Electronic Components
Annual Report 2014
KEMET makes it possible.
In the air
In your hand
On the ground
Under the ground
In space
In the cloud
In your body
Tantalum Capacitor
Film Capacitor
Aluminum Capacitor
Ceramic Capacitor
w w w. ke m e t . c o m
Dear KEMET Shareholder,
KEMET Makes it Possible.
The past several years have been about executing a plan to achieve growth
and profitability. I am pleased to say that direction has served us well.
In July 2013, I led a KEMET Town Hall meeting and set profitability as our
main objective. This would be enabled by cost controls, a business focus on
high-margin, value-added specialty products, solidifying and expanding core
accounts, and our joint venture with NEC TOKIN Corporation. In each of these
areas, we saw significant progress:
• Net sales for fiscal year 2014 reached US $833.7 million, representing a $10 million increase in our
capacitor business.
• Free cash flow at $59.4 million.
• FY14 Adjusted EBITDA was $70.7 million; benefited by the discontinuation of operations of our former
Machinery division, this constituted an 18% increase over Adjusted EBITDA of $59.8 million reported
12 months earlier.
• From a low in the third quarter of FY 2013, net sales have shown a steady rise.
• Variable margin has recovered strongly since a low in Q1 FY 2014.
• Our overall cost structure improved by $15 million.
• Our ceramic capacitor operations exceeded the timeless model (GM >25%) for the fifth consecutive year.
Perhaps most gratifying of all, we ended FY 2014 with two profitable quarters (on a non-GAAP basis) in a
row while in a market environment that continued to be challenging due to relatively slow economic growth.
According to an old saying, “One flower does not make a summer; two is the beginning of a bouquet.”
The trend is positive, and we foresee adding to our “bouquet” in the quarters ahead; comparing the first half
to the second half of the fiscal year we grew 2% in revenue while Adjusted EBITDA grew 83%.
I mentioned the continuing slow to moderate economic growth in major markets around the world. It is very
gratifying to note that under these conditions, KEMET has outperformed the global capacitor industry and
has seen our market share increase in all four capacitor types.
I am pleased to report that net sales on a regional basis this past year reached equilibrium, with 31% in the
Americas, 35% in the Europe, Middle East and Africa markets, and 34% in Asia and the Pacific Rim. This
is important progress and I believe the continuing evolution of the NEC TOKIN joint venture will contribute
toward our Asia-centric strategy as it opens up the Japanese market for KEMET. The joint venture’s
progress also continues our transformation from being “The Capacitance Company” to being a leading
supplier of “Electronic Component” solutions, as we integrate selling the full range of NEC TOKIN products
globally through our sales force and distributor network. Ultimately, we estimate that this joint venture will
grow our total addressable market from $17 billion to $30 billion worldwide.
As important as our geographic mix is our vertical market mix. There, too, we are seeing a balance that
will protect us in the event of any single-industry downturn. Industrial products made up 24% of net sales,
followed closely by Automotive at 22%, Telecommunications at 18%, Computers at 15% and Defense/
Medical at 12%. Consumer products remained our smallest vertical market at 9%. Additionally, we have
strategically pursued increasing our presence in particularly high-value segments within those markets.
For example, identified trends project unusually high growth for industrial applications in LED lighting,
machine-to-machine communications and the “people-less” office. We are making sure that we will be
a major electronic component supplier for these trending applications in all verticals. Our sales team will
continue to focus on these industries to make the most of their possibilities.
This past year, we continued our efforts to vertically integrate our businesses in order to ensure supply and
decrease our cost of material. You may know that much of the world’s tantalum supply is sourced from the
Democratic Republic of Congo (DRC), a country which has been the scene of constant fighting between
rival factions for years. As one of the largest users of tantalum, KEMET saw an opportunity to develop a
comprehensive and sustainable solution for sourcing conflict-free tantalum ore from the DRC that integrates
both social and economic approaches that could act as a positive example for others. The goal was to build
a sustainable foundation that embraced lasting prosperity and security for all involved parties, as well as
demonstrate that solutions combining social sustainability and economic interests are not mutually exclusive.
On behalf of our entire KEMET family, I am proud to say that all of the tantalum raw materials used in our
capacitors are sourced from Electronic Industry Citizen Coalition/Global e-Sustainability Initiative Conflict-
Free Smelter Program validated smelters, and on June 2, 2014, we released our 2013 Conflict Minerals
Report, in which we identified our surface mount tantalum capacitors as “conflict free.” Our vertical
integration in this area has also had the practical benefit of giving us better long-term visibility into
tantalum cost trends and the development of next-generation powders.
Although our involvement in the DRC began with the desire to acquire tantalum from conflict-free mines,
it came to include helping the local miners and their families achieve a better life. With our support, the
Kisengo Foundation has implemented systems to provide clean drinking water, solar-powered lighting and
infrastructure improvements. Later this year, the Foundation will open a new hospital and a new school in
Kisengo. Every KEMET shareholder should be proud of what’s happening there thanks to our involvement.
The past few years have seen an emphasis on restructuring inside the Company to achieve efficiencies and
greater productivity at lower cost. This is near completion. It is time to get back to inventing and making
things, which is where our true value as a corporation lies. Certainly, everything we do must always tie
back to revenue generation and cost reduction. As I have often said, the math must work. But, the most
important tasks for the future are to develop and manufacture what the customer wants to buy and provide
an unparalleled customer experience as they buy it. In the time I have had the honor of being at KEMET,
I have always believed we possess a “secret sauce” that no other component supplier can match: a mix
of product selection and innovation; dedicated, emotionally-connected and customer-focused people; and
a culture that brings out the professional and personal best in every employee. I continue to believe this
secret sauce will propel us to greater and greater success, and create more possibilities for us and the
customers we support, in the years to come.
As always, I would like to thank our Customers for your continued belief in KEMET and for your business,
the Team at KEMET for your diligent focus, and our Shareholders for your continued support.
Per-Olof Loof
Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2014
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:
Common Stock, par value $0.01
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
____________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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.
No
Yes
Yes
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 (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
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, 2013,
computed by reference to the closing sale price of the registrant's common stock was approximately $182,411,910.
Number of shares of each class of common stock outstanding as of May 27, 2014: common stock, $0.01 par value,
45,362,350.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held July 24, 2014 are incorporated by reference in Part III of this report.
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
Index
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
EXECUTIVE OFFICERS OF THE REGISTRANT
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
SIGNATURES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
4
12
18
18
19
19
19
22
25
27
50
50
50
50
51
52
52
52
52
52
53
114
3
ITEM 1. BUSINESS
Background of Company
PART I
KEMET is a leading global manufacturer of a wide variety of capacitors. 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. 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 and 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. In fiscal year 2012, we acquired Cornell
Dubilier Foil, LLC (whose name was subsequently changed to KEMET Foil Manufacturing, LLC ("KEMET Foil")) and Niotan
Incorporated (whose name was subsequently changed to KEMET Blue Powder Corporation ("Blue Powder")) which has
allowed us to vertically integrate certain manufacturing processes within our two segments: our Film and Electrolytic Business
Group ("Film and Electrolytic") and our Solid Capacitors Business Group ("Solid Capacitors"). In fiscal year 2013, KEMET
Electronics Corporation ("KEC") acquired a 34% economic interest in NEC TOKIN Corporation ("NEC TOKIN") as
calculated based on the number of common shares held by KEC, directly and indirectly, in proportion to the aggregate number
of common and preferred shares of NEC TOKIN outstanding as of such date. The Company accounts for its investment in
NEC TOKIN using the equity method for a non-consolidated variable interest entity since KEC does not have the power to
direct significant activities of NEC TOKIN.
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 New York Stock Exchange ("NYSE") under the symbol "KEM".
General
Capacitors are electronic components that store, filter, and regulate electrical energy and current flow. As an essential
passive component used in most circuit boards, capacitors are typically used for coupling, decoupling, filtering, oscillating and
wave shaping and are used 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 (basically anything that plugs in or has a battery). Manufacturing a broad line of
capacitors in many different sizes and configurations using a variety of raw materials, our product offerings include tantalum,
multilayer ceramic, solid and electrolytic aluminum and film capacitors. Our product line consists of nearly 5 million distinct
part configurations distinguished by various attributes, such as dielectric (or insulating) material, configuration, encapsulation,
capacitance (at various tolerances), voltage, performance characteristics and packaging. Most of our customers have multiple
capacitance requirements, often within each of their products and our broad product offering allows us to meet the majority of
those needs independent of application and end use.
During fiscal years 2014, 2013 and 2012 we shipped 35 billion, 32 billion and 32 billion capacitors, respectively. We
believe the long-term demand for the various types of capacitors we offer will grow on a regional and global basis due to a
variety of factors, including increasing demand for and complexity of electronic products, growing demand for technology in
emerging markets and the ongoing development of new solutions for energy generation and conservation. We operate 21
production facilities in Europe, North America and Asia and employ 9,600 employees worldwide. Our customer base includes
most of the world's major electronics original equipment manufacturers ("OEMs") (including Alcatel-Lucent USA 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), electronics manufacturing services
providers ("EMSs") (including Celestica Inc., Flextronics International LTD, Jabil Circuit, Inc. and Sanmina-SCI Corporation)
and distributors (including TTI, Inc., Arrow Electronics, Inc. and Avnet, Inc.).
4
Our Industry
We manufacture capacitors in many different sizes and configurations including 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. We compete with others that manufacture and distribute
capacitors both domestically and globally and our success in the market is influenced by many factors, including price,
availability, engineering specifications, quality, breadth of offering, performance characteristics, customer service and
geographic location of our manufacturing sites. As in all manufacturing industries, there is ongoing pressure on average unit
selling prices for capacitors. To help mitigate this effect, KEMET as well as many of our larger competitors have relocated their
manufacturing operations to low cost regions and locations in closer proximity to our respective customers.
Solid Capacitors products are commonly used in conjunction with integrated circuits, and the same circuit may, and
frequently does, contain both ceramic and tantalum capacitors. Tantalum capacitors are a popular choice because of their ability
for high capacitance in a small volume package. Generally, ceramic capacitors are more cost-effective at lower capacitance
values, and tantalum capacitors are more cost-effective at higher capacitance values. Solid aluminum capacitors can be more
effective in special applications. Film, paper and aluminum electrolytic capacitors can be used to support integrated circuits, but
also are used in the field of power electronics to provide energy for applications such as motor starts, power conditioning,
electromagnetic interference filtering safety and inverters. Capacitors account for the largest market within the passive
component product grouping.
According to a March 2014 report entitled "Passive Electronic Components: World Market Outlook: 2014-2019" by
Paumanok Publications, Inc. ("Paumanok"), a market research firm concentrating on the passive components industry, the
global capacitor market in fiscal year 2014 (fiscal year ending March 2014) was estimated to be $18.3 billion in revenues and
1.59 trillion units. According to the Paumanok report, the global capacitor market is expected to improve substantially and
achieve revenue and unit volume increases of 24% and 29%, respectively, by fiscal year 2019. According to Paumanok, the
forecast of the capacitor industry for fiscal year 2014 and the expected growth to fiscal year 2019 are as follows (amounts in
billions):
Tantalum
Ceramic
Aluminum
Paper and plastic film
Other
Fiscal
Year 2014
Fiscal
Year 2019
$
$
1.9
9.6
4.1
2.0
0.7
18.3
$
$
2.4
11.8
5.0
2.6
0.9
22.7
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 alternative and renewable energy systems, hybrid
transportation systems, electronic controls for engines and industrial machinery, smart phones and mobile personal
computing devices;
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
5
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. One electronics distributor, accounted for over 10% of our
net sales in fiscal years 2014, 2013 and 2012. If our relationship with this customer were to terminate, we would need to
determine alternative means of delivering our products to the end-customers served by them. Our top 50 customers accounted
for 83.3% of our net sales during fiscal year 2014.
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
Automotive
Communications
Computer-related
Industrial
Consumer
Military/Aerospace
Alternative Energy
Products
Adaptive cruise control, high intensity discharge lamp, light emitting diode
electronic modules, lane departure warning, rearview camera systems, audio
systems, tire pressure monitoring, power train electronics, instrumentation,
airbag systems, anti-lock braking and stabilization systems, hybrid and electric
drive vehicles, electronic engine control modules, driver comfort controls, and
security systems
Smart phones, telephones, switching equipment, relays, base stations, and
wireless infrastructure
Personal computers (laptops, tablets, netbooks), workstations, servers,
mainframes, computer peripheral equipment, power supplies, disk drives, solid
state drives, printers, and local area networks
Electronic controls, measurement equipment, instrumentation, solar and wind
energy generation, and medical electronics
Digital media devices, game consoles, televisions and global positioning
systems
Avionics, radar, guidance systems, and satellite communications
Wind generation systems, solar generation systems, geothermal generation
systems, tidal generation systems and electric drive vehicles
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 because
approximately 45% of our external sales were to electronics distributors for fiscal year 2014.
KEMET in the United States
Our corporate headquarters is located in Simpsonville, South Carolina, which is part of the greater Greenville, South
Carolina metropolitan area. Individual functions continue to evolve to support global activities in Asia, Europe, and the
Americas, either from Greenville or through other locations in appropriate parts of the world.
Commodity manufacturing previously located in the United States has been substantially relocated to our lower-cost
manufacturing facilities in Mexico and China. Production that remains in the United States focuses primarily on early-stage
manufacturing of new products and other specialty products for which customers are predominantly located in North America.
In March 2012, we began 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.
On June 13, 2011, we completed the acquisition of KEMET Foil, a Tennessee based manufacturer of etched foils utilized
as a core component in the manufacture of electrolytic capacitors. On February 21, 2012, we completed the acquisition of all of
the outstanding shares of Blue Powder, a leading manufacturer of tantalum powders. Blue Powder had been a significant
supplier of tantalum powder to KEMET for several years. Blue Powder's principal operating location is in Carson City, Nevada.
To accelerate the pace of innovations, the KEMET Innovation Center for Solid Capacitors was created in July 2003. The
primary objectives of the KEMET Innovation Center are to ensure the flow of new product platforms, material sets, and
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.
6
KEMET in Mexico
We believe our operations in Mexico 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 Solid Capacitors. One of the strengths of
KEMET Mexico is that it is a local operation, including local management and workers. These facilities are responsible for
maintaining KEMET's tradition of excellence in quality, service, and delivery, while driving costs down. The facilities in
Victoria and Matamoros are focused primarily on tantalum capacitors, while the facilities in Monterrey are focused on ceramic
capacitors.
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 Suzhou, China. 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. In fiscal year 2012, as part of our restructuring plan,
we began to reduce the operations at the Nantong, China plant and relocate its operations to Suzhou, China. During fiscal year
2013 we closed operations in Nantong, China. With the Arcotronics acquisition, which was completed in October 2007, we
further expanded our presence in China with a manufacturing operation in Anting, China. These operations will continue to
support customers 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 second facility in Suzhou, China and during the second quarter of fiscal year
2012, we began production of Electrolytic products in a third facility in Suzhou, China. 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 local operation, with local management and workers, to help achieve our
objective of being a global company. These facilities will be responsible for maintaining our tradition of excellence in quality,
service, and delivery, while accelerating cost-reduction efforts and supporting efforts to grow our customer base in Asia.
KEMET in Europe
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 provided us with manufacturing operations in Europe. We currently have one
or more manufacturing locations in each of the following countries: Bulgaria, Finland, Germany, Italy, Macedonia, Portugal,
and Sweden. In addition, we operate product innovation centers in the United Kingdom, Italy, Germany and 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.
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, the Middle East and Africa
("EMEA") is organized into three areas, also supported by regional offices. The APAC sales staff is organized into three areas,
and is also supported by regional offices. We also have independent sales representatives located in seven countries worldwide
including: Brazil, Israel, Canada, and the United States.
In our major markets, we market and sell our products primarily through a direct sales force. With a global sales
organization that is customer-focused, our direct sales personnel from around the world serve on KEMET Global Account
Teams committed to serving any customer location in the world with a dedicated KEMET representative.The traditional sales
team is supported by regional Field Application Engineers who are experts in electronic engineering and market all of
KEMET's products by assisting customers with the resolution of capacitor application issues. We believe our direct sales force
creates a distinct advantage in the marketplace by enabling us to establish and maintain strong relationships with our customers
to efficiently process simple repeat business as well as to consult with customers on new and technically complex custom
applications. In addition, where appropriate, we use independent commissioned representatives. 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 45%, 46%, and
45% of our net sales in fiscal years 2014, 2013 and 2012, respectively. A portion of our net sales is made to distributors under
7
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.
Sales by Geography
In fiscal years 2014 and 2013, net sales by region were as follows (dollars in millions):
Americas
APAC
EMEA
Total
Fiscal Year 2014
Net Sales
% of
Total
$
$
262.9
282.3
288.5
833.7
31% Americas
34% APAC
35% EMEA
Total
Fiscal Year 2013
Net Sales
% of
Total
$
$
244.9
294.5
284.5
823.9
30%
36%
34%
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 Americas are the lowest
of the three regions, the Americas 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
Our customers often encounter uncertain or changing demand for their products. They historically order products from us
based on their forecast and 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 not a meaningful trend indicator for
us.
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.
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, Matsushita Electric Industrial Company, Ltd. (Panasonic),
Murata Manufacturing Co., Ltd., Sanyo Electric Co., Ltd., Samsung, Taiyo Yuden Co., Ltd., TDK-EPC Corporation,
WIMA GmbH & Co., KG and Vishay Intertechnology, Inc. ("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, tantalum ore, palladium,
aluminum and silver. These materials are considered commodities and are subject to price volatility. Additionally, any delays in
obtaining raw materials could hinder our ability to manufacture our products, negatively impacting our competitive position
and our relationships with customers.
Tantalum is a metal found in minerals such as tantalite, columbite and coltan, and is mined principally in Central Africa,
Australia, Brazil, Canada and Mozambique. As a result of our tantalum vertical integration program which began in fiscal year
2012, we have reduced our exposure to price volatility and supply uncertainty in the tantalum supply chain. A majority of our
tantalum needs are now met through our direct sourcing of conflict free tantalum ore or tantalum scrap reclaim, which is then
processed into the intermediate product potassium heptafluorotantalate (commonly known as K-salt) at our own facility in
Mexico, before final processing into tantalum powder at Blue Powder. Price increases for tantalum ore, or for the remaining
tantalum powder that we source from third parties, could impact our financial performance as we may be unable to pass all
such price increases on to our customers.
8
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 2014 the price
of palladium fluctuated between $640 to $792 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, could, however, have an adverse effect on our profitability.
Patents and Trademarks
At March 31, 2014, we held the following number of patents and trademarks:
United States
Foreign
Patents
Trademarks
113
42
7
98
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 $24.5 million, $26.9 million and $27.8 million for fiscal years 2014, 2013 and
2012, 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 two business groups: Solid Capacitors 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,
marketing and corporate functions are shared by each of the business groups. See Note 9, "Segment and Geographic
Information" to our consolidated financial statements.
Solid Capacitors Business Group
Solid Capacitors operates nine capacitor manufacturing sites in Portugal, Mexico, China and a product innovation center
in the United States and primarily produces tantalum, aluminum, polymer and ceramic capacitors which are sold globally.
Solid Capacitors also produces tantalum powder used in the production of tantalum capacitors. Solid Capacitors employs over
6,850 employees worldwide. For fiscal years 2014, 2013 and 2012, Solid Capacitors had consolidated net sales of $626.5
million, $622.3 million and $630.8 million, respectively.
We continue to make significant investments in tantalum production within Solid Capacitors 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. On February 21, 2012, we acquired Blue Powder which we believe is the largest production
facility for tantalum powder in the western hemisphere.
Our tantalum product line'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.
Our ceramic product line 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.
9
Our ceramic product line 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.
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. On June 13, 2011, we completed the acquisition of KEMET Foil,
which manufactures etched foils utilized as a core component in the manufacture of electrolytic capacitors. For fiscal years
2014, 2013 and 2012, our Film and Electrolytic Business Group had consolidated net sales of $207.2 million, $201.6 million
and $293.3 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 twelve film and electrolytic
manufacturing sites throughout Europe, Asia and the United States and product innovation centers in the United Kingdom,
Italy, Germany and Sweden. In June 2011, we began 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. Our Film and Electrolytic
Business Group employs approximately 2,350 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 fiscal year 2016; 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 July 2010, we relocated
our Netherlands distribution facility 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 shipments. Our European
manufacturing plants will continue to ship direct to 'local' customers (customers located in the same country as the plant). In
November 2011, we reached an agreement with labor unions in Italy to continue the restructuring process in Italy by
consolidating three existing plants into a single new facility in Pontecchio, Italy. We began manufacturing from Pontecchio,
Italy in the fourth quarter of fiscal year 2014. Production within one other manufacturing facility in Italy is expected to move
to Pontecchio in the first quarter of fiscal year 2015. During the remainder of the restructuring plan, we expect to incur charges
of $10.7 million for relocation, severance and other restructuring related costs in Film and Electrolytic. The two legacy
facilities in Italy are currently being marketed for sale but do not meet accounting guidelines to be classified as 'held for sale' as
the facilities are not available for immediate sale. We expect the restructuring plan to result in a $5.3 million reduction in our
operating cost structure in Europe in fiscal year 2015 compared to fiscal year 2014 and anticipate that benefits from the
restructuring plan will continue to improve during fiscal year 2016.
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 Citizen Coalition ("EICC") Code of Conduct. The
EICC 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.
10
Policies, programs, and procedures implemented throughout KEMET ensure compliance with legal and regulatory
requirements, the content of the EICC 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. We fully support the
position of the EICC, the Global e-Sustainability Initiative ("GeSI"), the Electronic Components Industry Association ("ECIA")
and the Tantalum-Niobium International Study Center ("TIC") in avoiding the use of conflict minerals which directly or
indirectly finance or benefit armed groups in the Democratic Republic of Congo or adjoining countries, in line with full
compliance to the EICC Code of Conduct. Our tantalum supply base has been and continues to be validated as being sourced
conflict free. All of our tantalum raw material providers have been validated as compliant to the EICC/GeSI Conflict Free
Smelter Program ("CFSP") program. This policy and validation requirement has been implemented for all conflict minerals. We
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 Congo or adjoining countries. We will continue to work through
the EICC, GeSI, ECIA and TIC towards the goal of greater transparency in the supply chain.
Summary of Activities to Develop a Transparent Supply Chain
We have been involved in developing a transparent supply chain. We are a member of the EICC/GeSI working group that
developed the CFSP assessment protocols and participated in the pilot implementation phase of the Organization for Economic
Cooperation and Development Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and
High-Risk Areas. We will rely on the EICC/GeSI Conflict-Free Smelter Program independent third party audits to supplement
our internal due diligence of conflict mineral suppliers and are monitoring the progress of these audits to ensure our supply
chain is conflict free. We fully support section 1502 "Conflict Minerals" of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 and will comply with all reporting requirements.
Employees
We have approximately 9,625 employees as of March 31, 2014 in the following locations:
Mexico
Asia
Europe
United States
5,250
2,100
1,700
575
The number of employees represented by labor organizations at KEMET locations in each of the following countries is:
Mexico
Italy
Bulgaria
Indonesia
China
Finland
Portugal
4,300
300
100
200
100
200
100
In fiscal year 2014, 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) of the Exchange Act. These include annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and beneficial ownership reports on Forms 3, 4 and 5. 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.
11
Global Code of Conduct and updated Mission, Vision and Values
To complement KEMET's Global Code of Conduct ("Code of Conduct"), which became effective August 1, 2010,
KEMET introduced updated mission and vision statements along with a set of core values in June 2011. KEMET's Mission is
to help make the world a better, safer, more connected place to live. KEMET's Vision is to be the world's most trusted partner
for innovative component solutions. KEMET's updated Values embody the key expectations of how our employees should
approach the work they do every day: One KEMET, Unparalleled Customer Experience, Ethics and Integrity, Talent Oriented,
No Politics, The Math Must Work and Speed. The Global Code of Conduct and updated Mission, Vision and Values are
applicable to all employees, officers, and directors of the Company. The Code of Conduct, Mission, Vision and Values and any
amendments thereto are 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 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 our 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) continued net losses could impact our ability to realize current operating
plans and could materially adversely affect our liquidity and our ability to continue to operate; (iii) adverse economic
conditions could cause the write down of long-lived assets or goodwill; (iv) an increase in the cost or a decrease in the
availability of our principal or single-sourced purchased materials; (v) changes in the competitive environment; (vi) uncertainty
of the timing of customer product qualifications in heavily regulated industries; (vii) economic, political, or regulatory changes
in the countries in which we operate; (viii) difficulties, delays or unexpected costs in completing the restructuring plan;
(ix) equity method investment in NEC TOKIN expose us to a variety of risks; (x) acquisitions and other strategic transactions
expose us to a variety of risks; (xi) inability to attract, train and retain effective employees and management; (xii) inability to
develop innovative products to maintain customer relationships and offset potential price erosion in older products;
(xiii) exposure to claims alleging product defects; (xiv) the impact of laws and regulations that apply to our business, including
those relating to environmental matters; (xv) the impact of international laws relating to trade, export controls and foreign
corrupt practices; (xvi) volatility of financial and credit markets affecting our access to capital; (xvii) the need to reduce the
total costs of our products to remain competitive; (xviii) potential limitation on the use of net operating losses to offset possible
future taxable income; (xix) restrictions in our debt agreements that limit our flexibility in operating our business; and
(xx) 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.
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
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 which we cannot predict could cause a shortfall in net cash generated from
operations. As an example, the electronics industry is a highly cyclical industry with demand for capacitors reflecting the
demand for products in the electronics market. Customers' requirements for our capacitors fluctuate as a result of changes in
12
general economic activity and other factors that affect the demand for their end-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 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.
A single customer accounted for over 10% of our net sales in fiscal years 2014, 2013 and 2012. If our relationship with
this customer were to terminate, we would need to determine alternative means of delivering our products to the end-customers
served by them.
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 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.
Continued net losses could impact our ability to realize current operating plans and could materially adversely affect
our liquidity and our ability to continue to operate.
Our liquidity and ability to realize our current operating plans is dependent on an improvement in operating results. If
cash generated from operating, investing and financing activities is insufficient to pay for operating requirements and to cover
payment obligations under debt instruments, planned operating and capital expenditures may need to be reduced, or the debt
instruments may need to be amended or refinanced. There can be no assurances that we would be able to secure such
amendments or refinancing on satisfactory terms.
However, to provide financial flexibility, we could explore further extending our revolving line of credit and if
necessary the sale of certain non-core assets. There can be no assurances that we would be successful in either of these strategic
initiatives. Our ability to realize current operating plans is also dependent upon meeting our payment obligations and
complying with any applicable financial covenants under our debt agreements.
Adverse economic conditions could cause the write down of long-lived assets or goodwill.
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. In fiscal year 2014, we incurred charges totaling $4.5 million for the write down of long-lived assets. If the economic
conditions decline we could incur additional charges in the future.
Goodwill is reviewed for impairment annually and whenever events or changes in circumstances indicate that the
carrying amount of goodwill may not be recoverable. In the event that the test shows that the carrying value of goodwill 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. If the economic conditions decline we could incur additional
charges in the future.
An increase in the cost or decrease in the availability of our principal or single-sourced purchased materials could
adversely affect profitability.
The principal raw materials used in the manufacture of our products are tantalum powder, tantalum ore, palladium,
aluminum and silver. These materials are considered commodities and are subject to price volatility. Additionally, any delays in
obtaining raw materials could hinder our ability to manufacture our products, negatively impacting our competitive position
and our relationships with customers.
Tantalum is a metal found in minerals such as tantalite, columbite and coltan, and is mined principally in Central Africa,
Australia, Brazil, Canada and Mozambique. As a result of our tantalum vertical integration program which began in fiscal year
2012, we have reduced our exposure to price volatility and supply uncertainty in the tantalum supply chain. A majority of our
tantalum needs are now met through our direct sourcing of conflict free tantalum ore or tantalum scrap reclaim, which is then
processed into the intermediate product potassium heptafluorotantalate (commonly known as K-salt) at our own facility in
Mexico, before final processing into tantalum powder at Blue Powder. Price increases for tantalum ore, or for the remaining
tantalum powder that we source from third parties, could impact our financial performance as we may be unable to pass all
such price increases on to our customers.
