Annual Report 2016
EASY TO DESIGN IN
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ksim.kemet.com
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Catalogs and Technical Data
Tantalum Capacitor
Aluminum Electrolytic Capacitor
Film Capacitor
Ceramic Capacitor
3D Models, Specifications, and Search
Dear KEMET Shareholder,
Recently, in order to clearly define my vision of the company, I brought
together a group of our company’s thought leaders to examine our
organization and our purpose. Together, we came up with a positioning
statement that captures KEMET’s core principles:
For demanding mission-critical electronics requiring high-
performance power management solutions where failure is not
an option, KEMET provides a proven combination of breakthrough
technology and unparalleled borderless service. At our core,
we are obsessed with leveraging sustainable material science
and smart people to create innovative products that solve
customer challenges.
To help you understand our company, I would like to show you how we have incorporated each part of our
positioning statement into our work.
Mission-critical electronics
Space is one environment where every component is “mission-critical.” We have been involved in all the
major space exploration projects since we started building capacitors over 60 years ago. This includes the
new Orion, the highly advanced U.S. multipurpose crew vehicle, designed to carry humans further than they
have ever gone before. It is our understanding that we have over 10 pounds of Ceramic capacitors on board,
with parts in the spacecraft’s antennas, navigation, flight computers and communication sets.
High-performance power management
Here on Earth, our Film and Aluminum Electrolytic capacitance solutions (DC Link and Snubbers), used
in power inverter circuits, are helping wind and solar power designers harness nature to generate green
energy. Our EMI products from NEC TOKIN provide Electromagnetic Interference compatibility wherever
needed. Whether they are using our custom or our catalog devices, engineers can be confident in the
quality and reliability of KEMET products.
Where failure is not an option
Dependability is just as crucial in the inner space of our bodies as it is in outer space. Implantable
electronics require reliable custom devices for custom applications where shape, size and performance
must be considered. I am proud to say that KEMET’s scientists and engineers are the best in the business
at developing these unique solutions. In addition to traditional implantable devices, such as pacemakers
and defibrillators, we are partnering with the industry on such cutting-edge medical innovations as
neuro-modulation and sensory implants for vision and hearing.
Joining the search for more effective non-invasive methods for diagnosis and research, KEMET recently
won business to provide a solution for the next generation of medical X-ray machines.
Breakthrough technology
With the explosive growth of the Internet of Things (IoT) and the cloud computing resources driving them,
the server farms that support these services cannot afford a single power interruption. KEMET’s broad line of
EMI filters – traditional to cutting-edge – provide filtering solutions to smooth out power surges and spikes.
Our range of bulk capacitance solutions provide the energy necessary to prevent data loss when power
failure occurs.
Unparalleled borderless service
All of KEMET’s inventive products and reliable quality exist for one reason: to serve the needs of our
customers. I am convinced that service has long been KEMET’s brand differentiator and our new positioning
statement will inspire us as we build on this historic reputation.
We continue to be involved in the customer journey from idea to execution. As the customer moves through
the cycle from concept to system requirements to design to part selection, our Field Application Engineers
(application experts) and Technical Product Managers (product experts) provide support every step of the
way by leveraging our “Easy-To-Design-In” (E2Di) philosophy. Customers enjoy convenient virtual support via
our online Engineering Center (a site for Engineers, designed by Engineers), as well as through our online
design simulation tools (K-SIM) and our complete and always up-to-date datasheets.
Our dedication to service goes beyond our close customer relationships. We also educate the broader
engineering community. KEMET is always a presence at industry trade shows. Our unique KEMET Institute
of Technology (KIT) seminars offer engineers, designers and decision makers in-depth workshops on
capacitor technology and applications. In FY16, we held 132 KIT events around the world and shared our
technical information and tools with 2,330 professionals.
As the customer reaches the execution and manufacturing stage, we remain their supportive partners.
For instance, the automotive industry demands the highest level of service. That sector has grown from
10% of our revenue to more than 20% during the last ten years. Our global sales and manufacturing teams
advise and guide our customers, while online applications such as mobile apps and “CapacitorEdge” add
supplemental information.
With more than 20 factories serving customers around the globe, we can truly provide unparalleled
borderless service that makes KEMET “Easy-To-Buy-From” (ETBF) every single day and continues to
strengthen the historic KEMET brand.
Leveraging sustainable material science
Most of us think of KEMET as a leading global supplier of electronic components, but did you know that
in our development and manufacturing process we use 57 (or 48%) of the 118 elements found in the
periodic table? One could say that we are also a material science company. While continuing our research
and development progress, we also have to consider the impact of our business. I am very proud to be
recognized as a 2016 Top 100 Conflict Mineral Influence Leader by Assent Compliance. Through such
programs as our Partnership for Social and Economic Sustainability, we have made KEMET a global leader
in conflict-free and socially responsible Tantalum mining.
Smart people
We are 8,800 strong and soon to grow even more once we complete the NEC TOKIN acquisition.
