, that
updates existing disclosure requirements related to supplementary pro forma information for business
combinations. Under the updated guidance, a public entity that presents comparative financial
statements should disclose revenue and earnings of the combined entity as though the business
combination that occurred during the current year had occurred as of the beginning of the comparable
prior annual reporting period only. The guidance also expands the supplemental pro forma disclosures
to include a description of the nature and amount of material, nonrecurring pro forma adjustments
directly attributable to the business combination included in the reported pro forma revenue and
earnings. This guidance was effective for KEMET on April 1, 2011 and will be applied prospectively to
any business combinations that have an acquisition date on or after April 1, 2011.
Note 2: Debt
A summary of debt is as follows (amounts in thousands):
March 31,
2011
2010
10.5% Senior Notes, net of discount of $2,792 as of
March 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 227,208
$
—
Convertible Debt, net of discount of $1,569 and $7,861 as of
March 31, 2011 and March 31, 2010, respectively . . . . . . .
UniCredit Agreement—A (A53,201 as of March 31, 2010) . . .
UniCredit Agreement—B (A33,000 as of March 31, 2010) . . .
Platinum Term Loan, net of discount of $22,308 as of
39,012
—
—
73,220
71,710
44,481
March 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
15,525
Platinum Line of Credit, net of discount of $4,056 as of
March 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Platinum Working Capital Loan . . . . . . . . . . . . . . . . . . . . . .
Vishay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
7,096
5,944
10,000
15,000
13,629
Total debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
273,316
(42,101)
249,509
(17,880)
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 231,215
$ 231,629
The line item ‘‘Interest expense’’ on the Consolidated Statements of Operations for the fiscal years
2011, 2010 and 2009, respectively, is as follows (amounts in thousands):
Contractual interest expense . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . .
Amortization of debt discount . . . . . . . . . . . . . . . . .
$ 25,110
1,137
3,928
$ 12,616
2,788
10,604
$ 19,871
1,588
8,330
Total interest expense . . . . . . . . . . . . . . . . . . . . .
$ 30,175
$ 26,008
$ 29,789
Fiscal Years Ended March 31,
2011
2010
2009
96
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
10.5% Senior Notes
On May 5, 2010, the Company completed a private placement of $230.0 million in aggregate
principal amount of the Company’s 10.5% Senior Notes due 2018 (the ‘‘10.5% Senior Notes’’) to
several initial purchasers (the ‘‘Initial Purchasers’’) represented by Banc of America Securities LLC
pursuant to an exemption from the registration requirements under the Securities Act of 1933, as
amended (the ‘‘Securities Act’’). The Initial Purchasers subsequently sold the 10.5% Senior Notes to
qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside of
the United States pursuant to Regulation S under the Securities Act.
On May 5, 2010, in connection with the private placement of the 10.5% Senior Notes, the
Company, the Company’s domestic restricted subsidiaries (the ‘‘Guarantors’’) and the Initial Purchasers
entered into the Registration Rights Agreement. The terms of the Registration Rights Agreement
require the Company and the Guarantors to (i) use their commercially reasonable efforts to file with
the Securities and Exchange Commission within 210 days after the date of the initial issuance of the
10.5% Senior Notes, a registration statement with respect to an offer to exchange the 10.5% Senior
Notes for a new issue of debt securities registered under the Securities Act, with terms substantially
identical to those of the 10.5% Senior Notes (except for provisions relating to the transfer restrictions
and payment of additional interest); (ii) use our commercially reasonable efforts to consummate such
exchange offer within 270 days after the date of the initial issuance of the 10.5% Senior Notes; and
(iii) in certain circumstances, file a shelf registration statement for the resale of the 10.5% Senior
Notes. On October 26, 2010, the Company filed a Form S-4 to offer, in exchange for its outstanding
10.5% Senior Notes, up to $230.0 million in aggregate principal amount of 10.5% Senior Notes due
2018 and the guarantees thereof which have been registered under the Securities Act of 1933, as
amended.
The private placement of the 10.5% Senior Notes resulted in net proceeds to the Company of
$222.2 million. The Company used a portion of the proceeds of the private placement to repay all of its
outstanding indebtedness under the Company’s credit facility with K Financing, LLC, the Company’s
A60 million credit facility and A35 million credit facility with UniCredit Corporate Banking S.p.A.
(‘‘UniCredit’’) and the Company’s term loan with a subsidiary of Vishay Intertechnology, Inc.
(‘‘Vishay’’) and used a portion of the remaining proceeds to fund a previously announced tender offer
to purchase $40.5 million in aggregate principal amount of the Company’s 2.25% Convertible Senior
Notes (the ‘‘Convertible Notes’’) and to pay costs incurred in connection with the private placement,
the tender offer and the foregoing repayments. Debt issuance costs related to the 10.5% Senior Notes,
net of amortization, were $6.1 million as of March 31, 2011; these costs will be amortized over the term
of the 10.5% Senior Notes.
The 10.5% Senior Notes were issued pursuant to an Indenture (the ‘‘10.5% Senior Notes
Indenture’’), dated as of May 5, 2010, by and among the Company, Guarantors and Wilmington Trust
Company, as trustee (the ‘‘Trustee’’). The 10.5% Senior Notes will mature on May 1, 2018, and bear
interest at a stated rate of 10.5% per annum, payable semi-annually in cash in arrears on May 1 and
November 1 of each year, beginning on November 1, 2010. The 10.5% Senior Notes are senior
obligations of the Company and will be guaranteed by each of the Guarantors and secured by a first
priority lien on 51% of the capital stock of certain of the Company’s foreign restricted subsidiaries.
The terms of the 10.5% Senior Notes Indenture, among other things, limit the ability of the
Company and its restricted subsidiaries to (i) incur additional indebtedness or issue certain preferred
97
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
stock; (ii) pay dividends on, or make distributions in respect of, their capital stock or repurchase their
capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets;
(v) create liens or use assets as security in other transactions; (vi) enter into sale and leaseback
transactions; (vii) merge, consolidate or transfer or dispose of substantially all of their assets;
(viii) engage in certain transactions with affiliates; and (ix) designate their subsidiaries as unrestricted
subsidiaries. These covenants are subject to a number of important limitations and exceptions that are
described in the 10.5% Senior Notes Indenture.
The 10.5% Senior Notes are redeemable, in whole or in part, at any time on or after May 1, 2014,
at the redemption prices specified in the 10.5% Senior Notes Indenture. At any time prior to May 1,
2013, the Company may redeem up to 35% of the aggregate principal amount of the 10.5% Senior
Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 110.5%
of the principal amount thereof, together with accrued and unpaid interest, if any, to the redemption
date. In addition, at any time prior to May 1, 2014, the Company may redeem the 10.5% Senior Notes,
in whole or in part, at a redemption price equal to 100% of the principal amount of the 10.5% Senior
Notes so redeemed, plus a ‘‘make whole’’ premium and together with accrued and unpaid interest, if
any, to the redemption date.
Upon the occurrence of a change of control triggering event specified in the 10.5% Senior Notes
Indenture, the Company must offer to purchase the 10.5% Senior Notes at a redemption price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase.
The 10.5% Senior Notes Indenture provides for customary events of default (subject in certain
cases to customary grace and cure periods), which include nonpayment, breach of covenants in the
10.5% Senior Notes Indenture, payment defaults or acceleration of other indebtedness, a failure to pay
certain judgments and certain events of bankruptcy and insolvency. The 10.5% Senior Notes Indenture
also provides for events of default with respect to the collateral, which include default in the
performance of (or repudiation, disaffirmation or judgment of unenforceability or assertion of
unenforceability) by the Company or a Guarantor with respect to the provision of security documents
under the 10.5% Senior Notes Indenture. These events of default are subject to a number of important
qualifications, limitations and exceptions that are described in the 10.5% Senior Notes Indenture.
Generally, if an event of default occurs, the Trustee or holders of at least 25% in principal amount of
the then outstanding 10.5% Senior Notes may declare the principal of and accrued but unpaid interest,
including additional interest, on all the 10.5% Senior Notes to be due and payable.
The Company had interest payable related to the 10.5% Senior Notes included in the line item
‘‘Accrued expenses’’ on its Consolidated Balance Sheets of $10.1 million at March 31, 2011.
Platinum Credit Facility
On May 5, 2009, the Company executed a credit facility with K Financing, an affiliate of Platinum
Equity Capital Partners II, L.P. (the ‘‘Platinum Credit Facility’’). The Platinum Credit Facility consisted
of a term loan of $37.8 million (‘‘Platinum Term Loan’’), a line of credit loan (‘‘Platinum Line of
Credit Loan’’) that could be borrowed from time to time (but not reborrowed after being repaid) of up
to $12.5 million and a working capital loan (‘‘Platinum Working Capital Loan’’) of up to $12.5 million.
The Platinum Term Loan was used to purchase $93.9 million of the Company’s Convertible Notes that
are more fully described below. On June 30, 2009, the Company drew $10.0 million from the Platinum
Line of Credit Loan and used it primarily to pay the fees and expenses related to the execution of the
98
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
tender offer (described below) and the execution of the Platinum Credit Facility. The Company
incurred $3.6 million in fees and expense reimbursements related to the execution of the tender offer,
$4.2 million related to the execution of the Platinum Credit Facility, and $1.4 million related to the
amendments of the UniCredit facilities. On September 29, 2009, the Company borrowed $10.0 million
on the Platinum Working Capital Loan for general corporate purposes.
On May 5, 2010, the Platinum Term Loan, the Platinum Line of Credit Loan, and the Platinum
Working Capital Loan were extinguished. The extinguishment of the Platinum facilities resulted in a
$33.3 million loss on early extinguishment of debt. The calculation of the loss is as follows (amounts in
thousands):
Reacquisition price:
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Success fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 57,861
5,000
Extinguished debt:
Carrying amount of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying amount of success fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,861
32,135
2,001
(4,619)
29,517
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (33,344)
The Platinum Term Loan accrued interest at an annual rate of 9% for cash payment. The
Platinum Working Capital Loan and the Platinum Line of Credit Loan accrued interest at a rate equal
to the greater of (i) LIBOR plus 7%, or (ii) 10%, payable monthly in arrears. The Company’s
obligations to K Financing arising under the Revised Amended and Restated Platinum Credit Facility
were secured by substantially all of the Company’s assets located in the United States, Mexico,
Indonesia and China (other than accounts receivable owing by account debtors located in the United
States, Singapore and Hong Kong, which exclusively secured obligations due to a subsidiary of Vishay).
As further described in the Offer to Purchase for the Convertible Notes, in connection with entering
into the Revised Amended and Restated Platinum Credit Facility, K Financing and UniCredit entered
into a letter of understanding with respect to their respective guarantor and collateral pools and the
Company’s assets in Europe that were not pledged to either lender. The letter of understanding also
set forth each lender’s agreement not to interfere with the other lender’s exercise of remedies
pertaining to their respective collateral pools.
Concurrent with the consummation of the tender offer, the Company issued K Financing the
Platinum Warrant to purchase up to 26,848,484 shares of its common stock, subject to certain
adjustments, representing approximately 49.9% of the Company’s outstanding common stock at the
time of issuance on a post-exercise basis. The Platinum Warrant was subsequently transferred to
K Equity. On December 20, 2010, K Equity sold a portion of the Platinum Warrant equal to 10,893,608
shares, which was exercised on a net exercise basis and the resulting 10,000,000 shares of which were
sold by underwriters in an offering.
99
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
The Company also entered into an Investor Rights Agreement (the ‘‘Investor Rights Agreement’’)
with K Financing, which subsequently transferred its rights thereunder to K Equity. Pursuant to the
terms of the Investor Rights Agreement, the Company has, subject to certain terms and conditions,
granted Board of Directors (‘‘Board’’) observation rights to K Financing which would permit
K Financing to designate up to three individuals to observe Board meetings and receive information
provided to the Board. In addition, the Investor Rights Agreement provides K Financing with certain
preemptive rights. Subject to the terms and limitations described in the Investor Rights Agreement, in
connection with any proposed issuance of equity securities or securities convertible into equity, the
Company would be required to offer to sell to K Financing a pro rata portion of such securities equal
to the percentage determined by dividing the number of shares of common stock held by K Financing
plus the number of shares of common stock issuable upon exercise of the Platinum Warrant, by the
total number of shares of common stock then outstanding on a fully diluted basis. The Investor Rights
Agreement also provides K Financing with certain registration and information rights.
The Company also entered into a Corporate Advisory Services Agreement with Platinum Equity
Advisors, LLC (‘‘Platinum Advisors’’) for a term of the later of (i) June 30, 2013 and (ii) the
termination of the Credit Facility, pursuant to which the Company pays an annual fee of $1.5 million to
Platinum Advisors for certain advisory services. In addition, the Platinum Credit Facility included
various fees totaling $0.7 million per year for administration and collateral management and the
Company incurred a fee of 1% per annum for unused capacity under the Platinum Line of Credit Loan
and the Company paid K Financing a success fee of $5.0 million in May 2010. This fee was payable at
the time of repayment in full of the Platinum Term Loan, whether at maturity or otherwise.
At the date of issuance, the Company allocated $31.4 million of the proceeds from the issuance of
the Platinum Term Loan and the draw-down on the Platinum Line of Credit Loan to warrant liability.
The Company allocated the remainder of the issuance proceeds to the Platinum Term Loan and the
Platinum Line of Credit Loan ($12.0 million and $4.4 million, respectively) based upon their relative
fair values. The carrying amount of the Platinum Term Loan and the Platinum Line of Credit Loan
were increased by quarterly accretion to the line item ‘‘Interest expense’’ on the Consolidated
Statements of Operations under the effective interest method, the remaining balance at the time of
extinguishment was included in the calculation of the loss on extinguishment of debt.
The Company recorded deferred financing costs of $5.5 million at the issuance date, and a
long-term obligation has been recognized related to the unpaid success fee. These deferred financing
costs were allocated between the various loan components and amortized under the effective interest
method. The remaining balance at the time of extinguishment was included in the calculation of the
loss on extinguishment of debt.
Convertible Notes
In November 2006, the Company sold and issued its Convertible Notes which are unsecured
obligations and rank equally with the Company’s existing and future unsubordinated and unsecured
obligations and are junior to any of the Company’s future secured obligations to the extent of the value
of the collateral securing such obligations. In connection with the issuance and sale of the Convertible
Notes, the Company entered into an indenture (the ‘‘Convertible Notes Indenture’’) dated as of
November 1, 2006, with Wilmington Trust Company, as trustee.
100
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
The Convertible Notes bear interest at a rate of 2.25% per annum, payable in cash semi-annually
in arrears on each May 15 and November 15. The Convertible Notes are convertible into (i) cash in an
amount equal to the lesser of the principal amount of the Convertible Notes and the conversion value
of the Convertible Notes on the conversion date and (ii) cash or shares of the Company’s common
stock (‘‘Common Stock’’) or a combination of cash and shares of the Common Stock, at the Company’s
option, to the extent the conversion value at that time exceeds the principal amount of the Convertible
Notes, at any time prior to the close of business on the business day immediately preceding the
maturity date of the Convertible Notes, unless the Company has redeemed or purchased the
Convertible Notes, subject to certain conditions. The conversion rate was 34.364 shares of common
stock per $1,000 principal amount of the Convertible Notes, which represents a conversion price of
approximately $29.1 per share, subject to adjustments. The Convertible Notes are currently not
convertible.
The holder may surrender the holder’s Convertible Notes for conversion if any of the following
conditions are satisfied:
• During any fiscal quarter, the closing sale price of the Common Stock for at least 20 trading
days in the period of 30 consecutive trading days ending on the last trading day of the preceding
fiscal quarter exceeds 130% of the conversion price per share on such last trading day;
• The Company has called the Convertible Notes for redemption;
• The average of the trading prices of the Convertible Notes for any five consecutive trading day
period is less than 98% of the average of the conversion values of the Convertible Notes during
that period;
• The Company makes certain significant distributions to the holders of the Common Stock; or
• In connection with a transaction or event constituting a ‘‘fundamental change’’ (as defined in the
Convertible Notes Indenture).