13
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 subject to significant price fluctuations driven by market demand For instance, in fiscal year 2014 the price of
palladium fluctuated between $640 to $792 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, could, however, have an adverse effect 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
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 Film and Electrolytic. However, any anticipated benefits of this restructuring activity will not be fully realized until fiscal
year 2016. Since its initiation, the restructuring plan has been expanded to all business groups and 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.
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, possible inconsistencies in standards, controls and procedures and potential difficulty in
meeting customer demand in the event the market dramatically improves. 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.
The financial performance of our equity method investment in NEC TOKIN could adversely impact our results of
operations.
On February 1, 2013, we closed on KEC's investment in a 34% economic interest in NEC TOKIN with the purchase of
51% of the common stock in NEC TOKIN. The 34% economic interest is calculated based on the number of common shares
held by KEC, directly and indirectly, in proportion to the aggregate number of common and preferred shares of NEC TOKIN
outstanding as of such date. These businesses are subject to laws, regulations or market conditions, or have risks inherent in
their operations, that could adversely affect their performance. We do not have the power to direct significant activities of our
equity method investments and therefore the performance of the investment may be negatively impacted. The interests of our
partners may differ from the Company's, and they may cause such entities to take actions which are not in the Company's best
14
interest. Any of these factors could adversely impact our results of operations and the value of our investment. In fiscal years
2014 and 2013 we incurred a loss on our equity investment in NEC TOKIN of $7.1 million and $1.3 million, respectively.
Acquisitions and other strategic transactions expose us to a variety of operational and financial risks.
Our ability to realize the anticipated benefits of acquisitions depends, to a large extent, on our ability to integrate the
acquired companies with our own. The attention and resources devoted to these efforts, which may disrupt the business of each
of the companies and, if executed ineffectively, could preclude realization of the full benefits we expect. Failure to realize the
anticipated benefits of our acquisitions could cause an interruption of, or a loss of momentum in, the operations of the acquired
company. In addition, the efforts required to realize the benefits of our acquisitions may result in material unanticipated
problems, expenses, liabilities, competitive responses, loss of customer relationships, the diversion of management's attention,
and may cause our stock price to decline. The risks associated with such acquisitions and other strategic transactions include:
•
•
•
•
•
•
•
•
difficulties in integrating or retaining key employees of the acquired company;
difficulties in integrating the operations of the acquired company, such as information technology resources, and
financial and operational data;
entering geographic or product markets in which we have no or limited prior experience;
difficulties in assimilating product lines or integrating technologies of the acquired company into our products;
disruptions to our operations;
diversion of our management's attention;
potential incompatibility of business cultures; and
the assumption of debt and other liabilities, both known and unknown.
Many of these factors will be outside of our control, and any one of them could result in increased costs, decreases in the
amount of expected revenues and diversion of management's time and energy.
Additionally, we may finance acquisitions or future payments with cash from operations, additional indebtedness and/or
the issuance of additional securities, any of which may impair the operation of our business or present additional risks, such as
reduced liquidity or increased interest expense. Such acquisition financing could result in a decrease of our ratio of earnings to
fixed charges. We may also seek to restructure our business in the future by disposing of certain of our assets, which may harm
our future operating results, divert significant managerial attention from our operations and/or require us to accept non-cash
consideration, the market value of which may fluctuate.
Failure to implement our acquisition strategy, including successfully integrating acquired businesses, could have an
adverse effect on our business, financial condition and results of operations.
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.
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 characterized 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 order to offset 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.
15
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 customer and distributor agreements are designed to limit our exposure to potential material product defect
claims, including warranty, indemnification, waiver and limitation of liability provisions, but such 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 insurance program 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 conflict minerals and
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 conflict minerals, 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.
On August 22, 2012, the SEC adopted a new reporting rule requiring issuers for whom tantalum, tin, tungsten and gold
are necessary to the functionality or production of a product manufactured by such person to disclose annually whether any of
those minerals originated in the Democratic Republic of the Congo or an adjoining country. As defined by the SEC, tantalum,
tin, tungsten and gold are commonly referred to as “conflict minerals” or “3TG”. If an issuer’s conflict minerals originated in
those countries, the rule requires the issuer to submit a report to the Commission that includes a description of the measures it
took to exercise due diligence on the conflict minerals’ source and chain of custody. We use tantalum, tin and to a lesser degree
other of the 3TG minerals, in our production processes and in our products. The first such report is due by June 2, 2014 (the
first business day after the filing deadline of May 31, 2014). Our tantalum supply base has been and continues to be validated
as being sourced conflict free. All of our processed tantalum material providers have been validated as compliant with the
EICC/GeSI Conflict-Free Smelter Program ("CFSP"). As this program expands and gains maturity in the supply chain the
validation requirement is being applied to suppliers of other conflict minerals. We have exercised due diligence on the source
and chain of custody during the reporting period and as required under the rule and will disclose a description of these
measures in a special disclosure prior to the filing deadline. However, the rule may cause changes to the pricing of 3TG
minerals, which could adversely affect our profitability. In addition, it is possible that some of our disclosures pursuant to the
rule related to our inquiries and supply chain custody diligence could cause reputational harm and cause the company to lose
customers or sales.
In addition, 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.
16
Our international sales and operations are subject to applicable laws relating to trade, export controls and foreign
corrupt practices, the violation of which could adversely affect our operations.
We must comply with all applicable export control laws and regulations of the United States and other countries. United
States laws and regulations applicable to us include the Arms Export Control Act, the International Traffic in Arms Regulations
("ITAR"), the Export Administration Regulations ("EAR") and the trade sanctions laws and regulations administered by the
United States Department of the Treasury's Office of Foreign Assets Control ("OFAC"). EAR restricts the export of dual-use
products and technical data to certain countries, while ITAR restricts the export of defense products, technical data and defense
services. The U.S. government agencies responsible for administering EAR and ITAR have significant discretion in the
interpretation and enforcement of these regulations. We also cannot provide services to certain countries subject to United
States trade sanctions unless we first obtain the necessary authorizations from OFAC. In addition, we are subject to the Foreign
Corrupt Practices Act and other anti-bribery laws that, generally, bar bribes or unreasonable gifts to foreign governments or
officials.
Violations of these laws or regulations could result in significant additional sanctions including fines, more onerous
compliance requirements, more extensive debarments from export privileges, loss of authorizations needed to conduct aspects
of our international business and criminal penalties and may harm our ability to enter contracts with customers who have
contracts with the U.S. government. A violation of the laws or the regulations enumerated above could materially adversely
affect our business, financial condition and results of operations.
Volatility of financial and credit markets could affect our access to capital.
The 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 capacitors. 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. If Section 382 applies, the post-ownership change utilization of our net operating losses
may be subject to limitation for federal income tax purposes related to regular and alternative minimum tax. 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 income taxes and adversely affect our liquidity and
financial position.
We do not believe we have experienced an ownership change to date. However, the Section 382 rules are complex and
there is no assurance our view is correct. For example, the issuance of a warrant (the "Platinum Warrant") in May 2009 to K
Financing, LLC ("K Financing"), in connection with the entry into a credit facility (the "Platinum Credit Facility") with K
Financing, may be deemed to have resulted in 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 post-ownership change taxable income that could be offset by
our pre-ownership change net operating loss carryforwards would be severely limited. While we believe 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.
17
Even if we have not experienced an ownership change to date, we could experience an ownership change in the near
future if there are certain significant purchases of our common stock or other events outside our control.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
The agreement governing our revolving credit facility and the indenture governing the notes and certain of our other debt
agreements contain various covenants that, subject to exceptions, limit our ability 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 lines of business. The agreement governing our 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 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 on May 5, 2009, 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. As of March 31, 2014, 8,416,815 shares remain 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 15.7% 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 from making tender offers for our shares, which could prevent
stockholders from receiving a premium for their shares. These actions may 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
We are headquartered in Simpsonville, South Carolina, and have a total of 21 manufacturing plants (two facilities contain
manufacturing operations for both Solid Capacitors and Film and Electrolytic) located in North America, Europe and Asia.
Some of our plants manufacture products for multiple business groups. Our existing manufacturing and assembly facilities have
approximately 3.4 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 North America, Europe
and Asia. Our operations in Mexico, Europe and Asia, 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.
18
The following table provides certain information regarding our principal facilities:
Location
Simpsonville, South Carolina U.S.A.
Solid Capacitor Business Group
Matamoros, Mexico(1)
Monterrey, Mexico(2)
Suzhou, China(2)(3)
Ciudad Victoria, Mexico
Evora, Portugal(3)
Carson City, Nevada U.S.A.
Film and Electrolytic Business Group
Evora, Portugal(3)
Suzhou, China(3)
Skopje, Macedonia
Granna, Sweden
Suomussalmi, Finland
Batam, Indonesia
Knoxville, Tennessee U.S.A.
Kyustendil, Bulgaria
Landsberg, Germany
Pontecchio, Italy(4)
Weymouth, United Kingdom
Anting, China
Farjestaden, Sweden
Square
Footage
(in thousands)
Type of
Interest
Description of Use
372
Owned
Headquarters, Innovation Center, Advanced
Tantalum Manufacturing and Film Manufacturing
341
532
353
265
140
87
93
134
126
132
106
86
78
82
81
226
96
38
28
(1)
(1)
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing and Innovation Center
Manufacturing
Innovation Center
Manufacturing
Manufacturing and Innovation Center
_______________________________________________________________________________
1.
2.
3.
4.
Includes two manufacturing facilities, one owned and one leased facility. The leased facility processes raw materials.
Includes two manufacturing facilities.
Facility contains manufacturing operations for both Solid Capacitors and Film and Electrolytic, square footage noted
relates to portion of each plant used by the respective business group.
We began manufacturing in Pontecchio, Italy in the fourth quarter of fiscal year 2014. This facility replaced the Sasso
Marconi, Monghidoro and Vergato facilities, each in Italy.
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. MINE SAFTETY DISCLOSURES.
Not applicable.
19
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
Per-Olof Lööf
Age
Position
63 Chief Executive Officer and Director
William M. Lowe, Jr.
61 Executive Vice President and Chief Financial Officer
Charles C. Meeks, Jr.
52 Executive Vice President, Solid Capacitor Business Group
Susan B. Barkal
John J. Drabik
51 Senior Vice President Quality, Chief Compliance Officer and Chief of Staff
40 Senior Vice President Global Sales
Dr. Phillip M. Lessner
55 Senior Vice President and Chief Technology Officer
Robert S. Willoughby
53 Vice President, Film and Electrolytic Business Group
R. James Assaf
54 Senior Vice President, General Counsel and Secretary
Michael L. Raynor
48 Vice President and Corporate Controller
Richard J. Vatinelle
50 Vice President and Treasurer
_______________________________________________________________________________
Years with
Company
9
6
30
14
17
18
28
6
6
1
Executive Officers
Per-Olof Lööf, Chief Executive Officer and Director, was named such in April 2005. Mr. Lööf was previously the
Managing Partner of QuanStar Group, LLC, a management consulting firm and had served in such capacity since December
2003. Prior thereto, 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. Lööf serves as a board member of
Global Options, Inc. Mr. Lööf also serves on several charity boards including Boca Raton Regional Hospital and the
International Centre for Missing & Exploited Children. 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 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
B.S. degree in business administration with a major in accounting from Tri-State University and is a Certified Public
Accountant in the state of Ohio.
Charles C. Meeks, Jr., Executive Vice President, Solid Capacitor Business Group, was named such in May 2013. He joined
KEMET in December 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, Senior Vice President,
Ceramic and Film and Electrolytic Business Group in March 2010 and Executive Vice President Ceramic and Film and
Electrolytic Business Group in May 2011 prior to his appointment to his current position. 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, Senior Vice President Quality, Chief Compliance Officer and Chief of Staff, was named such in
February 2014. Ms. Barkal joined KEMET in November 1999, and has served as Quality Manager for the Tantalum Business
Group (now a part of Solid Capacitors), Technical Product Manager for all Tantalum product lines and Director of Tantalum
Product Management. Ms. Barkal was appointed Vice President of Quality and Chief Compliance Officer in December 2008
prior to her appointment to her current position. 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.
John J. Drabik, Senior Vice President-Global Sales, was named such in May 2013. He joined KEMET in 1997 and has
held various positions of increased responsibility in Sales and Product Management, including District Sales Manager, Area
Sales Manager, Ceramic Product Manager, Director of Product Management - Ceramic Business Group and, from August 2007
20
through April, 2013, Vice President Sales-Americas. He holds a Bachelor of Science in Management with a minor in Marketing
from Purdue University and is a 2007 graduate of the KEMET Leadership Forum.
Dr. Philip M. Lessner, Senior Vice President and Chief Technology Officer, was named such in February 2014. He
joined KEMET in March 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 and Vice President Tantalum Technology. Dr. Lessner was named
Vice President, Chief Technology Officer and Chief Scientist in December 2006, Senior Vice President, Chief Technology
Officer and Chief Scientist in May 2011 and Senior Vice President and Chief Technology and Marketing Officer in November
2012 prior to his appointment to his current position. Dr. Lessner received a PhD in Chemical Engineering from the University
of California, Berkeley and a Bachelor of Engineering in Chemical Engineering from Cooper Union.
Robert S. Willoughby, Vice President-Film and Electrolytic Business Group, was named such in May 2013. He joined
KEMET in December 1985 and has held positions of increasing responsibility in Diagnostic, Quality, New Product and Process
Engineering. Mr. Willoughby served as Director - Ceramic Operations from July 2007 until March 2010 and served as Vice
President of Operations - Film and Paper Business Unit from March 2010 until May 2013. He holds a Bachelor of Science
degree in Industrial Engineering from Clemson University and is a 2007 graduate of the KEMET Leadership Forum.
Other Key Employees
R. James Assaf, Senior Vice President, General Counsel and Secretary, was named such in February 2014. Mr. Assaf
joined KEMET as Vice President, General Counsel in March 2008, and was appointed Vice President, General Counsel and
Secretary in July 2008 prior to his appointment to his current position. Before 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 L. Raynor, Vice President and Corporate Controller, was named such in November 2012. Mr. Raynor joined
the Company in July 2007 as the Assistant Corporate Controller; in November of 2008 Mr. Raynor was named Director of
Financial Planning & Analysis prior to his appointment to his current position. Prior to joining KEMET, Mr. Raynor held
various controller level positions with distribution and manufacturing companies. Mr. Raynor received a Bachelor of Arts
degree in Economics and a Masters of Accounting from the University of North Carolina at Chapel Hill and is a Certified
Public Accountant in the state of North Carolina.
Richard J. Vatinelle, Vice President and Treasurer, was named such in March 2014. Mr. Vatinelle joined the Company
in November 2012 as Controller - Tantalum Business Group. Prior to joining KEMET, Mr. Vatinelle served for two years as
Regional Controller - Latin America for Leo Pharma A/S, a global manufacturer of pharmaceutical products. From 2007 to
2009 he served as Director of Finance, Policies and Reporting, for Stiefel Laboratories, a pharmaceutical company specialized
in dermatology. Mr. Vatinelle’s career in finance includes eight years with Conagra Foods Inc., where he held various
international finance roles, and eleven years with Banque Sudameris, an international banking group where he began his career.
Mr. Vatinelle holds a Bachelor of Science degree in Finance and International Management from Georgetown University.
21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Market for Common Stock of the Company
Our common stock trades on the NYSE under the ticker symbol "KEM" (NYSE: KEM). We had 158 stockholders of
record as of May 23, 2014. The following table represents the high and low sale prices of our common stock for the periods
indicated:
Quarter
First
Second
Third
Fourth
Dividend Policy
Fiscal Year 2014
Fiscal Year 2013
High
Low
High
Low
$
$
6.83
4.98
6.22
6.41
$
4.00
3.93
4.07
5.11
$
9.63
6.26
5.20
6.94
5.38
4.36
3.75
4.94
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. In addition, we are restricted from paying cash dividends under the terms of the 10.5% Senior Notes
Indenture. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources."
22
PERFORMANCE GRAPH
The following graph compares our cumulative total stockholder return for the past five fiscal years, beginning on
March 31, 2009, with the Russell 3000 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,
Littelfuse, Inc. and Vishay Intertechnology, Inc.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among KEMET Corporation, the Russell 3000 Index,
and a Peer Group
_______________________________________________________________________________
*
$100 invested on 3/31/09 in stock or index, including reinvestment of dividends.
Fiscal year ending March 31.
RETURNS
Years Ending March 31,
KEMET Corporation
Russell 3000
Peer Group
3/09
100.00
100.00
100.00
3/10
571.43
152.44
112.93
3/11
2,017.69
117.41
162.84
3/12
1,273.47
107.19
139.22
3/13
850.34
114.57
143.94
3/14
790.48
137.76
501.78
23
Unregistered Sales of Equity Securities
We did not sell any of our equity securities during fiscal year 2014 that were not registered under the Securities Act of
1933, as amended (the "Securities Act").
Repurchase of Equity Securities
We did not repurchase any of our equity securities during the three months ended March 31, 2014.
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, 2014:
Plan category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
(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))
1,733,559
—
1,733,559
$
$
9.87
—
9.87
1,666,620
—
1,666,620
24
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 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 future financial condition or results of operations (see Item 1A, "Risk Factors")
(amounts in thousands except per share amounts):
Income Statement Data: (2)
Net sales
Operating income (loss)
Interest income
Interest expense
Income (loss) from continuing operations (3)
Income (loss) from discontinued operations
Net income (loss)
Per Share Data:
Net income (loss) per basic share:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Net income (loss) per diluted share:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Balance Sheet Data:
Total assets
Working capital
Long-term debt, less current portion(4)
Other non-current obligations
Stockholders' equity(3)
Other Data:
$
$
$
$
$
$
$
$
Fiscal Years Ended March 31,
2014
2013
2012(1)
2011
2010
$
833,666
(18,211)
(195)
40,962
(64,869)
(3,634)
(68,503)
823,903
(35,080)
(139)
41,331
(78,512)
(3,670)
(82,182)
$
924,052
$
986,480
$
714,265
28,083
(175)
28,567
(2,350)
9,042
6,692
123,891
(218)
30,175
58,175
4,869
63,044
6,223
(188)
26,008
(70,842)
1,395
(69,447)
(1.44) $
(0.08) $
(1.52) $
(1.44) $
(0.08) $
(1.52) $
(1.75) $
(0.08) $
(1.83) $
(1.75) $
(0.08) $
(1.83) $
(0.05) $
$
0.21
0.16
$
(0.04) $
$
0.17
0.13
$
$
$
$
$
$
$
1.95
0.16
2.11
1.13
0.09
1.22
(2.63)
0.05
(2.58)
(2.63)
0.05
(2.58)
884,309
$
740,961
843,667
$
911,591
$
980,862
233,744
391,292
55,864
221,884
261,945
372,707
69,022
276,916
396,494
345,380
101,229
358,996
316,605
231,215
59,727
359,753
226,600
231,629
55,626
284,272
54,620
12,921
21,639
Cash flow provided by (used in) operating activities
$
Capital expenditures
Research and development
(6,746) $
32,147
(22,827) $
46,174
24,466
26,876
80,730
$
113,968
$
49,314
27,765
34,989
24,597
_______________________________________________________________________________
(1)
(2)
(3)
In fiscal year 2012, the Company acquired KEMET Foil on June 13, 2011 and Blue Powder on February 21, 2012.
All periods have been revised due to the classification in fiscal year 2014 of the machinery division as a discontinued
operation.
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". In addition, in fiscal year 2010 the
Company incurred a loss on early extinguishment of debt of $38.9 million.
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(4)
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. In fiscal year 2013, 2012 and 2011, the Company issued $15.0
million, $110.0 million and $230 million, respectively of 10.5% Senior Notes. In fiscal year 2013, the Company
received a $24.0 million Advance Payment, as defined herein, from an original equipment manufacturer. In fiscal year
2014, the Company had $18.4 million outstanding under a Loan and Security Agreement (the "Loan and Security
Agreement"), with Bank of America, N.A.
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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, 2014. 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 tantalum, multilayer ceramic, solid and electrolytic aluminum
and film capacitors. Capacitors are electronic components that store, filter, and regulate electrical energy and current flow. As
an essential passive component used in most circuit boards, capacitors are typically used for coupling, decoupling, filtering,
oscillating and wave shaping and are used 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 (basically anything that plugs in or has a battery). We manufacture a broad line of
capacitors in many different sizes and configurations using a variety of raw materials. Our product line consists of nearly 5
million distinct part configurations distinguished by various attributes, such as dielectric (or insulating) material, configuration,
encapsulation, capacitance (at various tolerances), voltage, 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 years 2014, 2013 and 2012 we shipped 35 billion,
32 billion and 32 billion capacitors, respectively. We believe the long-term demand for various types of capacitors we offer
will grow on a regional and global basis due to a variety of factors, including increasing demand for and complexity of
electronic products, growing demand for technology in emerging markets and the ongoing development of new solutions for
energy generation and conservation.
Our Competitive Strengths
We believe 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., 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), EMSs (including Celestica Inc., 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.
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 discussed below, our private label partnership with NEC TOKIN has expanded our product offerings and
markets. 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 a single customer, an electronics distributor, accounted for more
than 10% of our net sales in fiscal year 2014. No single end use customer accounted for more than 6% of our net sales in fiscal
year 2014. We believe that well-balanced product, geographic and customer diversification helps us mitigate some of the
negative financial impact through economic cycles.
Leading Market Positions and Operating Scale. Based on net sales, we believe that we are the largest manufacturer of
tantalum capacitors in the world and one of the largest manufacturers of direct current film capacitors in the world and have a
significant market position in the specialty ceramic and custom wet aluminum electrolytic markets. As discussed below, our
private label partnership with NEC TOKIN allows us to achieve true scale in operations to manage raw materials sourcing as
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well as maximize efficiencies. 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 2014
and 2013, respectively, specialty products accounted for 46.1% and 41.1% of our revenue. By allocating an increasing portion
of our management resources and research and development ("R&D") investment (particularly though our partnership with
NEC TOKIN discussed below) 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, telecommunication infrastructure and
oil and gas.
Low-Cost and Strategic Locations. We believe our plants in China, Mexico, Bulgaria and Macedonia 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 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.
Our Brand. Founded by Union Carbide in 1919 as KEMET Laboratories, we believe that we have established 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 executive management team has an average of 17 years of experience with us and an
average of over 24 years of experience in the manufacturing industry.
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 also use those principles,
operating procedures and systems as the foundation from which to expand. These initiatives include implementing Oracle 11i
EBS throughout most locations, our Lean and Six Sigma culture evolution and our global customer accounts management
program.
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.
Continue to Pursue Low-Cost Production Strategy. We continue to evaluate and 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. We have expanded
our manufacturing to Macedonia which has low production 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 continue to
implement 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 and partnership with NEC TOKIN 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
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long-term growth objectives while also improving our profitability. During fiscal year 2014, we introduced 16,829 new
products of which 2,377 were first to market, and specialty products accounted for 46.1% of our revenue over this period.
Further Expand Our Broad Capacitance Capabilities. We identify ourselves as "The Electronic Components
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. As discussed below, through our
partnership with NEC TOKIN we have further expanded our product offerings. 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 and Equity Investments. As strategic opportunities are identified, we
will evaluate and possibly pursue them if they 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. For example, in fiscal year 2012, we acquired Cornell Dubilier Foil, LLC
(whose name was subsequently changed to KEMET Foil ) and Blue Powder which has allowed us to vertically integrate certain
manufacturing processes within Film and Electrolytic and Solid Capacitors, respectively. In addition, on February 1, 2013
KEC, a wholly owned subsidiary of the Company, acquired a 34% economic interest in NEC TOKIN, a manufacturer of
tantalum capacitors and electro-magnetic, electro-mechanical and access devices.
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 2013, we received the “Supplier Excellence Award” from TTI, Inc.
and the “Supplier Engagement” and “Perfect Order Index” awards from Arrow Electronics, Inc., both of which are electronics
distributors.
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 two business groups: Solid Capacitors 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,
marketing and corporate functions are shared by each of the business groups. See Note 9, "Segment and Geographic
Information" to our consolidated financial statements.
Recent Developments and Trends
Net sales of $833.7 million in fiscal year 2014 have increased 1.2% from $823.9 million in fiscal year 2013. Capacitor
unit sales volumes increased 11.0 % for fiscal year 2014 as compared to fiscal year 2013. Average selling prices for capacitors
decreased 9.3% for fiscal year 2014 as compared to fiscal year 2013 due to excess capacity in the market which decreased
average selling prices across the market. We have continued to focus on vertical integration and restructure our operations by
shifting production to lower cost locations. Through our recent acquisition of Blue Powder and equity investment in NEC
TOKIN Corporation ("NEC TOKIN"), as described herein, we believe we can enhance our competitive position.
Equity Investment
On February 1, 2013, KEC closed on a transaction to acquire 51% (which represents a 34% economic interest calculated
based on the number of common shares held by KEC, directly and indirectly, in proportion to the aggregate number of common
and preferred shares of NEC TOKIN outstanding as of such date) of the common stock of NEC TOKIN, a manufacturer of
tantalum capacitors, electro-magnetic, electro-mechanical and access devices. The Company accounts for its investment in
NEC TOKIN using the equity method for a non-consolidated variable interest entity since KEC does not have the power to
direct significant activities of NEC TOKIN.
In connection with KEC's entry into the Stock Purchase Agreement, KEC entered into a Stockholders' Agreement (the
"Stockholders' Agreement") with NEC TOKIN and NEC, which provides for restrictions on transfers of NEC TOKIN's capital
stock, certain tag-along and first refusal rights on transfer, restrictions on NEC's ability to convert the preferred stock of NEC
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TOKIN held by it, certain management services to be provided to NEC TOKIN by KEC (or an affiliate of KEC) and certain
board representation rights. KEC holds four of seven NEC TOKIN director positions. However, NEC has significant board
rights.
Concurrent with entry into the Stock Purchase Agreement and the Stockholders' Agreement, KEC entered into an Option
Agreement (the "Option Agreement") with NEC whereby KEC may purchase additional shares of NEC TOKIN common stock
from NEC TOKIN for a purchase price of $50.0 million resulting in an economic interest of approximately 49% while
maintaining ownership of 51% of NEC TOKIN's common stock (the "First Call Option") by providing notice of the First Call
Option between the Initial Closing and August 31, 2014. Upon providing such notice, KEC may also exercise an option to
purchase all outstanding capital stock of NEC TOKIN from its stockholders, primarily NEC, for a purchase price based on the
greater of six times LTM EBITDA (as defined in the Option Agreement) less the previous payments and certain other
adjustments, or the outstanding amount of NEC TOKIN's debt obligation to NEC (the "Second Call Option") by providing
notice of the Second Call Option by May 31, 2018. From August 1, 2014 through May 31, 2018, NEC may require KEC to
purchase all outstanding capital stock of NEC TOKIN from its stockholders, primarily NEC. However, NEC may only exercise
this right (the "Put Option") from August 1, 2014 through April 1, 2016 if NEC TOKIN achieves certain financial performance.
The purchase price for the Put Option will be based on the greater six times LTM EBITDA less previous payments and certain
other adjustments, or the outstanding amount of NEC TOKIN's debt obligation to NEC as of the date the Put Option is
exercised. The purchase price for the Put Option is reduced by the amount of NEC TOKIN's debt obligation to NEC which
KEC will assume. The determination of the purchase price will be modified in the event there is an unresolved agreement
between NEC and us under the Stockholders' Agreement. In the event the Put Option is exercised, NEC will be required to
maintain in place the outstanding debt obligation owed by NEC TOKIN to NEC.
Partnership with NEC TOKIN.
Through our cross licensing agreement and private label partnership with NEC TOKIN we have expanded product
offerings and markets for both KEMET and NEC TOKIN. KEMET’s strong presence in the western hemisphere and the
excellent NEC TOKIN position in Japan and Asia significantly enhance the customer reach for both companies. Through this
partnership we can achieve true scale in operations allowing us to manage raw materials sourcing as well as maximize
efficiencies and best practices in manufacturing and product development. We believe that the international management team
of KEMET and NEC TOKIN allows us to be more sensitive and aware of region-specific business needs than our competitors.
Combining our R&D capabilities and university relationships will allow us to be on the forefront of new developments and
technological advancements in the capacitor industry. Leveraging R&D investment in both Japan and the U.S enables KEMET
to diversify beyond capacitors in the passives market as a result of the NEC TOKIN partnership.
Vertical Integration.