Of these, over 500 are engineers and scientists. No matter what their job or specialty, our employees
are “smart people” who diligently follow our “E2Di” and “ETBF” philosophies to deliver mission-critical,
high-performance and sustainably created products that solve our customer’s challenges – from here
on Earth to outer space.
I have often mentioned that we possess a “secret sauce,” a customer-centric culture and approach.
I believe that our new positioning statement captures that unique essence of KEMET:
For demanding mission-critical electronics requiring high-performance power management solutions
where failure is not an option, KEMET provides a proven combination of breakthrough technology
and unparalleled borderless service. At our core, we are obsessed with leveraging sustainable
material science and smart people to create innovative products that solve customer challenges.
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. It is a privilege
and honor to serve as your CEO.
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, 2016
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:
(Title of each class)
Common Stock, par value $0.01
(Name of Exchange on which registered)
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
1
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
The aggregate market value of voting common stock held by non-affiliates of the registrant as of September 30, 2015
computed by reference to the closing sale price of the registrant's common stock was approximately $81,863,979.
The number of shares of each class of common stock, $0.01 par value, outstanding as of May 23, 2016 was 46,235,675.
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 28, 2016 are incorporated by reference into Part III of this report.
2
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
11
19
19
20
21
21
24
27
28
54
54
54
55
55
56
56
56
56
56
57
121
3
ITEM 1. BUSINESS
Background of Company
PART I
KEMET Corporation ("we", "us", "our", "KEMET" and the "Company"), is a global manufacturer of passive
electronic components. We first began manufacturing tantalum capacitors in 1958 as a division of Union Carbide Corporation
(“UCC”) and became a stand-alone legal entity in 1990 following a management buyout from UCC. In 1992, we publicly
issued shares of our common stock. Since then, we have made the following acquisitions:
Business Group
Fiscal Year
Business
Solid Capacitors Business Group ("Solid Capacitors")
Film and Electrolytic Business Group ("Film and Electrolytic")
Film and Electrolytic
Film and Electrolytic
Solid Capacitors
Corporate
Corporate
2007
2008
2008
2012
2012
2013
2016
Tantalum Business Unit of EPCOS AG
Evox Rifa Group Oyj
Arcotronics Italia S.p.A.
Cornell Dubilier Foil, LLC (renamed
KEMET Foil Manufacturing, LLC
("KEMET Foil"))
Niotan Incorporated (renamed KEMET
Blue Powder Corporation ("Blue
Powder"))
34% economic interest in NEC TOKIN
Corporation ("NEC TOKIN")
IntelliData, Inc. ("IntelliData")
Through the above acquisitions and organic growth we have expanded our product base to include multilayer ceramic, solid &
electrolytic aluminum and film capacitors.
In fiscal year 2013, our subsidiary, KEMET Electronics Corporation ("KEC") acquired a 34% economic interest in
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.
General
We compete in the passive electronic component industry, specifically multilayer ceramic, tantalum, film and
aluminum (solid & electrolytic) capacitors. Product offerings include surface mount, which are attached directly to the circuit
board; 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. Capacitors are electronic
components that store, filter, and regulate electrical energy and current flow. As an essential passive component used in nearly
all circuit boards, capacitors are typically used for coupling, decoupling, filtering, oscillating and wave shaping and are used in
communication systems, servers, personal computers, tablets, 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).
Our product line consists of many 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.
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. 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., HP Inc., International Business Machines
Corporation, Motorola Solutions, L.M. Ericsson, Siemens AG 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
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. While ceramic capacitors are more cost-effective at lower capacitance values,
tantalum capacitors are more cost-effective at higher capacitance values while 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.
Our Industry
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 and 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.
According to a March 2016 report entitled "Passive Electronic Components: World Market Outlook: 2016-2021" by
Paumanok Publications, Inc. ("Paumanok"), a market research firm concentrating on the passive components industry, the
global capacitor market in fiscal year 2016 (fiscal year ending March 2016) was estimated to be $18.8 billion in revenues and
1.87 trillion units. According to the Paumanok report, the global capacitor market is expected to improve substantially and
achieve revenue and unit volume increases of 13% and 16%, respectively, by fiscal year 2021. According to Paumanok, the
forecast of the capacitor industry for fiscal year 2016 and the expected growth to fiscal year 2021 are as follows (amounts in
billions):
Tantalum
Ceramic
Aluminum
Paper and plastic film
Other
Fiscal
Year 2016
Fiscal
Year 2021
$
$
1.6
10.3
3.6
1.7
0.6
17.8
$
$
1.9
11.3
3.8
2.4
0.7
20.1
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
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 “internet-of-things” products;
the next generation of automotive electronics to support advance driver assistance systems, as well as the connected
car;
the increase in the electronic content of existing products, such as home appliances, medical equipment and
automobiles;
consumer desire for mobility and connectivity; and
the enhanced functionality, complexity and convergence of electronic devices that use state-of-the-art
microprocessors.