The Company received net proceeds from the sale of the Convertible Notes of approximately
$170.2 million, after deducting discounts and estimated offering expenses of approximately $4.8 million.
Net proceeds from the sale were used to repurchase 1.1 million shares of Common Stock at a cost of
approximately $24.9 million (concurrent with the initial closing of the Convertible Notes offering). Debt
issuance costs are being amortized over a period of five years.
Issuance and transaction costs incurred at the time of the issuance of the Convertible Notes with
third parties are allocated to the liability and equity components and accounted for as debt issuance
costs and equity issuance costs, respectively. Debt issuance costs related to the Convertible Notes, net
of amortization, were $0.1 million and $0.5 million as of March 31, 2011 and 2010, respectively. Equity
issuance costs were $1.3 million as of March 31, 2011 and 2010. The deferred tax liability and a
corresponding valuation allowance adjustment in the same amount related to the Convertible Notes
were $0.6 million and $3.0 million as of March 31, 2011 and 2010, respectively.
As of March 31, 2011, the remaining unamortized debt discount of the Convertible Notes will be
amortized over a period of 7 months, the remaining expected term of the Convertible Notes. The
effective interest rate on the liability component is 9.1% on an annual basis.
101
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
On June 26, 2009, $93.9 million in aggregate principal amount of the Convertible Notes were
validly tendered (representing 53.7% of the outstanding Convertible Notes). As a result of the
retrospective adoption effective April 1, 2009 of new guidance within ASC 470-20, ‘‘Debt With
Conversion and Other Options’’, the carrying value of the aggregate principal value of the tendered
Convertible Notes was $81.0 million. Holders of the Convertible Notes received $400 for each $1,000
principal amount of Convertible Notes purchased in the tender offer, plus accrued and unpaid interest
up to, but not including, the date of payment for the Convertible Notes accepted for payment. As a
result of the consummated tender offer, on June 30, 2009, the Company used the $37.8 million
Platinum Term Loan under the Revised Amended and Restated Platinum Credit Facility to extinguish
the tendered Convertible Notes. The extinguishment of these Convertible Notes resulted in a
$38.9 million net gain ($1.44 per basic share) included in the line item ‘‘(Gain) loss on early
extinguishment of debt’’ on the Consolidated Statements of Operations for the fiscal year ended
March 31, 2010.
The calculation of the gain is as follows (amounts in thousands):
Reacquisition price:
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tender offer fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 37,568
3,605
Extinguished debt:
Carrying amount of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,173
80,987
(893)
80,094
Net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 38,921
On May 17, 2010, $40.5 million in aggregate principal amount of the Convertible Notes was
extinguished. The extinguishment resulted in a further $1.6 million loss on extinguishment of debt. The
calculation of the loss is as follows (amounts in thousands):
Reacquisition price:
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tender offer fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 37,867
207
Extinguished debt:
Carrying amount of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,074
36,770
(248)
36,522
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (1,552)
102
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
The terms of the Convertible Notes are governed by the Convertible Notes Indenture. The
Convertible Notes mature on November 15, 2026 unless earlier redeemed, repurchased or converted.
The Company may redeem the Convertible Notes for cash, either in whole or in part, anytime after
November 20, 2011 at a redemption price equal to 100% of the principal amount of the Convertible
Notes to be redeemed plus accrued and unpaid interest, including additional interest, if any, up to but
not including the date of redemption. In addition, holders of the Convertible Notes will have the right
to require the Company to repurchase for cash all or a portion of their Convertible Notes on
November 15, 2011, 2016 and 2021, at a repurchase price equal to 100% of the principal amount of the
Convertible Notes to be repurchased plus accrued and unpaid interest, if any, in each case, up to but
not including, the date of repurchase.
The Convertible Notes are convertible into Common Stock at a rate equal to 34.364 shares per
$1,000 principal amount of the Convertible Notes (equal to an initial conversion price of approximately
$29.10 per share), subject to adjustment as described in the Convertible Notes Indenture. Upon
conversion, the Company will deliver for each $1,000 principal amount of Convertible Notes, an
amount consisting of cash equal to the lesser of $1,000 and the conversion value (as defined in the
Convertible Notes Indenture) and, to the extent that the conversion value exceeds $1,000, at the
Company’s election, cash or shares of Common Stock with respect to the remainder. The contingent
conversion feature was not required to be bifurcated and accounted for separately.
If the Company undergoes a ‘‘fundamental change’’, holders of the Convertible Notes will have the
right, subject to certain conditions, to require the Company to repurchase for cash all or a portion of
their Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible
Notes to be repurchased plus accrued and unpaid interest, including contingent interest and additional
amounts, if any. One occurrence creating a ‘‘fundamental change’’ is the Company’s common stock
ceasing to be listed on the New York Stock Exchange (‘‘NYSE’’) or another national securities
exchange in the United States, without then being quoted on an established automated
over-the-counter trading market in the United States. The transfer of the trading of the Company’s
stock from the NYSE to the OTC Bulletin Board did not constitute a ‘‘fundamental change.’’ The
Company will pay a make-whole premium on the Convertible Notes converted in connection with any
fundamental change that occurs prior to November 20, 2011. The amount of the make-whole premium,
if any, will be based on the Company’s stock price and the effective date of the fundamental change.
The maximum make-whole premium, expressed as a number of additional shares of the Common Stock
to be received per $1,000 principal amount of the Convertible Notes, would be 10.32 upon the
conversion of Convertible Notes in connection with the occurrence of a fundamental change prior to
November 20, 2011 if the stock price at that date is $22.38 per share of Common Stock. The
Convertible Notes Indenture contains a detailed description of how the make-whole premium will be
determined and a table showing the make-whole premium that would apply at various stock prices and
fundamental change effective dates. No make-whole premium will be paid if the price of the Common
Stock on the effective date of the fundamental change is less than $22.38 per share. Any make-whole
premium will be payable in shares of Common Stock (or the consideration into which the Company’s
Common Stock has been exchanged in the fundamental change) on the conversion date for the
Convertible Notes converted in connection with the fundamental change.
The estimated fair value of the Convertible Notes, based on quoted market prices as of March 31,
2011, and March 31, 2010, was approximately $40 million and $71 million, respectively. The Company
had interest payable related to the Convertible Notes included in the line item ‘‘Accrued expenses’’ on
103
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
its Consolidated Balance Sheets of $0.3 million and $0.7 million at March 31, 2011 and March 31, 2010,
respectively.
UniCredit Credit Facility
As of March 31, 2010, the Company had two Senior Facility Agreements outstanding with
UniCredit. As of March 31, 2010, Facility A had EUR 53.2 million ($71.7 million) outstanding and
Facility B had EUR 33.0 million ($44.5 million) outstanding.
On May 5, 2010, Facility A and Facility B were extinguished. The extinguishment resulted in a
$3.3 million loss on extinguishment of debt. The calculation of the loss is as follows (amounts in
thousands):
Reacquisition price:
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 104,683
Extinguished debt:
Carrying amount of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt cost
104,674
(3,343)
101,331
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (3,352)
Material terms and conditions of Facility A were as follows:
(i) Maturity:
April 1, 2013
(ii)
Interest Rate:
Floating at six-month EURIBOR plus 2.5%
(iii) Structure:
Secured with Italian real property, certain European accounts
receivable and shares of two of the Company’s Italian
subsidiaries
Material terms and conditions of Facility B were as follows:
(i) Maturity:
April 1, 2013
(ii)
Interest Rate:
Floating at six-month EURIBOR plus 2.5%
(iii) Structure:
Unsecured
Effective as of September 30, 2009, the Company entered into an amendment to Facility A. Under
the terms of the amendment, the amortization schedule of Facility A was modified, including the
addition of an October 1, 2009, principal installment. In connection with the amendment, the Company
simultaneously executed a fee letter in which it agreed to pay to UniCredit an amendment fee and
reimburse it for certain legal expenses incurred in relation to the amendment. These fees were
$1.5 million and were amortized as an adjustment of interest expense over the term of the Facility, the
remaining balance at the time of extinguishment was included in the calculation of the loss on
extinguishment of debt.
104
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
Vishay Loan
In the second quarter of fiscal year 2009, the Company sold assets related to the production and
sale of wet tantalum capacitors to a subsidiary of Vishay. The Company received $33.7 million in cash
proceeds, net of amounts held in escrow, from the sale of these assets. At the same time, the Company
entered into a three-year term loan agreement for $15.0 million and a security agreement with a
subsidiary of Vishay. The loan carried an interest rate of LIBOR plus 4% which was payable monthly.
The entire principal amount of $15.0 million was scheduled to mature on September 15, 2011 and
could be prepaid without penalty. Pursuant to the security agreement, the loan was secured by certain
accounts receivable of the Company. On May 5, 2010, the Vishay loan was paid in full.
Revolving Line of Credit
On September 30, 2010, KEMET Electronics Corporation (‘‘KEC’’) and KEMET Electronics
Marketing (S) Pte Ltd. (‘‘KEMET Singapore’’) (each a ‘‘Borrower’’ and, collectively, the ‘‘Borrowers’’)
entered into a Loan and Security Agreement (the ‘‘Loan and Security Agreement’’), with Bank of
America, N.A, as the administrative agent and the initial lender. The Loan and Security Agreement
provides a $50 million revolving line of credit, which is bifurcated into a U.S. facility (for which KEC is
the Borrower) and a Singapore facility (for which KEMET Singapore is the Borrower). The size of the
U.S. facility and Singapore facility can fluctuate as long as the Singapore facility does not exceed
$30 million and the total facility does not exceed $50 million. A portion of the U.S. facility and the
Singapore facility can be used to issue letters of credit. The Loan and Security Agreement expire on
September 30, 2014.
Revolving loans may be used to pay fees and transaction expenses associated with the closing of
the credit facilities, to pay obligations outstanding under the Loan and Security Agreement and for
working capital and other lawful corporate purposes of KEC and KEMET Singapore. Borrowings
under the U.S. and Singapore facilities are subject to a borrowing base. The borrowing base consists of:
• in the case of the U.S. facility, (A) 85% of KEC’s accounts receivable that satisfy certain
eligibility criteria plus (B) the lesser of $4 million and 40% of the net book value of inventory of
KEC that satisfy certain eligibility criteria plus (C) the lesser of $3 million and 70% of the net
orderly liquidation percentage of the appraised value of equipment that satisfies certain
eligibility criteria less (D) certain reserves, including certain reserves imposed by the
administrative agent in its permitted discretion; and
• in the case of the Singapore facility, (A) 85% of KEMET Singapore’s accounts receivable that
satisfy certain eligibility criteria less (B) certain reserves, including certain reserves imposed by
the administrative agent in its permitted discretion.
Interest is payable on borrowings monthly at a rate equal to the London Interbank Offer Rate
(‘‘LIBOR’’) or the base rate, plus an applicable margin, as selected by the Borrower. Depending upon
the fixed charge coverage ratio of KEMET Corporation and its subsidiaries on a consolidated basis as
of the latest test date, the applicable margin under the U.S. facility varies between 3.00% and 3.50%
for LIBOR advances and 2.00% and 2.50% for base rate advances, and under the Singapore facility
varies between 3.25% and 3.75% for LIBOR advances and 2.25% and 2.75% for base rate advances.
The base rate is subject to a floor that is 100 basis points above LIBOR.
105
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
An unused line fee is payable monthly in an amount equal to 0.75% per annum of the average
daily unused portion of the facilities during any month; provided, that such percentage rate is reduced
to (a) 0.50% per annum for any month in which the average daily balance of the facilities is greater
than 33.3% of the total revolving commitment and less than 66.6% of the total revolving commitment,
and (b) 0.375% per annum for any month in which the average daily balance of the facilities is greater
than or equal to 66.6% of the total revolving commitment. A customary fee is also payable to the
administrative agent on a quarterly basis.
KEC’s ability to draw funds under the U.S. facility and KEMET Singapore’s ability to draw funds
under the Singapore facility are conditioned upon, among other matters:
• the absence of the existence of a Material Adverse Effect (as defined in the Loan and Security
Agreement);
• the absence of the existence of a default or an event of default under the Loan and Security
Agreement; and
• the representations and warranties made by KEC and KEMET Singapore in the Loan and
Security Agreement continuing to be correct in all material respects.
The parent corporation of KEC—KEMET Corporation—and the Guarantors guarantee the U.S.
facility obligations and the U.S. facility obligations are secured by a lien on substantially all of the
assets of KEC and the Guarantors (other than assets that secure the 10.5% Senior Notes due 2018).
The collection accounts of the Borrowers and Guarantors are subject to a daily sweep into a
concentration account and the concentration account will become subject to full cash dominion in favor
of the administrative agent (i) upon an event of default, (ii) if for five consecutive business days,
aggregate availability of all facilities has been less than the greater of (A) 15% of the aggregate
revolver commitments at such time and (B) $7.5 million, or (iii) if for five consecutive business days,
availability of the U.S. facility has been less than $3.75 million (each such event, a ‘‘Cash Dominion
Trigger Event’’).
KEC and the Guarantors guarantee the Singapore facility obligations. In addition to the assets that
secure the U.S. facility, the Singapore obligations are also secured by a pledge of 100% of the stock of
KEMET Singapore and a security interest in substantially all of KEMET Singapore’s assets. As
required by the Loan and Security Agreement, KEMET Singapore’s bank accounts were transferred
over to Bank of America and upon a Cash Dominion Trigger Event will become subject to full cash
dominion in favor of the administrative agent.
A fixed charge coverage ratio of at least 1.1:1.0 must be maintained as at the last day of each fiscal
quarter ending immediately prior to or during any period in which any of the following occurs and is
continuing until none of the following occurs for a period of at least forty-five consecutive days: (i) an
event of default, (ii) aggregate availability of all facilities has been less than the greater of (A) 15% of
the aggregate revolver commitments at such time and (B) $7.5 million, or (iii) availability of the U.S.
facility has been less than $3.75 million. The fixed charge coverage ratio tests the EBITDA and fixed
charges of KEMET Corporation and its subsidiaries on a consolidated basis.
106
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
In addition, the Loan and Security Agreement includes negative covenants that, subject to
exceptions, limit the ability of KEMET Corporation and its direct and indirect subsidiaries to, among
other things:
• incur additional indebtedness;
• create liens on assets;
• make capital expenditures;
• engage in mergers, consolidations, liquidations and dissolutions;
• sell assets (including pursuant to sale leaseback transactions);
• pay dividends and distributions on or repurchase capital stock;
• make investments (including acquisitions), loans, or advances;
• prepay certain junior indebtedness;
• engage in certain transactions with affiliates;
• enter into restrictive agreements;
• amend material agreements governing certain junior indebtedness; and
• change its lines of business.
The Loan and Security Agreement includes certain customary representations and warranties,
affirmative covenants and events of default, which are set forth in more detail in the Loan and Security
Agreement.
Debt issuance costs related to the Loan and Security Agreement, net of amortization, were
$1.3 million as of March 31, 2011; these costs will be amortized over the term of the Loan and Security
Agreement. There were no borrowings against the revolving line of credit as of March 31, 2011.
The following table highlights the Company’s annual maturities of debt (amounts in thousands):
Annual Maturities of Debt
Fiscal Years Ended March 31,
2012
2013
2014
2015
2016
Thereafter
10.5% Senior Notes . . . . . . . . . . . . . . . . . . .