Through the acquisition of Blue Powder and the creation of a tantalum K-Salt facility in Matamoros, Mexico, we have
successfully vertically integrated our tantalum supply chain. This has allowed us to purchase ore directly from mines and
stabilize the supply chain. In addition, vertical integration has provided KEMET complete oversight of our closed loop supply
chain for Tantalum, thereby facilitating compliance with new conflict minerals regulations.
Write Down of Long-Lived Assets
In fiscal year 2014, we incurred impairment charges totaling $4.5 million, recorded on the Consolidated Statements of
Operations line item “Write down of long-lived assets”. We are in the process of restructuring our Evora, Portugal
manufacturing operations, which is expected to be completed during the quarter ending June 30, 2014. As a part of our
restructuring activities, we have moved certain Solid Capacitors manufacturing operations from the Evora, Portugal facility to a
manufacturing facility in Mexico and the remaining Solid Capacitors equipment in Portugal will be disposed. During fiscal
year 2013, the Company incurred impairment charges totaling $3.1 million. In fiscal year 2014 we incurred $3.9 million in
additional impairment charges due to a decrease in forecasted revenues. We utilized an income approach to estimate the fair
value of the assets to be disposed. In addition, during fiscal year 2014, the Company incurred impairment charges totaling $0.6
million in Film and Electrolytic which were related to manufacturing equipment in a facility in Italy.
Restructuring
In fiscal year 2010, we initiated the first phase of a plan to restructure Film and Electrolytic and to reduce overhead
within the Company as a whole. Since that time, the restructuring plan has been expanded to all business groups and 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. We incurred $14.1 million in restructuring charges in the
fiscal year ended March, 31, 2014 including $10.6 million related to personnel reduction costs which are primarily comprised
of the following: $1.9 million related to the closure of a portion of our innovation center in the U.S.; $1.2 million related to the
reduction of the solid capacitor production workforce in Mexico; $1.1 million related to the Company’s initiative to reduce
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overhead; $0.5 million in termination benefits associated with converting the Weymouth, United Kingdom manufacturing
facility into a technology center; $4.5 million related to headcount reductions of 126 employees in Evora, Portugal due to the
relocation of certain Solid Capacitors manufacturing operations to Mexico and $0.4 million related to an additional Cassia
Integrazione Guadagni Straordinaria (“CIGS”) plan in Italy. In addition, $0.9 million is related to a headcount reduction of 31
employees due to the consolidation of manufacturing facilities in Italy. In addition to these personnel reduction costs, we
incurred manufacturing relocation costs of $3.6 million due to the consolidation of manufacturing facilities within Italy and
relocation of manufacturing equipment to Evora, Portugal, Skopje, Macedonia and Mexico.
During the remainder of the restructuring plan, we expect to incur charges of $10.7 million for relocation, severance and
other restructuring related costs in Film and Electrolytic. The two legacy facilities in Italy are currently being marketed for sale
but do not meet accounting guidelines to be classified as 'held for sale' as the facilities are not available for immediate sale.
We expect the restructuring plan to result in a $5.3 million reduction in our operating cost structure in Europe in fiscal year
2015 compared to fiscal year 2014 and anticipate that benefits from the restructuring plan will continue to improve during
fiscal year 2016.
Discontinued Operation
In December 2013 KEMET signed a letter of intent to sell the machinery division within Film and Electrolytic. At
that time the division qualified as held for sale and was classified as a discontinued operation. All historical financial results
contained in this Form 10-K have been revised due to the classification of the machinery division as a discontinued operation.
On April 30, 2014, the transaction closed.
Off-Balance Sheet Arrangements
As of March 31, 2014, other than operating lease commitments as described in Note 15, "Commitments and
Contingencies", 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 ship products to customers based upon firm orders and revenue is recognized when
the sales process is complete. This occurs when products are shipped to the customer in accordance with the terms of an
agreement of sale, there is a fixed or determinable selling price, title and risk of loss have been transferred and collectability is
reasonably assured. Shipping and handling costs are included in cost of sales.
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. We recognize revenue when title to the products transfers to the customer.
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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 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.
KEMET's SFSD program provides authorized distributors with the flexibility to meet marketplace prices by allowing
them, upon a case-by-case pre-approved basis, to adjust their purchased inventory cost to correspond with current market
demand. Requests for SFSD adjustments are considered on an individual basis, require a pre-approved cost adjustment quote
from their local KEMET sales representative and apply only to a specific customer, part, a specified special price amount, a
specified quantity, and is only valid for a specific period of time. To estimate potential SFSD adjustments corresponding with
current period sales, KEMET records a sales reserve based on historical SFSD credits, distributor inventory levels, and certain
accounting assumptions, all of which are reviewed quarterly. We believe this methodology enables us to make reliable
estimates of future adjustments under the SFSD program. If the historical SFSD run rates used in our calculation were
changed by 1% in fiscal year 2014, net sales would be impacted by $0.9 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. Estimates used in determining sales allowances are subject to various factors. This includes, but is not limited
to, changes in economic conditions, pricing changes, product demand, inventory levels in the supply chain, the effects of
technological change, and other variables that might result in changes to our estimates.
INVENTORIES. Inventories are valued at the lower of cost or market. For most of the inventory, cost is determined
under the first-in, first-out method. For tool crib, a component of our raw material inventory, cost is determined under the
average cost method. 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 $(1.6) million and $1.8 million, respectively.
GOODWILL AND LONG-LIVED ASSETS. Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, and intangible 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
32
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.
In the first quarter of fiscal year 2013, due to reduced earnings and cash flows caused by macro-economic factors and
excess capacity issues in our industry, the Company recorded a $1.1 million goodwill impairment charge, which represented all
of the goodwill related to the KEMET Foil reporting unit.
The Company completed its impairment test on goodwill and intangible assets with indefinite useful lives as of January 1,
2014 and concluded that goodwill and indefinite-lived assets were not impaired. A one percent increase or decrease in the
discount rate used in the valuation would have resulted in changes in the fair value of $(34.7) million and $21.2 million,
respectively.
INCOME TAXES. Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates. 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 loss before income taxes, consolidated net loss would
change by $0.6 million in fiscal year 2014.
33
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):
Net sales
Operating costs and expenses:
Cost of sales
Selling, general and administrative expenses
Research and development
Restructuring charges
Write down of long-lived assets
Goodwill Impairment
Net loss on sales and disposals of assets
Operating (loss) income
Interest income
Interest expense
Other (income) expense, net
Loss from continuing operations before income taxes and equity loss
from NEC TOKIN
Income tax expense
Loss from continuing operations before equity loss from NEC TOKIN
Equity loss from NEC TOKIN
Loss from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Consolidated Comparison of Fiscal Year 2014 to Fiscal Year 2013
Net sales:
Fiscal Years Ended March 31,
2014
2013
2012
$
833,666
$
823,903
$
924,052
712,925
95,856
24,466
14,122
4,476
—
32
(18,211)
(195)
40,962
(2,681)
697,076
107,620
26,876
18,719
7,582
1,092
18
(35,080)
(139)
41,331
(2,295)
(56,297)
1,482
(57,779)
(7,090)
(64,869)
(3,634)
(68,503) $
(73,977)
3,281
(77,258)
(1,254)
(78,512)
(3,670)
(82,182) $
$
731,312
106,534
27,765
14,254
15,786
—
318
28,083
(175)
28,567
965
(1,274)
1,076
(2,350)
—
(2,350)
9,042
6,692
Net sales of $833.7 million in fiscal year 2014 increased 1.2% from $823.9 million in fiscal year 2013. Film and
Electrolytic and Solid Capacitor sales increased by $5.6 million and $4.2 million, respectively. Capacitor unit sales volumes
increased 11.0 % for fiscal year 2014 as compared to fiscal year 2013. Average selling prices for capacitors decreased 9.3% for
fiscal year 2014 as compared to fiscal year 2013 due to an unfavorable product mix shift in Film and Electrolytic and a shift
within Solid Capacitors to increased unit sales volumes of lower priced ceramic product line across all regions.
In fiscal years 2014 and 2013, net sales by region were as follows (dollars in millions):
Americas
APAC
EMEA
Total
Fiscal Year 2014
Net Sales
% of
Total
$
$
262.9
282.3
288.5
833.7
31% Americas
34% APAC
35% EMEA
Total
Fiscal Year 2013
Net Sales
% of
Total
$
$
244.9
294.5
284.5
823.9
30%
36%
34%
34
In fiscal years 2014 and 2013, the percentages of net sales by channel to total net sales were as follows:
Fiscal Year 2014
Net Sales
% of Total
$
$
377.0
139.4
317.3
833.7
45% Distributors
17% EMS
38% OEM
Total
Fiscal Year 2013
Net Sales
% of Total
$
$
376.9
143.2
303.8
823.9
46%
17%
37%
Distributors
EMS
OEM
Total
Gross margin:
Gross margin for the fiscal year ended March 31, 2014 of $120.7 million (14.5% of net sales) decreased $6.1 million or
4.8% from $126.8 million (15.4% of net sales) in the prior fiscal year. The primary contributor to the gross margin decline was
a $10.5 million gross margin decrease in Solid Capacitors for the fiscal year 2014 compared to fiscal year 2013 corresponding
with a decrease in average selling prices. These were partially offset by a $4.4 million increase in Film and Electrolytic gross
margin for the fiscal year 2014 compared to fiscal year 2013.
Selling, general and administrative expenses ("SG&A"):
SG&A expenses of $95.9 million, or 11.5% of net sales for fiscal year 2014 decreased $11.8 million or 10.9% compared
to $107.6 million, or 13.1% of net sales for fiscal year 2013. The decrease consists primarily of the following items: a $5.1
million decrease in compensation expenses that resulted from headcount reductions, a $3.5 million decrease in ERP integration
costs, a $1.3 million decrease in training and travel as part of overall cost saving initiatives, a $1.2 million decrease in incentive
compensation related to stock based compensation, a $0.4 million decrease in Information Technology related to data
transmission costs, a $0.4 million decrease in charitable contributions, and a $2.3 million decrease in acquisition fees related to
our investment in NEC TOKIN. Partially offsetting these decreases was a $2.5 million increase in depreciation expense.
Restructuring charges:
Restructuring charges of $14.1 million in fiscal year 2014 decreased $4.6 million or 24.6% from $18.7 million in fiscal
year 2013.
Restructuring charges in the fiscal year ended March 31, 2014 include personnel reduction costs of $10.6 million and
manufacturing relocation costs of $3.6 million. The personnel reduction costs are comprised of the following: $1.9 million
related to the closure of a portion of our innovation center in the U.S.; $1.2 million related to the reduction of the solid
capacitor production workforce in Mexico; $1.1 million related to the Company’s initiative to reduce overhead; $0.5 million in
termination benefits associated with converting the Weymouth, United Kingdom manufacturing facility into a technology
center; $4.5 million related to headcount reductions of 126 employees in Evora, Portugal due to the relocation of certain Solid
Capacitors manufacturing operations to Mexico; $0.9 million related to a headcount reduction of 31 employees due to the
consolidation of manufacturing facilities in Italy and $0.4 million related to an additional Cassia Integrazione Guadagni
Straordinaria (“CIGS”) plan in Italy.
In addition to these personnel reduction costs, the Company incurred manufacturing relocation costs of $3.6 million
due to the consolidation of Film and Electrolytic manufacturing facilities within Italy and relocation of Film and Electrolytic
manufacturing equipment to Evora, Portugal and Skopje, Macedonia and Solid Capacitors manufacturing equipment to
Mexico.
The restructuring charges in fiscal year 2013 included termination benefits of $6.1 million related to facility closures in
Italy that commenced during fiscal year 2013 and charges of $4.5 million that were incurred by the Company to participate in a
plan to save labor costs whereby a company may temporarily "lay off" employees while the government continues to pay their
wages for a certain period of time. In addition, we incurred $1.7 million in personnel reduction costs primarily due to
headcount reductions within Solid Capacitors' operations in Mexico. In addition to these personnel reduction costs, we incurred
manufacturing relocation costs of $1.9 million for relocation of equipment to China and Mexico.
Research and development:
R&D expenses of $24.5 million, or 2.9% of net sales for fiscal year 2014 decreased $2.4 million or 9.0% compared to
$26.9 million, or 3.3% of net sales for fiscal year 2013. The decrease is primarily a result of headcount reductions achieved by
leveraging the technology and licensing agreement in place with NEC TOKIN.
35
Write down of long-lived assets:
The Company's restructuring of its Evora, Portugal manufacturing operations, is expected to be substantially complete
by June 30, 2014. As a part of the ongoing restructuring activities, the Company has relocated certain Solid Capacitor
manufacturing operations from the Evora, Portugal facility to a manufacturing facility in Mexico and the remaining Solid
Capacitor manufacturing equipment in Portugal will be disposed. During fiscal year 2013, using an income approach to
estimate the fair value of assets to be disposed, the Company incurred impairment charges totaling $3.1 million related to
Solid Capacitors. In fiscal year 2014 Solid Capacitors incurred $3.9 million in additional impairment charges due to a decrease
in forecasted revenues. In addition, during fiscal year 2014, the Company incurred impairment charges totaling $0.6 million
related to Film and Electrolytic related to manufacturing equipment in a facility in Italy.
Also in fiscal year 2013 and in connection with the consolidation of two Film and Electrolytic manufacturing facilities
within Italy, we incurred impairment charges totaling $4.2 million. Appraisals for these manufacturing facilities indicated there
was a decrease in market value and, therefore, the carrying amounts of these manufacturing facilities were reviewed for
recoverability. It was determined that the carrying amounts of the manufacturing facilities were not recoverable since they
exceeded the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset
group). The impairment was measured as the amount by which the carrying amount of a long-lived asset (asset group)
exceeded its fair value.
In addition, in fiscal year 2013 we incurred a $0.3 million charge related to the write-off of a trademark which is no
longer utilized.
Operating loss:
Operating loss for fiscal year 2014 of $18.2 million improved $16.9 million or 48.1% compared to an operating loss of
$35.1 million in fiscal year 2013. The improvement was primarily due to a $11.8 million decrease in SG&A expenses, $4.6
million decrease in restructuring charges, a $3.1 million decrease in write down of long-lived assets, a $2.4 million decrease in
R&D expenses and the goodwill impairment of $1.1 million in fiscal year 2013. These improvements were partially offset by a
$6.1 million decrease in gross margin.
Non-operating (income) expense, net:
Non-operating (income) expense, net was a net expense of $38.1 million in fiscal year 2014 compared to a net expense of
$38.9 million in fiscal year 2013. The decrease is primarily attributable to a $3.1 million increase in the value of the NEC
TOKIN options recognized in fiscal year 2014 and a $0.4 million decrease in interest expense. Partially offsetting these
improvements was a $0.8 million decrease in non-product scrap and reclaim income and a $1.4 million charge related to the
write off of a long-term note receivable.
Income taxes:
The effective income tax rate for fiscal year 2014 was (2.6)%, resulting in an income tax expense from continuing
operations of $1.5 million. This compares to an effective income tax rate of (4.4)% for fiscal year 2013 that resulted in an
income tax expense of $3.3 million. The fiscal year 2014 income tax expense is comprised of an income tax expense resulting
from operations in certain foreign jurisdictions totaling $2.8 million, $0.3 million of state income tax and a $1.7 million income
tax benefit allocated from outside of continuing operations to continuing operations. No U.S. federal income tax benefit is
recognized for the U.S. taxable loss for fiscal year 2014 due to a valuation allowance provided for U.S. net operating losses.
Equity loss from NEC TOKIN:
In fiscal year 2014 we incurred an equity loss from our investment in NEC TOKIN of $7.1 million, compared to a loss of
$1.3 million in fiscal year 2013. The increased equity loss primarily relates to an impairment loss recorded by NEC TOKIN
related to certain of its fixed assets.
36
Segment Comparison of Fiscal Year 2014 to Fiscal Year 2013:
The following table sets forth the operating income (loss) for each of our business segments for the fiscal years 2014 and
2013. The table also sets forth each of the segments' net sales as a percentage of total net sales and the operating income (loss)
components as a percentage of total net sales (amounts in thousands, except percentages):
Net sales
Solid Capacitors
Film and Electrolytic
Total
Operating income (loss)
Solid Capacitors
Film and Electrolytic
Corporate
Total
Solid Capacitors
For the Fiscal Years Ended
March 31, 2014
March 31, 2013
Amount
% to Total
Sales
Amount
% to Total
Sales
$
$
$
$
626,494
207,172
833,666
91,848
(17,587)
(92,472)
(18,211)
75.1 % $
24.9 %
100.0 % $
622,305
201,598
823,903
75.5 %
24.5 %
100.0 %
$
(2.2)% $
94,986
(31,109)
(98,957)
(35,080)
(4.3)%
The table below sets forth Net sales, Operating income and Operating income as a percentage of net sales for Solid
Capacitors for fiscal years 2014 and 2013 (amounts in thousands, except percentages):
Tantalum product line net sales
Ceramic product line net sales
Net sales
Segment operating income
For the Fiscal Years Ended
March 31, 2014
March 31, 2013
Amount
% to Net
Sales
Amount
% to Net
Sales
$
390,422
236,072
626,494
91,848
$
412,791
209,514
622,305
94,986
14.7%
15.3%
Net sales—Net sales of $626.5 million in fiscal year 2014 increased $4.2 million or 0.7% from $622.3 million in fiscal
year 2013. Ceramic product line net sales of $236.1 million in fiscal year 2014 increased $26.6 million or 12.7% from $209.5
million in fiscal year 2013. Tantalum product line net sales of $390.4 million in fiscal year 2014 decreased $22.4 million or
5.4% from $412.8 million in fiscal year 2013. Unit sales volume for fiscal year 2014 increased 11.4% compared to fiscal year
2013. Average selling prices decreased 9.6% in fiscal year 2014 compared to fiscal year 2013 primarily related to a change in
product line sales mix driven by a shift to higher volumes of lower priced ceramic products across all regions.
Segment Operating Income—Segment operating income of $91.8 million for fiscal year 2014 declined $3.1 million or
3.3% from $95.0 million for fiscal year 2013. The decrease in segment operating income is primarily attributable to the
following: a decrease in gross margin of $10.5 million, an increase in restructuring charges of $0.8 million and an $0.8 million
increase in write down of long-lived assets. These were partially offset by a $6.0 million decrease in SG&A expenses related to
lower ERP Integration costs as well as a pension curtailment recognized in fiscal year 2013. In addition, we recognized a $2.5
million decrease in R&D expenses and a $0.5 million improvement on the gain on disposals of fixed assets.
37
Film and Electrolytic
The table below sets forth Net sales, Operating loss and Operating loss as a percentage of net sales for Film and
Electrolytic for the fiscal years 2014 and 2013 (amounts in thousands, except percentages):
Net sales
Segment operating loss
For the Fiscal Years Ended
March 31, 2014
March 31, 2013
Amount
$
207,172
(17,587)
% to Net
Sales
Amount
% to Net
Sales
$
(8.5)%
201,598
(31,109)
(15.4)%
Net sales—Net sales of $207.2 million in fiscal year 2014 increased $5.6 million or 2.8% from $201.6 million in fiscal
year 2013. Capacitor unit sales volume for fiscal year 2014 increased 19.3% compared to fiscal year 2013 due to an overall
increase in customer demand in APAC and EMEA. Capacitor sales were favorably impacted by $4.2 million related to foreign
exchange. These increases were partially offset by an decrease in capacitor average selling prices of 15.2% at comparable
exchange rates for fiscal year 2014 compared to fiscal year 2013 due to an unfavorable shift in product line mix.
Segment Operating loss—Segment operating loss of $17.6 million in fiscal year 2014 improved $13.5 million or 43.5%,
from $31.1 million of segment operating loss in fiscal year 2013. The improvement was attributable to a $3.7 million decrease
in write down of long-lived assets, a $4.0 million decrease in restructuring charges, a $1.2 million decrease in SG&A expenses
and a $4.4 million improvement in gross margin. The improvement in gross margin is due to an increase in unit sales volume as
well as reduced costs as a result of our restructuring efforts. In addition, a $1.1 million goodwill impairment related to the
KEMET Foil reporting unit was recognized in fiscal year 2013. These improvements were partially offset by a $0.6 million
increase in the loss on disposal of fixed assets and a $0.3 million increase in R&D expenses.
Consolidated Comparison of Fiscal Year 2013 to Fiscal Year 2012
Net sales:
Net sales for fiscal year 2013 of $823.9 million decreased $100.1 million or 10.8% from $924.1 million for fiscal year
2012. Film and Electrolytic and Solid Capacitor net sales decreased by $91.7 million and $8.5 million, respectively. Average
selling prices for capacitors decreased 10.8% for fiscal year 2013 compared to fiscal year 2012 due to excess capacity in the
market, a general softening of the markets and a shift in sales from higher priced products sold in EMEA to lower priced
products sold in APAC.
In fiscal years 2013 and 2012, net sales by region were as follows (dollars in millions):
Americas
APAC
EMEA
Total
Fiscal Year 2013
Net Sales
% of Total
$
$
244.9
294.5
284.5
823.9
30% Americas
36% APAC
34% EMEA
Total
Fiscal Year 2012
Net Sales
% of Total
$
$
259.0
359.9
305.2
924.1
28%
39%
33%
In fiscal years 2013 and 2012, the percentages of net sales by channel to total net sales were as follows:
Fiscal Year 2013
Net Sales
% of Total
$
$
376.9
143.2
303.8
823.9
46% Distributors
17% EMS
37% OEM
Total
Fiscal Year 2012
Net Sales
% of Total
$
$
417.4
148.2
358.5
924.1
45%
16%
39%
Distributors
EMS
OEM
Total
Gross margin:
Gross margin for the fiscal year ended March 31, 2013 of $126.8 million (15.4% of net sales) decreased $65.9 million or
34.2% from $192.7 million (20.9% of net sales) in fiscal year 2012. The primary contributor to the gross margin decline was a
38
$45.0 million gross margin decrease in Film and Electrolytic for the fiscal year 2013 compared to fiscal year 2012
corresponding with a decrease in unit sales volume of 30.7% leading to lower plant capacity utilization and lower efficiencies
which created unfavorable fixed cost absorption. In addition, excess capacity in the market led to a decrease in average selling
prices in Solid Capacitors which decreased gross margin. In addition, we incurred $6.1 million of plant start-up costs in the
year ended March 31, 2013 compared to $3.6 million in the year ended March 31, 2012.
Selling, general and administrative expenses ("SG&A"):
SG&A expenses of $107.6 million (13.1% of net sales) for fiscal year 2013 increased $1.1 million or 1.0% compared to
$106.5 million (11.5% of net sales) for fiscal year 2012. The increase in SG&A expenses included a $1.9 million increase in
incentive compensation related to stock based compensation, an increase of $3.1 million related to our investment in NEC
TOKIN, a $0.7 million increase in travel expenses, and a $0.4 million increase in office rent. In addition, in fiscal year 2013,
we incurred a $1.1 million expense related to our investment to improve the health and educational facilities in the community
of the Katanga Province of the Democratic Republic of the Congo. Partially offsetting these increases, were a $3.3 million
decrease in selling and incentive expenses consistent with the decrease in sales, a $1.5 million decrease in human resources and
information technology expenses due to cost savings initiatives, and a $1.4 million decrease in marketing activities and
projects.
Restructuring charges:
Restructuring charges of $18.7 million in fiscal year 2013 increased $4.5 million or 31.3% from $14.3 million in fiscal
year 2012.
Restructuring charges in the fiscal year ended March 31, 2013 included personnel reduction costs of $16.4 million and
manufacturing relocation costs of $2.3 million. The personnel reduction costs were comprised of the following: $2.8 million in
termination benefits associated with converting the Landsberg, Germany manufacturing facility into a technology center;
$2.9 million in termination benefits associated with converting the Weymouth, United Kingdom manufacturing facility into a
technology center; $1.5 million for reductions in production workforce in Mexico; $1.1 million for reductions in production
workforce in Portugal; $0.5 million for headcount reductions at an innovation center; $2.7 million for reductions in
administrative overhead primarily in the Corporate headquarters and $4.9 million for reductions in production workforce and
administrative overhead across the entire Company.
In addition to these personnel reduction costs, we incurred manufacturing relocation costs of $1.8 million for relocation
of equipment to Bulgaria, China, Macedonia and Mexico and for the consolidation of manufacturing operations within Italy
and $0.6 million in lease termination costs related to the relocation of a sales office.
The restructuring charges in fiscal year 2012 included termination benefits of $6.1 million related to facility closures in
Italy that commenced during fiscal year 2013 and charges of $4.5 million that were incurred by the Company to participate in a
plan to save labor costs whereby a company may temporarily "lay off" employees while the government continues to pay their
wages for a certain period of time. In addition, we incurred $1.7 million in personnel reduction costs primarily due to
headcount reductions within Solid Capacitors' operations in Mexico. In addition to these personnel reduction costs, we incurred
manufacturing relocation costs of $1.9 million for relocation of equipment to China and Mexico.
Research and development:
R&D expenses of $26.9 million (3.3% of net sales) for fiscal year 2013 decreased $0.9 million or 3.2% compared to
$27.8 million (3.0% of net sales) for fiscal year 2012. The decrease resulted from headcount reductions taken in fiscal year
2013 to align the R&D expenses within an acceptable percentage of net sales.
Write down of long-lived assets:
During fiscal year 2013 and corresponding with a restructuring of our Solid Capacitors operations in the Evora, Portugal
manufacturing facility, we incurred impairment charges totaling $3.1 million. Also in fiscal year 2013 and in connection with
the consolidation of two Film and Electrolytic manufacturing facilities within Italy, we incurred impairment charges totaling
$4.2 million. Appraisals for these manufacturing facilities indicated there was a decrease in market value and, therefore, the
carrying amounts of these manufacturing facilities were reviewed for recoverability. It was determined that the carrying
amounts of the manufacturing facilities were not recoverable since they exceeded the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset (asset group). The impairment was measured as the amount
by which the carrying amount of a long-lived asset (asset group) exceeded its fair value.
In addition, in fiscal year 2013 we incurred a $0.3 million charge related to the write-off of a trademark which is no
longer utilized.
39
During fiscal year 2012, we incurred impairment charges of $15.8 million related to certain Solid Capacitor equipment
which was disposed of since the equipment could not meet customer demands for lower equivalent series resistance capacitors.
The impairment amount of $15.8 million was the carrying amount of the equipment less the estimated scrap value net of
disposal costs. The impairment charge is recorded on the Consolidated Statements of Operations line item "Write down of long-
lived assets" in fiscal year 2012.
Operating income:
Operating loss for fiscal year 2013 was $35.1 million compared to operating income of $28.1 million in the prior fiscal
year. The decrease was primarily due to the $65.9 million decrease in gross margin in fiscal year 2013 as compared to fiscal
year 2012. Additionally, when comparing fiscal year 2013 to fiscal year 2012, restructuring charges increased $4.5 million,
SG&A expenses increased $1.1 million and we incurred a goodwill impairment of $1.1 million in fiscal year 2013. These
increases were partially offset by an $8.2 million decrease in write-down of long-lived assets, and a $0.9 million decrease in
research and development expenses. Also, during fiscal year 2013 we recognized less than $0.1 million loss on disposal of
assets compared to a $0.3 million loss on sales and disposals of assets in fiscal year 2012.
Non-operating (income) expense, net:
Non-operating (income) expense, net was a net expense of $38.9 million in fiscal year 2013 compared to a net expense of
$29.4 million in fiscal year 2012, representing an increase of $9.5 million. The increase is attributable to a $12.8 million
increase in interest expense in fiscal year 2013 as compared to fiscal year 2012 primarily related to an increase in our 10.5%
Senior Notes outstanding of approximately $110.0 million at the end of fiscal year 2012 and $15.0 million in April 2012. In
addition, we recognized less than $0.1 million of a loss on foreign currency translation in fiscal year 2013 as compared to a
$0.9 million loss on foreign currency translation in fiscal year 2012 primarily due to the change in the value of the Euro and
Mexican Peso compared to the U.S. dollar.
Income taxes:
The effective income tax rate for fiscal year 2013 was (4.4)%, resulting in an income tax expense of $3.3 million. This
compares to an effective income tax rate of (84.5)% for fiscal year 2012 that resulted in an income tax expense of $1.1 million.
The fiscal year 2013 income tax expense was comprised of an income tax expense resulting from operations in certain foreign
jurisdictions totaling $2.7 million, $0.7 million of state income tax expense and a $0.1 million federal income tax benefit. No
U.S. federal income tax benefit was recognized for the U.S. taxable loss for fiscal year 2013 due to a valuation allowance
provided for U.S. net operating losses.
Equity loss from NEC TOKIN:
In fiscal year 2013 we incurred an equity loss from our investment in NEC TOKIN of $1.3 million.
Segment Comparison of Fiscal Year 2013 to Fiscal Year 2012:
The following table sets forth the operating income (loss) for each of our business segments for the fiscal years 2013 and
2012. The table also sets forth each of the segments' net sales as a percentage of total net sales and the operating income (loss)
components as a percentage of total net sales (amounts in thousands, except percentages):
Net sales
Solid Capacitors
Film and Electrolytic
Total
Operating income (loss)
Solid Capacitors
Film and Electrolytic
Corporate
Total
For the Fiscal Years Ended
March 31, 2013
Fiscal Year 2012
Amount
% to Total
Sales
Amount
% to Total
Sales
622,305
201,598
823,903
94,986
(31,109)
(98,957)
(35,080)
$
$
$
$
40
75.5% $
24.5%
100.0% $
630,762
293,290
924,052
68.3%
31.7%
100.0%
$
111,769
12,347
(96,033)
28,083
-4.3% $
3.0%
Solid Capacitors
The table sets forth Net sales, Operating income and Operating income as a percentage of net sales for Solid Capacitors
for the fiscal years 2013 and 2012 (amounts in thousands, except percentages):
Tantalum product line net sales
Ceramic product line net sales
Net sales
Segment operating income
For the Fiscal Years Ended
March 31, 2013
March 31, 2012
Amount
% to Net
Sales
Amount
% to Net
Sales
$
412,791
209,514
622,305
94,986
$
416,995
213,767
630,762
111,769
15.3%
17.7%
Net sales—Net sales decreased $8.5 million or 1.3% during fiscal year 2013, compared to fiscal year 2012. Unit sales
volume for fiscal year 2013 decreased 0.4% compared to fiscal year 2012. Average selling prices decreased 1.0% in fiscal year
2013 compared to fiscal year 2012 primarily due to a change in product line sales mix driven by a shift to higher priced
polymer product line products.
Segment Operating Income—Segment operating income for fiscal year 2013 was $95.0 million compared to operating
income of $111.8 million for fiscal year 2012. The $16.8 million decrease in segment operating income in fiscal year 2013
compared to fiscal year 2012 is primarily attributable to the following: a decrease in gross margin of $20.9 million, an increase
in restructuring charges of $6.2 million, an increase in SG&A expenses of $2.7 million, and an increase in R&D expenses of
$0.2 million during fiscal year 2013 as compared to fiscal year 2012. These decreases were partially offset by a $3.3 million
write down of long-lived assets that was recorded in fiscal year 2013 compared to $15.8 million write down in fiscal year 2012
and a $0.2 million gain recognized on sales and disposals of assets in fiscal year 2013 compared to a $0.3 million loss on sales
and disposals of assets in fiscal year 2012.
Film and Electrolytic
The table sets forth Net sales, Operating income (loss) and Operating income (loss) as a percentage of net sales for Film
and Electrolytic for the fiscal years 2013 and 2012 (amounts in thousands, except percentages):
Net sales
Segment operating (loss) income
For the Fiscal Years Ended
March 31, 2013
March 31, 2012
Amount
$
201,598
(31,109)
% to Net
Sales
Amount
$
293,290
% to Net
Sales
(15.4)%
12,347
4.2%
Net sales—Net sales decreased by $91.7 million or 31.3% in fiscal year 2013, as compared to fiscal year 2012. Capacitor
unit sales volume for fiscal year 2013 decreased 30.7% compared to fiscal year 2012 due to an overall decrease in customer
demand seen across all regions and channels. Capacitor sales were unfavorably impacted by $9.4 million related to foreign
exchange. These decreases were partially offset by an increase in capacitor average selling prices of 4.1% at comparable
exchange rates for fiscal year 2013 as compared to fiscal year 2012 due to a favorable shift in product line mix.
Segment Operating income (loss)—Segment operating loss was $31.1 million in fiscal year 2013, as compared to $12.3
million of segment operating income in fiscal year 2012. The $43.5 million decline in segment operating results was
attributable primarily to a $45.0 million decrease in gross margin when comparing fiscal year 2013 to fiscal year 2012 and in
fiscal year 2013 we recognized a $4.2 million write down of long-lived assets, a goodwill impairment of $1.1 million and a
$0.2 million loss on sales and disposals of assets which were not incurred in fiscal year 2012. These expense increases were
partly offset by the following decreases in fiscal year 2013 as compared to fiscal year 2012: a $3.5 million decrease in
restructuring charges, a $2.5 million decrease in SG&A expenses and a $1.1 million decrease in R&D expenses.
41
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 and cash equivalents balances.
Issuance of 10.5% Senior Notes
On May 5, 2010, we completed the issuance of our 10.5% Senior Notes with an aggregate principal amount of
$230.0 million which resulted in net proceeds to the Company of $222.2 million. The Company used a portion of the proceeds
to repay all of its outstanding indebtedness under the Company's credit facility with K Financing, LLC, the Company's
€60 million credit facility and €35 million credit facility with UniCredit Corporate Banking S.p.A. ("UniCredit") and the
Company's term loan with a subsidiary of 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 issuance, the tender offer and the foregoing repayments.
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 had the option to redeem up to 35%
of the aggregate principal amount of the 10.5% Senior Notes with the net cash proceeds from certain equity offerings at a
redemption price equal to 110.5% of the principal amount thereof, together with accrued and unpaid interest, if any, to the
redemption date. In addition, at any time prior to May 1, 2014, we may redeem the 10.5% Senior Notes, in whole or in part, at
a redemption price equal to 100% of the principal amount of the 10.5% Senior Notes so redeemed, plus a "make whole"
premium and together with accrued and unpaid interest, if any, to the redemption date.
Upon the occurrence of a change of control triggering event specified in the 10.5% Senior Notes Indenture, we must offer
to purchase the 10.5% Senior Notes at a redemption price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase.
The 10.5% Senior Notes Indenture provides for customary events of default (subject in certain cases to customary grace
and cure periods), which include nonpayment, breach of covenants in the 10.5% Senior Notes Indenture, payment defaults or
acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and insolvency. The
10.5% Senior Notes Indenture also provides for events of default with respect to the collateral, which include default in the
performance of (or repudiation, disaffirmation or judgment of unenforceability or assertion of unenforceability) by us or a
Guarantor with respect to the provision of security documents under the 10.5% Senior Notes Indenture. These events of default
are subject to a number of important qualifications, limitations and exceptions that are described in the 10.5% Senior Notes
Indenture. Generally, if an event of default occurs, the Trustee or holders of at least 25% in principal amount of the then
outstanding 10.5% Senior Notes may declare the principal of and accrued but unpaid interest, including additional interest, on
all the 10.5% Senior Notes to be due and payable.
On March 27, 2012 and April 3, 2012, the Company completed the sale of $110.0 million and $15.0 million aggregate
principal amount of its 10.5% Senior Notes due 2018, respectively, at an issue price of 105.5% of the principal amount plus
accrued interest from November 1, 2011. The issuance resulted in a debt premium of $6.1 million which is being amortized
over the term of the 10.5% Senior Notes. The Senior Notes were issued as additional notes under the indenture, dated May 5,
2010, among the Company, the guarantors party thereto and Wilmington Trust Company, as trustee.
42
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 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. Subsequent to March 31, 2014, the Loan and
Security Agreement was amended and as a result the expiration was extended to December, 31, 2015. The principal features of
the amendment to the Loan and Security Agreement (the "Amendment") are reflected in the description below.
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 (i) $6.0 million and (ii) (a) on or prior to agent’s receipt of an updated inventory appraisal and agent’s
approval thereof, 40% of the value of Eligible Inventory (as defined in the agreement) and (b) upon agent’s receipt of
an updated Inventory Appraisal, 85% of the net orderly liquidation value of the Eligible Inventory (as defined in the
agreement) plus (C) the lesser of $5.1 million and 80% of the net orderly liquidation percentage of the appraised value
of equipment that satisfies certain eligibility criteria, as reduced on the first day of each fiscal quarter occurring after
April 30, 2014 in an amount equal to one-twentieth (1/20) of such appraised value 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 as further specified in the Amendment, 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 2.50% and 3.00% for LIBOR advances and 1.50% and 2.00% for base rate advances, and under the Singapore
facility varies between 2.75% and 3.25% for LIBOR advances and 1.75% and 2.25% 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 a per annum rate equal to (a) 0.50%, if the average daily
balance of Revolver Loans and stated amount of letters of credit was 50% or less of the Revolver Commitments during the
preceding calendar month, or (b) 0.375%, if the average daily balance of Revolver Loans and stated amount of letters of credit
was more than 50% of the Revolver Commitment during the preceding calendar month. 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). 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
43
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 various 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. There were $18.4 million and zero
borrowings against the revolving line of credit as of March 31, 2014 and 2013, respectively. Based upon the March 31, 2014
financial statements, the Company's available borrowing capacity under the Loan and Security Agreement was $7.1 million
(after $16.9 million used for letters of credit as described below).
Advanced Payment from OEM
On August 28, 2012, the Company entered into and amended an agreement (the "Agreement"), with an original
equipment manufacturer (the "OEM") pursuant to which the OEM agreed to advance KEMET $24.0 million (the "Advance
Payment"). As of March 31, 2014 and 2013, the Company had $20.4 million and $24.0 million, respectively, outstanding due to
the OEM. On a monthly basis starting in June 2013, (eight months following the receipt of the Advance Payment), the
Company began repaying the OEM an amount equal to a percentage of the aggregate purchase price of the capacitors sold to
the OEM the preceding month, not to exceed $1.0 million per month. Pursuant to the terms of the Agreement, the percentage of
the aggregate purchase price of capacitors sold to the OEM that will be used to repay the Advance Payment will double, and the
total amount to be repaid will not exceed $2.0 million per month, in the event that (1)the OEM provides evidence that the price
charged by KEMET for a particular capacitor during any prior quarter was equal to or greater than 110% of the price paid by
the OEM or its affiliates for a third-party part qualified for the same product, and shipping in volume during such period, and
(2) agreement cannot be reached between the OEM and the Company for a price adjustment during the current quarter which
would bring KEMET's price within 110% of the third-party price. In June 2015 (thirty-two months after the date of the
Advance Payment), the remaining outstanding balance, if any, is due in full. Pursuant to the terms of the Agreement, an
irrevocable standby letter of credit in the amount of $16.0 million was delivered to the OEM on October 8, 2012 and on
October 22, 2012 the Company received the Advance Payment from the OEM.
In addition, in fiscal year 2014, the Company issued two letters of credit for EUR 1.1 million ($1.5 million) and EUR 0.7
million ($0.9 million) related to the construction of the new manufacturing location in Italy. The letter of credit for EUR 1.1
million ($1.5 million) was cancelled in February 2014.
Short-term Liquidity
KEMET's total cash and restricted cash balance as of March 31, 201 was $71.4 million. Unrestricted cash and cash
equivalents totaled $57.9 million as of March 31, 2014, representing a decrease of $38.0 million as compared to $96.0 million
as of March 31, 2013. Our net working capital (current assets less current liabilities) as of March 31, 2014 was $233.7 million
compared to $261.9 million of net working capital as of March 31, 2013. Cash and cash equivalents held by our foreign
subsidiaries totaled $35.1 million million and $26.7 million at March 31, 2014 and March 31, 2013, respectively. Our operating
income outside the U.S. is deemed to be permanently reinvested in foreign jurisdictions. As a result, we currently do not intend
nor foresee a need to repatriate cash and cash equivalents held by foreign subsidiaries. If these funds are needed in the U.S. for
our operations, we may be required to accrue U.S. taxes on the undistributed foreign earnings.
We have taken steps to improve our operating results by decreasing global headcount and vertically integrating our
supply chain. Based on our current operating plans, we believe that existing cash and cash equivalents, cash provided by
operations and cash from the revolving line of credit will continue to be sufficient to fund our operating requirements for the
next twelve months, including $39.0 million in interest payments, expected capital expenditures in the range of $20.0 million to
44
$25.0 million, $6.3 million related to the Advance Payment discussed above, deferred acquisition payments of $19.6 million,
payments of $6.2 million related to restructuring liabilities, and $1.3 million in other debt principal payments.
Our cash and cash equivalents decreased by $38.0 million during the year ended March 31, 2014, decreased $114.5
million during the year ended March 31, 2013 and increased $58.5 million during the year ended March 31, 2012 as follows
(amounts in thousands):
Net cash (used in) provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effects of foreign currency fluctuations on cash
Net (decrease) increase in cash and cash equivalents
Fiscal Year 2014 compared to Fiscal Year 2013
Operations
Fiscal Years Ended March 31,
2014
(6,746) $
(25,253)
(6,877)
827
(38,049) $
2013
(22,827) $
(111,977)
20,852
(591)
(114,543) $
2012
80,730
(91,853)
70,292
(699)
58,470
$
$
Cash used in operating activities totaled $6.7 million in fiscal year 2014, representing a $16.1 million improvement
compared to cash used in operating activities of $22.8 million in fiscal year 2013. A portion of the improvement relates to a
$3.1 million improvement in cash flows related to operations (change in net income adjusted for the change in: net cash
provided by operating activities of discontinued operations, equity loss on NEC TOKIN, change in value of NEC TOKIN
options, write down of long-lived assets, depreciation and amortization, deferred income taxes, net gain/loss on sales and
disposals of assets, amortization of debt discounts and debt issuance costs, stock-based compensation, pension and other post-
retirement benefits, write down of receivables and other non-cash changes to net income) for fiscal year 2014 compared to
fiscal year 2013.
In addition, we generated $2.4 million through changes in assets and liabilities in fiscal year 2014 as compared to using
$10.6 million through changes in assets and liabilities in fiscal year 2013. The cash generation of $2.4 million in fiscal year
2014 is primarily related to a reduction in inventory of $14.9 million achieved through vertical integration, yield improvement
and cycle time improvement. This was partially offset by a decrease in other operating liabilities of $9.7 million primarily due
to a decrease in accrued restructuring.
The cash use of $10.6 million in fiscal year 2013 was primarily related to an $11.2 million increase in prepaid inventory
and the timing of value added tax receivables and other assets. This was partially offset by decreasing our accounts receivable
balance in fiscal year 2013 by $4.9 million.
Investing
Cash used in investing activities of $25.3 million in fiscal year 2014 decreased $86.7 million from $112.0 million in
fiscal year 2013.
In fiscal year 2014, capital expenditures of $32.1 million were primarily related to the completion of our manufacturing
facility in Pontecchio, Italy as well as various information technology related projects. Restricted cash related to the Advance
Payment provided cash of $4.0 million and we received $2.8 million from the sale of assets.
In fiscal year 2013, cash used for investment in NEC TOKIN in fiscal year 2013 totaled $50.9 million. Capital
expenditures in 2013 of $46.2 million were primarily related to new manufacturing facilities in Skopje, Macedonia and
Pontecchio, Italy. Restricted cash related to the Advance Payment resulted in a use of cash of $15.3 million and we received
$0.4 million from the sale of assets in fiscal year 2013.
Financing
Cash used in financing activities of $6.9 million in fiscal year 2014 decreased $27.7 million from cash provided by
financing activities of $20.9 million in fiscal year 2013.
In fiscal year 2014, we used $22.0 million for deferred acquisition payments related to the KEMET Foil and Blue Powder
acquisitions and $3.6 million for debt payments. This was partially offset by $21.0 million in proceeds from the revolving line
of credit.
45
In fiscal year 2013, we received a $24.0 million Advance Payment from an OEM and $15.8 million in proceeds from the
issuance of debt related to the private placement of our 10.5% Senior Notes. In fiscal year 2013, we used $16.9 million for
deferred acquisition payments related to the KEMET Foil and Blue Powder acquisitions and $1.9 million for debt payments.
Commitments
At March 31, 2014, we had contractual obligations in the form of non-cancelable operating leases and debt, including
interest payments (see Note 2, "Debt" and Note 15, "Commitments and Contingencies" to our consolidated financial
statements), European social security, pension benefits, other post-retirement benefits, inventory purchase obligations, fixed
asset purchase obligations, acquisition related obligations, and construction obligations as follows (amounts in thousands):
Contractual obligations
Debt obligations
Interest obligations
Acquisition related obligations
Construction obligations
Employee separation liability
Restructuring liability
Pension and other post-retirement benefits
(1)
Operating lease obligations
Purchase commitments
Total
Payment Due by Period
Total
Year 1
Years 2 - 3
Years 4 - 5
$
395,768
$
7,575
$
33,193
$
355,000
$
154,051
19,581
4,464
15,487
6,217
19,780
22,103
481
39,015
19,581
4,464
1,039
6,217
1,565
8,482
481
74,551
40,485
—
—
1,039
—
3,425
8,163
—
—
—
693
—
3,728
3,595
—
More than
5 years
—
—
—
—
12,716
—
11,062
1,863
—
$
637,932
$
88,419
$
120,371
$
403,501
$
25,641
_______________________________________________________________________________
(1)
Reflects expected benefit payments through 2022.
Uncertain Income Tax Positions
We have recognized a liability for our unrecognized uncertain income tax positions of approximately $5.7 million as
of March 31, 2014. We do not believe we are likely to pay any amounts during the year ending March 31, 2015. The ultimate
resolution and timing of payment for remaining matters continues to be uncertain and are, therefore, excluded from the above
table.
Non-GAAP Financial Measures
To complement our consolidated statements of operations and cash flows, we use non-GAAP financial measures of
Adjusted operating income, Adjusted net income and Adjusted EBITDA. We believe that Adjusted operating income, Adjusted
net income 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.
46
Adjusted operating income is calculated as follows (amounts in thousands):
Operating (loss) income
Adjustments:
Restructuring charges
Write down of long-lived assets
ERP integration costs
Plant shut-down costs
Plant start-up costs
Stock-based compensation
NEC TOKIN investment related expenses
Infrastructure tax
Goodwill impairment
Net curtailment and settlement gain on benefit plans
Loss on sales and disposals of assets
Inventory write downs
Adjusted operating income
Adjusted net income is calculated as follows (amounts in thousands):
Net income (loss)
Adjustments:
Restructuring charges
Write down of long-lived assets
Amortization included in interest expense
ERP integration costs
(Income) loss from discontinued operations
Plant start-up costs
Stock-based compensation
Plant shut-down costs
NEC TOKIN investment related expenses
Infrastructure tax
Goodwill impairment
Equity loss from NEC TOKIN
Net curtailment and settlement gain on benefit plans
Loss on sales and disposals of assets
Net foreign exchange (gain) loss
Registration related fees
Long-term receivable write down
Change in value of NEC TOKIN options
Inventory write downs
Income tax effect of non-GAAP adjustments*
Adjusted net income (loss)
Fiscal Years Ended March 31,
2014
(18,211) $ (35,080) $
2013
$
2012
28,083
14,122
18,719
4,476
3,880
2,668
3,336
2,909
2,299
1,079
—
—
32
3,886
7,582
7,398
—
6,122
4,599
4,581
—
1,092
266
18
—
14,254
15,786
7,128
—
3,574
3,075
1,476
—
—
—
318
—
$
20,476
$
15,297
$
73,694
Fiscal Years Ended March 31,
2014
(68,503) $
2013
(82,182) $
$
2012
6,692
14,122
18,719
14,254
15,786
3,600
7,128
(9,042)
3,574
3,075
—
1,476
—
—
—
—
318
919
281
—
7,582
4,138
7,398
3,670
6,122
4,599
—
4,581
—
1,092
1,254
266
18
(28)
20
—
4,476
3,596
3,880
3,634
3,336
2,909
2,668
2,299
1,079
—
7,090
—
32
(304)
—
1,444
(3,111)
3,886
(27)
(17,494) $
$
—
—
(906)
(23,657) $
—
—
(3,203)
44,858
*
Includes the income tax effect of law changes related to the utilization of net operating loss carryforwards.
47
Adjusted EBITDA is calculated as follows (amounts in thousands):
Net income (loss)
Adjustments:
Income tax expense
Interest expense, net
Depreciation and amortization
Restructuring charges
Write down of long-lived assets
ERP integration costs
(Income) loss from discontinued operations
Plant start-up costs
Stock-based compensation
Plant shut-down costs
NEC TOKIN investment related expenses
Infrastructure tax
Goodwill impairment
Equity loss from NEC TOKIN
Net curtailment and settlement gain on benefit plans
Loss on sales and disposals of assets
Net foreign exchange (gain) loss
Registration related fees
Long-term receivable write down
Change in value of NEC TOKIN options
Inventory write downs
Adjusted EBITDA
Fiscal Years Ended March 31,
2014
(68,503) $
2013
(82,182) $
$
2012
6,692
1,482
40,767
49,527
14,122
4,476
3,880
3,634
3,336
2,909
2,668
2,299
1,079
—
7,090
—
32
(304)
—
1,444
(3,111)
3,886
3,281
41,192
45,158
18,719
7,582
7,398
3,670
6,122
4,599
—
4,581
—
1,092
1,254
266
18
(28)
20
—
—
—
1,076
28,392
43,401
14,254
15,786
7,128
(9,042)
3,574
3,075
—
1,476
—
—
—
—
318
919
281
—
—
—
$
70,713
$
62,742
$
117,330
Adjusted operating income represents operating income (loss), excluding adjustments which are outlined in the
quantitative reconciliation provided above. We use Adjusted operating income to facilitate our analysis and understanding of
our business operations and believe that Adjusted operating income is useful to investors because it provides a supplemental
way to understand the underlying operating performance of the Company. Adjusted operating income should not be considered
as an alternative to operating income or any other performance measure derived in accordance with U.S. GAAP.
Adjusted net income (loss) represents net income (loss), excluding adjustments which are outlined in the quantitative
reconciliation provided above. We use Adjusted net income to evaluate the Company's operating performance and believe that
Adjusted net income is useful to investors because it provides a supplemental way to understand the underlying operating
performance of the Company. Adjusted net income 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, excluding adjustments which are outlined in the quantitative reconciliation provided above. We present Adjusted
EBITDA as a supplemental measure of our performance and ability to service debt. We also present Adjusted EBITDA because
we believe such measure is frequently used by securities analysts, investors and other interested parties in the evaluation of
companies in our industry.
We believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because cash expenditures
on interest are, by definition, available to pay interest and tax expense is inversely correlated to interest expense because tax
expense goes down as deductible interest expense goes up; 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, one 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
48
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 to 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 April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08). ASU
2014-08 changes the definition of a discontinued operation and modifies related disclosure requirements. The new guidance is
effective on a prospective basis for fiscal years beginning after December 15, 2014, and interim periods within annual periods
beginning on or after December 15, 2015. This new guidance is not expected to have a material impact on the Company's
Consolidated Financial Statements.
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830). ASU 2013-05 revised the
authoritative guidance on accounting for cumulative translation adjustment specifying that a cumulative translation adjustment
should be released into earnings when an entity ceases to have a controlling financial interest in a subsidiary or a group of
assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation
of the foreign entity. For sales of an equity method investment that is a foreign entity, a pro rata portion of cumulative
translation adjustment attributable to the investment would be recognized in earnings upon sale of the investment. The guidance
is effective for fiscal years beginning after December 15, 2013. The Company does not expect the adoption of this guidance to
have a material impact on its financial position, results of operations, comprehensive income or liquidity.
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income ("ASU 2013-02"). ASU 2013-02 requires registrants to provide information about the amounts
reclassified out of AOCI by component. In addition, an entity is required to present significant amounts reclassified out of
AOCI by the respective line items of net income. ASU 2013-02 is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2012. ASU 2013-02 was effective for the Company on April 1, 2013 and did not have a
material effect on the Company's net income or other comprehensive income in the financial statements, the Company's
financial position, results of operations or cash flows.
There are currently no other accounting standards that have been issued that will have a significant impact on the
Company's financial position, results of operations or cash flows upon adoption.
49
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 revolving line of credit, which had an outstanding balance as of
March 31, 2014, of $18.4 million. This debt has a variable interest rate and a 1% change in the interest rate would yield a
$0.2 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 operations
in Mexico 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
As a result of our tantalum vertical integration efforts which began in fiscal year 2012, we have reduced our exposure to
price volatility and supply uncertainty in the tantalum supply chain. A majority of our tantalum needs are now met through our
direct sourcing of conflict free tantalum ore or tantalum scrap reclaim, which is then processed into the intermediate product
potassium heptafluorotantalate (commonly known as K-salt) at our own facility in Mexico, before final processing into
tantalum powder at Blue Powder. Price increases for tantalum ore, or for the remaining tantalum powder that we source from
third parties, could impact our financial performance as we may be unable to pass all such price increases on to our customers.
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 2014 the price of
palladium fluctuated between $640 to $792 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, 2014, 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
50
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 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 (1992 framework).
Based on that assessment, as of March 31, 2014, 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 59 of this annual report on
Form 10-K.
Changes in Internal Control over Financial Reporting
We have completed the implementation of Oracle 11i EBS on a worldwide basis at most locations. This software
implementation project has resulted in changes in our business processes and related internal control over financial reporting
(as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). Management continues to monitor, evaluate and update the
related processes and internal controls as necessary during the post implementation period to ensure adequate internal control
over financial reporting.
Other than the change described above, there was no change in the Company's internal control over financial reporting
during the fiscal quarter ended March 31, 2014, that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
51
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Other than the information under "Executive Officers" and "Other 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 24, 2014 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 24, 2014 under the headings "Compensation Discussion and 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," "Report of the
Compensation Committee," 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 24, 2014 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 24, 2014 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 24, 2014 under the heading "Audit and Non-Audit Fees."
52
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
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2014 and 2013
Consolidated Statements of Operations for the years ended March 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income (Loss) for the years ended March 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Stockholders' Equity for the years ended March 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended March 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
(a)
(2) Financial Statement Schedules
58
59
60
61
62
63
64
66
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
2.2
2.3
3.1
3.2
4.1
4.2
4.3
Stock Purchase Agreement, dated as of February 2, 2012, by and among KEMET Corporation, Niotan
Incorporated and Niotan Investment Holdings LLC (incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K (File No. 1-15491) filed on February 2, 2012)
Stock Purchase Agreement, dated as of March 12, 2012, by and among KEMET Electronics Corporation, NEC
Corporation and NEC TOKIN Corporation (incorporated by reference to Exhibit 99.2 to the Company's Current
Report on Form 8-K (File No. 1-15491) filed on March 15, 2012)
Amendment No. 1 to the Stock Purchase Agreement dated as of December 12, 2012, by and among KEMET
Electronics Corporation, NEC Corporation and NEC TOKIN Corporation (incorporated by reference to
Exhibit 99.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on December 14, 2012)
Second Restated Certificate of Incorporation of the Company, as amended to date (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q (File No. 1-15491) for the quarter ended June 30,
2011)
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 (File No. 1-15491) filed on June 5, 2008)
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 (File No. 1-15491) filed on May 5, 2010)
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 (File No. 1-15491) filed on May 5, 2010)
Supplemental Indenture, dated as of August 10, 2011, among KEMET Foil Manufacturing LLC (f/k/a Cornell
Dubilier Foil, LLC), KEMET Corporation, the other Guarantors named therein and Wilmington Trust Company,
as trustee (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q (File
No. 1-15491) for the quarter ended September 30, 2011)
53
4.4
4.5
4.6
Registration Rights Agreement, dated March 27, 2012, among KEMET Corporation, the guarantors named
therein and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., as initial
purchasers (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File
No. 1-15491) filed on March 28, 2012)
Registration Rights Agreement, dated as of April 3, 2012, among KEMET Corporation, the guarantors named
therein and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., as initial
purchasers (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File
No. 1-15491) filed on April 4, 2012)
Supplemental Indenture, dated April 17, 2012, among KEMET Corporation, the 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 (File No. 1-15491) filed on April 18, 2012)
4.7
Form of 10 1/2% Senior Note due 2018 (included in Exhibit 4.1)
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
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))
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))
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))
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))
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))
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 (File No. 1-15491) for the year ended March 31, 1996)*
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 (File No.