Convertible Debt(1) . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $ — $ — $ — $ — $ 230,000
—
—
—
2,048
—
1,349
—
610
—
—
40,581
3,089
$ 43,670
$ 2,048
$ 1,349
$ 610
$ — $ 230,000
(1) Holders of the Convertible Notes have the right to require the Company to repurchase for cash all
or a portion of their Convertible Notes on November 15, 2011, 2016 and 2021 at a repurchase
price equal to 100% of the principal amount of the Convertible Notes to be repurchased plus
accrued and unpaid interest, if any, in each case, up to but not including, the date of repurchase.
107
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 3: Restructuring
Since the end of fiscal year 2002, the Company has initiated several restructuring programs in
order to reduce costs, to remove excess capacity, and to make the Company more competitive on a
world-wide basis. Since the goals of each of these restructuring programs fall into one of the rationales
listed above, the Company has elected to disclose the impacts on an annual basis rather than by each
restructuring program.
A summary of the expenses aggregated on the Consolidated Statements of Operations line item
‘‘Restructuring charges’’ in the fiscal years ended March 31, 2011, 2010, and 2009, is as follows
(amounts in thousands):
Manufacturing relocation costs . . . . . . . . . . . . . . . . .
Personnel reduction costs . . . . . . . . . . . . . . . . . . . . .
$ 5,974
1,197
$ 1,559
7,639
$
5,451
25,423
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,171
$ 9,198
$ 30,874
Fiscal Years Ended March 31,
2011
2010
2009
Fiscal Year Ended March 31, 2011
In fiscal year 2010, the Company initiated the first phase of a plan to restructure Film and
Electrolytic and to reduce overhead within the Company as a whole. The restructuring plan includes
implementing programs to make the Company more competitive by removing excess capacity, moving
production to lower cost locations and eliminating unnecessary costs throughout the Company.
Restructuring charges in the fiscal year ended March 31, 2011 relate to this new plan and are primarily
comprised of manufacturing relocation costs of $6.0 million for relocation of equipment from various
plants to Mexico and China as well as relocation of the European distribution center. In addition, the
Company incurred $1.2 million in personnel reduction costs related to the following: headcount
reductions in Italy, $0.8 million; the closure of our Nantong, China plant expected to be completed in
the second quarter of fiscal year 2012, $0.6 million; and $1.5 million related to the Company’s initiative
to reduce overhead within the Company as a whole and headcount reductions in Mexico. These
personnel reduction charges were offset by a $1.7 million reversal of prior expenses primarily associated
with the Cassia Integrazione Guadagni Straordinaria (‘‘CIGS’’) plan (see below for a description of this
program) as it was determined that only 107 employees are expected to participate in the program
through October 2012.
During the remainder of this restructuring effort, we expect to spend between $28 million to
$33 million, primarily in our Film and Electrolytic Business Group. The Company expects the
restructuring plan to be completed in the second half of fiscal year 2014; however, the length of time
required to complete the restructuring activities is dependent upon a number of factors, including the
ability to continue to manufacture products required to meet customer demand while at the same time
relocating certain production lines, and the progress of discussions with union and government
representatives in certain European locations concerning the optimization of product mix and related
headcount requirements in such manufacturing locations.
108
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 3: Restructuring (Continued)
Fiscal Year Ended March 31, 2010
In fiscal year 2010, the Company initiated the first phase of a restructuring plan to restructure
Film and Electrolytic and to reduce overhead within the Company as a whole. Restructuring expense in
fiscal year 2010 relates to this new plan and is primarily comprised of a headcount reduction of 57
employees in Finland, a headcount reduction of 32 employees in Portugal and a headcount reduction of
85 employees in Italy. There were also several headcount reductions at the executive level related to
the Company’s initiative to reduce overhead within the Company as a whole. In addition to the
headcount reduction in Portugal, the Company incurred charges related to the relocation of equipment
from Portugal to Mexico. Machinery not used for production in Portugal and not relocated to Mexico
was disposed of and as such the Company recorded an impairment charge of $0.7 million to write
down the equipment to scrap value. Overall, the Company incurred charges of $1.6 million related to
the relocation of equipment to Mexico from Portugal and various other locations. The restructuring
plan includes implementing programs to make the Company more competitive, removing excess
capacity, moving production to lower cost locations, and eliminating unnecessary costs throughout the
Company. Restructuring charges of $9.2 million were incurred in fiscal year 2010 and $8.4 million
remains as a liability on the Consolidated Balance Sheets at March 31, 2010. Restructuring payments in
the fiscal year ended March 31, 2010 primarily related to a plan that was initiated in the second
quarter of fiscal year 2009 to reduce the workforce in the Film and Electrolytic Business Group in the
United Kingdom and France and to negotiate agreements with the labor unions representing employees
at the Company’s facilities in Italy. Restructuring expenses related to this plan were incurred in fiscal
year 2009. The agreements with the labor unions allowed the Company to place up to 260 workers, on
a rotation basis, on the CIGS plan to save labor costs. CIGS is a temporary plan to save labor costs
whereby a company may temporarily ‘‘lay off’’ employees while the government continues to pay their
wages for a maximum of 36 months for the program. The employees who are in CIGS are not working,
but are still employed by the Company. Only employees that are not classified as management or
executive level personnel can participate in the CIGS program. Upon termination of the plan, the
affected employees return to work. Total expenses incurred related to this plan were $5.2 million;
restructuring charges of $2.4 million remain as a liability on the Consolidated Balance Sheets at
March 31, 2010.
Fiscal Year Ended March 31, 2009
Restructuring charges incurred during fiscal year 2009 totaled $30.9 million. The Company
announced three initiatives to reduce fixed costs to be more in line with lower sales volumes. During
the first quarter of fiscal year 2009, the Company recognized charges of $4.9 million primarily for
reductions in workforce in Film and Electrolytic. In the second quarter of fiscal year 2009, the
Company recognized charges of $16.1 million related to the rationalization of corporate staff and
manufacturing support functions in the United States, Europe, Mexico, and Asia. Approximately 640
employees were affected by this action. During the third quarter of fiscal year 2009, the Company
recognized charges of $3.5 million related primarily to the reduction of approximately 1,500
manufacturing positions representing approximately 14% of the Company’s workforce. During the
fourth quarter of fiscal year 2009, the Company incurred expenses of $0.9 million primarily related to
the closing of sales offices. The Company also incurred expenses of $5.5 million related to the
Company’s manufacturing relocation plan.
109
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 3: Restructuring (Continued)
A reconciliation of the beginning and ending liability balances for restructuring charges included in
the line items ‘‘Accrued expenses’’ and ‘‘Other non-current obligations’’ on the Consolidated Balance
Sheets were as follows (amounts in thousands):
Personnel
Reductions
Manufacturing
Relocations
Balance at March 31, 2008 . . . . . . . . . . . . . . . . . . . . . . .
Costs charged to expense . . . . . . . . . . . . . . . . . . . . . . . .
Costs paid or settled . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in foreign exchange . . . . . . . . . . . . . . . . . . . . . . .
$
1,835
25,423
(18,832)
(533)
$
Balance at March 31, 2009 . . . . . . . . . . . . . . . . . . . . . . .
7,893
Costs charged to expense . . . . . . . . . . . . . . . . . . . . . . . .
Costs paid or settled . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in foreign exchange . . . . . . . . . . . . . . . . . . . . . . .
Balance at March 31, 2010 . . . . . . . . . . . . . . . . . . . . . . .
Costs charged to expense . . . . . . . . . . . . . . . . . . . . . . . .
Costs paid or settled . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in foreign exchange . . . . . . . . . . . . . . . . . . . . . . .
7,639
(7,343)
209
8,398
1,197
(7,936)
168
—
5,451
(5,451)
—
—
1,559
(1,559)
—
—
5,974
(5,974)
—
Balance at March 31, 2011 . . . . . . . . . . . . . . . . . . . . . . .
$
1,827
$
—
Note 4: Impairment Charges
During fiscal years 2010 and 2009, the Company incurred impairment charges totaling $0.7 million
and $242.0 million, respectively.
The Company’s goodwill and indefinite-lived intangible assets are tested for impairment at least on
an annual basis. The impairment test involves a comparison of the fair value of its reporting units, with
their respective carrying amounts. If the reporting unit’s aggregate carrying amount exceeds its fair
value, then an indication exists that the reporting unit’s goodwill may be impaired. The impairment to
be recognized is measured by the amount by which the carrying value of the reporting unit’s goodwill
being measured exceeds its implied fair value, up to the total amount of its assets. The Company
determines the fair value of a reporting unit using an income-based approach, discounted cash flow
analysis, and market based approaches (Guideline Publicly Traded Company Method and Guideline
Transaction Method).
For purposes of the goodwill impairment test, the Company has identified the following three
reporting units: Tantalum, Ceramic, and Film and Electrolytic. Goodwill and indefinite-lived intangible
assets are tested annually for impairment during the first quarter of each fiscal year and upon the
occurrence of certain events or substantive changes in circumstances. In fiscal year 2010, the Company
initiated the first phase of a restructuring plan to reduce costs in Film and Electrolytic. Machinery not
used for production in Portugal and not relocated to Mexico was disposed of and as such the Company
recorded an impairment charge of $0.7 million to write down the equipment to scrap value.
In connection with the performance of its fiscal year 2009 annual impairment analyses, the
Company hired an independent appraisal firm to test goodwill for impairment. The Company recorded
110
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 4: Impairment Charges (Continued)
goodwill impairments of $88.6 million in connection with its 2009 annual impairment test. This
impairment was a result of the Company revising its earnings forecast used in the Company’s analysis
due to reduced earnings and cash flows caused by macro-economic factors, excess capacity issues in the
industry and delays in integrating recently acquired businesses. The asset impairments recorded reduced
the carrying values of goodwill in Film and Electrolytic and Ceramic by $76.2 million and $12.4 million,
respectively.
One of the factors that determine whether or not goodwill is impaired is the market value of the
Company’s common stock. During the second quarter of fiscal year 2009, the Company’s stock price
declined significantly below the level the Company considered in performing its annual impairment
review as of June 30, 2008. As such, the Company hired an independent appraisal firm to test goodwill
for impairment again as of September 30, 2008. This impairment test resulted in a second quarter
goodwill impairment charge of $85.7 million to write off all of the remaining goodwill of Film and
Electrolytic, and Tantalum. These impairment charges are aggregated and reported in the line item
‘‘Goodwill impairment’’ on the Consolidated Statements of Operations.
Long-lived assets and intangible assets subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset or
group of assets may not be recoverable.
Based in part upon the first quarter of fiscal year 2009 impairment of goodwill, the Company
determined that there was an indication that the carrying amount of certain long-lived asset groups
might not be recoverable and tested the long-lived assets of Ceramic for impairment. The Company
hired an independent appraisal firm to estimate the fair value of the Company’s asset groups for
impairment purposes. Tests for the recoverability of a long-lived asset to be held and used are
performed by comparing the carrying amount of the long-lived asset to the sum of the estimated future
net undiscounted cash flows expected to be generated by the asset. In estimating the future
undiscounted cash flows, the Company uses future projections of cash flows directly associated with,
and which are expected to arise as a direct result of, the use and eventual disposition of the assets.
These assumptions include, among other estimates, periods of operation and projections of sales and
cost of sales. Changes in any of these estimates could have a material effect on the estimated future
undiscounted cash flows expected to be generated by the asset. In the first quarter of fiscal year 2009,
it was determined that the book value of the long-lived assets of Ceramic was not fully recoverable, and
an impairment charge of $58.6 million was recorded, equal to the excess of the carrying amount of the
long-lived assets over their fair value. The fair value was established on the basis of fair value in
exchange. Fair value in exchange is defined as the price at which the property would change hands
between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and
both having reasonable knowledge of relevant facts. In addition in the first quarter of fiscal year 2009,
Ceramic recorded a $5.3 million impairment charge to write off all of its other intangible assets. These
impairment charges are reported in the line item ‘‘Write down of long-lived assets’’ on the
Consolidated Statements of Operations.
Utilizing an independent appraisal firm, KEMET also completed long-lived asset impairment tests
in the second, third and fourth quarters of fiscal year 2009 and concluded that no further impairment
existed.
111
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 4: Impairment Charges (Continued)
At March 31, 2009, the Company recognized an impairment of $2.5 million which primarily relates
to a manufacturing facility as the carrying amount of the facility is considered not fully recoverable
based on an independent appraisal dated February 28, 2009. In addition, a research and development
facility located in Heidenheim, Germany was closed and $1.2 million was recognized as an impairment
due to the abandonment of long-lived assets.
Note 5: Goodwill and Intangible Assets
The following table highlights the Company’s other intangible assets (amounts in thousands):
March 31, 2011
March 31, 2010
Carrying
Amount
Accumulated
Amortization
Carrying
Amount
Accumulated
Amortization
Indefinite Lived Intangibles:
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,644
$ — $
7,617
$ —
Amortized Intangibles:
Customer relationships, patents and other
(3-18 years) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,910
8,462
18,911
4,729
$ 28,554
$ 8,462
$ 26,528
$ 4,729
For fiscal years ended March 31, 2011, 2010 and 2009 amortization related to intangibles was
$2.3 million, $2.6 million and $3.7 million, respectively. The weighted average useful life of amortized
intangibles was 13 years in the fiscal years ended March 31, 2011 and 2010. Estimated amortization of
intangible assets for the next five fiscal years and thereafter is $1.5 million, $1.1 million, $0.7 million,
$0.7 million, $0.7 million and $7.8 million.
The Company tests goodwill and intangible assets with indefinite useful lives for impairment at
least on an annual basis. During fiscal year 2009, the Company recognized an impairment of
$174.3 million, reducing its goodwill balance to zero. Additionally, the Company recognized an
impairment of $5.3 million related to intangible assets in Ceramic.
The changes in the carrying amount of goodwill for the year ended March 31, 2009 are as follows
(amounts in thousands):
Balance at the beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment related to prior year opening balance sheet deferred tax
calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency fluctuations . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year
2009
$ 182,273
—
(174,327)
(2,902)
(5,044)
Balance at the end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
112
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 6: Asset Sales
During the second quarter of fiscal year 2011, the Company sold a building and related equipment
for net proceeds of $3.4 million resulting in a net gain of $1.6 million which is recognized as a
component of the line item ‘‘Net (gain) loss on sales and disposals of assets’’ on the Consolidated
Statements of Operations.
Tantalum completed two sales of fixed assets during fiscal year 2009. In the second quarter of
fiscal year 2009, the Company sold assets related to the production and sale of wet tantalum capacitors
to a subsidiary of Vishay. Cash proceeds of $33.7 million were received, net of amounts held in escrow,
from the sale of these assets. At the same time, the Company entered into a three-year term loan for
$15.0 million with a subsidiary of Vishay. The sale resulted in a pre-tax gain of $28.3 million, which is
net of related fees and amounts held in escrow. Proceeds of $1.5 million were held in escrow to secure
the Company’s obligations under the sales agreement and the Company received the $1.5 million in
March 2010. The Company recorded the release of escrow funds as an additional gain of $1.5 million
in fiscal year 2010 in the line item ‘‘Net gain on sales and disposals of assets’’ in the Consolidated
Statements of Operations. Annual revenues generated from these assets were approximately
$16.0 million.
Also during the second quarter of fiscal year 2009, the Company sold a property which was
classified as held for sale as of March 31, 2008. Proceeds from this sale were $1.2 million which
approximated the carrying value.
In the ordinary course of business, the Company incurs losses due to the obsolescence and disposal
of fixed assets. The net losses incurred in the ordinary course of business totaled $0.3 million,
$0.5 million and $2.8 million in fiscal years 2011, 2010 and 2009, respectively and are included in the
line item ‘‘Net gain on sales and disposals of assets’’ in the Consolidated Statements of Operations.