1-15491) for the year ended March 31, 1996)*
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 (File No. 1-15491) for the year ended March 31, 1996)
1992 Key Employee Stock Option Plan (incorporated by reference to Exhibit 10.16 to the Company's Annual
Report on Form 10-K (File No. 1-15491) for the year ended March 31, 2009)*
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 (File No. 1-15491)
for the quarter ended December 31, 2000)*
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))*
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 (File No. 1-15491) filed
on May 9, 2006)*
54
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
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 (File No. 1-15491) filed
on July 25, 2006)*
Amendment to the Compensation Plan of the Chief Executive Officer and other executive officers effective
March 28, 2007 (incorporated by reference to the Company's Current Report on Form 8-K (File No. 1-15491)
filed on April 3, 2007)*
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 (File No. 1-15491) filed
on May 15, 2007)*
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 (File No. 1-15491)
filed on May 23, 2007)*
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 (File No. 1-15491) filed on
May 12, 2008)*
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 (File No. 1-15491) for the quarter ended September 30, 2008)
Summary of Non-Employee Director Compensation (incorporated by reference to exhibit 10.35 to the
Company's Annual Report on Form 10-K (File No. 1-15491), for the year ended March 31, 2012)*
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K (File No. 1-15491) filed on April 23, 2009)*
Amendment to the Compensation Plan of the Company's executive officers (incorporated by reference to the
Company's Current Report on Form 8-K (File No. 1-15491) filed on August 4, 2009)*
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 (File No. 1-15491)
filed on June 30, 2009)
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 (File No. 1-15491) filed on June 30,
2009)
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 (File
No. 1-15491) filed on June 30, 2009)
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 (File No. 1-15491) filed on April 22,
2010)
Employment Agreement between the Company and Per Olof-Lööf dated January 27, 2010 (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on February 2,
2010)*
Amendment No. 1 to Employment Agreement between KEMET Corporation and Per Olof-Lööf, dated
March 28, 2012 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File
No. 1-15491) filed on April 2, 2012)*
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 (File No. 1-15491) for the year ended March 31,
2009)*
55
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
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 (File No. 1-15491) filed on October 5, 2010)
KEMET Executive Secured Benefit Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q (File No. 1-15491) for the quarter ended December 31, 2010)*
KEMET Corporation 2011 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K (File No. 1-15491) filed on August 2, 2011)*
Form of Change in Control Severance Compensation Agreement entered into with executive officers of the
Company (incorporated by reference to Exhibit 10.58 to the Company's Annual Report on Form 10-K (File
No. 1-15491) for the year ended March 31, 2012)*
Option Agreement, dated as of March 12, 2012, by and among NEC Corporation and KEMET Electronics
Corporation (incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K (File
No. 1-15491) filed on March 15, 2012)
Stockholders' Agreement, dated as of March 12, 2012, by and among KEMET Electronics Corporation, NEC
Corporation and NEC TOKIN Corporation (incorporated by reference to Exhibit 99.4 to the Company's Current
Report on Form 8-K (File No. 1-15491) filed on March 15, 2012)
Form of Restricted Stock Unit Grant Agreement for Employees (incorporated by reference to Exhibit 10.61 to
the Company's Annual Report on Form 10-K (File No. 1-15491) for the year ended March 31, 2012)*
Form of Restricted Stock Unit Grant Agreement for Directors (incorporated by reference to Exhibit 10.62 to the
Company's Annual Report on Form 10-K (File No. 1-15491) for the year ended March 31, 2012)*
Amendment No. 1 to Loan and Security Agreement, Waiver and Consent, dated as of March 19, 2012, by and
among KEMET Electronics Corporation, KEMET Electronics Marketing (S) Pte Ltd., the financial institutions
party thereto as lenders and Bank of America, N.A., as agent (incorporated by reference to Exhibit 10.63 to the
Company's Annual Report on Form 10-K (File No. 1-15491) for the year ended March 31, 2012)
Development and Cross-Licensing Agreement between NEC TOKIN Corporation and KEMET Electronics
Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File
No. 1-15491) filed on May 8, 2013)
Form of Long-Term Incentive Plan Award Agreement (incorporated by reference to Exhibit 10.39 to the
Company's Annual Report on Form 10-K (File No. 1-15491) for the year ended March 31, 2013)*
Consolidated Amendment to Loan and Security Agreement, dated as of July 8, 2013, by and among KEMET
Electronics Corporation, KEMET Foil Manufacturing, LLC, KEMET Blue Powder Corporation, KEMET
Electronics Marketing (S) PTE LTD., the financial institutions party thereto as lenders and Bank of America,
N.A., as agent (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
(File No. 1-15491) filed on August 2, 2013)
Release Agreement, dated as of August 29, 2013, between KEMET Corporation and Marc Kotelon
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (File No. 1-15491)
for the quarter ended September 30, 2013)*
Settlement Agreement, dated as of September 6, 2013, between KEMET Electronics SAS and Mark Kotelon
(English translation) (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-
Q (File No. 1-15491) for the quarter ended September 30, 2013)*
Amendment No. 5 to Loan and Security Agreement, dated April 30, 2014, among KEMET Electronics
Corporation and its subsidiaries KEMET Foil Manufacturing, LLC, KEMET Blue Powder Corporation, and
KEMET Electronics Marketing (S) PTE LTD., as Borrowers, and Bank of America, N.A., as agent for the
Lenders (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No.
1-15491) filed on May 5, 2014)
56
18.1
21.1
23.1
23.2
31.1
31.2
32.1
32.2
101
Preferability Letter (incorporated by reference to Exhibit 18.1 to the Company's Quarterly Report on Form 10-Q
(File No. 1-15491) for the quarter ended December 31, 2012)
Subsidiaries of KEMET Corporation
Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP
Consent of Paumanok Publications, Inc.
Certification of the Chief Executive Officer Pursuant to Section 302
Certification of the Chief Financial Officer Pursuant to Section 302
Certification of the Chief Executive Officer Pursuant to Section 906
Certification of the Chief Financial Officer Pursuant to Section 906
The following financial information from KEMET Corporation's Annual Report on Form 10-K for the year
ended March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated
Balance Sheets at March 31, 2014, and March 31, 2013, (ii) Consolidated Statements of Income for the years
ended March 31, 2014, 2013 and 2012, (iii) Consolidated Statements of Comprehensive Income for the years
ended March 31, 2014, 2013 and 2012, (iv) Consolidated Statements of Changes in Stockholders' Equity for the
years ended March 31, 2014, 2013 and 2011, (v) Consolidated Statements of Cash Flows for the years ended
March 31, 2013, 2012 and 2012 and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as
blocks of text
_______________________________________________________________________________
*
Exhibit is a management contract or a compensatory plan or arrangement.
57
The Board of Directors and Stockholders of KEMET Corporation
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of KEMET Corporation and subsidiaries as of March 31,
2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and
cash flows for the three years in the period ended March 31, 2014. 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, 2014 and 2013, and the consolidated results of their operations
and their cash flows for the three years ended March 31, 2014, 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, 2014, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(1992 framework) and our report dated May 30, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Greenville, South Carolina
May 30, 2014
58
The Board of Directors and Stockholders of KEMET Corporation
Report of Independent Registered Public Accounting Firm
We have audited KEMET Corporation and subsidiaries' internal control over financial reporting as of March 31, 2014,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (1992 framework) (the COSO criteria). KEMET Corporation and subsidiaries' 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 Managements' 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 and subsidiaries maintained, in all material respects, effective internal control over
financial reporting as of March 31, 2014, 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 sheets of KEMET Corporation and subsidiaries as of March 31, 2014 and 2013, and the
related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the
three years in the period ended March 31, 2014 of KEMET Corporation and subsidiaries and our report dated May 30, 2014
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Greenville, South Carolina
May 30, 2014
59
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid and other current assets
Deferred income taxes
Current assets of discontinued operations
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Investment in NEC TOKIN
Restricted cash
Deferred income taxes
Other assets
Noncurrent assets of discontinued operations
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued expenses
Income taxes payable and deferred income taxes
Current liabilities of discontinued operations
Total current liabilities
Long-term debt
Other non-current obligations
Deferred income taxes
Noncurrent liabilities of discontinued operations
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.01, authorized 10,000 shares, none issued
Common stock, par value $0.01, authorized 175,000 shares, issued 46,508 shares at
March 31, 2014 and 2013
Additional paid-in capital
Retained deficit
Accumulated other comprehensive income
Treasury stock, at cost (1,301 and 1,519 shares at March 31, 2014 and 2013, respectively)
Total stockholders' equity
Total liabilities and stockholders' equity
March 31,
2014
2013
$
57,929
$
98,947
187,974
36,871
6,695
12,160
400,576
292,648
35,584
37,184
46,419
13,512
6,778
10,130
836
95,978
93,774
198,888
41,101
4,167
9,517
443,425
303,682
35,584
38,646
52,738
17,397
7,994
10,149
1,976
$
$
843,667
$
911,591
7,297
$
74,818
76,468
980
7,269
166,832
391,292
55,864
5,203
2,592
—
465
465,027
(231,738)
18,184
(30,054)
221,884
10,793
70,774
93,178
1,074
5,661
181,480
372,707
69,022
8,542
2,924
—
465
467,096
(163,235)
7,694
(35,104)
276,916
$
843,667
$
911,591
See accompanying notes to consolidated financial statements.
60
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands except per share data)
Net sales
Operating costs and expenses:
Cost of sales
Selling, general and administrative expenses
Research and development
Restructuring charges
Write down of long-lived assets
Goodwill impairment
Net loss on sales and disposals of assets
Total operating costs and expenses
Operating (loss) income
Other (income) expense:
Interest income
Interest expense
Other (income) expense, net
Loss from continuing operations before income taxes and equity loss
from NEC TOKIN
Income tax expense
Loss from continuing operations before equity loss from NEC
TOKIN
Equity loss from NEC TOKIN
Loss from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Net income (loss) per basic share:
Loss from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Net income (loss) per diluted share:
Loss from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Weighted-average shares outstanding:
Basic
Diluted
Fiscal Years Ended March 31,
2014
2013
2012
$
833,666
$
823,903
$
924,052
712,925
95,856
24,466
14,122
4,476
—
32
851,877
(18,211)
(195)
40,962
(2,681)
(56,297)
1,482
697,076
107,620
26,876
18,719
7,582
1,092
18
858,983
(35,080)
(139)
41,331
(2,295)
(73,977)
3,281
(57,779)
(7,090)
(64,869)
(3,634)
(68,503) $
(77,258)
(1,254)
(78,512)
(3,670)
(82,182) $
(1.44) $
(0.08) $
(1.52) $
(1.44) $
(0.08) $
(1.52) $
(1.75) $
(0.08) $
(1.83) $
(1.75) $
(0.08) $
(1.83) $
$
$
$
$
$
$
$
731,312
106,534
27,765
14,254
15,786
—
318
895,969
28,083
(175)
28,567
965
(1,274)
1,076
(2,350)
—
(2,350)
9,042
6,692
(0.05)
0.21
0.16
(0.04)
0.17
0.13
45,102
45,102
44,897
44,897
43,285
52,320
See accompanying notes to consolidated financial statements.
61
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Amounts in thousands)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation gains (losses), net of tax
Defined benefit pension plans, net of tax impact
Defined benefit post-retirement plan adjustments
Equity interest in investee's other comprehensive loss
Other comprehensive income (loss)
Total comprehensive loss
Fiscal Years Ended March 31,
2014
2013
2012
$
(68,503) $
(82,182) $
6,692
9,797
276
(354)
771
10,490
(58,013) $
$
(4,569)
420
(177)
—
(4,326)
(86,508) $
(8,969)
(1,449)
(117)
—
(10,535)
(3,843)
See accompanying notes to consolidated financial statements.
62
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Amounts in thousands)
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders'
Equity
Balance at March 31, 2011
37,138
$
395
$ 479,322
Net income
Other comprehensive income
Issuance of restricted shares
Stock-based compensation
expense
Issuance of shares to
K Equity, LLC
Exercise of stock options
Balance at March 31, 2012
Net loss
Other comprehensive loss
Issuance of restricted shares
Stock-based compensation
expense
Exercise of stock options
—
—
398
—
7,000
133
44,669
—
—
270
—
50
—
—
—
—
70
—
465
—
—
—
—
—
Balance at March 31, 2013
44,989
465
Net loss
Other comprehensive income
Issuance of restricted shares
Stock-based compensation
expense
Exercise of stock options
—
—
129
—
89
—
—
—
—
—
Balance at March 31, 2014
45,207
$
465
—
—
(9,483)
3,075
(70)
(2,785)
470,059
—
—
(6,511)
4,599
(1,051)
467,096
—
—
(3,164)
2,909
(1,814)
$ 465,027
$ (87,745) $
6,692
—
—
—
—
—
(81,053)
(82,182)
—
—
—
—
(163,235)
(68,503)
—
—
—
—
22,555
$ (54,774) $
359,753
—
(10,535)
—
—
—
—
12,020
—
(4,326)
—
—
—
7,694
—
10,490
—
—
—
—
—
9,204
—
—
3,075
(42,495)
—
—
6,229
—
1,162
(35,104)
—
—
2,986
—
2,064
$ (30,054) $
6,692
(10,535)
(279)
3,075
—
290
358,996
(82,182)
(4,326)
(282)
4,599
111
276,916
(68,503)
10,490
(178)
2,909
250
221,884
$ (231,738) $
18,184
See accompanying notes to consolidated financial statements.
63
KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
Sources (uses) of cash and cash equivalents
Operating activities:
Net income (loss)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Net cash provided by operating activities of discontinued operations
Depreciation and amortization
Amortization of debt discount and debt issuance costs
Equity loss from NEC TOKIN
Change in value of NEC TOKIN options
Net loss on sales and disposals of assets
Stock-based compensation expense
Pension and other post-retirement benefits
Deferred income taxes
Write down of long-lived assets
Write down of receivables
Goodwill impairment
Other, net
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued income taxes
Other operating liabilities
Net cash (used in) provided by operating activities
Investing activities:
Capital expenditures
Investment in NEC TOKIN (excludes non cash investment)
Change in restricted cash
Acquisitions, net of cash received
Proceeds from sales of assets
Net cash used in investing activities
Fiscal Years Ended March 31,
2014
2013
2012
$
(68,503) $
(82,182) $
6,692
336
49,527
3,596
7,090
(3,111)
32
2,909
(78)
(6,369)
4,476
1,484
—
(521)
(4,618)
14,891
3,748
(2,070)
172
(9,737)
(6,746)
(32,147)
—
4,047
—
2,847
(25,253)
4,828
45,158
4,138
1,254
—
18
4,599
1,071
(317)
7,582
—
1,092
566
4,882
(323)
(11,151)
300
(1,052)
(3,290)
(22,827)
(46,174)
(50,917)
(15,284)
—
398
(111,977)
1,774
43,401
3,599
—
—
318
3,075
(2,991)
(4,554)
15,786
—
—
700
42,603
(1,385)
(3,494)
(15,829)
(1,893)
(7,072)
80,730
(49,314)
—
—
(42,613)
74
(91,853)
64
Consolidated Statements of Cash Flows (Continued)
Financing activities:
Proceeds from revolving line of credit
Payments of revolving line of credit
Proceeds from issuance of debt
Deferred acquisition payments
Payment of long-term debt
Net (payments) borrowings under other credit facilities
Debt issuance costs
Proceeds from exercise of stock options
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Effect of foreign currency fluctuations on cash
Cash and cash equivalents at beginning of fiscal year
Cash and cash equivalents at end of fiscal year
Supplemental Cash Flow Statement Information:
Interest paid, net of capitalized interest
Income taxes paid
Fiscal Years Ended March 31,
2014
2013
2012
21,000
(2,551)
—
(21,977)
(3,599)
—
—
250
(6,877)
(38,876)
827
95,978
57,929
38,809
5,521
$
$
—
—
39,825
(16,900)
(1,909)
—
(275)
111
20,852
(113,952)
(591)
210,521
95,978
32,232
6,029
$
$
—
—
116,050
—
(40,581)
(3,154)
(2,313)
290
70,292
59,169
(699)
152,051
210,521
25,342
7,078
$
$
See accompanying notes to consolidated financial statements.
65
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 two business groups: the Solid Capacitor Business Group ("Solid Capacitors") 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 business groups are responsible for their
respective manufacturing sites as well as their respective research and development efforts.
Consistent with management reporting, the Company does not allocate indirect Selling, general and administrative
(“SG&A”) and Research and development (“R&D”) expenses to the business groups. Prior period information has been
reclassified to conform to current year presentation.
Basis of Presentation
Certain amounts for fiscal years 2013 and 2012 have been reclassified to conform to the fiscal year 2014 classification of
the machinery division as a discontinued operation.
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. Investment in
entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise
control, are accounted for using the equity method and are included as investments in equity interests on the consolidated
balance sheets.
Cash Equivalents
Cash equivalents of $0.7 million and $30.0 million at March 31, 2014 and 2013, respectively, consist of money market
accounts with an original term of three months or less. The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Restricted Cash
As discussed in Note 2, "Debt", the Company received a $24.0 million prepayment from an original equipment
manufacturer ("OEM"), the remaining proceeds of $11.2 million is classified as restricted cash at March 31, 2014.
A guarantee was issued by a European bank on behalf of the Company in August 2006 in conjunction with the
establishment of a Value-Added Tax ("VAT") registration in The Netherlands.
The bank guarantee is in the amount of €1.5 million ($2.1 million). An interest-bearing deposit was placed with a
European bank for €1.7 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 most inventory costs are determined by the "first-in, first-
out" ("FIFO") method. For tool crib, a component of the Company's raw material inventory, cost is determined under the
average cost method. The Company has consigned inventory at certain customer locations totaling $9.2 million and $10.8
million at March 31, 2014 and 2013, respectively.
66
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
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 $47.5 million, $43.0 million and $41.6 million for the fiscal years ended March 31, 2014, 2013 and 2012, respectively.
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. Reviews are regularly performed to determine whether facts and
circumstances exist which indicate 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 or asset group 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 or appraisal
values. The Company has to make certain assumptions as to 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 $4.5
million, $7.3 million and $15.8 million in property, plant and equipment impairment charges for fiscal years 2014, 2013 and
2012, 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. The Company evaluates its goodwill and
intangible assets with indefinite useful lives on a reporting unit basis which 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.
67
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
Equity Method Investment
Investments and ownership interests are accounted for under the equity method of accounting if the Company has the
ability to exercise significant influence, but not control, over the entity. Investments accounted for under the equity method are
initially recorded at cost, and the difference between the basis of the Company's investment and the underlying equity in the net
assets of NEC TOKIN at the investment date, if any, is amortized over the lives of the related assets that gave rise to the
difference. The Company's share of earnings or losses under the equity method investments and basis difference amortization is
reported in the consolidated statements of operations as "Equity loss from NEC TOKIN." The Company reviews its investments
and ownership interests accounted for under the equity method of accounting for impairment whenever events or changes in
circumstances indicate a loss in the value of the investment may be other than temporary.
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
Stock-based compensation for stock options 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, the Company is required to estimate the expected forfeiture rate and only recognize expense for those
options expected to vest. Stock-based compensation cost for restricted stock is measured based on the closing fair market value
of the Company's common stock on the date of grant. The Company recognizes stock-based compensation cost for
arrangements with cliff vesting as expense ratably on a straight-line basis over the requisite service period. The Company
recognizes stock-based compensation cost for arrangements with graded vesting as expense on an accelerated basis over the
requisite service period.
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. One customer, TTI, Inc., an electronics
distributor, accounted for $128.4 million, $127.8 million and $125.6 million of the Company's net sales in fiscal years 2014,
2013 and 2012, respectively. There were no customers' accounts receivable balances exceeding 10% of gross accounts
receivable at March 31, 2014 or March 31, 2013.
Consistent with industry practice, the Company 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,
2014, 2013, and 2012, net sales to electronics distributors accounted for 45%, 46% and 45%, 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").
68
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 translation gains (losses), defined benefit plan
adjustments including those adjustments which result from changes in net prior service credit and actuarial gains (losses),
equity interest in investee's other comprehensive income (loss) and is presented in the Consolidated Statements of
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 (3)
Ownership Share
of Equity Method
Investees’ Other
Comprehensive
Income (Loss)
Net
Accumulated
Other
Comprehensive
Income (Loss)
Balance at March 31, 2012
$
18,107
$
1,995
$
Fiscal year 2013 activity(1)
Balance at March 31, 2013
Fiscal year 2014 activity(2)
(4,569)
13,538
9,797
(177)
1,818
(354)
Balance at March 31, 2014
$
23,335
$
1,464
$
(8,082) $
420
(7,662)
276
(7,386) $
— $
—
—
771
771
$
12,020
(4,326)
7,694
10,490
18,184
_______________________________________________________________________________
(1)
(2)
Activity within the defined benefit pension plans is net of a tax benefit of $0.7 million.
Activity within foreign currency translation gains and defined benefit pension plans are net of a tax benefit of $1.9
million and $0.1 million, respectively.
Balance is net of a tax benefit of $2.2 million, $2.1 million, and $2.8 million as of March 31, 2014, March 31, 2013,
and March 31, 2012, respectively.
(3)
Warrant Liability
Concurrent with the consummation of a credit facility, 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 is exercisable at a
purchase price of $1.05 per share. 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 issued to K Financing under the Platinum
Credit Facility (as defined below) does not meet the definition of a derivative as it is indexed to the Company's own stock, as
such; the Platinum Warrant is classified as a component of equity.
There were 8,416,815 shares subject to the Platinum Warrant as of March 31, 2014.
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.
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.
69
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
•
•
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, 2014 and 2013 are as follows (amounts in
thousands):
Assets:
Money markets
(1)
Total debt
NEC TOKIN
options, net (3)
Carrying
Value
March 31,
2014
Fair
Value
March 31,
2014
Fair Value Measurement
Using
Level 1
Level 2(2)
Level 3
Carrying
Value
March 31,
2013
Fair
Value
March 31,
2013
Fair Value Measurement
Using
Level 1
Level 2(2)
Level 3
714
$
398,589
714
$
409,284
714
$
371,863
$ — $ — $ 29,984
— 383,500
37,421
$ 29,984
393,928
$ 29,984
369,200
$ — $ —
—
24,728
3,600
3,600
—
— 3,600
489
489
—
—
489
_______________________________________________________________________________
(1)
(2)
(3)
Included in the line item "Cash and cash equivalents" on the Consolidated Balance Sheets.
The valuation approach used to calculate fair value was a discounted cash flow for each respective debt facility.
See Note 8, "Investment in NEC TOKIN," for a description of the NEC TOKIN options. The value of the options is
interrelated and depends on the enterprise value of NEC TOKIN Corporation and its EBITDA over the duration of the
instruments. Therefore, the options have been valued using option pricing methods in a Monte Carlo simulation.
The table below summarizes NEC TOKIN option valuation activity using significant unobservable inputs (Level 3)
(amounts in thousand):
March 31, 2013
Change in value of NEC TOKIN option
March 31, 2014
$
$
489
3,111
3,600
Revenue Recognition
The Company ships products to customers based upon firm orders and revenue is recognized when the sales process is
complete. This occurs when products are shipped to the customer in accordance with the terms of an agreement of sale, there is
a fixed or determinable selling price, title and risk of loss have been transferred and collectability is reasonably assured.
Shipping and handling costs are included in cost of sales.
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. The Company recognizes revenue when title to the products transfers to the customer.
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 inventory price protection and "ship-from-
stock and debit" ("SFSD") programs common in the industry.
KEMET's SFSD program provides authorized distributors with the flexibility to meet marketplace prices by allowing
them, upon a case-by-case pre-approved basis, to adjust their purchased inventory cost to correspond with current market
demand. Requests for SFSD adjustments are considered on an individual basis, require a pre-approved cost adjustment quote
from their local KEMET sales representative and apply only to a specific customer, part, a specified special price amount, a
specified quantity, and is only valid for a specific period of time. To estimate potential SFSD adjustments corresponding with
current period sales, KEMET records a sales reserve based on historical SFSD credits, distributor inventory levels, and certain
accounting assumptions, all of which are reviewed quarterly.
70
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
Most of the Company's distributors have the right to return to KEMET a certain portion of the purchased inventory,
which, in general, does 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. Estimates used in determining sales allowances are subject to various factors. This includes, but
is not limited to, changes in economic conditions, pricing changes, product demand, inventory levels in the supply chain, the
effects of technological change, and other variables that might result in changes to the Company's estimates.
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, 2014, 2013 and 2012. 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.
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 $19.9 million, $21.1 million, and $22.8 million in the fiscal years ended
March 31, 2014, 2013 and 2012, 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; and assets and obligations related
to employee benefits. Actual results could differ from these estimates and assumptions.
71
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Organization and Significant Accounting Policies (Continued)
Impact of Recently Issued Accounting Standards
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.
2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08). ASU
2014-08 changes the definition of a discontinued operations and modifies related disclosure requirements. The new guidance is
effective on a prospective basis for fiscal years beginning after December 15, 2014, and interim periods within annual periods
beginning on or after December 15, 2015. This new guidance is not expected to have a material impact on the Company's
Consolidated Financial Statements.
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740). ASU 2013-11 requires that an
unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a
deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions.
This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early
adoption permitted. ASU 2013-11 was effective for the Company on January 1, 2014 and did not have a material effect on the
Company's net income or other comprehensive income in the financial statements, the Company's financial position, results of
operations or cash flows.
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830). The ASU revised the
authoritative guidance on accounting for cumulative translation adjustment specifying that a cumulative translation adjustment
should be released into earnings when an entity ceases to have a controlling financial interest in a subsidiary or a group of
assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation
of the foreign entity. For sales of an equity method investment that is a foreign entity, a pro rata portion of cumulative
translation adjustment attributable to the investment would be recognized in earnings upon sale of the investment. The guidance
is effective for fiscal years beginning after December 15, 2013. The Company does not expect the adoption of this guidance to
have a material impact on its financial position, results of operations, comprehensive income or liquidity.
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income ("ASU 2013-02"). ASU 2013-02 requires registrants to provide information about the amounts
reclassified out of AOCI by component. In addition, an entity is required to present significant amounts reclassified out of
AOCI by the respective line items of net income. ASU 2013-02 is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2012. ASU 2013-02 was effective for the Company on April 1, 2013 and did not have a
material effect on the Company's net income or other comprehensive income in the financial statements, the Company's
financial position, results of operations or cash flows.
There are currently no other accounting standards that have been issued that may have a significant impact on the
Company's financial position, results of operations or cash flows upon adoption.
Note 2: Debt
A summary of debt is as follows (amounts in thousands):
10.5% Senior Notes, net of premium of $3,144 and $3,773 as of March 31, 2014 and 2013,
respectively
$
358,144
$
358,773
March 31,
2014
2013
Advanced payment from OEM, net of discount of $323 and $1,056 as of March 31, 2014
and 2013, respectively
Revolving line of credit
Other
Total debt
Current maturities, net of discount of $278 and $440 as of March 31, 2014 and 2013,
respectively
Total long-term debt
20,095
18,449
1,901
398,589
22,944
—
1,783
383,500
(7,297)
391,292
$
(10,793)
372,707
$
72
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
The line item "Interest expense" on the Consolidated Statements of Operations for the fiscal years 2014, 2013 and 2012,
respectively, is as follows (amounts in thousands):
Contractual interest expense
Amortization of debt issuance costs
Amortization of debt (premium) discount
Imputed interest on acquisition related obligations
Total interest expense
Revolving Line of Credit
Fiscal Years Ended March 31,
2014
2013
2012
37,366
$
37,193
$
24,967
1,704
105
1,787
1,704
(183)
2,617
1,081
1,742
777
40,962
$
41,331
$
28,567
$
$
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 $50.0 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 $30.0 million and the total facility does not
exceed $50.0 million. A portion of the U.S. facility and the Singapore facility can be used to issue letters of credit. Subsequent
to March 31, 2014, the Loan and Security Agreement was amended and as a result the expiration was extended to December,
31, 2015. The principal features of the amendment to the Loan and Security Agreement (the "Amendment") are reflected in the
description below.
Borrowings under the U.S. and Singapore facilities are subject to a borrowing base consisting 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 (i) $6.0 million and (ii) (a) on or prior to agent’s receipt of an updated inventory appraisal and
agent’s approval thereof, 40% of the value of Eligible Inventory (as defined in the agreement) and (b) upon
agent’s receipt of an updated inventory appraisal, 85% of the net orderly liquidation value of the Eligible
Inventory (as defined in the agreement) plus (C) the lesser of $5.1 million and 80% of the net orderly
liquidation percentage of the appraised value of equipment that satisfies certain eligibility criteria, as reduced on
the first day of each fiscal quarter occurring after April 30, 2014 in an amount equal to one-twentieth (1/20) of
such appraised value 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 as further specified in the Amendment, 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 2.50% and 3.00% for LIBOR advances and 1.50% and 2.00% for base rate advances, and under the Singapore
facility varies between 2.75% and 3.25% for LIBOR advances and 1.75% and 2.25% 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 a per annum rate equal to (a) 0.50%, if the average daily
balance of revolver loans and stated amount of letters of credit was 50% or less of the revolver commitments during the
preceding calendar month, or (b) 0.375%, if the average daily balance of revolver loans and stated amount of letters of credit
was more than 50% of the Revolver Commitment during the preceding calendar month. A customary fee is also payable to the
administrative agent on a quarterly basis.
73
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
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.
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. KEMET Singapore's bank accounts are maintained at Bank of America and
upon a Cash Dominion Trigger Event will become subject to full cash dominion in favor of the administrative agent.
A fixed charge coverage ratio of at least 1.1:1.0 must be maintained as at the last day of each fiscal quarter ending
immediately prior to or during any period in which any of the following occurs and is continuing until none of the following
occurs for a period of at least forty-five consecutive days: (i) an event of default, (ii) aggregate availability of all facilities has
been less than the greater of (A) 15% of the aggregate revolver commitments at such time and (B) $7.5 million, or
(iii) availability of the U.S. facility has been less than $3.75 million. The fixed charge coverage ratio tests the EBITDA and
fixed charges of KEMET Corporation and its subsidiaries on a consolidated basis.
In addition, the Loan and Security Agreement includes various 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 $0.2 million and $0.6 million
as of March 31, 2014 and 2013, respectively; these costs will be amortized over the term of the Loan and Security Agreement.
On September 24, 2013, the Company borrowed $9.0 million from the revolving line of credit at a rate of 5.75% (Base
Rate, as defined in the Loan and Security Agreement, plus 2.5% ). As this is a base rate borrowing, there is not a specific
repayment date and the amount can be repaid at any time prior to the expiration of the facility. On September 27, 2013, the
Company borrowed $12.0 million from the revolving line of credit at a rate of 4.0% LIBOR plus 3.75% based upon the fixed
charge coverage ratio of KEMET Corporation and its subsidiaries on a consolidated basis). The term on this borrowing was
originally 31 days with total interest and principal payable at maturity on October 28, 2013, however, it was extended to May
28, 2014. These borrowings are classified as non-current liabilities as the facilities were amended to expire on December 31,
2015. These were the only borrowings under the revolving line of credit and $18.4 million remained outstanding as of
March 31, 2014 after the Company made repayment of $2.6 million during the fiscal year ended March 31, 2014. Based upon
the March 31, 2014 financial statements, the Company's available borrowing capacity under the Loan and Security Agreement
was $7.1 million (after $16.9 million used for letters of credit as described below).
As described below in the section titled "Advanced Payment from OEM", a standby letter of credit for $16.0 million was
delivered to the OEM on October 8, 2012 and in fiscal year 2014, the Company issued two letters of credit for EUR 1.1 million
($1.5 million) and EUR 0.7 million ($0.9 million) related to the construction of the new manufacturing location in Italy. The
74
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
letter of credit for EUR 1.1 million ($1.5 million) was cancelled in February 2014. Outstanding letters of credit reduced the
Company's availability under the Loan and Security Agreement.
Advanced Payment from OEM
On August 28, 2012, the Company entered into and amended an agreement (the "Agreement"), with an original
equipment manufacturer (the "OEM") pursuant to which the OEM agreed to advance KEMET $24.0 million (the "Advance
Payment"). As of March 31, 2014 and 2013, the Company had $20.4 million and $24.0 million, respectively, outstanding due to
the OEM. On a monthly basis starting in June 2013, (eight months following the receipt of the Advance Payment), the
Company began repaying the OEM an amount equal to a percentage of the aggregate purchase price of the capacitors sold to
the OEM the preceding month, not to exceed $1.0 million per month. Pursuant to the terms of the Agreement, the percentage of
the aggregate purchase price of capacitors sold to the OEM that will be used to repay the Advance Payment will double, and the
total amount to be repaid will not exceed $2.0 million per month, in the event that (1) the OEM provides evidence that the price
charged by KEMET for a particular capacitor during any prior quarter was equal to or greater than 110% of the price paid by
the OEM or its affiliates for a third-party part qualified for the same product, and shipping in volume during such period, and
(2) agreement cannot be reached between the OEM and the Company for a price adjustment during the current quarter which
would bring KEMET's price within 110% of the third-party price. In June 2015 (thirty-two months after the date of the
Advance Payment), the remaining outstanding balance, if any, is due in full. Pursuant to the terms of the Agreement, an
irrevocable standby letter of credit in the amount of $16.0 million was delivered to the OEM on October 8, 2012 and on
October 22, 2012 the Company received the Advance Payment from the OEM. The debt discount related to the Advance
Payment as of March 31, 2014 and 2013 was $0.3 million and $1.1 million, respectively, which will be amortized over the term
of the Agreement.
The OEM may demand repayment of the entire balance outstanding or draw upon the Letter of Credit if any of the
following events occur while the Agreement is still in effect: (i) the Company commits a material breach of the Agreement, the
statement of work or the master purchase agreement between the OEM and the Company; (ii) the Company’s credit rating
issued by Standard & Poor’s Financial Services LLC or its successor or Moody’s Investors Services, Inc. or its successors drops
below CCC+ or Caa1, respectively; (iii) the Company’s cash balance on the last day of any fiscal quarter is less than $60.0
million ; (iv) the Letter of Credit has been terminated without being replaced prior to repayment of the Advance Payment
amount; (v) the Company or substantially all of its assets are sold to a party other than a subsidiary of the Company; (vi) all or
substantially all of the assets of a subsidiary of the Company, or any of the shares of such subsidiary, are sold, whose assets are
used to develop and produce the Goods; (vii) the Company or any subsidiary which accounts for 20% or more of the
Company’s consolidated total assets (“Company Entity”) applies for judicial or extra judicial settlement with its creditors,
makes an assignment for the benefit of its creditors, voluntarily files for bankruptcy or has a receiver or trustee in bankruptcy
appointed by reason of its insolvency, or in the event of an involuntary bankruptcy action, liquidation proceeding, dissolution or
similar proceeding is filed against a Company Entity and not dismissed within sixty ( 60 ) days. To the Company’s best
knowledge and belief, none of these events have been met including maintaining a minimum cash balance since the Company's
cash balance (including restricted cash under the OEM agreement) exceeds the $60.0 million threshold.
10.5% Senior Notes
On May 5, 2010, the Company issued 10.5% Senior Notes with an aggregate principal amount of $230.0 million which
resulted in net proceeds to the Company of $222.2 million.
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 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
75
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Debt (Continued)
number of important limitations and exceptions that are described in the 10.5% Senior Notes Indenture. The company is in
compliance with these debt covenants.
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.
On March 27, 2012 and April 3, 2012, the Company completed the sale of $110.0 million and $15.0 million aggregate
principal amount of its 10.5% Senior Notes due April 2018, respectively, at an issue price of 105.5% of the principal amount
plus accrued interest from November 1, 2011. The issuance resulted in a debt premium of $6.1 million which will be amortized
over the term of the 10.5% Senior Notes. The Senior Notes were issued as additional notes under the indenture, dated May 5,
2010, among the Company, the guarantors party thereto and Wilmington Trust Company, as trustee.
In total, debt issuance costs related to the 10.5% Senior Notes, net of amortization, were $5.4 million and $6.7 million as
of March 31, 2014 and 2013, respectively; these costs will be amortized over the term of the 10.5% Senior Notes. 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 $15.5 million at March 31, 2014 and 2013. The effective interest rate for the Senior Notes was
10.3% and 10.4% for the years ended March 31, 2014 and 2013, respectively.
The following table highlights the Company's annual cash maturities of debt (amounts in thousands):
Annual Maturities of Debt Fiscal Years Ended March 31,
2015
2016
2017
2018
2019
10.5% Senior Notes
$
— $
— $
— $
— $
355,000
Advanced payment from OEM
Revolving line of credit
Other
6,266
—
1,309
14,152
18,449
592
—
—
—
—
—
—
—
—
—
$
7,575
$
33,193
$
— $
— $
355,000
Note 3. Discontinued Operations
In December 2013 KEMET signed a letter of intent to sell the machinery division within Film and Electrolytic. At that
time the division qualified as held for sale and was classified as a discontinued operation. All historical financial results
contained in this Form 10-K have been revised due to the classification of the machinery division as a discontinued operation.
On April 30, 2014, the transaction closed.
76
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 3: Discontinued Operations (Continued)
Net sales and net operating loss from the Company’s discontinued operation for years ended March 31, 2014, 2013
and 2012 were as follows (in thousands):
Net sales
Operating income (loss)
Note 4: Restructuring
Fiscal Years Ended March 31,
2014
2013
2012
$
$
11,489
(3,730)
$
19,051
(4,203)
60,781
9,718
In the second quarter of fiscal year 2010, the Company initiated the first phase of a plan to restructure the Film and
Electrolytic Business Group ("Film and Electrolytic") and to reduce overhead within the Company. Since that time the
restructuring plan has been expanded to all business groups and 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.
A summary of the expenses aggregated on the Consolidated Statements of Operations line item "Restructuring charges" in
the fiscal years ended March 31, 2014, 2013 and 2012, is as follows (amounts in thousands):
Manufacturing and sales office relocation costs
Personnel reduction costs
Restructuring charges
Fiscal Year Ended March 31, 2014
Fiscal Years Ended March 31,
2014
2013
2012
$
$
3,555
10,567
14,122
$
$
2,349
16,370
18,719
$
$
1,920
12,334
14,254
The Company incurred $14.1 million in restructuring charges in the fiscal year ended March, 31, 2014 including $10.6
million related to personnel reduction costs which is primarily comprised of the following: $1.9 million related to the closure of
a portion of our innovation center in the U.S.; $1.2 million related to the reduction of the Solid Capacitor production workforce
in Mexico; $1.1 million related to the Company’s initiative to reduce overhead; $0.5 million in termination benefits associated
with converting the Weymouth, United Kingdom manufacturing facility into a technology center; $4.5 million related to
headcount reductions of 126 employees in Evora, Portugal due to the relocation of certain Solid Capacitors manufacturing
operations to Mexico; $0.9 million is related to a headcount reduction of 31 employees due to the consolidation of
manufacturing facilities in Italy and $0.4 million related to an additional Cassia Integrazione Guadagni Straordinaria (“CIGS”)
plan in Italy.
The additional expense related to CIGS is as a result of an agreement with the labor union which allowed the
Company to place up to 170 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 12 months during 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 and upon termination of the plan, the affected employees return to work.
In addition to these personnel reduction costs, the Company incurred manufacturing relocation costs of $3.6 million
due to the consolidation of Film and Electrolytic manufacturing facilities within Italy and relocation of Film and Electrolytic
manufacturing equipment to Evora, Portugal and Skopje, Macedonia and Solid Capacitors manufacturing equipment to Mexico.
Fiscal Year Ended March 31, 2013
Restructuring charges in the fiscal year ended March 31, 2013 include personnel reduction costs of $16.4 million and
manufacturing relocation costs of $2.3 million. The personnel reduction costs are comprised of the following: $2.8 million in
77
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 4: Restructuring (Continued)
termination benefits associated with converting the Landsberg, Germany manufacturing facility into a technology center; $2.9
million in termination benefits associated with converting the Weymouth, United Kingdom manufacturing facility into a
technology center; $1.5 million for reductions in production workforce in Mexico; $1.1 million for reductions in production
workforce in Portugal; $0.5 million for headcount reductions at an innovation center; $2.7 million for reductions in
administrative overhead primarily in the Corporate headquarters and $4.9 million for reductions in production workforce and
administrative overhead across the Company.
In addition to these personnel reduction costs, the Company incurred manufacturing relocation costs of $1.8 million for
relocation of equipment to Bulgaria, China, Macedonia and Mexico and for the consolidation of manufacturing operations
within Italy and $0.6 million in lease termination costs related to the closure of a sales office.
Fiscal Year Ended March 31, 2012
In fiscal year 2012, personnel reduction costs of $12.3 million were primarily comprised of the following: termination
benefits of $6.1 million related to facility closures in Italy that commenced during fiscal year 2013 and charges of $4.5 million
were incurred by the Company to participate in a plan to save labor costs whereby a company may temporarily "lay off"
employees while the government continues to pay their wages for a certain period of time. The program is called Cassia
Integrazione Guadagni Straordinaria ("CIGS"). In addition, the Company incurred $1.7 million in personnel reduction costs
primarily due to headcount reductions within Solid Capacitor's operations in Mexico. The Company also incurred
manufacturing relocation costs of $1.9 million for the relocation of equipment to China and Mexico in fiscal year 2012.
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):
Balance at March 31, 2011
Costs charged to expense
Costs paid or settled
Change in foreign exchange
Balance at March 31, 2012
Costs charged to expense
Costs paid or settled
Change in foreign exchange
Balance at March 31, 2013
Costs charged to expense
Costs paid or settled
Change in foreign exchange
Balance at March 31, 2014
Note 5: Impairment Charges
Personnel
Reductions
Manufacturing
and Sales Office
Relocation Costs
$
1,827
$
12,334
(2,592)
(95)
11,474
16,370
(13,976)
(359)
13,509
10,567
(18,235)
376
$
6,217
$
—
1,920
(1,920)
—
—
2,349
(1,782)
—
567
3,555
(4,122)
—
—
During fiscal years 2014, 2013 and 2012, the Company incurred impairment charges totaling $4.5 million, $7.6 million,
and $15.8 million, respectively. The impairment charges are recorded on the Consolidated Statements of Operations line item
“Write down of long-lived assets” in fiscal years 2014, 2013 and 2012.
The Company's restructuring of its Evora, Portugal manufacturing operations, is expected to be substantially complete
by June 30, 2014. As a part of the ongoing restructuring activities, the Company has relocated certain Solid Capacitor
manufacturing operations from the Evora, Portugal facility to a manufacturing facility in Mexico and the remaining Solid
Capacitor equipment in Portugal will be disposed. During fiscal year 2013, using an income approach to estimate the fair value
of assets to be disposed, the Company incurred impairment charges totaling $3.1 million ($0.07 per basic and diluted share)
related to the Solid Capacitors restructuring activities. In fiscal year 2014 Solid Capacitors incurred $3.9 million ($0.09 per
78
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 5: Impairment Charges (Continued)
basic and diluted share) in additional impairment charges due to a decrease in forecasted revenues. In addition, during fiscal
year 2014, the Company incurred impairment charges totaling $0.6 million ($0.01 per basic and diluted share) related to Film
and Electrolytic manufacturing equipment in Italy.
Also in fiscal year 2013, in connection with the consolidation of two manufacturing facilities within Italy, the Company
incurred impairment charges totaling $4.2 million ($0.09 per basic and diluted share) related to the Film and Electrolytic
Business Group ("Film and Electrolytic"). The Company obtained appraisals for each of these facilities indicating there was a
decrease in the market price of the manufacturing facilities, and therefore, the carrying amounts for these manufacturing
facilities were reviewed for recoverability. It was determined that the carrying amounts of the manufacturing facilities were not
recoverable since they exceeded the sum of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset (asset group). The impairment was measured as the amount by which the carrying amount of a long-
lived asset (asset group) exceeded its fair value. The Company utilized the market approach to estimate fair value of the long-
lived asset group.
In addition, in fiscal year 2013 the Company incurred a $0.3 million ($0.01 per basic and diluted share) charge related to
the write-off of a trademark which is no longer utilized.
During fiscal year 2012, the Company incurred impairment charges totaling $15.8 million ($0.36 per basic share and
$0.30 per diluted share) related to Solid Capacitors. Certain Solid Capacitors equipment was disposed of since the equipment
could not meet customer demands for lower Equivalent Series Resistance capacitors. The impairment amount of $15.8 million
was the carrying amount of the equipment, less the scrap value net of disposal costs.
Note 6: Acquisitions
Cornell Dubilier Foil, LLC
On June 13, 2011, the Company completed its acquisition of Cornell Dubilier Foil, LLC (whose name was subsequently
changed to KEMET Foil Manufacturing, LLC ("KEMET Foil")), a Tennessee based manufacturer of etched foils utilized as a
core component in the manufacture of aluminum electrolytic capacitors. The undiscounted purchase price was $15.0 million
plus a $0.5 million working capital adjustment, of which $11.6 million (net of cash received) was paid at closing and $1.0
million was paid on the first and second anniversary of the closing date and $1.0 million is due on June 13, 2014. The Company
recorded goodwill of $1.1 million and amortizable intangibles of $1.7 million. The allocation of the purchase price to specific
assets and liabilities was based on the relative fair value of all assets and liabilities. Factors contributing to the purchase price
which resulted in the goodwill (which is tax deductible) included the trained workforce. Pro forma results are not presented
because the acquisition was not material to the consolidated financial statements. KEMET Foil is included within Film and
Electrolytic.
The total discounted purchase price for KEMET Foil was $15.3 million and is comprised of (amounts in thousands):
Cash at closing
Deferred payments (discounted)
Working capital adjustment
$
$
12,000
2,815
526
15,341
The purchase price was determined through arms-length negotiations between representatives of the Company and
Cornell Dubilier Marketing, Inc.
79
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 6: Acquisitions (Continued)
The following table presents the final allocations of the aggregate purchase price based on the assets and liabilities
estimated fair values (amounts in thousands):
Cash
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Goodwill
Intangible assets
Current liabilities
Total net assets acquired
Fair Value
416
2,577
3,382
84
9,534
1,092
1,660
(3,404)
15,341
$
$
As discussed in Note 7, "Goodwill and Intangible Assets," the goodwill recorded for KEMET Foil was fully impaired in
fiscal year 2013.
Niotan Incorporated
On February 21, 2012, KEMET acquired all of the outstanding shares of Niotan Incorporated, whose name was
subsequently changed to KEMET Blue Powder Corporation ("Blue Powder"), a manufacturer of tantalum powders, from an
affiliate of Denham Capital Management LP. Blue Powder has its headquarters and principal operating location in Carson City,
Nevada. KEMET paid an initial purchase price of $30.5 million (net of cash received) at the closing of the transaction.
Additional deferred payments of $45 million are payable over a thirty-month period after the closing and a working capital
adjustment of $0.4 million which was paid in April 2012. In fiscal years 2014 and 2013 KEMET has made installment
payments totaling $20.0 million and $15.0 million, respectively. KEMET will also be required to make quarterly royalty
payments for tantalum powder produced by Blue Powder, in an aggregate amount equal to $10.0 million by December 31,
2014, and KEMET made payments of $1.5 million through March 31, 2014. As of March 31, 2014 deferred payment of $18.6
million remain due to the seller in fiscal year 2015. The Company determined that the royalty payments should be treated as
part of the consideration for Blue Powder instead of a separate transaction because (i) it is paid to the selling shareholder who is
not continuing with Blue Powder, (ii) it was based solely on the negotiation process and (iii) KEMET now owns the technology.
The Company recorded goodwill of $35.6 million and amortizable intangibles of $22.4 million. The allocation of the purchase
price to specific assets and liabilities was based on the relative fair value of all assets and liabilities. Factors contributing to the
purchase price which resulted in the goodwill (which is not tax deductible) include market recognition of the world class quality
of Blue Powder's tantalum powder, the Company's cost savings due to vertical integration and Blue Powder's ability to provide
a constant and reliable supply of tantalum powder. Pro forma results are not presented because the acquisition was not material
to the consolidated financial statements. Blue Powder is included within Solid Capacitors.
The total discounted purchase price for Blue Powder was $82.0 million which includes (amounts in thousands):
Cash at closing
Deferred payments (discounted)
Royalty payments (discounted)
Working capital adjustment
$
$
30,656
41,938
8,975
403
81,972
The purchase price was determined through arms-length negotiations between representatives of the Company and
Denham Capital Management LP.
80
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 6: Acquisitions (Continued)
The following table presents the final allocations of the aggregate purchase price based on the assets and liabilities
estimated fair values (amounts in thousands):
Cash
Accounts receivable
Inventories
Prepaid expenses
Property, plant and equipment
Goodwill
Intangible assets
Deferred income taxes
Other noncurrent assets
Current liabilities
Long-term liabilities
Total net assets acquired
Fair Value
153
479
7,305
186
15,122
35,584
22,420
311
1,303
(873)
(18)
81,972
$
$
The following table presents the amounts assigned to intangible assets (amounts in thousands except useful life data):
Developed technology
Software
Fair Value
Useful
Life (years)
$
$
22,300
120
22,420
18
4
The useful life for developed technology of 18 years is based on the history of the underlying chemical processes and an
estimate of the future economic benefit. The Company also considered that the technology was developed approximately 4
years ago and considered functional obsolescence. The useful life for software is based upon its implementation in 2011 and
taking into consideration functional obsolescence.
Note 7: Goodwill and Intangible Assets
The following table highlights the Company's intangible assets (amounts in thousands):
Indefinite Lived Intangible Assets:
Trademarks
Amortizing Intangibles:
Purchased technology, customer relationships and
patents (3 - 18 years)
$
$
March 31, 2014
March 31, 2013
Carrying
Amount
Accumulated
Amortization
Carrying
Amount
Accumulated
Amortization
7,207
$
— $
7,207
$
—
44,428
14,451
43,227
51,635
$
14,451
$
50,434
$
11,788
11,788
For fiscal years ended March 31, 2014, 2013 and 2012 amortization related to intangibles was $2.1 million, $2.3 million
and $2.0 million, respectively. The weighted average useful life of amortized intangibles was 16 years in the fiscal years ended
March 31, 2014 and 2013. Estimated amortization of intangible assets for the each of the next five fiscal years is $2.1 million
and, thereafter, amortization will total $19.4 million.
81
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 7: Goodwill and Intangible Assets (Continued)
For fiscal year 2014, the Company completed its impairment test on goodwill and intangible assets with indefinite useful
lives as of January 1, 2014 and concluded that goodwill and indefinite-lived assets were not impaired.
In fiscal year 2013, the Company's annual goodwill and other indefinite-lived intangible asset impairment test resulted in
a $1.1 million goodwill impairment charge, which represented all of the goodwill related to the KEMET Foil
Manufacturing, LLC ("KEMET Foil") reporting unit due to reduced earnings and cash flows caused by macro-economic factors
and excess capacity in our industry.
The changes in the carrying amount of goodwill for the years ended March 31, 2014 and 2013 are as follows (amounts in
thousands):
Gross balance at beginning of fiscal year
Goodwill
Accumulated impairment losses
Net balance at the end of the year
Impairment charges
Balance at the end of the year
Goodwill
Accumulated impairment losses
Balance at the end of the year, net
Note 8: Investment in NEC TOKIN
Fiscal Year 2014
Fiscal Year 2013
$
$
$
$
$
36,676
(1,092)
35,584
$
$
36,676
—
36,676
— $
(1,092)
36,676
(1,092)
35,584
$
$
36,676
(1,092)
35,584
On March 12, 2012, KEMET Electronics Corporation ("KEC"), a wholly owned subsidiary of the Company, entered into
a Stock Purchase Agreement (the "Stock Purchase Agreement") with NEC TOKIN Corporation ("NEC TOKIN"), a
manufacturer of tantalum capacitors, electro-magnetic, electro-mechanical and access devices, to acquire 51% of the commmon
stock of NEC TOKIN (which represents a 34% economic interest, as calculated based on the number of common shares held by
KEC, directly and indirectly, in proportion to the aggregate number of common and preferred shares of NEC TOKIN as of such
date) (the "Initial Purchase") from NEC Corporation ("NEC") of Japan. The transaction closed on February 1, 2013, at which
time KEC paid a purchase price of $50.0 million for new shares of common stock of NEC TOKIN (the "Initial Closing"). The
Company accounts for its investment in NEC TOKIN using the equity method for a non-consolidated variable interest entity
since KEC does not have the power to direct significant activities of NEC TOKIN. The Company believes that the NEC
TOKIN preferred stock represents in-substance common stock of NEC TOKIN and, as a result, its method of calculating KEC’s
economic basis in NEC TOKIN is the appropriate basis on which to recognize its share of the earnings or loss of NEC TOKIN.
In connection with KEC's execution of the Stock Purchase Agreement, KEC entered into a Stockholders' Agreement (the
"Stockholders' Agreement") with NEC TOKIN and NEC, which provides for restrictions on transfers of NEC TOKIN's capital
stock, certain tag-along and first refusal rights on transfer, restrictions on NEC's ability to convert the preferred stock of NEC
TOKIN held by it, certain management services to be provided to NEC TOKIN by KEC (or an affiliate of KEC) and certain
board representation rights. KEC holds four of seven NEC TOKIN director positions. However, NEC has significant board
rights.
Concurrent with execution of the Stock Purchase Agreement and the Stockholders' Agreement, KEC entered into an
Option Agreement (the "Option Agreement") with NEC whereby KEC may purchase additional shares of NEC TOKIN
common stock from NEC TOKIN for a purchase price of $50.0 million resulting in an economic interest of approximately 49%
while maintaining ownership of 51% of NEC TOKIN's common stock (the "First Call Option") by providing notice of the First
Call Option between the Initial Closing and August 31, 2014. Upon providing such notice, but not before August 1, 2014, KEC
may also exercise an option to purchase all outstanding capital stock of NEC TOKIN from its stockholders, primarily NEC, for
a purchase price based on the greater of six times LTM EBITDA (as defined in the Option Agreement) less the previous
payments and certain other adjustments, or the outstanding amount of NEC TOKIN's debt obligation to NEC (the "Second Call
Option") by providing notice of the Second Call Option by May 31, 2018. From August 1, 2014 through May 31, 2018, NEC
82
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8: Investment in NEC TOKIN (Continued)
may require KEC to purchase all outstanding capital stock of NEC TOKIN from its stockholders, primarily NEC. However,
NEC may only exercise this right (the "Put Option") from August 1, 2014 through April 1, 2016 if NEC TOKIN achieves
certain financial performance measures. The purchase price for the Put Option will be based on the greater of six times LTM
EBITDA less previous payments and certain other adjustments, or the outstanding amount of NEC TOKIN's debt obligation to
NEC as of the date the Put Option is exercised. The purchase price for the Put Option is reduced by the amount of NEC
TOKIN's debt obligation to NEC which KEC will assume. The determination of the purchase price will be modified in the
event there is an unresolved agreement between NEC and us under the Stockholders' Agreement. In the event the Put Option is
exercised, NEC will be required to maintain in place the outstanding debt obligation owed by NEC TOKIN to NEC. The
Company valued these options as a net call derivative of $0.5 million which is included in line item "Other Assets" on the
Consolidated Balance Sheets. The Company has marked these options to fair value and in the fiscal year ended March 31, 2014
recognized a $3.1 million gain which was included on the line item “Other expense, net” in the Consolidated Statement of
Operations. The value included for the options in the line item “Other assets” on the Consolidated Balance Sheets as of
March 31, 2014, is $3.6 million.
KEC's total investment in NEC TOKIN including the net call derivative described above on February 1, 2013 was $54.5
million which includes $50.0 million cash consideration plus approximately $4.5 million in transaction expenses (fees for legal,
accounting, due diligence, investment banking and other various services necessary to complete the transactions). The
Company has made an allocation of the aggregate purchase price, which were based upon estimates that the Company believes
are reasonable.