Note 7: Segment and Geographic Information
The Company is organized into three business groups: Tantalum, Ceramic, and Film and
Electrolytic based primarily on products lines. Each business group is responsible for the operations of
certain manufacturing sites as well as all related research and development efforts. The sales and
marketing functions are shared by each of the business groups and the costs of which are allocated to
the business groups based on the business groups’ respective budgeted net sales.
Tantalum
Tantalum operates in five manufacturing sites in Portugal, Mexico and China and maintains a
product innovation center in the United States. This business group produces tantalum and aluminum
polymer capacitors. Tantalum products are sold in all regions of the world.
Ceramic
Ceramic operates in two manufacturing locations in Mexico and a finishing plant in China and
maintains a product innovation center in the United States. This business group produces ceramic
capacitors. Ceramic products are sold in all regions of the world.
113
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 7: Segment and Geographic Information (Continued)
Film and Electrolytic
Film and Electrolytic operates fifteen manufacturing sites throughout Europe and Asia and
maintains a product innovation center in Sweden. This business group produces film, paper, and
electrolytic capacitors. Film and Electrolytic products are sold in all regions in the world.
The following tables summarize information about each segment’s net sales, operating income
(loss), depreciation and amortization, capitalized expenditures and total assets (amounts in thousands):
Fiscal Years Ended March 31,
2011
2010
2009
Net sales:
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . .
$
486,595
210,509
321,384
$ 343,797
171,153
221,385
$ 366,675
175,916
261,794
Operating income (loss)(1)(2)(3):
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . .
Depreciation and amortization:
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . .
Capital expenditures:
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . .
$ 1,018,488
$ 736,335
$ 804,385
$
$
$
$
$
$
$
$
$
$
$
88,456
38,791
2,014
129,261
31,215
8,627
13,090
52,932
11,264
5,760
17,965
28,424
24,374
(45,101)
$
13,318
(98,694)
(185,736)
7,697
$ (271,112)
$
$
$
29,938
9,012
13,694
52,644
6,572
2,603
3,746
32,921
11,432
13,772
58,125
10,766
10,662
9,113
34,989
$
12,921
$
30,541
114
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 7: Segment and Geographic Information (Continued)
Total assets:
Tantalum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 435,311
179,639
269,359
$ 378,344
169,564
193,053
$ 884,309
$ 740,961
March 31,
2011
2010
(1) Restructuring charges included in Operating income (loss) were as follows (amounts in
thousands):
Fiscal Years Ended March 31,
2011
2010
2009
Total restructuring:
Tantalum . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . .
$
864
444
5,863
$ 1,941
543
6,714
$ 11,388
7,143
12,343
$ 7,171
$ 9,198
$ 30,874
(2) Impairment charges and write downs included in Operating income (loss) were as follows
(amounts in thousands):
Fiscal Years Ended March 31,
2011
2010
2009
Impairment charges and write downs:
Tantalum . . . . . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . . . . . . .
$ — $ 656
—
—
—
—
$ 26,233
78,187
137,531
$ — $ 656
$ 241,951
(3) (Gain) loss on sales and disposals of assets included in Operating income (loss) were as
follows (amounts in thousands):
(Gain) loss on sales and
disposals of assets:
Tantalum . . . . . . . . . . . . . . . .
Ceramic . . . . . . . . . . . . . . . .
Film and Electrolytic . . . . . . .
Fiscal Years Ended March 31,
2011
2010
2009
$
25
(1,578)
292
$ (1,226) $ (26,435)
1,123
(193)
183
40
$ (1,261) $ (1,003) $ (25,505)
115
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 7: Segment and Geographic Information (Continued)
The following highlights net sales by geographic location (amounts in thousands):
$
United States . . . . . . . . . . . . . . . . . . . . . . . .
Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe(2)(3) . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific(2)(3) . . . . . . . . . . . . . . . . . . . . .
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . .
Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries(2) . . . . . . . . . . . . . . . . . . . .
Fiscal Years Ended March 31,(1)
2011
2010
2009
240,775
171,129
131,107
136,552
114,879
37,443
39,525
37,118
34,321
21,138
20,796
20,426
13,279
$ 167,638
128,292
106,807
89,737
71,963
41,551
25,155
29,045
19,485
14,194
17,084
12,902
12,482
$ 184,496
111,460
132,439
105,288
86,140
29,815
36,977
40,649
20,809
13,960
17,069
12,129
13,154
$ 1,018,488
$ 736,335
$ 804,385
(1) Revenues are attributed to countries or regions based on the location of the customer.
The Company sold $133.5 million, $86.5 million and $81.6 million in fiscal years 2011,
2010 and 2009, respectively, to one customer, TTI, Inc.
(2) No country included in this caption exceeded 2% of consolidated net sales for 2011, 2010,
and 2009.
(3) Excluding the specific countries listed in this table.
The following geographic information includes long-lived assets, based on physical location
(amounts in thousands):
March 31,
2011
2010
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portugal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 64,993
61,719
60,459
57,625
42,928
7,974
8,860
8,300
17,646
$
74,148
57,351
66,451
56,478
43,597
7,210
10,222
8,967
17,260
$ 330,504
$ 341,684
116
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8: Pension and Other Post-retirement Benefit Plans
The Company sponsors defined benefit pension plans which include seven in Europe, one in
Singapore and two in Mexico. The Company funds the pension liabilities in accordance with laws and
regulations applicable to those plans.
The Company has two post-retirement benefit plans: health care and life insurance benefits for
certain retired United States employees who reach retirement age while working for the Company. The
health care plan is contributory, with participants’ contributions adjusted annually. The life insurance
plan is non-contributory.
Effective March 1, 2009, the Company amended its post-retirement health care and life insurance
benefit plans to eliminate all obligations for non-Union Carbide Corporation (‘‘Union Carbide’’)
grandfathered retirees. As a result of this amendment, the Company recognized a curtailment gain of
$30.6 million.
A summary of the changes in benefit obligations and plan assets is as follows (amounts in
thousands):
Pension
Other Benefits
2011
2010
2011
2010
Change in Benefit Obligation
Benefit obligation at beginning of the year . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange rate change . . . . . . . . . . . . . . .
Gross benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments and other . . . . . . . . . . . . . . . . . . . . . .
Curtailments and settlements . . . . . . . . . . . . . . . . . . . . . .
$ 36,775
1,060
1,836
66
3,550
3,030
(1,436)
270
(749)
$ 29,992
977
1,775
58
3,569
1,402
(1,492)
494
—
$ 1,395
—
62
557
(7)
—
(668)
—
—
$ 1,554
—
77
441
172
—
(849)
—
—
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . .
$ 44,402
$ 36,775
$ 1,339
$ 1,395
Change in Plan Assets
Fair value of plan assets at beginning of year . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange rate changes . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . . . . . . . . . .
Gross benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,866
1,308
1,521
1,841
(247)
66
(1,436)
$ 10,730
1,600
627
1,343
—
58
(1,492)
$ — $ —
—
—
408
—
441
(849)
—
—
111
—
557
(668)
Fair value of plan assets at end of year
. . . . . . . . . . . . . .
$ 15,919
$ 12,866
$ — $ —
Funded status at end of year
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,919
(44,402)
$ 12,866
(36,775)
$ — $ —
(1,395)
(1,339)
Amount recognized at end of year . . . . . . . . . . . . . . . . . .
$ (28,483) $ (23,909) $ (1,339) $ (1,395)
117
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8: Pension and Other Post-retirement Benefit Plans (Continued)
The Company expects to contribute $4.2 million to the pension plans in fiscal year 2012, which
includes benefit payments to be made for unfunded plans.
The Company does not prefund its post-retirement health care and life insurance benefit plans. As
a result, the Company is annually responsible for the payment of benefits as incurred by the plans. We
anticipate making payments of $150 thousand during fiscal year 2012. Amounts recognized in the
Consolidated Balance Sheets consist of the following (amounts in thousands):
Pension
Other Benefits
2011
2010
2011
2010
Current liability . . . . . . . . . . . . . . . . . .
Noncurrent liability . . . . . . . . . . . . . . .
$
(3,313)
(25,170)
$
(1,953)
(21,956)
$
(147)
(1,192)
$
(159)
(1,236)
Amount recognized, end of year . . . . . .
$ (28,483) $ (23,909) $ (1,339) $ (1,395)
Amounts recognized in Accumulated other comprehensive income (loss), net of tax of $1.5 million
and $1.1 million as of March 31, 2011 and 2010, respectively, consist of the following (amounts in
thousands):
Pension
Other Benefits
2011
2010
2011
2010
Net actuarial loss (gain) . . . . . . . . . . . . . . .
Prior service cost . . . . . . . . . . . . . . . . . . . .
$ 8,655
162
$ 5,677
165
$ (2,111) $ (2,410)
—
—
Accumulated other comprehensive income . .
$ 8,817
$ 5,842
$ (2,111) $ (2,410)
Components of benefit costs consist of the following (amounts in thousands):
2011
Pension
2010
Other Benefits
2009
2011
2010
2009
Net service cost . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . .
Amortization:
Actuarial gain . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Prior service (credit) cost
Recurring activity . . . . . . . . . . . . . . . .
One time curtailment expense/(income) . . . .
$ 1,060
1,836
(677)
$
977
1,725
(586)
$
662
1,441
(676)
126
22
2,367
291
(541)
21
1,596
—
(3)
24
1,448
(201)
$ — $ — $
62
—
(306)
—
(244)
—
77
—
(388)
—
(311)
—
89
638
—
(218)
(1,459)
(950)
(30,634)
Net periodic benefit cost (credit) . . . . . . . . .
$ 2,658
$ 1,596
$ 1,247
$ (244) $ (311) $ (31,584)
The estimated amounts that will be amortized from accumulated other comprehensive income into
net periodic benefit costs in fiscal year 2012 are actuarial gains of $0.4 million, and prior service costs
of $24 thousand.
118
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8: Pension and Other Post-retirement Benefit Plans (Continued)
The asset allocation for the Company’s defined benefit pension plans at March 31, 2011 and the
target allocation for 2011, by asset category, are as follows:
Asset Category
Target
Allocation
Plan Assets at
March 31,
2011
Insurance(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60%
15
15
10
57%
21
21
1
100%
100%
(1) Primarily comprised of assets held by the defined benefit pension plan in Switzerland.
These assets are fully insured and the insurance company guarantees that the defined
benefit pension plan is fully funded. These assets are also guaranteed by the government
in Switzerland.
The Company’s investment strategy for its defined benefit pension plans is to maximize long-term
rate of return on plan assets within an acceptable level of risk in order to minimize the cost of
providing pension benefits. The investment policy establishes a target allocation range for each asset
class and the fund is managed within those ranges. The plans use a number of investment approaches
including insurance products, equity and fixed income funds in which the underlying securities are
marketable in order to achieve this target allocation. Certain plans invest solely in insurance products.
The Company continuously monitors the performance of the overall pension assets portfolio, asset
allocation policies, and the performance of individual pension asset managers and makes adjustments
and changes, as required. The Company does not manage any assets internally, does not have any
passive investments in index funds, and does not directly utilize futures, options, or other derivative
instruments or hedging strategies with regard to the pension plans; however, the investment mandate of
some pension asset managers allows the use of the foregoing as components of their portfolio
management strategies.
The expected rate of return was determined by modeling the expected long-term rates of return
for broad categories of investments held by the plan against a number of various potential economic
scenarios.
119
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8: Pension and Other Post-retirement Benefit Plans (Continued)
Other changes in plan assets and benefit obligations recognized in Accumulated other
comprehensive income (loss) are as follows (amounts in thousands):
2011
Pension
2010
Other Benefits
2009
2011
2010
2009
Curtailment effects . . . . . . . . . . . . . . . . . . . .
Current year actuarial (gain) loss . . . . . . . . . .
Foreign currency exchange rate changes . . . . .
Amortization of actuarial gain . . . . . . . . . . . .
Current year prior service (credit) cost . . . . . .
Amortization of prior service credit (cost) . . .
Total recognized in other comprehensive
$ — $ — $ — $ — $ — $ 30,311
(935)
—
218
(12,167)
1,782
3,129
(402)
3
(29)
(24)
2,556
243
541
—
(21)
2,918
728
(649)
270
(292)
(7)
306
—
—
—
172
388
—
—
—
income . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,975
$ 3,319
$ 2,677
$ 299
$ 560
$ 19,209
Total recognized in net periodic benefit cost
and other comprehensive income (loss) . . . .
$ 5,633
$ 4,915
$ 3,924
$ 55
$ 249
$ (12,375)
In fiscal year 2009, the Company amended its post-retirement plan to eliminate all obligations for
non-Union Carbide grandfathered retirees.
Each of these changes has been factored into the following benefit payments schedule for the next
ten fiscal years. The Company expects to have benefit payments in the future as follows (amounts in
thousands):
2012
2013
2014
2015
2016
2017 - 2021
Expected benefit payments
Pension benefits . . . . . . . . . . . . . . . . . . .
Other benefits . . . . . . . . . . . . . . . . . . . . .
$ 4,173
150
$ 1,749
150
$ 1,831
147
$ 1,950
143
$ 2,201
137
$ 12,800
554
$ 4,323
$ 1,899
$ 1,978
$ 2,093
$ 2,338
$ 13,354
120
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8: Pension and Other Post-retirement Benefit Plans (Continued)
The following weighted-average assumptions were used to determine the projected benefit
obligation at the measurement date and the net periodic cost for the pension and post-retirement plan
(amounts in thousands except percentages):
Projected benefit obligation:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . .
Health care cost trend on covered charges . . . . . . — —
5.0% 5.1%
2.9% 2.9%
4.4%
—
8.0%
4.7%
—
8.0%
Pension
2011
2010
Other Benefits
2011
2010
Net periodic benefit cost:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . .
Health care cost trend on covered charges . . . . . . — —
5.1% 5.6%
2.9% 2.3%
5.1% 5.5%
4.7%
—
—
7.5%
5.9%
—
—
8.0%
decreasing to
ultimate trend
of 5% in 2016
decreasing to
ultimate trend
of 5% in 2016
Sensitivity of retiree welfare results
Effect of a one percentage point increase in
assumed health care cost trend:
—On total service and interest costs components
—On post-retirement benefits obligation . . . . . .
Effect of a one percentage point decrease in
assumed health care cost trend:
—On total service and interest costs components
—On post-retirement benefits obligation . . . . . .
decreasing to
ultimate trend
of 5% in 2016
decreasing to
ultimate trend
of 5% in 2016
$
$
2
40
(2)
(37)
2
33
(2)
(30)
The measurement date used to determine pension and post-retirement benefits is March 31.
The Company evaluated input from its third-party actuary to determine the appropriate discount
rate. The determination of the discount rate is based on various factors such as the rate on bonds, term
of the expected payouts, and long-term inflation factors.
121
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8: Pension and Other Post-retirement Benefit Plans (Continued)
The following table sets forth by level, within the fair value hierarchy as described in Note 1, the
pension plan’s assets, required to be carried at fair value on a recurring basis as of March 31, 2011 and
March 31, 2010 (amounts in thousands):
Fair Value
March 31,
2011
Fair Value
Measurement Using
Level 1
Level 2
Level 3
Fair Value
March 31,
2010
Fair Value
Measurement Using
Level 1
Level 2
Level 3
$
— $ — $ — $ — $
50
$
50
$ — $ —
Cash and cash equivalents .
Equity securities:
International equities . . .
3,354
3,354
Fixed income securities:
International bonds . . . .
Insurance contracts . . . . . .
Other . . . . . . . . . . . . . . .