Summarized financial information for NEC TOKIN follows (in thousands):
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net sales
Gross profit
Net loss
March 31,
2014
March 31,
2013
$
245,709 $
220,652
302,161
120,929
360,908
422,246
121,238
411,789
Fiscal Year
March 31,
2014
512,073 $
90,325
(42,937)
Two Months
Ended
March 31,
2013
82,772
9,147
(2,216)
$
83
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8: Investment in NEC TOKIN (Continued)
A reconciliation between NEC TOKIN's net loss and KEMET's equity investment loss follows (in thousands):
Fiscal year
Ended
March 31,
2014
Two Months
Ended
March 31,
2013
NEC TOKIN net Loss
KEMET's equity ownership %
Equity loss from NEC TOKIN before Adjustments
Adjustments:
Amortization and depreciation
Gain on sale of long-lived assets adjustment
Loss on impairment of long-lived assets adjustment
Inventory valuation adjustment
Equity Loss from NEC TOKIN
$
$
$
(42,937) $
34%
(14,599) $
(1,390)
(5,998)
14,643
254
(7,090) $
(2,216)
34%
(753)
(247)
—
—
(254)
(1,254)
A reconciliation between NEC TOKIN's net assets and KEMET's equity investment balance follows (in thousands):
March 31, 2014
March 31, 2013
Investment in NEC TOKIN
$
46,419 $
Purchase price accounting basis adjustment:
Property, plant and equipment
Technology
Long-term debt
Goodwill
Other
KEMET's 34% interest of NEC TOKIN's equity
$
7,325
(16,261)
(4,754)
(9,326)
(952)
22,451 $
52,738
21,593
(18,000)
(5,824)
(9,326)
(3,825)
37,356
The above basis differences (except Goodwill) are being amortized over the respective estimated life of the assets. As
of March 31, 2014, KEC's maximum loss exposure as a result of its investments in NEC TOKIN is limited to the aggregate of
the carrying value of the investment and any accounts receivable balance. For the fiscal year ended March 31, 2014, KEMET
recorded sales of $6.0 million to NEC TOKIN. As of March 31, 2014, KEMET’s accounts receivable and accounts payable
balances with NEC TOKIN were $2.0 million and $0.1 million respectively. In accordance with the Stockholders’ Agreement,
KEC entered into a management services agreement to provide services for which KEC would be reimbursed. As of March 31,
2014, KEMET’s receivable balance under this agreement is $0.7 million.
In March and April, 2014, NEC TOKIN and certain of its subsidiaries received inquiries, requests for information and
other communications from government authorities in China, the United States, the European Commission, Japan and South Korea
concerning alleged anti-competitive activities within the capacitor industry. According to NEC TOKIN, the investigations are at
an early stage. As of this date, NEC TOKIN has not recorded an accrual as a result of the investigations.
Note 9: Segment and Geographic Information
The Company is organized into two business groups: Solid Capacitors and Film and Electrolytic based primarily on
product lines. Each business group is responsible for their respective manufacturing operations and research and development
efforts. Beginning in fiscal year 2013, the Company did not allocate indirect Selling, general and administrative ("SG&A") and
Research and Development ("R&D") expenses to the business groups to be consistent with its internal management reporting.
84
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 9: Segment and Geographic Information (Continued)
Prior period information has been reclassified to conform to this convention. Substantially all research and development
expenses are direct costs to the respective business group.
Solid Capacitors
Operating in nine manufacturing sites in the United States, Mexico, China and Portugal, Solid Capacitors primarily
produces tantalum, aluminum, polymer and ceramic capacitors which are sold globally. Solid Capacitors also produces
tantalum powder used in the production of tantalum capacitors and has a product innovation center in the United States.
Film and Electrolytic
Film and Electrolytic operates twelve manufacturing sites throughout Europe, Asia, Mexico and the United States and
produces film, paper, and electrolytic capacitors which are sold globally. In addition, the business group has product innovation
centers in the United Kingdom, Italy, Germany and Sweden.
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):
Net sales:
Solid Capacitors
Film and Electrolytic
Operating income (loss)(1)(2)(3):
Solid Capacitors
Film and Electrolytic
Corporate
Consolidated operating income (loss)
Depreciation and amortization:
Solid Capacitors
Film and Electrolytic
Corporate
Capital expenditures:
Solid Capacitors
Film and Electrolytic
Corporate
Fiscal Years Ended March 31,
2014
2013
2012
626,494
207,172
833,666
$
$
622,305
201,598
823,903
$
$
630,762
293,290
924,052
$
91,848
(17,587)
(92,472)
(18,211) $
$
94,986
(31,109)
(98,957)
(35,080) $
111,769
12,347
(96,033)
28,083
28,081
$
27,407
$
14,557
6,889
49,527
10,498
14,494
7,155
$
$
13,360
4,391
45,158
16,838
23,970
5,366
$
$
32,147
$
46,174
$
27,939
11,398
4,064
43,401
19,039
21,539
8,736
49,314
$
$
$
$
$
$
$
$
_______________________________________________________________________________
85
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 9: Segment and Geographic Information (Continued)
(1)
Restructuring charges included in Operating income (loss) were as follows (amounts in thousands):
Total restructuring:
Solid Capacitors
Film and Electrolytic.
Restructuring charges
Fiscal Years Ended March 31,
2014
2013
2012
$
$
8,108
5,657
357
14,122
$
$
7,335
9,621
1,763
18,719
$
$
1,161
13,093
—
14,254
(2)
Impairment charges and write downs included in Operating income (loss) were as follows (amounts in thousands):
Impairment and write down of long-lived assets:
Solid Capacitors
Film and Electrolytic
Fiscal Years Ended
March 31,
2014
2013
2012
$
$
3,920
556
4,476
$
$
3,348
5,326
8,674
$
$
15,786
—
15,786
(3)
thousands):
(Gain) loss on sales and disposals of assets included in Operating income (loss) were as follows (amounts in
(Gain) loss on sales and disposals of assets:
Solid Capacitors
Film and Electrolytic
Corporate
Fiscal Years Ended
March 31,
2014
2013
2012
$
$
(705) $
767
(30)
32
$
(161) $
179
—
18
$
338
(20)
—
318
_______________________________________________________________________________
Total assets:
Solid Capacitors
Film and Electrolytic.
Corporate
March 31,
2014
2013
$
$
479,377
$
287,861
76,429
525,270
300,501
85,820
843,667
$
911,591
86
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 9: Segment and Geographic Information (Continued)
The following highlights net sales by geographic location (amounts in thousands):
United States
Hong Kong
Germany
Europe (2)(3)
China
Asia Pacific (2)(3)
United Kingdom
Netherlands
Singapore
Italy
Hungary
Mexico
Other Countries (2)
Fiscal Years Ended March 31,(1)
2014
2013
2012
245,032
135,570
105,261
70,895
67,460
51,467
36,085
33,581
27,777
20,249
18,332
17,886
4,071
833,666
$
$
228,975
148,014
105,818
82,021
70,696
50,735
34,188
24,568
25,060
21,203
13,554
15,923
3,148
823,903
$
$
219,785
147,054
138,700
133,378
79,681
43,433
39,512
19,447
33,586
31,064
16,206
16,944
5,262
924,052
$
$
_______________________________________________________________________________
(1)
Revenues are attributed to countries or regions based on the location of the customer. Nets Sales to one customer
exceeded 10% of total net sales as follows: $128.4 million, $127.7 million and $125.3 million in fiscal years 2014,
2013 and 2012, respectively. Solid Capacitor sales to one customer over 10% were $115.5 million, $119.0 million and
$112.3 million in fiscal years 2014, 2013 and 2012, respectively. Film and Electrolytic sales to one customer over
10% were $12.9 million, $8.7 million and $13.0 million in fiscal years 2014, 2013 and 2012, respectively.
(2)
Excluding the specific countries listed in this table, no country included in this caption exceeded 2% of consolidated
net sales for fiscal years 2014, 2013 and 2012.
_______________________________________________________________________________
The following geographic information includes Property, plant and equipment, net, based on physical location
(amounts in thousands):
United States
Mexico
Italy
China
Portugal
Macedonia
Indonesia
Finland
United Kingdom
Other
March 31,
2014
2013
$
64,754
$
67,154
61,726
31,405
23,817
21,044
6,026
2,280
492
13,950
71,447
69,870
51,800
33,873
28,716
18,724
7,243
2,435
5,246
14,328
$
292,648
$
303,682
87
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 10: Pension and Other Post-retirement Benefit Plans
The Company sponsors defined benefit pension plans which include six 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.
In July 2012, Film and Electrolytic paid out retirement benefits which represented more than 20% of a plan's pension
obligation. As a result, the Company recognized a settlement gain of $1.7 million. In the second half of fiscal year 2013, the
Company recognized a curtailment loss of $2.0 million as a result of headcount reductions within a sales office, this curtailment
was allocated equally to each business group.
The Company has two post-retirement benefit plans: health care and life insurance benefits for certain retired United
States employees who reached 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. A summary of the changes in benefit
obligations and plan assets is as follows (amounts in thousands):
Change in Benefit Obligation
Benefit obligation at beginning of the year
$
39,096
$
47,892
$
799
$
1,057
Pension
Other Benefits
2014
2013
2014
2013
Service cost
Interest cost
Plan participants' contributions
Plan amendments
Actuarial (gain) loss
Foreign currency exchange rate change
Gross benefits paid
Curtailments and settlements
Benefit obligation at end of year
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
Fair value of plan assets at end of year
Funded status at end of year
Fair value of plan assets
Benefit obligations
Amount recognized at end of year
1,308
1,734
—
285
(377)
2,009
(1,302)
(38)
42,715
8,806
260
874
1,346
(38)
—
(1,302)
9,946
$
$
$
1,583
1,903
73
—
4,108
(1,391)
(1,300)
(13,772)
39,096
17,156
1,097
(799)
2,490
(9,911)
73
(1,300)
8,806
—
23
555
—
94
—
(686)
—
785
$
— $
—
—
131
—
555
(686)
$
$
$
— $
$
9,946
(42,715)
(32,769) $
$
8,806
(39,096)
(30,290) $
— $
(785)
(785) $
$
$
$
$
$
—
27
503
—
(145)
—
(643)
—
799
—
—
—
140
—
503
(643)
—
—
(799)
(799)
The Company expects to contribute $1.6 million to the pension plans in fiscal year 2015, which includes direct
contributions to be made for funded plans and benefit payments to be made for unfunded plans.
88
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 10: Pension and Other Post-retirement Benefit Plans (Continued)
The Company does not prefund its post-retirement health care and life insurance benefit plans. As a result, the Company
is responsible annually for the payment of benefits as incurred by the plans. The Company anticipates making payments of $88
thousand during fiscal year 2015. Amounts recognized in the Consolidated Balance Sheets consist of the following (amounts in
thousands):
Current liability
Noncurrent liability
Amount recognized, end of year
Pension
Other Benefits
2014
2013
2014
2013
$
$
(615) $
(32,154)
(32,769) $
(644) $
(29,646)
(30,290) $
(88) $
(697)
(785) $
(90)
(709)
(799)
Amounts recognized in Accumulated other comprehensive income (loss) consist of the following (amounts in
thousands):
Net actuarial loss (gain)
Prior service cost
Accumulated other comprehensive income
Pension
Other Benefits
2014
2013
2014
2013
$
$
9,269
310
9,579
$
$
9,742
32
9,774
$
$
(1,464) $
—
(1,464) $
(1,818)
—
(1,818)
The tax effect on the above balances was $2.2 million and $2.1 million as of March 31, 2014 and 2013, respectively.
Components of benefit costs (credit) consist of the following (amounts in thousands):
2014
Pension
2013
2012
2014
2013
2012
Other Benefits
$
1,308
$
1,583
$
1,310
$
— $
— $
Net service cost
Interest cost
Expected return on plan assets
Amortization:
Actuarial (gain) loss
Prior service cost
Recurring activity
Curtailment expense
1,734
(454)
318
4
2,910
(32)
1,903
(656)
544
20
3,394
266
2,111
(712)
392
25
3,126
—
23
—
27
—
(259)
—
(236)
—
(236) $
(322)
—
(295)
—
(295) $
—
44
—
(323)
—
(279)
—
(279)
Net periodic benefit cost (credit)
$
2,878
$
3,660
$
3,126
$
The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit
costs in fiscal year 2015 are actuarial losses of $88 thousand, and prior service costs of $18 thousand.
89
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 10: Pension and Other Post-retirement Benefit Plans (Continued)
The asset allocation for the Company's defined benefit pension plans at March 31, 2014 and the target allocation for 2014,
by asset category, are as follows:
Asset Category
Insurance(1)
International equities
International bonds
Other
Total
Target
Allocation
(%)
Plan Assets
at March 31,
2014
(%)
10
30
50
10
100
7
35
57
1
100
_______________________________________________________________________________
(1)
Comprised of assets held by the defined benefit pension plan in Germany.
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 asset 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.
Other changes in plan assets and benefit obligations recognized in Accumulated other comprehensive income (loss) are as
follows (amounts in thousands):
2014
Pension
2013
2012
2014
2013
2012
Other Benefits
Current year actuarial (gain) loss
Foreign currency exchange rate changes
Amortization of actuarial gain (loss)
Current year prior service cost
Amortization of prior service cost
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and
other comprehensive income (loss)
$
$
$
$
(190) $
—
(286)
285
(4)
3,669
(238)
(4,582)
—
(101)
(195) $ (1,252) $
2,845
(218)
(392)
—
(25)
2,210
2,683
$
2,408
$
5,336
259
—
—
—
354
118
$
$
$
95
$
(145) $
322
(206)
323
—
—
—
—
—
—
$
$
177
$
117
(118) $
(162)
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):
Pension benefits
Other benefits
Total
Expected benefit payments
2015
2016
2017
2018
2019
2020 - 2024
$
$
1,476
89
1,565
$
$
1,575
87
1,662
$
$
1,680
83
1,763
$
$
1,615
79
1,694
$
$
1,959
75
2,034
$
$
10,765
297
11,062
90
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 10: 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):
Pension
Other Benefits
2014
2013
2014
2013
Projected benefit obligation:
Discount rate
Rate of compensation increase
Health care cost trend on covered charges
Net periodic benefit cost:
Discount rate
Rate of compensation increase
Expected return on plan assets
Health care cost trend on covered charges
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
4.5%
3.4%
—
4.5%
3.5%
4.9%
—
4.5%
3.5%
—
4.2%
2.9%
4.0%
—
3.4%
—
2.8%
—
7.0%
decreasing to
ultimate trend
of 5% in 2018
7.0%
decreasing to
ultimate trend
of 5% in 2017
2.8%
—
—
3.5%
—
—
7.0%
decreasing to
ultimate trend
of 5% in 2017
7.5%
decreasing to
ultimate trend
of 5% in 2017
$
— $
15
—
(13)
—
11
—
(10)
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.
91
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 10: 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, 2014 and March 31, 2013 (amounts in thousands):
Fair Value
March 31,
2014
Fair Value Measurement Using
Level 1
Level 2
Level 3
Fair Value
March 31,
2013
Fair Value Measurement Using
Level 1
Level 2
Level 3
Cash and cash equivalents
$
— $
— $
— $
— $
— $
— $
— $
Equity securities:
International equities
3,512
3,512
Fixed income securities:
International bonds
Insurance contracts
Other
5,636
5,636
706
92
—
92
—
—
—
—
—
2,884
2,884
—
706
—
5,098
5,098
636
188
—
188
—
—
—
—
$
9,946
$ 9,240
$
— $
706
$
8,806
$ 8,170
$
— $
—
—
—
636
—
636
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, 2014 (amounts in thousands):
Balance at March 31, 2013
Actual return on plan assets
Employer contributions
Settlements
Benefits paid
Foreign currency exchange rate change
Balance at March 31, 2014
$
$
636
29
247
—
(255)
49
706
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 $189 thousand in fiscal year 2014, $141 thousand in fiscal year 2013, and $26 thousand in fiscal year 2012. Total
benefits accrued under this plan were $1.6 million and $1.9 million at March 31, 2014 and March 31, 2013, 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. The Company matches contributions to the
Savings Plan up to 6% of the employee's salary. The Company made matching contributions of $2.2 million, $2.5 million and
$2.2 million in fiscal years 2014, 2013, and 2012, respectively.
Note 11: 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.
92
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 11: Stock-Based Compensation (Continued)
The major components of stock-based compensation expense are as follows (amounts in thousands):
Fiscal Year Ended
March 31, 2014
Fiscal Year Ended
March 31, 2013
Fiscal Year Ended
March 31, 2012
Stock
Options
Restricted
Stock
LTIPs
Stock
Options
Restricted
Stock
LTIPs
Stock
Options
Restricted
Stock
LTIPs
Cost of sales
$
421
$
62
$
523
$
710
$
445
$
356
$
542
$
81
$ 176
Selling, general and
administrative expenses
Research and development
Employee Stock Options
413
5
580
—
712
193
872
58
1,303
—
725
130
788
—
688
—
800
—
$
839
$
642
$ 1,428
$ 1,640
$
1,748
$ 1,211
$ 1,330
$
769
$ 976
At March 31, 2014, the Company had four stock option plans that reserved shares of common stock for issuance to
executives and key employees: the 1992 Key Employee Stock Option Plan, the 1995 Executive Stock Option Plan, the 2004
Long-Term Equity Incentive Plan (collectively, the "Prior Plans") and the 2011 Omnibus Equity Incentive Plan (the "2011
Incentive Plan"). All of these plans were approved by the Company's stockholders. The 2011 Incentive Plan authorized the grant
of up to 4.8 million shares of the Company's common stock, which is comprised of 4.0 million shares under the new plan and 0.8
million shares which remained under the Prior Plans. The 2011 Incentive Plan authorizes the Company to provide equity-based
compensation in the form of (1) stock options, including incentive stock options, entitling the optionee to favorable tax treatment
under Section 422 of the Code; (2) stock appreciation rights; (3) restricted stock and restricted stock units; (4) other share-based
awards; and (5) performance awards. Options issued under these plans vest within one to three years and expire ten years from the
grant date. Stock options granted to the Company's Chief Executive Officer on January 27, 2010 vest 50% on June 30, 2014 and
50% on June 30, 2015. If available, the Company issues shares of Common Stock from treasury stock upon exercise of stock
options and vesting of restricted stock units. The Company has no plans to purchase additional shares in conjunction with its
employee stock option program in the near future.
Employee stock option activity for fiscal year 2014 is as follows (amounts in thousands, except exercise price, fair value
and contractual life):
Outstanding at March 31, 2013
Granted
Exercised
Forfeited
Expired
Outstanding at March 31, 2014
Exercisable at March 31, 2014
Remaining weighted average contractual life of options exercisable (years)
Remaining weighted average contractual life of options outstanding (years)
Options
1,817
$
312
(89)
(280)
(109)
1,651
1,000
$
Weighted-
Average
Exercise
Price
11.64
5.89
2.82
12.34
38.43
9.15
11.30
5.4
6.6
At March 31, 2014 and 2013, the weighted average grant-date fair value of non-vested shares was $3.13 and $4.09,
respectively. The weighted average grant-date fair value of shares granted, vested, and forfeited during fiscal year 2014 was
$2.71, $4.55 and $5.47, respectively. The total estimated fair value of shares vested during fiscal years 2014, 2013 and 2012 was
$1.1 million, $1.7 million and $0.6 million, respectively. The intrinsic value of stock options exercised in fiscal years 2014, 2013,
and 2012 was $0.2 million, $0.2 million and $1.0 million, respectively.
As of March 31, 2014, the intrinsic value related to options outstanding was $1.0 million. The intrinsic value of options
currently exercisable was $0.7 million. Total unrecognized compensation cost, net of estimated forfeitures, related to non-vested
options was $0.9 million as of March 31, 2014. This cost is expected to be recognized over a weighted-average period of
93
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 11: Stock-Based Compensation (Continued)
1.2 years. At March 31, 2014 and 2013, respectively, the weighted average exercise price of stock options expected to vest was
$5.84 and$6.81, respectively. 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:
Assumptions:
Expected volatility
Risk-free interest rate
Expected option lives in years
Dividend yield
Fiscal Years Ended
March 31,
2014
2013
2012
59.8%
1.0%
4.0
—
70.9%
0.5%
4.0
—
83.2%
0.7%
4.1
—
The expected volatility is based on a 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. The expected term is based on the
Company's historical option term which considers the weighted-average vesting, contractual term and vesting schedule. 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 2.0%. 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.
Restricted Stock
Restricted stock activity for fiscal year 2014 is as follows (amounts in thousands except fair value):
Non-vested restricted stock at March 31, 2013
Granted
Vested
Forfeited
Non-vested restricted stock at March 31, 2014
Weighted-
average
Fair Value on
Grant Date
Shares
441
$
47
(100)
(80)
308
7.15
4.24
6.71
8.05
6.62
The Company grants shares of restricted stock to members of the Board of Directors, the Chief Executive Officer and a
limited group of executives. In fiscal year 2014, restricted stock granted to the Board of Directors vests in one year, and restricted
94
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 11: Stock-Based Compensation (Continued)
stock granted to certain executives vests 50% in two years and 50% in 3 years. In fiscal year 2013, restricted stock granted to the
Board of Directors vests in nine months, restricted stock granted to the Chief Executive Officer vests on June 30, 2017 and
restricted stock granted to certain executives vests 25% per year over four years. The contractual term on restricted stock is
indefinite. Once vested, restricted shares cannot be sold until 90 days after the Chief Executive Officer, the executive or the
member of the Board of Directors, as applicable, resigns from his or her position, or until the individual achieves the targeted
ownership under the Company's stock ownership guidelines, and only to the extent that such ownership exceeds the target. As of
March 31, 2014 and 2013, unrecognized compensation costs related to the unvested restricted stock share based compensation
arrangements granted was $0.8 million and $1.8 million, respectively. The expense is being recognized over the respective vesting
periods.
Long-term Incentive Plans ("LTIP")
Historically the Board of Directors of the Company has approved annual Long Term Incentive Plans which cover two year
periods. The LTIPs are primarily based upon the achievement of an Adjusted EBITDA target for the two-year period. At the time
of the award, the individual plans entitle the participants to receive cash or restricted shares of the Company's common stock, or a
combination of both. The 2013/2014 LTIP and 2014/2015 LTIP also awarded restricted stock shares which vest over the course of
three years from the anniversary of the establishment of the plan and are not subject to a performance metric. The Company
assesses the likelihood of meeting the Adjusted EBITDA financial metric on a quarterly basis and adjusts compensation expense
to match expectations. Any related liability is reflected in the line item "Accrued expenses" on the Consolidated Balance Sheets
and any restricted stock commitment is reflected in the line item "Additional paid-in capital" on the Consolidated Balance Sheets.
The Company issued 224 thousand restricted shares subject to a performance metric under the 2011/2012 LTIP. The Company
granted 444 thousand and 501 thousand shares subject only to a time-based vesting schedule under the 2013/2014 LTIP and
2014/2015 LTIP, respectively.
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 2014, 2013 and 2012.
Note 12: Income Taxes
The components of Income (loss) from continuing operations before income taxes and equity loss from NEC TOKIN
consists of (amounts in thousands):
Domestic (U.S.)
Foreign (Outside U.S.)
Total
Fiscal Years Ended March 31,
2014
2013
2012
$
$
(89,529) $
33,232
(56,297) $
(88,939) $
14,962
(73,977) $
(4,591)
3,317
(1,274)
95
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 12: Income Taxes (Continued)
The provision (benefit) for Income tax expense is as follows (amounts in thousands):
Fiscal Years Ended March 31,
2014
2013
2012
Current:
Federal
State and local
Foreign
Total current income tax expense from continuing operations
Deferred:
Federal
State and local
Foreign
Deferred tax benefit from continuing operations
Income tax expense
$
$
— $
— $
35
7,816
7,851
(1,694)
406
(5,081)
(6,369)
1,482
$
37
3,561
3,598
(65)
700
(952)
(317)
3,281
$
(938)
49
6,519
5,630
11
(394)
(4,171)
(4,554)
1,076
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
Statutory U.S. federal income tax rate
Change in U.S. valuation allowance
Taxable foreign source income
State income taxes, net of federal taxes
Other non-deductible expenses
Income tax settlements
Change in foreign operations valuation allowance
Other effect of foreign operations
Effective income tax rate
Fiscal Years Ended March 31,
2014
2013
2012
35.0 %
(37.3)%
(6.0)%
(0.8)%
(0.3)%
— %
3.2 %
3.6 %
(2.6)%
35.0 %
(36.6)%
(4.9)%
(1.0)%
(0.5)%
— %
6.2 %
(2.6)%
(4.4)%
35.0 %
(33.7)%
(30.8)%
(32.2)%
(23.1)%
93.5 %
744.0 %
(837.2)%
(84.5)%
96
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 12: Income Taxes (Continued)
The components of deferred tax assets and liabilities are as follows (amounts in thousands):
Deferred tax assets:
Net operating loss carry forwards
Sales allowances and inventory reserves
Tax credits
Medical and employee benefits
Stock options
Other
Total deferred tax assets before valuation allowance
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation and differences in basis
Amortization of intangibles and debt discounts
Non-amortized intangibles
Other
Total deferred tax liabilities
Net deferred tax asset
March 31,
2014
2013
$
173,377
$
154,841
19,447
10,838
10,035
4,439
4,338
222,474
(189,276)
33,198
(13,299)
(7,420)
(2,549)
(1,682)
(24,950)
8,248
$
$
14,683
11,664
7,868
3,416
4,615
197,087
(169,270)
27,817
(14,629)
(6,978)
(2,542)
(72)
(24,221)
3,596
The following table presents the annual activities included in the deferred tax valuation allowance:
Balance at March 31, 2011
Charge to costs and expenses
Deductions
Balance at March 31, 2012
Charge to costs and expenses
Deductions
Balance at March 31, 2013
Charge to costs and expenses
Deductions
Balance at March 31, 2014
Valuation
Allowance for
Deferred Tax
Assets
143,216
10,206
(4,116)
149,306
23,977
(4,013)
169,270
21,515
(1,509)
189,276
$
$
In fiscal year 2014, the valuation allowance increased $20.0 million primarily as a result of the increase in federal net
operating loss carryforwards. In fiscal year 2013, the valuation allowance increased $20.0 million primarily as a result of the
increase in federal net operating loss carryforwards offset by a decrease in net operating loss carryforwards in certain foreign
jurisdictions. In fiscal year 2012, the valuation allowance decreased $6.1 million primarily as a result of the increase in federal
net operating loss carryforwards offset by a decrease in net operating loss carryforwards in certain foreign jurisdictions.
Deductions in fiscal years 2014, 2013 and 2012 resulted from expiring net operating loss carryforwards and expiring tax credits
in certain U.S. state and foreign jurisdictions.
97
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 12: Income Taxes (Continued)
The change in net deferred income tax asset (liability) for the current year is presented below (amounts in thousands):
Balance at March 31, 2013
Deferred income taxes related to continuing operations (1)
Deferred income taxes related to other comprehensive income
Foreign currency translation
Balance at March 31, 2014
$
$
3,596
6,369
(1,758)
41
8,248
(1) Fiscal year ended March 31, 2014 includes a federal tax expense of $1.7 million allocated to other comprehensive
income.
As of March 31, 2014 and 2013, the Company's gross deferred tax assets are reduced by a valuation allowance of $189.3
million and $169.3 million, respectively. A full valuation allowance on U.S. 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 U.S. consolidated group.
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 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, 2014. However, the
amount of deferred tax assets considered realizable could be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced.
As of March 31, 2014, the Company had U.S. federal net operating loss carryforwards of $404.8 million. These U.S.
federal net operating losses were incurred from 2004 through 2014 and are available to offset future federal taxable income, if
any, through 2034. The Company had state net operating losses of $449.8 million, of which $3.4 million will expire in one year
if unused. These state net operating losses are available to offset future state taxable income, if any, through 2034. Foreign
subsidiaries, primarily in Finland, Italy, Portugal and Sweden had net operating loss carryforwards totaling $78.3 million of
which $3.6 million will expire in one year if unused. The net operating losses in Portugal and Finland are available to offset
future taxable income through 2018 and 2019, respectively. The net operating losses in Italy and Sweden are available
indefinitely to offset future taxable income. For the U.S. 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 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. Blue Powder was acquired which has substantial
federal net operating losses that will now be limited due to the ownership change which occurred.
98
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 12: Income Taxes (Continued)
At March 31, 2014, the U.S. consolidated group of companies had the following tax credit carryforwards available
(amounts in thousands):
U.S. foreign tax credits
U.S. research credits
Texas franchise tax credits
Tax
Credits ($)
Fiscal Year
of Expiration
6,908
533
3,396
2017
2023
2026
At March 31, 2014, unremitted earnings of the subsidiaries outside the United States were deemed to be permanently
invested. The Company has $80.8 million of unremitted foreign earnings. There are no current plans to repatriate foreign
earnings and no deferred tax liability was recognized with regard to such earnings. It is not practicable to estimate the income
tax liability that might be incurred if such earnings were remitted to the United States.