3,272
9,145
148
3,272
—
148
—
—
—
—
—
3,619
3,619
—
9,145
—
2,295
6,902
—
2,295
—
—
—
—
—
—
—
—
6,902
—
$ 15,919
$ 6,774
$ — $ 9,145
$ 12,866
$ 5,964
$ — $ 6,902
The table below sets forth a summary of changes in the fair value of the defined benefit pension
plan’s Level 3 assets for the fiscal year ended March 31, 2011 (amounts in thousands):
Balance as of April 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange rate change . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year
2011
$ 6,902
894
660
66
(517)
1,140
Balance as of March 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,145
The Company also sponsors a deferred compensation plan for highly compensated employees. The
plan is non-qualified and allows certain employees to contribute to the plan. Gains net of the Company
matches related to the deferred compensation plan were $6 thousand in fiscal year 2011, $0.5 million in
fiscal year 2010, and $0.7 million in fiscal year 2009. Total benefits accrued under this plan were
$2.1 million and $1.5 million at March 31, 2011 and March 31, 2010, respectively.
In addition, the Company has a defined contribution retirement plan (the ‘‘Savings Plan’’) in which
all United States employees who meet certain eligibility requirements may participate. A participant
may direct the Company to contribute amounts, based on a percentage of the participant’s
compensation, to the Savings Plan through the execution of salary reduction agreements. In addition,
the participants may elect to make after-tax contributions. Until January 1, 2009, the Company matched
contributions to the Savings Plan up to 6% of the employee’s salary. Effective January 1, 2009, the
Company temporarily suspended its matching contributions, reducing contributions from 6% to 0%.
Effective August 1, 2009, the Company reactivated its U.S. defined contribution retirement plan match.
The Company made matching contributions of $1.7 million, $1.0 million, and $1.6 million in fiscal years
2011, 2010, and 2009, respectively. As part of the Savings Plan, employees were previously able to elect
122
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8: Pension and Other Post-retirement Benefit Plans (Continued)
to purchase the Company’s stock. Effective January 1, 2009, the option to elect purchases of KEMET
stock was eliminated. For fiscal year 2009, the Savings Plan purchased 94,922 shares of KEMET stock.
Note 9: Stock-Based Compensation
The Company’s stock-based compensation plans are broad-based, long-term retention programs
intended to attract and retain talented employees and align stockholder and employee interests. The
major components of stock-based compensation expense are as follows (amounts in thousands):
Employee stock options . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term incentive plan . . . . . . . . . . . . . . . . . . . . . .
$
566
329
888
$
665
39
1,161
$ 1,158
238
(326)
$ 1,783
$ 1,865
$ 1,070
Fiscal Years Ended March 31,
2011
2010
2009
For fiscal years 2011, 2010 and 2009, compensation expense associated with all stock-based
compensation plans of $1.6 million, $1.4 million and $0.8 million, respectively was recorded in the line
item ‘‘Selling, general and administrative expense’’ on the Consolidated Statements of Operations. For
fiscal years 2011, 2010 and 2009, compensation expense associated with all stock-based compensation
plans of $0.2 million, $0.5 million and $0.3 million, respectively was recorded in the line item ‘‘Cost of
sales’’ on the Consolidated Statements of Operations.
Employee Stock Options
At March 31, 2011, the Company had three option plans that reserved shares of common stock for
issuance to executives and key employees: the 1992 Key Employee Stock Option Plan, the 1995
Executive Stock Plan, and the 2004 Long-Term Equity Incentive Plan. All of these plans were approved
by the Company’s stockholders. These plans authorized the grant of up to 4.0 million shares of the
Company’s common stock. The Company has no plans to purchase additional shares in conjunction
with its employee stock option program in the near future. Options issued under these plans vest in
one or two years and expire ten years from the grant date.
123
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 9: Stock-Based Compensation (Continued)
Employee stock option activity for fiscal year 2011 is as follows (amounts in thousands, except
exercise price, fair value and contractual life):
Outstanding at March 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-
Average
Exercise
Price
$ 16.05
8.90
1.92
15.99
52.50
Options
1,547
194
(47)
(108)
(43)
Outstanding at March 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . .
1,543
14.54
Exercisable at March 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . .
824
$ 23.16
Remaining weighted average contractual life of options
exercisable (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.7
The weighted average grant-date fair value during fiscal years 2011, 2010 and 2009 was $5.55, $1.47
and $1.41. The total estimated fair value of shares vested during fiscal years 2011, 2010 and 2009 was
$0.2 million, $1.3 million and $1.3 million, respectively. The intrinsic value of stock options exercised in
fiscal year 2011 was $0.6 million.
The following table sets forth the exercise prices, the number of options outstanding and
exercisable and the remaining contractual lives of the Company’s stock options as of March 31, 2011
(amounts in thousands except exercise price and contractual life):
Options Outstanding
Options Exercisable
Range of
Exercise
Prices ($)
Number
Outstanding
at 3/31/11
Weighted-Average
Remaining
Contractual Life (years)
Weighted-Average
Exercise
Price ($)
Number
Exercisable
at 3/31/11
Weighted-Average
Exercise
Price ($)
0.87 to 1.92
1.93 to 4.47
4.48 to 8.64
8.65 to 21.75
21.76 to 23.16
23.17 to 34.11
34.12 to 52.50
336
296
223
185
194
149
160
1,543
8.1
8.5
9.2
4.8
6.2
3.1
2.0
7.6
1.75
4.34
8.51
20.56
22.70
25.32
41.64
14.54
77
33
35
175
194
150
160
824
1.92
3.72
8.17
20.92
22.70
25.32
41.64
23.16
As of March 31, 2011, the intrinsic value related to options outstanding was $8.9 million. Total
unrecognized compensation cost, net of estimated forfeitures, related to non-vested options was
$1.8 million as of March 31, 2011. This cost is expected to be recognized over a weighted-average
period of 0.8 years. At March 31, 2011 and 2010, respectively, the weighted average exercise price of
stock options expected to vest was $4.62 and $3.12, respectively.
124
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 9: Stock-Based Compensation (Continued)
The Company measures the fair value of each employee stock option grant at the date of grant
using a Black-Scholes option pricing model. This model requires the input of assumptions regarding a
number of complex and subjective variables that will usually have a significant impact on the fair value
estimate. The following table summarizes the weighted average assumptions used in the Black-Scholes
valuation model to value stock option grants:
Fiscal Years Ended
March 31,
2011
2010
2009
Assumptions:
85.9% 64.6% 58.8%
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.0% 3.2% 3.5%
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2
Expected option lives in years . . . . . . . . . . . . . . . . . . . . . . . .
4.1
—
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
3.5
—
The expected volatility is based on historical volatility calculation of the Company’s stock price.
The risk-free rate is based on the U.S. Treasury yield with a maturity commensurate with the expected
term, which was between three years and four years for the fiscal years ended March 31, 2011, 2010
and 2009. The expected term is based on the Company’s historical option term which considers the
weighted-average vesting, contractual term and two-year cliff vesting. In addition, stock-based
compensation expense is calculated based on the number of awards that are ultimately expected to vest,
and therefore has been reduced for estimated forfeitures. The Company’s estimate of expected
forfeitures is based on the Company’s actual historical annual forfeiture rate of 2.5%. The estimated
forfeiture rate, which is evaluated each balance sheet date throughout the life of the award, provides a
time-based adjustment of forfeited shares. The estimated forfeiture rate is reassessed at each balance
sheet date and may change based on new facts and circumstances. The dividend yield is based on a set
dividend rate of 0.0% as the Company has not paid and does not anticipate paying dividends.
All options plans provide that options to purchase shares be supported by the Company’s
authorized but unissued common stock or treasury stock. All restricted stock and performance awards
are also supported by the Company’s authorized but unissued common stock or treasury stock. The
prices of the options granted pursuant to these plans are not less than 100% of the value of the shares
on the date of the grant.
Performance Vesting Stock Options
During fiscal year 2006, the Company issued 166,667 performance awards with a weighted-average
exercise price of $24.15 to the Chief Executive Officer which will entitle him to receive shares of
common stock if and when the stock price maintains certain thresholds. These awards are open ended
until they vest and will have a ten-year life after vesting or will expire on the third year following
retirement, whichever comes first. Effective March 4, 2010, 83,333 of these awards were voluntarily
relinquished and no concurrent grant, replacement award or other valuable consideration was provided.
125
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 9: Stock-Based Compensation (Continued)
Restricted stock activity for fiscal year 2011 is as follows (amounts in thousands except fair value):
Non-vested restricted stock at beginning of year . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
89
47
(6)
Non-vested restricted stock at end of year . . . . . . . . . . . . . . . . . .
130
Weighted-
average
Fair Value
on Grant
Date
$ 4.32
9.96
4.50
6.34
Restricted Stock
The Company grants shares of restricted stock to members of the Board of Directors and the
Chief Executive Officer. Restricted stock granted to the Board of Directors vests in one year while
restricted stock granted to the Chief Executive Officer vests immediately. The contractual term on
restricted stock is indefinite. As of March 31, 2011, unrecognized compensation costs related to the
unvested restricted stock share based compensation arrangements granted was $0.5 million. The
expense is being recognized over a period of one year. As of March 31, 2010, unrecognized
compensation costs related to the unvested restricted stock share based compensation arrangements
granted was $0.4 million. The costs were recognized over a period of one year.
Restricted Stock and Long-Term Incentive Plans (‘‘LTIP’’)
2008/2009 LTIP
In fiscal year 2008, the Board of Directors approved a long-term incentive plan (‘‘2008/2009
LTIP’’) which entitled the participants to receive up to 134,153 shares of common stock of the
Company in May 2009 if certain performance measures were met as compared to the S&P 600
Smallcap Index and up to 249,140 shares if the Company met a prescribed two year earnings per share
target. During the first quarter of fiscal year 2009, all of the participants in the 2008/2009 LTIP entered
into cancellation agreements; and accordingly, the 2008/2009 LTIP was cancelled.
The Company measured the fair value of each peer company performance stock award at the date
of grant using the Monte Carlo option pricing model with the following assumptions:
Assumptions:
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option lives in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38.0%
4.8%
1.5
—
Fiscal
Year 2008
126
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 9: Stock-Based Compensation (Continued)
2009/2010 LTIP
During the first quarter of fiscal year 2009, the Board of Directors approved a long-term incentive
plan (‘‘2009/2010 LTIP’’) based upon the achievement of an earnings per share target for the combined
fiscal years ending in March 2009 and 2010. These awards vest on the measurement date of May 15,
2010.
The 2009/2010 LTIP entitles the participants to receive up to 685,799 shares of KEMET common
stock if the target financial metric is realized. Each fiscal quarter, the Company assessed the likelihood
of meeting the target financial metric and concluded in each quarter that the target would not be
achieved. Accordingly, no compensation expense was recorded during fiscal years 2010 or 2009.
2010/2011 LTIP
During the first quarter of fiscal year 2010, the Board of Directors approved a new long-term
incentive plan (‘‘2010/2011 LTIP’’) based upon the achievement of an ADJUSTED EBITDA target for
the combined fiscal years ending in March 2010 and 2011. The 2010/2011 LTIP provides for an award
which up to 15% can be paid out in restricted shares of the Company’s common stock.
The 2010/2011 LTIP entitles the participants to receive cash and at the time of the award and at
the sole discretion of the compensation committee they may receive up to 15% of the award as shares
of KEMET common stock. The Company assesses the likelihood of meeting the Adjusted EBITDA
financial metric on a quarterly basis and has recorded an expense of $2.8 million in the fiscal year
ended March 31, 2011, based on this assessment. In total, the Company has accrued $4.5 million based
upon this assessment and the related liability is reflected in the line item ‘‘Accrued expenses’’ on the
Consolidated Balance Sheets and $0.5 million in the line item ‘‘Additional paid-in capital’’ on the
Consolidated Balance Sheets.
2011/2012 LTIP
During the first quarter of fiscal year 2011, the Board of Directors of the Company approved a
new long-term incentive plan (‘‘2011/2012 LTIP’’) based upon the achievement of an Adjusted EBITDA
target for the two-year period comprised of fiscal years ending in March 2011 and 2012. At the time of
the award, participants will receive at least 10% of the award, in restricted shares of the Company’s
common stock; and the remainder will be realized in cash. The Company assesses the likelihood of
meeting the ADJUSTED EBITDA financial metric on a quarterly basis and has recorded an expense
of $4.9 million in fiscal year 2011, based on this assessment, $4.4 million is reflected in the line item
‘‘Other non-current obligations’’ on the Consolidated Balance Sheets and $0.4 million in the line item
‘‘Additional paid-in capital’’ on the Consolidated Balance Sheets. The Company will continue to
monitor the likelihood of whether the Adjusted EBITDA financial metric will be realized and will
adjust compensation expense to match expectations.
In the Operating activities section of the Consolidated Statements of Cash Flows, stock-based
compensation expense was treated as an adjustment to net income (loss) for fiscal years 2011, 2010 and
2009.
127
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 10: Income Taxes
The components of Income (loss) before income taxes consist of (amounts in thousands):
Fiscal Years Ended March 31,
2011
2010
2009
Domestic (U.S.) . . . . . . . . . . . . . . . . . . . . . . . .
Foreign (Outside U.S.) . . . . . . . . . . . . . . . . . . .
$ 27,473
38,275
$ (72,265) $ (140,663)
(147,748)
7,854
$ 65,748
$ (64,411) $ (288,411)
The provision for Income tax expense (benefit) is as follows (amounts in thousands):
Fiscal Years Ended March 31,
2011
2010
2009
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local
. . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $ — $
58
6,049
627
2,358
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local
. . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,107
2,985
21
99
(3,523)
(3,403)
—
358
1,693
2,051
274
96
4,574
4,944
—
(227)
(7,919)
(8,146)
Income tax expense (benefit) . . . . . . . . . . . . . . . . . .
$ 2,704
$ 5,036
$ (3,202)
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as
follows:
Statutory federal income tax rate . . . . . . . . . . . . . . . . . . . .
Goodwill impairment
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Platinum warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable foreign source income . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other permanent items . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal taxes . . . . . . . . . . . . . . .
Effect of foreign operations . . . . . . . . . . . . . . . . . . . . . . . .
Change in tax exposure . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Years Ended
March 31,
2011
2010
2009
35.0% 35.0% 35.0%
—
— (49.1)
(12.1)
6.8
(9.4)
—
(0.9)
1.5
31.5
(22.9)
(0.7)
0.2
(2.0)
(16.3)
(0.1)
(0.2)
—
—
— (21.3)
—
(4.3)
3.3
(0.1)
(10.8)
0.4
(0.9)
(0.1)
(0.1)
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1% (7.8)% 1.1%
128
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 10: Income Taxes (Continued)
The components of deferred tax assets and liabilities are as follows (amounts in thousands):
March 31,
2011
2010
Deferred tax assets:
Net operating loss carry forwards . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medical and employee benefits . . . . . . . . . . . . . . . . . . .
Sales allowances and inventory reserves . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 127,626
11,690
7,576
10,182
3,712
6,411
$ 150,081
16,156
9,313
7,049
3,727
8,060
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . .
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . .
167,197
(143,216)
194,386
(162,217)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . .
23,981
32,169
Deferred tax liabilities:
Depreciation and differences in basis . . . . . . . . . . . . . .
Amortization of intangibles and debt discounts . . . . . . .
Non-amortized intangibles . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . .
(20,372)
(2,792)
(2,595)
(881)
(26,640)
(18,278)
(15,166)
(2,581)
(2,038)
(38,063)
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . .
$
(2,659) $
(5,894)
The change in net deferred income tax asset (liability) for the current year is presented below
(amounts in thousands):
Balance at March 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes related to continuing operations . . . . . . . . . . . . . .
Deferred income taxes related to other comprehensive income . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
Year 2011
$ (5,894)
3,403
373
(541)
Balance at March 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2,659)
As of March 31, 2011 and 2010, the Company’s gross deferred tax assets are reduced by a
valuation allowance of $143.2 million and $162.2 million, respectively. A full valuation allowance on
U.S. and certain foreign jurisdiction’s net deferred tax assets was determined to be necessary based on
the existence of significant negative evidence such as a cumulative three-year loss of the Company. The
valuation allowance decreased $19.0 million during fiscal year 2011. The valuation allowance decrease
resulted primarily from the utilization of federal and state net operating loss carryforwards during fiscal
year 2011 and from the release of valuation allowance of certain foreign subsidiaries.
In assessing the realizability of deferred tax assets, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the
129
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 10: Income Taxes (Continued)
periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and projections for future
taxable income over the periods in which the deferred tax assets are deductible, management believes it
is more likely than not that the Company will realize the benefits of these deductible differences, net of
the existing valuation allowances as of March 31, 2011. The amount of deferred tax assets considered
realizable; however, could be reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
As of March 31, 2011, the Company had U.S. net operating loss carryforwards for federal and
state income tax purposes of $237.2 million and $368.0 million, respectively. These net operating losses
are available to offset future federal and state taxable income, if any, through 2030. Foreign subsidiaries
in Italy, Portugal, Finland, Sweden, and Bulgaria had net operating loss carryforwards totaling
$137.7 million of which $25.2 million will expire in one year if unused. For the U.S. and Bulgaria there
is a greater likelihood of not realizing the future tax benefits of these deferred tax assets; and
accordingly, the Company has recorded valuation allowances related to the net deferred tax assets in
these jurisdictions. For the remaining foreign jurisdictions with net operating loss carryforwards a
valuation allowance has been recorded where the Company does not expect to fully realize the deferred
tax assets in the future.
Utilization of the Company’s net operating loss carryforwards may be subject to substantial annual
limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as
amended (the ‘‘Code’’) and similar state provisions. Such an annual limitation could result in the
expiration of the net operating loss and tax credit carryforwards before utilization. The issuance of the
Platinum Warrant may have given rise to an ‘‘ownership change’’ for purposes of Section 382 of the
Code. If such an ownership change were deemed to have occurred, the amount of our taxable income
that could be offset by the Company’s net operating loss carryovers in taxable years after the ownership
change would be severely limited. While the Company believes that the issuance of the Platinum
Warrant did not result in an ownership change for purposes of Section 382 of the Code, there is no
assurance that the Company’s view will be unchallenged. Moreover, a future exercise of part or all of
the Platinum Warrant may give rise to an ownership change in the future.
At March 31, 2011, $0.5 million of the $127.6 million deferred tax asset for net operating losses
represented losses generated by stock option deductions in excess of book expense. The valuation
allowance related to the $0.5 million deferred tax asset generated by stock option deductions would be
credited to equity when recognized.
The Company conducts business in China through subsidiaries that qualify for a tax holiday. The
tax holiday will terminate on January 1, 2012 for one subsidiary, and January 1, 2013 for two other
subsidiaries. For calendar years 2011, 2010 and 2009 the statutory tax rate of 25% is reduced to 24%,
11% and 10%, respectively for the one subsidiary. For the other two subsidiaries, for calendar years
2009, 2010, 2011 and 2012, the statutory rate of 25% is reduced to 0%, 12.5%, 12.5% and 12.5%,
respectively. For the fiscal year ended March 31, 2011, the Company realized a tax benefit of
$0.8 million from the tax holiday.
At March 31, 2011, unremitted earnings of the subsidiaries outside the United States were deemed
to be permanently invested. The Company has $59.1 million of unremitted foreign earnings. No current
plans are expected for repatriation and no deferred tax liability was recognized with regard to such
130
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 10: Income Taxes (Continued)
earnings. It is not practicable to estimate the income tax liability that might be incurred if such earnings
were remitted to the United States.
At March 31, 2011, the Company had $5.2 million of unrecognized tax benefits. A reconciliation of
gross unrecognized tax benefits (excluding interest and penalties) is as follows (amounts in thousands):
Fiscal Years Ended March 31,
2011
2010
2009
Beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of the current year . . . . . . .
Additions for tax positions of prior years
. . . . . . . . . .
Reductions for tax positions of prior years . . . . . . . . .
Lapse in statute of limitations . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,010
247
29
—
(130)
—
$ 5,010
266
56
—
—
(322)
$ 4,995
283
430
(128)
(48)
(522)
End of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,156
$ 5,010
$ 5,010
At March 31, 2011, $0.3 million of the $5.2 million of unrecognized tax benefits would affect the
Company’s effective tax rate, if recognized. The Company does not expect that the balances with
respect to its uncertain tax positions will change significantly during fiscal year 2012.
The Company files income tax returns in the U.S. and multiple foreign jurisdictions, including
various state and local jurisdictions. The U.S. Internal Revenue Service concluded its examinations of
the Company’s U.S. federal tax returns for all tax years through 2003. Because of net operating losses,
the Company’s U.S. federal returns for 2003 and later years will remain subject to examination until
the losses are utilized. With few exceptions, the Company is no longer subject to foreign income tax
examinations by tax authorities for years before fiscal year 2005.
The Company recognizes potential accrued interest and penalties related to unrecognized tax
benefits within its global operations in income tax expense. The Company had $0.2 million of accrued
interest and penalties at March 31, 2011 and March 31, 2010, which is included as a component of
income tax expense. To the extent interest and penalties are not assessed with respect to uncertain tax
positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax
provision.
131
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 11: Supplemental Balance Sheets and Statements of Operations Detail (amounts in thousands)
March 31,
2011
2010
Accounts receivable:
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 167,705
10,333
$ 140,479
10,731
178,038
151,210
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . .
Ship-from-stock and debit . . . . . . . . . . . . . . . . . . . . . . . .
Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Price protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,985)
(11,773)
(1,449)
(787)
(374)
(962)
(2,925)
(7,404)
(1,685)
(1,096)
(346)
(369)
$ 160,708
$ 137,385
Inventories:
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
78,913
78,681
64,310
$
64,927
63,238
42,261
Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
221,904
(15,464)
170,426
(19,918)
$ 206,440
$ 150,508
132
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 11: Supplemental Balance Sheets and Statements of Operations Detail (amounts in thousands)
(Continued)
Useful life (years)
2011
2010
March 31,
20
20 - 40
10
4 - 10
Property, plant and equipment:
Land and land improvements . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . .
Construction in progress . . . . . . . . . .
Total property and equipment . . . . . .
Accumulated depreciation . . . . . . . . .
Accrued expenses:
Salaries, wages, and related employee
costs . . . . . . . . . . . . . . . . . . . . . . .
Vacation . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . .
Distribution expense . . . . . . . . . . . . .
European social security accrual
. . . .
Current portion of pension and
post-retirement medical plans . . . .
Restructuring . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . .
$
$
27,562
129,560
806,899
56,741
30,423
22,939
141,617
775,899
53,520
12,861
1,051,185
(740,773)
1,006,836
(686,958)
$
310,412
$
319,878
$
$
37,084
13,602
10,535
4,550
5,343
3,460
1,827
11,890
$
88,291
$
22,382
10,673
2,661
2,592
5,057
2,112
8,121
10,008
63,606
March 31,
2011
2010
Other non-current obligations:
Pension plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee separation liability . . . . . . . . . . . . . . . . . . . . . . .
European social security accrual . . . . . . . . . . . . . . . . . . . . .
Long-term incentive plan accrual
. . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 25,170
20,989
2,074
4,442
7,052
$ 21,956
20,059
7,037
2,170
4,404
$ 59,727
$ 55,626
133
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 11: Supplemental Balance Sheets and Statements of Operations Detail (amounts in thousands)
(Continued)
Fiscal Years Ended March 31,
2011
2010
2009
Other (income) expense, net:
Net foreign exchange (gains) losses . . . . . . . . . . .
Gain on licensing of patents . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2,888) $ 4,105
—
16
(2,000)
196
$ (14,079)
—
(5)
$ (4,692) $ 4,121
$ (14,084)
Note 12: Income/Loss Per Share
Basic earnings per share calculation is based on the weighted-average number of common shares
outstanding. Diluted earnings per share calculation is based on the weighted-average number of
common shares outstanding adjusted by the number of additional shares that would have been
outstanding had the potentially dilutive common shares been issued. Potentially dilutive shares of
common stock include stock options and Platinum Warrant.
The following table presents the basic and diluted weighted-average number of shares of common
stock (amounts in thousands, except per share data):
Fiscal Years Ended March 31,
2011
2010
2009
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 63,044
$ (69,447) $ (285,209)
Weighted-average common shares outstanding(1):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed conversion of employee stock options . . . . . . . . . . . . .
Assumed conversion of Platinum Warrant . . . . . . . . . . . . . . . . .
Weighted-average shares outstanding (diluted) . . . . . . . . . . . . . . .
29,847
312
21,318
51,477
26,971
—
—
26,971
26,857
—
—
26,857
Basic income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2.11
1.22
(2.57) $
(2.57)
(10.62)
(10.62)
(1) All outstanding share amounts and computations using such amounts have been retroactively
adjusted to reflect the Reverse Stock Split.
Common stock equivalents that could potentially dilute net income per basic share in the future,
but were not included in the computation of diluted earnings per share because the impact would have
been antidilutive, were as follows (amounts in thousands):
Assumed conversion of employee stock options . . . . . . . . . . .
1,354
Assumed conversion of Platinum Warrant . . . . . . . . . . . . . . . — 16,504
815
1,162
—
Fiscal Years Ended
March 31,
2011
2010
2009
134
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 13: Common Stock and Stockholders’ Equity
The Board of Directors previously authorized a share buyback program to purchase up to
3.8 million shares of its common stock on the open market. On February 1, 2008, the Company
announced that it was reactivating its share buyback program. Under the terms of the approval by its
Board, the Company is authorized to repurchase up to 2.0 million shares of its common stock. Through
March 31, 2008, the Company purchased 1.2 million shares for $18.2 million. In fiscal year 2009, the
Company indefinitely suspended the share buyback program and since that time the Company has not
repurchased any shares of the Company’s common stock. At March 31, 2011 and 2010, the Company
held 2.4 million shares and 2.5 million shares, respectively, of treasury stock at a cost of $54.8 million
and $56.9 million, respectively.
On November 3, 2010, the shareholders of the Company approved a reverse stock split of the
Company’s common stock at a ratio of 1-for-3. The Reverse Stock Split became effective November 5,
2010, pursuant to a Certificate of Amendment to the Company’s Restated Certificate of Incorporation
filed with the Secretary of State of Delaware. The Company had 27.1 million shares of common stock
issued and outstanding immediately following the completion of the Reverse Stock Split. The Company
is authorized in the Restated Certificate of Incorporation to issue up to a total of 300.0 million shares
of common stock at a $0.01 par value per share which was unchanged by the amendment. The Reverse
Stock Split did not affect the registration of the common stock under the Securities Exchange Act of
1934, as amended or the listing of the common stock, under the symbol ‘‘KEM’’, although the post-split
shares have a new CUSIP number. In the Consolidated Balance Sheets, the line item ‘‘Stockholders’
equity’’ has been retroactively adjusted to reflect the Reverse Stock Split for all periods presented by
reducing the line item ‘‘Common stock’’ and increasing the line item ‘‘Additional paid-in capital’’, with
no change to Stockholders’ equity in the aggregate. All share and per share computations have been
retroactively adjusted for all periods presented to reflect the decrease in shares as a result of this
transaction except as otherwise noted.
Note 14: Commitments and Contingencies
The Company has agreements with distributors and certain other customers that, under certain
conditions, allow for returns of overstocked inventory, provide protection against price reductions
initiated by the Company and grant other sales allowances. Allowances for these commitments are
included in the Consolidated Balance Sheets as reductions in trade accounts receivable. The Company
adjusts sales based on historical experience. Charges against sales in fiscal years 2011, 2010 and 2009
were $69.5 million, $56.5 million and $58.0 million, respectively. Actual applications against the
allowances in fiscal years 2011, 2010, and 2009 were $65.7 million, $55.5 million and $58.9 million,
respectively.
The Company’s leases are primarily for distribution facilities or sales offices that expire principally
between 2012 and 2017. A number of leases require the Company to pay certain executory costs (taxes,
insurance, and maintenance) and contain certain renewal and purchase options. Annual rental expenses
for operating leases were included in results of operations and were $10.0 million, $7.3 million and
$4.1 million in fiscal years 2011, 2010, and 2009, respectively.
Beginning in fiscal year 2005, the Company subleased to a third party a 60,000 square foot facility
and then leased back 5,000 square feet of this facility. Annual rental income from the sublease is
included in the Consolidated Statements of Operations and was $0.2 million for fiscal years 2011, 2010
and 2009. The sublease rental expense was $0.2 million in fiscal years 2011, 2010, and 2009.
135
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 14: Commitments and Contingencies (Continued)
Future minimum lease payments over the next five fiscal years and thereafter under non-cancelable
operating leases at March 31, 2011, are as follows (amounts in thousands):
Fiscal Years Ended March 31,
2012
2013
2014
2015
2016
Thereafter
Total
Minimum lease payments . . . . . . . . . . . $ 8,997 $ 7,194 $ 5,124 $ 2,749 $ 1,033
(21)
Sublease rental income . . . . . . . . . . . . .
(251)
(252)
(252)
(238)
$ 643
—
$ 25,740
(1,014)
Net minimum lease payments . . . . . . . . $ 8,759 $ 6,943 $ 4,872 $ 2,497 $ 1,012
$ 643
$ 24,726
The Company or its subsidiaries are at any one time parties to a number of lawsuits arising out of
their respective operations, including workers’ compensation or work place safety cases, some of which
involve claims of substantial damages. Although there can be no assurance, based upon information
known to the Company, the Company does not believe that any liability which might result from an
adverse determination of such lawsuits would have a material adverse effect on the Company’s financial
condition or results of operations.
Note 15: Quarterly Results of Operations (Unaudited)
The following table sets forth certain quarterly information for fiscal years 2011 and 2010. This
information, in the opinion of our 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 (amounts in thousands
except per share data):
Fiscal Year 2011 Quarters Ended
Jun-30
Sep-30
Dec-31
Mar-31
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income(1) . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 243,794
28,535
(20,099)
$ 248,588
37,962
34,911
$ 264,654
36,991
27,167
$ 261,452
25,773
21,065
Net income (loss) per share (basic) . . . . . . . . . . . . . .
Net income (loss) per share (diluted) . . . . . . . . . . . .
$
$
(0.74) $
(0.74) $
1.29
0.68
$
$
0.96
0.52
$
$
0.57
0.40
Fiscal Year 2010 Quarters Ended
Jun-30
Sep-30
Dec-31
Mar-31
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss)(1) . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 150,167
(2,501)
25,090
$ 173,265
(2,887)
(93,075)
$ 199,923
6,236
(1,779)
$ 212,980
6,849
317
Net income (loss) per share (basic) . . . . . . . . . . . . . .
Net income (loss) per share (diluted) . . . . . . . . . . . .
$
$
0.93
0.90
$
$
(3.45) $
(3.45) $
(0.07) $
(0.07) $
0.01
0.01
(1) Operating income (loss) as a percentage of net sales fluctuates from quarter to quarter due to a
number of factors, including net sales fluctuations, restructuring charges, product mix, the timing
and expense of moving product lines to lower-cost locations, and the relative mix of sales among
distributors, original equipment manufacturers, electronic manufacturing service providers and
non-recurring charges including goodwill impairment, the write-down of long lived assets, the net
gain on sales and disposals of assets and curtailment gains on benefit plans.
136
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 16: Condensed Consolidating Financial Statements
As discussed in Note 2, ‘‘Debt’’, the Company’s 10.5% Senior Notes are fully and unconditionally
guaranteed, jointly and severally, on a senior basis by certain of the Company’s 100% owned domestic
subsidiaries (‘‘Guarantor Subsidiaries’’) and secured by a first priority lien on 51% of the capital stock
of certain of the Company’s foreign restricted subsidiaries (‘‘Non-Guarantor Subsidiaries’’). The
Company’s Guarantor Subsidiaries are not consistent with the Company’s business groups or
geographic operations; accordingly this basis of presentation is not intended to present the Company’s
financial condition, results of operations or cash flows for any purpose other than to comply with the
specific requirements for subsidiary guarantor reporting. We are required to present condensed
consolidating financial information in order for the subsidiary guarantors of the Company’s public debt
to be exempt from reporting under the Securities Exchange Act of 1934.