At March 31, 2014, the Company had $5.7 million of unrecognized tax benefits. A reconciliation of gross unrecognized
tax benefits (excluding interest and penalties) is as follows (amounts in thousands):
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
End of fiscal year
Fiscal Years Ended March 31,
2014
2013
2012
$
5,395
$
6,321
$
639
19
(28)
—
(334)
5,691
$
35
37
(640)
(358)
—
$
5,395
$
5,156
433
820
(39)
—
(49)
6,321
At March 31, 2014, $0.9 million of the $5.7 million of unrecognized income tax benefits would affect the Company's
effective income tax rate, if recognized. It is reasonably possible that the total unrecognized tax benefit could decrease by $0.4
million in fiscal year 2015 related to uncertain tax positions in certain foreign jurisdictions which may settle or close.
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. For our more significant foreign locations, we are subject to income
tax examinations for the years 2008 and forward in Mexico and Portugal; and 2010 and forward in China, and Italy. The
Company recognizes potential accrued interest and penalties related to unrecognized income tax benefits within its global
operations in income tax expense. The Company had $0.4 million and $0.3 million of accrued interest and penalties
respectively at March 31, 2014 and March 31, 2013, 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.
99
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 13: Supplemental Balance Sheets and Statements of Operations Detail (amounts in thousands)
Accounts receivable:
Trade
Allowance for doubtful accounts
Ship-from-stock and debit
Returns
Rebates
Price protection
Other
March 31,
2014
2013
$
$
123,607
(1,401)
(18,041)
(2,993)
(1,035)
(125)
(1,065)
98,947
$
$
112,292
(1,255)
(14,116)
(1,421)
(1,071)
(376)
(279)
93,774
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. The following table presents the annual activities
included in the allowance for these commitments:
Balance at March 31, 2011
Charged to operations
Write-offs
Other
Balance at March 31, 2012
Charged to operations
Write-offs
Other
Balance at March 31, 2013
Charged to operations
Write-offs
Other
Balance at March 31, 2014
Inventories:
Raw materials and supplies
Work in process
Finished goods
Inventory reserves
$
17,335
71,462
(71,237)
(97)
17,463
82,738
(81,621)
(62)
18,518
89,909
(83,911)
144
$
24,660
March 31,
2014
2013
$
90,968
$
61,310
62,522
214,800
(26,826)
187,974
$
$
84,149
64,498
68,705
217,352
(18,464)
198,888
100
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 13: Supplemental Balance Sheets and Statements of Operations Detail (amounts in thousands) (Continued)
The following table presents the annual activities included in the inventory reserves:
Balance at March 31, 2011
Costs charged to expense
Write-offs
Other
Balance at March 31, 2012
Costs charged to expense
Write-offs
Other
Balance at March 31, 2013
Costs charged to expense
Write-offs
Other
Balance at March 31, 2014
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
Deferred acquisition payments
Vacation
Interest
Restructuring
Other
$
$
15,464
9,941
(8,253)
(8)
17,144
3,145
(1,488)
(337)
18,464
10,638
(2,672)
396
26,826
Useful life
(years)
March 31,
2014
2013
20
$
25,965
$
20 - 40
10
4 - 10
163,062
824,878
69,676
14,754
25,824
145,977
809,885
62,071
31,323
1,098,335
(805,687)
292,648
$
1,075,080
(771,398)
303,682
$
March 31,
2014
2013
$
23,596
$
19,153
10,570
15,735
6,217
1,197
20,971
22,135
12,582
15,628
13,871
7,991
$
76,468
$
93,178
101
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 13: Supplemental Balance Sheets and Statements of Operations Detail (amounts in thousands) (Continued)
Other non-current obligations:
Deferred acquisition payments
Pension plans
Employee separation liability
Deferred construction costs
Restructuring
Other
Other (income) expense, net:
Net foreign exchange (gains) losses
Miscellaneous non-product income
Other
Note 14: Income/Loss Per Share
March 31,
2014
2013
$
— $
32,852
15,419
—
—
7,593
17,585
30,355
14,322
2,476
205
4,079
$
55,864
$
69,022
Fiscal Years Ended March 31,
2014
2013
2012
$
$
(304) $
—
(2,377)
(2,681) $
(28) $
(465)
(1,802)
(2,295) $
919
—
46
965
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.
102
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 14: Income/Loss Per Share (Continued)
The following table presents the basic and diluted weighted-average number of shares of common stock (amounts in
thousands, except per share data):
Numerator
Loss from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Denominator:
Weighted-average common shares outstanding:
Basic
Assumed conversion of employee stock options
Assumed conversion of Platinum Warrant
Weighted-average shares outstanding (diluted)
Net income (loss) per basic share:
Loss from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Net income (loss) per diluted share:
Loss from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Fiscal Years Ended March 31,
2014
2013
2012
(64,869) $
(3,634)
(68,503) $
(78,512) $
(3,670)
(82,182) $
(2,350)
9,042
6,692
45,102
44,897
—
—
—
—
45,102
44,897
(1.44) $
(0.08) $
(1.52) $
(1.44) $
(0.08) $
(1.52) $
(1.75) $
(0.08) $
(1.83) $
(1.75) $
(0.08) $
(1.83) $
43,285
281
8,754
52,320
(0.05)
0.21
0.16
(0.04)
0.17
0.13
$
$
$
$
$
$
$
$
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
Assumed conversion of Platinum Warrant
Note 15: Commitments and Contingencies
Fiscal Years Ended
March 31,
2014
2013
2012
1,761
6,704
1,996
6,836
860
—
The Company's leases are primarily for distribution facilities or sales offices that expire principally between 2014 and
2023. 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 $9.9 million, $10.1 million and $9.8 million in fiscal years 2014, 2013, and 2012, respectively.
103
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 15: Commitments and Contingencies (Continued)
Future minimum lease payments over the next five fiscal years and thereafter under non-cancellable operating leases at
March 31, 2014, are as follows (amounts in thousands):
Minimum lease payments
Sublease rental income
Net minimum lease payments
Fiscal Years Ended March 31,
2015
2016
2017
2018
2019
Thereafter
$
$
8,734
(252)
8,482
$
$
5,379
(21)
5,358
$
$
2,805
—
2,805
$
$
2,248
—
2,248
$
$
1,347
—
1,347
$
$
1,863
—
1,863
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 16: Quarterly Results of Operations (Unaudited)
The following table sets forth certain quarterly information for fiscal years 2014 and 2013. This information, in the
opinion of the Company's management, reflects all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly this information when read in conjunction with the consolidated financial statements and notes thereto included
elsewhere herein (amounts in thousands except per share data):
Fiscal Year 2014 Quarters Ended
Jun-30
Sep-30
Dec-31
Mar-31
202,057
(18,212)
(33,630)
(1,510)
(35,140)
(0.75) $
(0.03) $
(0.78) $
(0.75) $
(0.03) $
(0.78) $
$
208,449
$
207,339
$
1,585
(11,945)
(1,151)
(13,096)
(0.26) $
(0.03) $
(0.29) $
(0.26) $
(0.03) $
(0.29) $
3,623
(4,744)
(1,076)
(5,820)
(0.11) $
(0.02) $
(0.13) $
(0.11) $
(0.02) $
(0.13) $
215,821
(5,207)
(14,550)
103
(14,447)
(0.32)
—
(0.32)
(0.32)
—
(0.32)
Net sales
Operating income (loss)(1)
Loss from continuing operations
Income (loss) from discontinued operations
Net loss
Net loss per basic share:
Loss from continuing operations
Loss from discontinued operations
Net loss
Net loss per diluted share:
Loss from continuing operations
Loss from discontinued operations
Net loss
$
$
$
$
$
$
$
104
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 16: Quarterly Results of Operations (Unaudited)
Net sales
Operating loss(1)
Loss from continuing operations
Income (loss) from discontinued operations
Net loss
Net income (loss) per basic share:
Loss from continuing operations
Income (loss) from discontinued operations
Net loss
Net loss per diluted share:
Loss from continuing operations
Loss from discontinued operations
Net loss
Fiscal Year 2013 Quarters Ended
Jun-30
Sep-30
Dec-31
Mar-31
$
215,500
(4,323)
(17,997)
243
(17,754)
$
211,165
(12,872)
(23,642)
(1,278)
(24,920)
$
197,697
(3,437)
(13,169)
(1,088)
(14,257)
199,539
(14,448)
(23,704)
(1,547)
(25,251)
(0.40) $
— $
(0.40) $
(0.40) $
— $
(0.40) $
(0.53) $
(0.03) $
(0.56) $
(0.53) $
(0.03) $
(0.56) $
(0.29) $
(0.03) $
(0.32) $
(0.29) $
(0.03) $
(0.32) $
(0.53)
(0.03)
(0.56)
(0.53)
(0.03)
(0.56)
$
$
$
$
$
$
$
_______________________________________________________________________________
(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, the write-down of long lived assets, the net gain/loss on sales and disposals of assets and the
relative mix of sales among distributors, original equipment manufacturers, and electronic manufacturing service
providers.
Note 17: 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, as amended.
Condensed consolidating financial statements for the Company's Guarantor Subsidiaries and Non-Guarantor Subsidiaries
are presented in the following tables (amounts in thousands):
105
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 17: Condensed Consolidating Financial Statements (Continued)
Condensed Consolidating Balance Sheet
March 31, 2014
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
Current assets of discontinued operations
Total current assets
Property and equipment, net
Investments in NEC TOKIN
Investments in subsidiaries
Goodwill
Intangible assets, net
Restricted cash
Deferred income taxes
Other assets
Noncurrent assets of discontinued operations
Long-term intercompany receivable
$
616
$
22,200
$
35,113
$
— $
—
318,582
—
3,146
—
—
322,344
329
—
402,090
—
—
—
—
5,415
—
81,746
49,462
329,211
119,340
15,286
1,022
—
536,521
104,874
46,419
424,386
35,584
28,380
13,512
1,010
3,895
—
60,663
49,485
203,018
68,634
21,380
5,673
12,160
395,463
187,445
—
30,285
—
8,804
—
5,768
820
836
2,801
—
(850,811)
—
(2,941)
—
—
(853,752)
—
—
(856,761)
—
—
—
—
—
—
(145,210)
$ (1,855,723) $
Total assets
$ 811,924
$ 1,255,244
$
632,222
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable, trade
Intercompany payable
Accrued expenses
Income taxes payable
Current liabilities of discontinued operations
Total current liabilities
Long-term debt, less current portion
Other non-current obligations
Deferred income taxes
Noncurrent liabilities of discontinued
operations
Long-term intercompany payable
Stockholders' equity
$
$
5,988
84
176,624
34,236
—
—
216,932
372,251
857
—
—
—
221,884
— $
36,579
570,535
13,698
2,909
—
$
1,309
38,155
103,652
28,534
1,012
7,269
623,721
179,931
6,449
3,311
3,258
—
81,747
536,758
12,592
51,696
1,945
2,592
63,463
320,003
— $
—
(850,811)
—
(2,941)
—
(853,752)
—
—
—
—
(145,210)
(856,761)
$ (1,855,723) $
Total liabilities and stockholders' equity
$ 811,924
$ 1,255,244
$
632,222
106
57,929
98,947
—
187,974
36,871
6,695
12,160
400,576
292,648
46,419
—
35,584
37,184
13,512
6,778
10,130
836
—
843,667
7,297
74,818
—
76,468
980
7,269
166,832
391,292
55,864
5,203
2,592
—
221,884
843,667
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 17: Condensed Consolidating Financial Statements (Continued)
Condensed Consolidating Balance Sheet
March 31, 2013
$
$
$
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Intercompany receivable
Inventories, net
Prepaid expenses and other
Deferred income taxes
Current assets of discontinued
operations
Total current assets
Property and equipment, net
Investments in NEC TOKIN
Investment in subsidiaries
Goodwill
Intangible assets, net
Restricted cash
Deferred income taxes
Other assets
Noncurrent assets of discontinued
operations
Long-term intercompany receivable
Total assets
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable, trade
Intercompany payable
Accrued expenses
Income taxes payable
Current liabilities of discontinued
operations
Total current liabilities
Long-term debt, less current portion
Other non-current obligations
Deferred income taxes
Noncurrent liabilities of discontinued
operations
Long-term intercompany payable
Stockholders' equity
Total liabilities and stockholders' equity
$
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Reclassifications
and
Eliminations
Consolidated
17,202
—
287,513
—
3,186
—
—
307,901
361
—
423,695
—
—
—
—
6,741
—
75,919
814,617
9,561
61
100,947
37,490
—
—
148,059
372,157
17,485
—
—
—
276,916
814,617
$
$
$
$
$
$
52,056
42,051
251,524
126,286
13,564
578
—
486,059
111,584
52,738
424,386
35,584
29,763
17,397
1,500
3,173
—
56,338
1,218,522
16
37,444
481,707
19,615
3,046
—
541,828
—
3,899
2,808
—
75,919
594,068
1,218,522
$
$
107
26,720
51,723
150,376
72,602
27,303
3,589
9,517
341,830
191,737
—
10,750
—
8,883
—
6,494
235
1,976
2,800
564,705
1,216
33,269
106,759
36,073
980
5,661
183,958
550
47,638
5,734
2,924
59,138
264,763
564,705
$
$
$
$
— $
—
(689,413)
—
(2,952)
—
—
(692,365)
—
—
(858,831)
—
—
—
—
—
—
(135,057)
(1,686,253) $
— $
—
(689,413)
—
(2,952)
—
(692,365)
—
—
—
—
(135,057)
(858,831)
(1,686,253) $
95,978
93,774
—
198,888
41,101
4,167
9,517
443,425
303,682
52,738
—
35,584
38,646
17,397
7,994
10,149
1,976
—
911,591
10,793
70,774
—
93,178
1,074
5,661
181,480
372,707
69,022
8,542
2,924
—
276,916
911,591
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 17: Condensed Consolidating Financial Statements (Continued)
Condensed Consolidating Statements of Operations
Fiscal Year Ended March 31, 2014
Net sales
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
of assets
Net (gain) loss on intercompany asset
transfer
Total operating costs and expenses
Operating income (loss)
Interest income
Interest expense
Other (income) expense, net
Equity in earnings of subsidiaries
Income (loss) from continuing
operations before income taxes and
equity income from NEC TOKIN
Income tax expense (benefit)
Income (loss) from continuing
operations before equity income
from NEC TOKIN
Equity loss from NEC TOKIN
Income (loss) from continuing
operations
Loss from discontinued operations
Net income (loss)
$
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and
Eliminations
Consolidated
$
218
$
966,369
$
817,945
$
(950,866) $
833,666
1,336
878,308
729,105
(895,824)
712,925
41,359
229
—
—
61,896
16,849
2,858
1,118
—
(625)
—
42,924
(42,706)
(12)
40,069
(40,642)
26,332
(68,453)
—
14,564
974,968
(8,599)
(4)
1,130
36,741
—
(46,466)
(1,302)
(68,453)
—
(45,164)
(7,090)
47,643
7,388
11,264
3,358
657
(14,564)
784,851
33,094
(179)
(237)
1,220
—
32,290
2,784
29,506
—
(68,453)
(50)
(68,503) $
(52,254)
(1,195)
(53,449) $
29,506
(2,389)
27,117
$
(55,042)
—
—
—
—
—
(950,866)
—
—
—
—
(26,332)
26,332
—
26,332
—
26,332
—
26,332
$
95,856
24,466
14,122
4,476
32
—
851,877
(18,211)
(195)
40,962
(2,681)
—
(56,297)
1,482
(57,779)
(7,090)
(64,869)
(3,634)
(68,503)
Condensed Consolidating Statements of Comprehensive Income (Loss)
Fiscal Year Ended March 31, 2014
Comprehensive income (loss)
$
(62,676) $
(57,309) $
35,640
$
26,332
$
(58,013)
108
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 17: Condensed Consolidating Financial Statements (Continued)
Condensed Consolidating Statements of Operations
Fiscal Year Ended March 31, 2013
Net sales
$
— $
905,755
$
843,938
$
(925,790) $
823,903
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
Write down of long-lived assets
Goodwill impairment
Net (gain) loss on sales and disposals
of assets
Total operating costs and expenses
Operating income (loss)
Interest income
Interest expense
Other (income) expense, net
Equity in earnings of subsidiaries
Income (loss) from continuing
operations before income taxes and
equity income from NEC TOKIN
Income tax expense
Income (loss) from continuing
operations before equity income
from NEC TOKIN
Equity loss from NEC TOKIN
Income (loss) from continuing
operations
Loss from discontinued operations
Net income (loss)
$
2,003
823,170
754,783
(882,880)
697,076
30,838
190
—
—
—
3
33,034
(33,034)
(24)
40,651
(27,233)
35,754
(82,182)
—
(82,182)
—
68,711
20,028
7,266
438
1,092
98
920,803
(15,048)
(43)
972
27,623
—
(43,600)
636
(44,236)
(1,254)
50,981
6,658
11,453
7,144
—
(83)
830,936
13,002
(72)
(292)
(2,685)
—
16,051
2,645
13,406
—
(82,182)
—
(82,182) $
(45,490)
—
(45,490) $
13,406
(3,670)
9,736
$
(42,910)
—
—
—
—
—
(925,790)
—
—
—
—
(35,754)
35,754
—
35,754
—
35,754
—
35,754
$
107,620
26,876
18,719
7,582
1,092
18
858,983
(35,080)
(139)
41,331
(2,295)
—
(73,977)
3,281
(77,258)
(1,254)
(78,512)
(3,670)
(82,182)
Condensed Consolidating Statements of Comprehensive Loss
Fiscal Year Ended March 31, 2013
Comprehensive income (loss)
$
(85,449) $
(43,519) $
6,706
$
35,754
$
(86,508)
109
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 17: Condensed Consolidating Financial Statements (Continued)
Condensed Consolidating Statements of Operations
Fiscal Year Ended March 31, 2012
Net sales
$
— $
938,525
$
883,385
$
(897,858) $
924,052
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
Write down of long-lived assets
Net (gain) loss on sales and disposals
of assets
Total operating costs and expenses
Operating income (loss)
Interest income
Interest expense
Other (income) expense, net
Equity in earnings of subsidiaries
Income (loss) from continuing
operations before income taxes
Income tax expense (benefit)
Income (loss) from continuing
operations
Income from discontinued operations
799
799,659
804,464
(873,610)
731,312
30,741
—
—
—
—
31,540
(31,540)
(12)
27,375
(29,947)
(34,456)
5,500
(1,192)
6,692
—
60,872
21,283
2,255
—
384
884,453
54,072
(58)
459
32,127
—
21,544
(80)
21,624
—
39,783
6,482
11,999
15,786
(66)
878,448
4,937
(105)
733
(986)
—
5,295
2,348
2,947
9,042
(24,862)
—
—
—
—
(898,472)
614
—
—
(229)
34,456
(33,613)
—
(33,613)
—
(33,613) $
106,534
27,765
14,254
15,786
318
895,969
28,083
(175)
28,567
965
—
(1,274)
1,076
(2,350)
9,042
6,692
Net income
$
6,692
$
21,624
$
11,989
$
Condensed Consolidating Statements of Comprehensive Income (Loss)
Fiscal Year Ended March 31, 2012
Comprehensive income (loss)
$
1,646
$
20,641
$
7,483
$
(33,613) $
(3,843)
110
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 17: Condensed Consolidating Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended March 31, 2014
Sources (uses) of cash and cash equivalents
Net cash provided by (used in) operating
activities
Investing activities:
Capital expenditures
Change in restricted cash
Proceeds from sale of assets
Net cash used in investing activities
Financing activities:
Proceeds from revolving line of credit
Payments of revolving line of credit
Deferred acquisition payments
Payments of long-term debt
Proceeds from exercise of stock options
Net cash provided by (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
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and
Eliminations
Consolidated
$
7,724
$
(26,984) $
12,514
$
— $
(6,746)
—
—
—
—
—
—
(20,977)
(3,583)
250
(13,348)
4,047
996
(8,305)
9,000
(2,551)
(1,000)
(16)
—
(18,799)
—
1,851
(16,948)
12,000
—
—
—
—
(24,310)
5,433
12,000
(16,586)
—
(29,856)
—
7,566
827
17,202
52,056
26,720
—
—
—
—
—
—
—
—
—
—
—
—
—
(32,147)
4,047
2,847
(25,253)
21,000
(2,551)
(21,977)
(3,599)
250
(6,877)
(38,876)
827
95,978
57,929
Cash and cash equivalents at end of fiscal year
$
616
$
22,200
$
35,113
$
— $
111
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 17: Condensed Consolidating Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended March 31, 2013
Sources (uses) of cash and cash equivalents
Net cash provided by (used in) operating
activities
Investing activities:
Capital expenditures
Investment in NEC TOKIN (excludes non
cash investment)
Change in restricted cash
Proceeds from sale of assets
Net cash used in investing activities
Financing activities:
Proceeds from issuance of debt
Deferred acquisition payments
Payment of long-term debt
Debt issuance costs
Proceeds from exercise of stock options
Net cash provided by (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
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and
Eliminations
Consolidated
$
(14,492) $
(43,099) $
34,764
$
— $
(22,827)
—
—
—
—
—
39,825
(15,900)
—
(275)
111
(15,841)
(30,333)
(50,917)
(15,284)
—
(82,042)
—
(1,000)
(8)
—
—
—
—
398
(29,935)
—
—
(1,901)
—
—
23,761
(1,008)
(1,901)
9,269
—
(126,149)
—
2,928
(591)
7,933
178,205
24,383
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(46,174)
(50,917)
(15,284)
398
(111,977)
39,825
(16,900)
(1,909)
(275)
111
20,852
(113,952)
(591)
210,521
Cash and cash equivalents at end of fiscal year
$
17,202
$
52,056
$
26,720
$
— $
95,978
112
KEMET CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 17: Condensed Consolidating Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended March 31, 2012
Sources (uses) of cash and cash equivalents
Net cash provided by (used in) operating
activities
Investing activities:
Capital expenditures
Acquisitions net of cash received
Proceeds from sale of assets
Net cash used in investing activities
Financing activities:
Proceeds from issuance of debt
Payments of long-term debt
Net (payments) borrowings under other
credit facilities
Debt issuance costs
Proceeds from exercise of stock options
Net cash provided by (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
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and
Eliminations
Consolidated
$
(71,930) $
124,591
$
28,069
$
— $
80,730
—
—
—
—
(23,099)
(42,613)
—
(65,712)
116,050
(40,581)
—
(2,313)
290
73,446
1,516
—
—
—
—
—
—
—
58,879
—
(26,215)
—
74
(26,141)
—
—
(3,154)
—
—
(3,154)
(1,226)
(699)
6,417
119,326
26,308
—
—
—
—
—
—
—
—
—
—
—
—
—
(49,314)
(42,613)
74
(91,853)
116,050
(40,581)
(3,154)
(2,313)
290
70,292
59,169
(699)
152,051
Cash and cash equivalents at end of fiscal year
$
7,933
$
178,205
$
24,383
$
— $
210,521
Note 18: Subsequent Events
On April 30, 2014, KEMET Electronics Corporation (“KEC”) and its subsidiaries KEMET Foil Manufacturing, LLC
(“KEMET Foil”), Blue Powder as “U.S. Borrowers,” and KEMET Electronics Marketing (S) PTE LTD. (“KEMET
Singapore”), and, together with U.S. Borrowers, collectively, “Existing Borrowers,” entered into Amendment No. 5 to Loan
and Security Agreement and Joinder (“Amendment“) with Bank of America, N.A., as agent for the Lenders, which amends the
Loan and Security Agreement dated as of September 30, 2010 (as amended by the Consolidated Amendment to Loan and
Security Agreement dated July 8, 2013, the principal terms of which were disclosed in the Registrant's Form 10-Q for the
quarterly period ended June 30, 2013) (the “Loan Agreement”). In connection with and as part of the Amendment, Existing
Borrowers also entered into a Second Amended and Restated Revolver Note. The Loan Agreement provides a $50 million
revolving line of credit, which is bifurcated into a U.S. facility (for which KEC, KEMET Foil, and KEMET Blue are the
borrowers) and a Singapore facility (for which KEMET Singapore is the borrower). The principal features of the Amendment
are included in the description of the revolving line of credit within Note 2 "Debt".
On April 30, 2014, KEMET completed the sale of its machinery division which had historically been included within
Film and Electrolytic.
113
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
Date: May 30, 2014
KEMET CORPORATION
(Registrant)
/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 30, 2014
Date: May 30, 2014
Date: May 30, 2014
Date: May 30, 2014
Date: May 30, 2014
Date: May 30, 2014
Date: May 30, 2014
Date: May 30, 2014
Date: May 30, 2014
/s/ PER-OLOF LÖÖF
Per-Olof Lööf
Chief Executive Officer and Director (Principal Executive
Officer)
/s/ WILLIAM M. LOWE, JR.
William M. Lowe, Jr.
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ FRANK G. BRANDENBERG
Frank G. Brandenberg
Chairman and Director
/s/ DR. WILFRIED BACKES
Dr. Wilfried Backes
Director
/s/ GURMINDER S. BEDI
Gurminder S. Bedi
Director
/s/ JOSEPH V. BORRUSO
Joseph V. Borruso
Director
/s/ JACOB KOZUBEI
Jacob Kozubei
Director
/s/ E. ERWIN MADDREY, II
E. Erwin Maddrey, II
Director
/s/ ROBERT G. PAUL
Robert G. Paul
Director
114
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Board of Directors
Executive Officers
Key Subsidiaries
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
Former President & Chief Executive Officer
Hella North America
Former Executive Vice President
Bosch Automotive Group N.A.
Jacob T. Kotzubei
Partner
Platinum Equity, LLC
A private equity investment firm
Per-Olof Loof
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
Per-Olof Loof
Chief Executive Officer & Director
William M. Lowe, Jr.
Executive Vice President &
Chief Financial Officer
Charles C. Meeks, Jr.
Executive Vice President
Solid Capacitor Business Group
Susan B. Barkal
Senior Vice President Quality,
Chief Compliance Officer & Chief of Staff
John J. Drabik
Senior Vice President
Global Sales
Dr. Philip M. Lessner
Senior Vice President &
Chief Technology Officer
Robert S. Willoughby
Vice President
Film & Electrolytic Business Group
Other Key Employees
R. James Assaf
Senior Vice President
General Counsel & Secretary
Michael L. Raynor
Vice President & Corporate Controller
Richard J. Vatinelle
Vice President & Treasurer
KEMET Electronics Corporation
Simpsonville, South Carolina, USA
KEMET Electronics Bulgaria EAD
Kyustendil, Bulgaria
KEMET Electronics (Suzhou) Co., Ltd.
Suzhou, People’s Republic of China
KEMET Electronics Oy
Espoo, Finland
KEMET Electronics GmbH
Landsberg, Germany
PT KEMET Electronics Indonesia
Batam, Indonesia
KEMET Electronics Italia, S.r.l.
Sasso Marconi, Italy
KEMET Electronics Japan Co., Ltd.
Tokyo, Japan
KEMET Electronics Macedonia
DOOEL Skopje
Skopje, Macedonia
KEMET de Mexico, S.A. de C.V.
Matamoros Tamaulipas, Mexico
KEMET Electronics Portugal, S.A.
Evora, Portugal
KEMET Electronics Marketing (S) Pte Ltd.
Singapore
KEMET Electronics AB
Gränna, Sweden
KEMET Electronics Limited
Weymouth, United Kingdom
KEMET Blue Powder Corporation
Mound House, Nevada, USA
KEMET Foil Manufacturing, LLC
Knoxville, Tennessee, USA
w w w. ke m e t . c o m
Countries and Areas listed below
represent KEMET operations
throughout the world.
Bulgaria
China
Finland
France
Germany
Hong Kong
India
Indonesia
Italy
Japan
Macedonia
Malaysia
Mexico
Portugal
Singapore
South Korea
Sweden
Taiwan
United Kingdom
USA
Corporate Profile
KEMET Corporation is a leading global supplier of electronic components. W e offer our customers
the broadest selection of capacitor technologies in the industry , along with an expanding range of
electromechanical devices, electromagnetic compatibility solutions and supercapacitors. Our vision is
to be the preferred supplier of electronic component solutions for customers demanding the highest
standards of quality, delivery and service.
Corporate Headquarters
KEMET Corporation
2835 KEMET Way
Simpsonville, SC 29681
USA
864.963.6300
www.kemet.com
©2014 KEMET. All rights reserved.