Condensed consolidating financial statements for the Company’s Guarantor Subsidiaries and
Non-Guarantor Subsidiaries are presented in the following tables (amounts in thousands):
Consolidating Balance Sheet
March 31, 2011
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and Eliminations
Consolidated
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . .
Intercompany receivable . . . . . . . . . . . .
Inventories, net
. . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . .
$
Total current assets . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . .
Investments in subsidiaries
. . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . .
Long-term intercompany receivable . . . . .
6,417
—
190,973
—
302
(596)
197,096
122
347,997
—
6,160
84,231
$
119,326
65,257
176,233
113,908
10,418
1,373
486,515
82,962
333,801
8,666
4,095
102,324
$
26,308
95,451
197,329
92,830
7,300
4,524
423,742
227,328
(5,686)
11,426
1,030
—
$
—
—
(564,535)
(298)
—
—
(564,833)
—
(676,112)
—
—
(186,555)
$ 152,051
160,708
—
206,440
18,020
5,301
542,520
310,412
—
20,092
11,285
—
Total assets . . . . . . . . . . . . . . . . . . . . . .
$ 635,606
$ 1,018,363
$ 657,840
$ (1,427,500)
$ 884,309
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Current portion of long-term debt . . . . . .
Accounts payable, trade . . . . . . . . . . . .
Intercompany payable . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . .
$ 39,012
40
732
10,837
(1,380)
$
Total current liabilities . . . . . . . . . . . .
Long-term debt, less current portion . . . .
. . . . . . . .
Other non-current obligations
Deferred income taxes . . . . . . . . . . . . .
Long-term intercompany payable . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . .
49,241
227,208
—
(596)
—
359,753
—
32,762
419,043
31,330
1,434
484,569
—
7,989
2,169
84,231
439,405
$
3,089
58,195
145,058
46,124
4,211
256,677
4,007
51,738
6,387
102,324
236,707
$
—
—
(564,833)
—
—
(564,833)
—
—
—
(186,555)
(676,112)
$
42,101
90,997
—
88,291
4,265
225,654
231,215
59,727
7,960
—
359,753
Total liabilities and stockholders’ equity . . . .
$ 635,606
$ 1,018,363
$ 657,840
$ (1,427,500)
$ 884,309
137
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 16: Condensed Consolidating Financial Statements (Continued)
Consolidating Balance Sheet
March 31, 2010
ASSETS
Current assets:
Cash and cash equivalents . . . .
Accounts receivable, net . . . . . .
Intercompany receivable . . . . . .
Inventories, net . . . . . . . . . . . .
Prepaid expenses and other . . .
Deferred income taxes . . . . . . .
Total current assets . . . . . . . .
Property and equipment, net
. .
Investments in subsidiaries . . . .
Intangible assets, net . . . . . . . .
Other assets . . . . . . . . . . . . . .
Long-term intercompany
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and Eliminations
Consolidated
$
11,602
—
189,207
—
1,476
42
202,327
158
213,201
—
8,690
$
54,707
44,387
170,268
85,603
10,318
(1,066)
364,217
88,155
327,617
9,615
1,651
$
12,890
92,998
138,548
65,182
6,996
3,153
319,767
231,565
—
12,191
925
$
— $
—
(498,023)
(277)
—
—
(498,300)
—
(540,818)
—
—
79,199
137,385
—
150,508
18,790
2,129
388,011
319,878
—
21,806
11,266
receivable . . . . . . . . . . . . . .
85,576
97,083
—
(182,659)
—
Total assets . . . . . . . . . . . . . . . . .
$ 509,952
$ 888,338
$ 564,448
$ (1,221,777)
$ 740,961
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term
debt
. . . . . . . . . . . . . . . . . .
Accounts payable, trade . . . . . .
Intercompany payable . . . . . . .
Accrued expenses . . . . . . . . . .
Income taxes payable . . . . . . . .
Total current liabilities . . . . .
Long-term debt, less current
portion . . . . . . . . . . . . . . . .
Other non-current obligations . .
Deferred income taxes . . . . . . .
Long-term intercompany
payable . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . .
Total liabilities and stockholders’
$
10,387
40
165
4,551
—
15,143
210,495
—
42
—
284,272
$
— $
32,481
393,011
19,771
—
445,263
14,999
5,383
(386)
7,493
46,308
105,125
39,284
1,096
199,306
6,135
50,243
8,367
$
— $
—
(498,301)
—
—
17,880
78,829
—
63,606
1,096
(498,301)
161,411
—
—
—
231,629
55,626
8,023
—
284,272
85,576
337,503
97,082
203,315
(182,658)
(540,818)
equity . . . . . . . . . . . . . . . . . . .
$ 509,952
$ 888,338
$ 564,448
$ (1,221,777)
$ 740,961
138
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 16: Condensed Consolidating Financial Statements (Continued)
Consolidating Statements of Operations
Fiscal Year Ended March 31, 2011
Net sales . . . . . . . . . . . . . . . . . . . .
$
— $ 948,292
$ 983,594
$ (913,398)
$ 1,018,488
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and Eliminations
Consolidated
—
738,855
889,886
(875,895)
752,846
Operating costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . .
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . .
Restructuring charges . . . . . . . . . . . .
Net (gain) loss on sales and disposals
of assets . . . . . . . . . . . . . . . . . . .
36,607
—
—
64,521
19,148
4,378
—
(1,705)
Total operating costs and expenses .
36,607
825,197
Operating income (loss) . . . . . . .
(36,607)
123,095
Interest income . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . .
Loss on early extinguishment of debt .
Other (income) expense, net . . . . . . .
Equity in earnings of subsidiaries . . . .
(20)
28,399
38,248
(30,751)
(135,521)
Income before income taxes . . . . . .
63,038
(110)
260
—
25,631
—
97,314
Income tax expense (benefit) . . . . . . .
(6)
9
38,978
6,961
2,793
444
939,062
44,532
(88)
1,516
—
331
—
42,773
2,701
(35,499)
(245)
—
—
(911,639)
(1,759)
—
—
—
97
135,521
(137,377)
—
104,607
25,864
7,171
(1,261)
889,227
129,261
(218)
30,175
38,248
(4,692)
—
65,748
2,704
Net income . . . . . . . . . . . . . . .
$
63,044
$ 97,305
$ 40,072
$ (137,377)
$
63,044
139
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 16: Condensed Consolidating Financial Statements (Continued)
Consolidating Statements of Operations
Fiscal Year Ended March 31, 2010
Net sales . . . . . . . . . . . . . . . . . . . . .
$
— $ 706,700
$ 757,587
$ (727,952)
$ 736,335
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and Eliminations
Consolidated
—
606,361
698,823
(693,546)
611,638
Operating costs and expenses:
Cost of sales
Selling, general and administrative
. . . . . . . . . . . . . . . . . .
expenses . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . .
. . . . . . . . . . . .
Restructuring charges
Write down of long-lived assets . . . . . .
Net (gain) loss on sales and disposals
32,339
—
—
—
50,047
16,820
1,486
—
of assets . . . . . . . . . . . . . . . . . . . .
—
2,717
Total operating costs and expenses . .
32,339
677,431
Operating income (loss) . . . . . . . .
(32,339)
29,269
Interest income . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
Increase in value of warrant . . . . . . . .
Gain on early extinguishment of debt . .
Other (income) expense, net . . . . . . . .
. . . .
Equity in earnings of subsidiaries
—
24,849
81,088
(38,921)
(32,196)
1,789
Income (loss) before income taxes . .
(68,948)
(119)
238
—
—
35,893
—
(6,743)
Income tax expense . . . . . . . . . . . . . .
499
485
38,368
5,244
7,712
656
(3,720)
747,083
10,504
(69)
921
—
—
424
—
9,228
4,052
(34,669)
—
—
—
—
(728,215)
263
—
—
—
—
—
(1,789)
2,052
—
86,085
22,064
9,198
656
(1,003)
728,638
7,697
(188)
26,008
81,088
(38,921)
4,121
—
(64,411)
5,036
Net income (loss) . . . . . . . . . . . .
$ (69,447)
$ (7,228)
$
5,176
$
2,052
$ (69,447)
140
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 16: Condensed Consolidating Financial Statements (Continued)
Consolidating Statements of Operations
Fiscal Year Ended March 31, 2009
Net sales . . . . . . . . . . . . . . . . . . . .
$
— $ 708,272
$ 820,228
$ (724,115)
$ 804,385
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and Eliminations
Consolidated
Operating costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . .
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . .
Restructuring charges . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . .
Write down of long-lived assets . . . . .
Net (gain) loss on sales and disposals
of assets . . . . . . . . . . . . . . . . . . .
Curtailment gains on benefit plans . . .
—
652,757
772,160
(688,366)
736,551
27,428
—
—
—
—
55,457
20,292
16,831
43,528
58,002
44,422
8,757
14,043
130,799
9,622
13
—
(25,810)
(30,835)
(35)
—
(33,802)
(93)
—
—
—
327
—
93,505
28,956
30,874
174,327
67,624
(25,505)
(30,835)
Total operating costs and expenses .
27,441
790,222
979,768
(721,934)
1,075,497
Operating loss
. . . . . . . . . . . . .
(27,441)
(81,950)
(159,540)
(2,181)
(271,112)
Interest income . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . .
Loss on early extinguishment of debt .
Other (income) expense, net . . . . . . .
Equity in earnings of subsidiaries . . . .
(4,550)
22,752
2,212
(28,816)
266,131
(409)
6,316
—
33,282
—
(203)
5,265
—
(18,761)
—
Loss) before income taxes . . . . . . .
(285,170)
(121,139)
(145,841)
4,544
(4,544)
—
211
(266,131)
263,739
Income tax expense (benefit) . . . . . . .
39
104
(3,345)
—
(618)
29,789
2,212
(14,084)
—
(288,411)
(3,202)
Net loss . . . . . . . . . . . . . . . . . .
$ (285,209)
$ (121,243)
$ (142,496)
$ 263,739
$ (285,209)
141
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 16: Condensed Consolidating Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended March 31, 2011
Sources (uses) of cash and cash equivalents
Net cash provided by (used in) operating
Parent
Guarantor Non-Guarantor Reclassifications
Subsidiaries
Subsidiaries
and Eliminations Consolidated
activities
. . . . . . . . . . . . . . . . . . . . . . $ (13,967) $
90,445
$ 37,490
$ —
$ 113,968
Investing activities:
Capital expenditures . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . .
Net cash used in investing activities
. .
—
—
—
(15,842)
5,425
(10,417)
(19,147)
—
(19,147)
Financing activities:
Proceeds from issuance of debt . . . . . . .
Payments of long-term debt
. . . . . . . . .
Net (payments) borrowings under other
credit facilities . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . .
Debt extinguishment costs . . . . . . . . . .
Proceeds from exercise of stock options .
Net cash provided by (used in)
226,976
(210,604)
—
(15,000)
—
(7,472)
(207)
89
—
(381)
—
—
549
(4,809)
(2,479)
—
—
—
financing activities . . . . . . . . . . . . .
8,782
(15,381)
(6,739)
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . .
(5,185)
64,647
11,604
Effect of foreign currency fluctuations on
cash . . . . . . . . . . . . . . . . . . . . . . . . .
—
(28)
1,814
Cash and cash equivalents at beginning of
fiscal year
. . . . . . . . . . . . . . . . . . . . .
11,602
54,707
12,890
Cash and cash equivalents at end of fiscal
—
—
—
—
—
—
—
—
—
—
—
—
—
(34,989)
5,425
(29,564)
227,525
(230,413)
(2,479)
(7,853)
(207)
89
(13,338)
71,066
1,786
79,199
year
. . . . . . . . . . . . . . . . . . . . . . . . . $
6,417 $ 119,326
$ 26,308
$ —
$ 152,051
142
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 16: Condensed Consolidating Financial Statements (Continued)
Consolidating Statements of Cash Flows
Fiscal Year Ended March 31, 2010
Sources (uses) of cash and cash equivalents
Net cash provided by (used in) operating
Parent
Guarantor Non-Guarantor Reclassifications
Subsidiaries
Subsidiaries
and Eliminations Consolidated
activities . . . . . . . . . . . . . . . . . . . . . . . $
(885) $ 33,746
$ 21,759
$ —
$ 54,620
Investing activities:
Capital expenditures . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . .
Net cash used in investing activities . . .
(56)
—
(56)
(3,200)
1,500
(1,700)
Financing activities:
Proceeds from issuance of debt . . . . . . . .
Payments of long-term debt . . . . . . . . . .
Net (payments) borrowings under other
credit facilities . . . . . . . . . . . . . . . . . .
Permanent intercompany financing . . . . .
Debt issuance costs . . . . . . . . . . . . . . . .
Debt extinguishment costs . . . . . . . . . . .
. . . . . . . . . . .
Dividends received (paid)
57,830
(49,565)
—
12,062
(4,206)
(3,605)
—
—
—
—
(12,062)
—
—
8,883
(9,665)
—
(9,665)
1,119
(4,960)
475
—
—
—
(8,883)
Net cash provided by (used in)
financing activities . . . . . . . . . . . . .
12,516
(3,179)
(12,249)
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . .
11,575
28,867
Effect of foreign currency fluctuations on
cash . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of
fiscal year . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of fiscal
—
27
(155)
(264)
(28)
25,868
13,309
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(12,921)
1,500
(11,421)
58,949
(54,525)
475
—
(4,206)
(3,605)
—
(2,912)
40,287
(292)
39,204
year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,602 $ 54,707
$ 12,890
$ —
$ 79,199
143
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 16: Condensed Consolidating Financial Statements (Continued)
Consolidating Statements of Cash Flows
Fiscal Year Ended March 31, 2009
Sources (uses) of cash and cash equivalents
Net cash provided by (used in) operating
Parent
Guarantor Non-Guarantor Reclassifications
Subsidiaries
Subsidiaries
and Eliminations Consolidated
activities . . . . . . . . . . . . . . . . . . . . . . . $ (3,143) $ (2,610)
$ 11,478
$ —
$
5,725
Investing activities:
Capital expenditures . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . .
Acquisitions net of cash received . . . . . . .
Change in restricted cash . . . . . . . . . . . .
(135)
—
—
—
(13,921)
34,870
(1,000)
3,900
(16,485)
—
—
—
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . . .
(135)
23,849
(16,485)
Financing activities:
Proceeds from issuance of debt . . . . . . . .
Payments of debt
. . . . . . . . . . . . . . . . .
Net (payments) borrowings under other
credit facilities . . . . . . . . . . . . . . . . . .
Permanent intercompany financing . . . . .
Debt issuance costs . . . . . . . . . . . . . . . .
Proceeds from sale of common stock to
employee savings plan . . . . . . . . . . . .
. . . . . . . . . . .
Dividends received (paid)
Net cash provided by (used in)
—
(62,575)
15,000
—
—
62,575
(1,574)
—
(62,575)
—
1,190
(5,374)
(411)
—
—
249
1,346
—
25,541
—
(26,887)
financing activities . . . . . . . . . . . . .
21
(22,034)
(31,482)
Net decrease in cash and cash
equivalents . . . . . . . . . . . . . . . . .
(3,257)
(795)
(36,489)
Effect of foreign currency fluctuations on
cash . . . . . . . . . . . . . . . . . . . . . . . . . .
—
455
(2,093)
Cash and cash equivalents at beginning of
fiscal year . . . . . . . . . . . . . . . . . . . . . .
3,284
26,208
51,891
Cash and cash equivalents at end of fiscal
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(30,541)
34,870
(1,000)
3,900
7,229
16,190
(67,949)
(411)
—
(1,574)
249
—
(53,495)
(40,541)
(1,638)
81,383
year . . . . . . . . . . . . . . . . . . . . . . . . . . $
27 $ 25,868
$ 13,309
$ —
$ 39,204
144
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIGNATURES
KEMET CORPORATION
(Registrant)
Date: May 20, 2011
/s/ WILLIAM M. LOWE, JR.
William M. Lowe, Jr.
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Date: May 20, 2011
/s/ PER-OLOF LOOF
Per-Olof Loof
Chief Executive Officer and Director
(Principal Executive Officer)
Date: May 20, 2011
/s/ WILLIAM M. LOWE, JR.
William M. Lowe, Jr.
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
Date: May 20, 2011
Date: May 20, 2011
Date:
Date: May 20, 2011
/s/ FRANK G. BRANDENBERG
Frank G. Brandenberg
Chairman and Director
/s/ DR. WILFRIED BACKES
Dr. Wilfried Backes
Director
Gurminder S. Bedi
Director
/s/ JOSEPH V. BORRUSO
Joseph V. Borruso
Director
145
Date: May 20, 2011
Date: May 20, 2011
Date: May 20, 2011
/s/ E. ERWIN MADDREY, II
E. Erwin Maddrey, II
Director
/s/ ROBERT G. PAUL
Robert G. Paul
Director
/s/ JOSEPH D. SWANN
Joseph D. Swann
Director
146
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(This page intentionally left blank.)
Dear KEMET Shareholder,
KEMET is positioned for success and focused on growth.
$1.018 billion: our fiscal 2011 revenue – 38% year-over-year growth! During the same period, our Adjusted
EBITDA increased by 176% to $196.1 million!
These are, in a sense, remarkable numbers, representing a tremendous effort by all of us at KEMET. This success
is the result of the team’s unwavering focus, thorough commitment and implementation of corporate strategies
over several years. Reaching the billion dollar milestone that we set for ourselves five years ago, although it is
just a number, gives us the critical mass to explore opportunities and leverage our capabilities across the entire
enterprise. And we’ve only just begun.
Many elements went into achieving these impressive numbers. Restructuring our debt was critical to strengthening our balance sheet, and our
continued focus on improving our working capital has provided us the cash to concentrate on growing our business. Maintaining a strict adherence
to cost controls, a clear focus on managing our cost structure with programs implemented during the recession, and focusing on growing our market
share in Specialty Products & Custom Solutions has resulted in improved margins, bringing value to our shareholders. Additionally, our increased focus
on specialty capabilities has enabled us to showcase the strength we have with our customer constituency. We are partnering with our customers as
new applications emerge and as we develop innovative custom capacitance solutions. This, coupled with our highly regarded “ETBF” Easy to Buy From
service model, we believe, will continue to bring dividends in years to come.
We are, needless to say, very pleased to be back on the NYSE. Being ‘kicked out’ was, to say the least, rather embarrassing. The fact that we were
one of the last companies to be taken off the Exchange, before the rules changed, was not really very comforting. Being back has made our stock more
accessible to investors and, as such, has been an important contributing factor in the significant increase in our share price over the last year. That
said, although I might be a bit biased, I believe that KEMET represents an attractive opportunity for investors and existing shareholders as we grow for
the future.
As encouraging as the fiscal year 2011 results have been, we are actually even more excited about how we are positioned for the future. All areas of
our business are working off strategic plans that have been developed with profitable growth as the primary objective. These growth initiatives include
a relentless focus on supporting our customers, gaining market share, improving our margin, and building technologies and capabilities for the future.
Over the past few years we have had a concerted effort, and thus made a tremendous investment, in lean and six sigma capabilities. This effort will
continue. At this time we have 168 green belts, 124 black belts and two master black belts, as well as 58 lean certified professionals, making for a
total lean six sigma population of 352 people. I expect it would be hard to find another company our size with this complement of skills. More
important, however, are the projects that we have been able to implement and the results obtained. Clear examples of the impact of these projects are
the decrease in working capital, overall reduction in cycle times, and the improvements in uptime and operating efficiencies. This spells a significant
reduction in our breakeven point. Looking at the future, the individuals who represent these skills will hold an important key to our continued and
future success.
We have clearly said in the past that our growth objectives need to be achieved through both organic and inorganic means. This will include a focus on
vertically integrating our business, enabling us to firm up both our supply stream and reduce raw material costs. A recent example of this strategy is
the acquisition of the Cornell Dubilier Foil facility in Knoxville, Tennessee. Etched and formed aluminum foil is the primary feedstock for the manufacture
of aluminum electrolytic capacitors, and the reduction in upstream players made this opportunity too attractive and actually too important to pass up.
Additionally, the opportunity to improve the quality of this material, as well as being able to more efficiently develop proprietary foils for a business that
is highly customized, works well with our focus on the manufacture and sale of Specialty Products & Custom Solutions. We will continue to seek out
acquisition opportunities that will further minimize raw material risks, and/or when it makes sense to further broaden our position as The Capacitance
Company – providing a total offering portfolio that is even more attractive to our customers.
Our organic growth initiatives rely in large part on our efforts in the area of Specialty Products & Custom Solutions. At KEMET, we believe our view of
these capabilities is somewhat different from a number of our competitors. While ‘Specialty’ is certainly about margin, it goes far beyond just this one
metric. For KEMET, ‘Specialty’ is a mindset that includes an articulated collaborative customer development approach requiring a level of commitment
and relationship that goes far deeper than the sale, and lasts far longer. Consistent with this is our Global Account Management System that takes a
holistic and global view of the customer experience, thus helping us navigate the sprawling and complicated design and manufacturing landscape we
face today. The KEMET “Easy to Buy From” approach, mentioned above, combined with our industry-recognized Global Channel Management
capabilities, allows us to deliver products to each customer – whenever, wherever and however they want – in support of each individual customer’s
business objectives. Our aspiration is to deliver an unparalleled customer experience.
Our efforts in the ‘Specialty’ area are focused on key applications in high growth markets such as the ‘Green’ segment, where we continue to develop
custom products demanded by the strict performance and reliability requirements for applications such as windmills, solar power, electric and hybrid
electric vehicles, and LED lighting. In fact, we have been so successful with the hybrid transportation developments that we have already sold out the
first production line in our new facility in our Simpsonville, South Carolina headquarters. This is the facility we constructed with the matching $15.1
million stimulus grant. Continuing on this path, we are looking to better understand how the smart electrical grid will be managed and how our capacitance
solutions can make our customers even more successful. In this area smart metering comes to mind first; however, while our products are already
involved with this application, it is clear that as the thought process around the smart grid develops, there will be significant further opportunities.
These new opportunities will span not just our custom power Film & Electrolytic products but our specialty Ceramic and Tantalum products as well.
We believe we will have the wherewithal to play a very active role in the equipment and controls needed to manage the flow of power and information
across the grid.
Beyond Green we continue to see opportunities where reliability and safety are critical success factors. For instance: extreme operating conditions
such as high temperatures present a particular challenge. An example is downhole drilling applications. In times past, 150°C used to be acceptable.
Now, our Ceramics team is developing products capable of dealing with temperatures reaching 300°C. These ceramic capacitor products are
representative of the shift in focus that, over the past few years, has enabled the Ceramics Business Unit to be a very strong contributor to our
improving financial results.
Furthermore, in electric vehicles, KEMET is the first capacitor manufacturer to offer a complete line of high voltage ceramic capacitors for electric
vehicle applications, electric vehicle charging applications and advanced automotive lighting applications. These are environments unheard of a few
years ago and speak volumes to the level of expertise and achievement we continue to see coming from our scientists in our Global Innovation
Centers.
The continued growth of custom applications in the Film & Electrolytic business, combined with successful restructuring initiatives, has ensured a
positive contribution to our financial results this fiscal year, by this business. We did speak to an objective last year, as to where we expected the
financial results by the F&E business to be, by March 2012. I’m pleased to say that we reached this stated objective a year early, in half the time.
And there is more improvement to come.
Our Tantalum Business Group continues to be our largest business and biggest contributor to our bottom line. As the market leader, we do understand
our challenges. The Tantalum Business continues to innovate, across the entire product spectrum, and I would like to specifically highlight our high
voltage and high capacitance organic polymer products. These products are focused and designed to address applications that require performance
beyond current capabilities; examples are demanding communications infrastructure applications and high reliability power supplies. As a leader in
polymer technology, we will continue to push the limits of this material set. We remain convinced that we will be able to be successful in this business
going forward, combining technology innovation, manufacturing process improvements and supply chain initiatives. And let us not forget that to date,
no one has been able to develop a capacitor with better volumetric efficiency than a Tantalum capacitor. Our challenge is to keep the material costs in
check, and over time I am convinced we will!
Beyond growth through product innovation we are also focusing on aspects of our business where we are under-represented. In the Americas and
Asia there are opportunities for growth beyond the general market for our Film & Electrolytic business. In the medical market this is also true, where the
ever-present challenges for miniaturization and reliability fit well with many of our new offerings. Suffice it to say, whether the opportunities for growth
are regional, market segment or application specific, we are leaving no rock unturned.
We continue to focus on improving our business capabilities through initiatives that all fall under the ‘One KEMET’ heading. The ‘One KEMET’ campaign
is all about ensuring that we as a company are totally focused on the same goals and working with the same processes and systems, committed
to a consistent quality and service level that our customers value and have come to expect from KEMET. This effort was launched to ensure that as
we continue to grow, we not only remain grounded in our core principles, but that we use these principles, operating procedures and systems as the
foundation from which to expand. These initiatives include our global Oracle software implementation which will be largely complete by the end of this
fiscal year, our lean and six sigma culture evolution and our global customer approach and systems.
At KEMET, we take considerable pride in our work. We are working with customers and developing products that truly make the world a better, safer
and more connected place to live. Without capacitors, planes, trains and cars cannot move us around; computers and phones cannot connect us;
respirators and cardiac defibrillators cannot save us. Simply put, without capacitors our world, in most aspects, would stop.
We have regained our momentum. We are committed to building value for our shareholders and that is best accomplished by focusing on markets and
applications that are growing and where innovative, reliable products and solutions are valued.
As always, I want to thank my KEMET colleagues. What has been achieved tells a truly remarkable story, and I am proud to be on this team. I also
want to thank our customers who never stopped believing in our company, and our investors for their support and the confidence they continue to
show. Our goal is to move KEMET from a Good Company to a Great Company. All of us at KEMET look forward to your continuing support during
this journey.
Sincerely,
Per-Olof Lööf
Chief Executive Officer
Board of Directors
Officers
Frank G. Brandenberg
Chairman
Former Corporate Vice President
& Sector President
Northrop Grumman Corporation
Dr. Wilfried Backes
Former Chief Financial Officer
EPCOS AG
Gurminder S. Bedi
Former Vice President
Ford Motor Company
Joseph V. Borruso
President
AOEM Consultants, LLC
Per-Olof Lööf
Chief Executive Officer
KEMET Corporation
E. Erwin Maddrey, II
Former President & Chief Executive Officer
Delta Woodside Industries
Robert G. Paul
Former President
Base Station Subsystems Unit
Andrew Corporation
Joseph D. Swann
Former President
Rockwell Automation Power Systems
Former Senior Vice President
Rockwell Automation
Per-Olof Lööf
Chief Executive Officer & Director
William M. Lowe, Jr.
Executive Vice President
& Chief Financial Officer
Conrado Hinojosa
Executive Vice President
Tantalum Business Group
Chuck Meeks, Jr.
Executive Vice President
Ceramic, Film & Electrolytic Business Group
Robert Argüelles
Senior Vice President
Operational Excellence & Quality
Marc Kotelon
Senior Vice President
Global Sales
Dr. Phil Lessner
Senior Vice President
Chief Technology Officer & Chief Scientist
R. James Assaf
Vice President
General Counsel & Secretary
Susan B. Barkal
Vice President of Quality
& Chief Compliance Officer
Daniel E. LaMorte
Vice President & Chief Information Officer
Larry C. McAdams
Vice President
Chief Human Resources Officer
Dr. Daniel F. Persico
Vice President
Strategic Marketing and Business Development
Michael W. Boone
Vice President & Treasurer
David S. Knox
Vice President & Corporate Controller
Key Subsidiaries
KEMET Electronics Corporation
2835 KEMET Way
Simpsonville, South Carolina 29681
USA
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.
15bis chemin des Mines
1202 Geneva
Switzerland
KEMET Electronics Marketing (S) Pte Ltd.
1 Scotts Road
#15-07/10 Shaw Centre
S(228208), Singapore
KEMET Electronics Portugal, S.A.
Rua Werner von Siemens 1
Evora
Portugal 7005-639
KEMET Electronics (Suzhou) Co., Ltd.
#99 Yang Pu Road
Suzhou Industrial Park
Suzhou, Jiangsu 215126
People’s Republic of China
KEMET Electronics Oy
Stella Business Park
Lars Sonckin kaari 16
02600 Espoo
Finland
KEMET Electronics Italia, S.r.l.
Via San Lorenzo, 19
40037 Sasso Marconi
Bologna
Italy
KEMET Electronics Limited
20 Cumberland Drive
Weymouth, Dorset DT4 9TE
United Kingdom
w w w . k e m e t . c o m
Countries listed below represent KEMET
operations throughout the world.
Focused on Growth
Financial Highlights
AMERICAS
EMEA
ASIA-PACIFIC
Canada
Mexico
USA
Bulgaria
Finland
France
Germany
Italy
Portugal
Sweden
Switzerland
United Kingdom
China
Hong Kong
India
Indonesia
Japan
Malaysia
Singapore
Taiwan
Corporate Profile
KEMET Corporation is The Capacitance Company. We offer our customers the broadest
selection of capacitor technologies in the industry, including tantalum, ceramic, aluminum,
electrolytic, film and paper. Our vision is to be the preferred supplier of capacitance solutions
for customers demanding the highest standards of quality, delivery and service.
Whether designing hand-held devices, automotive systems or the
greenest energy technology, companies around the world rely on KEMET.
Corporate Offices
KEMET Corporation
2835 KEMET Way
Simpsonville, SC 29681
USA
864.963.6300
©2011 KEMET. All rights reserved.
KEMET Electronics S.A.
15bis chemin des Mines
1202 Geneva
Switzerland
41.22.715.0100
KEMET Electronics Marketing (S) Pte Ltd.
73 Bukit Timah Road
#05-01 Rex House
Singapore 229832
65.6586.1900
Annual Report 2011
Fiscal years ended March 31 (dollars in thousands)
2009
2010
2011
Net sales
Adjusted operating income (loss)*
Adjusted EBITDA*
Cash and cash equivalents
Stockholders’ equity
$ 804,385
$ 736,335
$ 1,018,488
(31,803)
26,327
39,204
19,987
71,042
79,199
240,039
284,272
143,391
196,127
152,051
359,753
*Adjusted operating income (loss) and Adjusted EBITDA are reconciled to GAAP measures on pages 62 and 63 of the 2011 Form 10-K.
Net cash provided by operating
activities (in millions)
LTM Adjusted EBITDA
by quarter (FY11)**
(in millions)
Total debt
(in millions)
$120.0
$200.0
$350.0
90.0
60.0
30.0
0.0
’09 ’10 ’11
175.0
150.0
125.0
100.0
Q1 Q2 Q3 Q4
325.0
300.0
275.0
250.0
**A reconciliation of Last Twelve Months
(LTM) Adjusted EBITDA to net income by
quarter for fiscal year 2011 is included
in a Form 8-K filed on June 1, 2011.
’09 ’10 ’11
w w w . k e m e t . c o m