Markets and Customers
Our products are sold to a variety of OEMs in a broad range of industries including the computer, communications,
automotive, military, consumer, industrial and aerospace industries. We also sell products to EMS providers, which also serve
OEMs in these industries. Electronics distributors are an important channel of distribution in the electronics industry and
represent the largest channel through which we sell our capacitors. One electronics distributor accounted for over 10% of our
net sales in fiscal years 2016, 2015 and 2014. If our relationship with this customer were to terminate, we would need to
5
determine alternative means of delivering our products to the end-customers served by them. Our top 50 customers accounted
for 86.3% of our net sales during fiscal year 2016.
While we are seeing a merging of major segments as connectivity and “internet-of-things” grow, 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 headlamps, Light emitting
diode electronic modules, Lane departure warning, 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, Security systems, radar, connectivity systems and advance driver
assistance gear
Smart phones, Telephones, Switching equipment, Relays, Base stations, and
Wireless infrastructure
Personal computers (laptops, tablets, netbooks), Workstations, Servers,
Mainframes, Computer peripheral equipment, Power supplies, Solid state
drives, and Local area networks
Electronic controls, Measurement equipment, Instrumentation, Solar and wind
energy generation, Down-hole drilling and Medical electronics
Digital media devices, Game consoles, Televisions, audio devices, 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 42% of our external sales were to electronics distributors for fiscal year 2016.
KEMET in the United States
Our corporate headquarters is located near Greenville, South Carolina.
Commodity manufacturing previously located in the United States has been substantially relocated to our lower-cost
manufacturing facilities in Mexico, China and Europe. Production remaining 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.
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, KEMET maintains an Innovation Center for Solid Capacitors near Greenville,
South Carolina. 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.
KEMET in Mexico
We believe our operations in Mexico are among the most cost efficient in the world, and we expect 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
6
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
We have a well-established manufacturing, sales and logistics network in Asia to support our customers' Asian
operations. We currently manufacture tantalum and aluminum polymer and Electrolytic products in China. 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 are 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 currently have one or more manufacturing locations in each of the following countries: Bulgaria, Finland, Italy,
Macedonia, Portugal, and Sweden. In addition, we operate product innovation centers in the United Kingdom, Italy, Germany
and Sweden. We continue to 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
KEMET serves the needs of our global customer base through three geographic regions: North America and South
America ("Americas"), Europe, the Middle East and Africa ("EMEA") and Asia and the Pacific Rim ("APAC"). Each region's
sales staff is organized into three areas 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.
Our sales team works with the customers throughout the entire purchasing process, following opportunities as they progress
through concept, design, validation and finally mass production.
Electronics distributors are an important distribution channel in the electronics industry and accounted for 42%, 45%,
and 45% of our net sales in fiscal years 2016, 2015 and 2014, respectively. A portion of our net sales to distributors are made
under agreements allowing certain rights of return and price protection on unsold merchandise held by distributors. In addition,
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 2016 and 2015, net sales by region were as follows (dollars in millions):
Americas
APAC
EMEA
Total
Fiscal Year 2016
Net Sales
% of
Total
$
$
225.7
275.8
233.3
734.8
31% Americas
37% APAC
32% EMEA
Total
Fiscal Year 2015
Net Sales
% of
Total
$
$
260.0
281.8
281.4
823.2
32%
34%
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.
7
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. Consequently, 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. Historically, however, cancellations have not been significant.
Competition
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 influencing the market for our products include: product
quality, customer service, technical innovation, pricing, and timely delivery. We believe we compete favorably on the basis of
each of these factors.
Our major global competitors include AVX Corporation, Panasonic Corporation, Littelfuse, Inc., Murata
Manufacturing Co., Ltd., Samsung, Taiyo Yuden Co., Ltd., TDK-EPC Corporation, WIMA GmbH & Co., KG and Vishay
Intertechnology, Inc. ("Vishay").
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 for our products could hinder our ability to manufacture our products, negatively impacting our
competitive position and our relationships with our customers.
Tantalum is mined principally in the Democratic Republic of Congo, 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 not be able to pass all such price increases on to our customers.
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 to minimize
the price risk. The amount of palladium 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 2016 the price of
palladium fluctuated between $470 and $802 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
As of March 31, 2016, we held the following number of patents and trademarks:
United States
Foreign
Patents
Trademarks
124
47
7
114
We believe the success of our business is not materially dependent on the existence or duration of any individual
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.
8
Research and Development
Research and development expenses were $25.0 million, $25.8 million and $24.5 million for fiscal years 2016, 2015
and 2014, respectively. These amounts include expenditures for product development and the design and development of
machinery and equipment for new processes and cost reduction efforts. 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 6, "Segment and Geographic
Information" to our consolidated financial statements.
Solid Capacitors Business Group
Solid Capacitors operates nine capacitor manufacturing sites in the United States, Mexico and 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 6,270 employees worldwide. For fiscal years 2016, 2015 and 2014, Solid Capacitors had consolidated net sales
of $556.3 million, $621.3 million and $626.5 million, respectively.
We continue to make significant investments in tantalum production within Solid Capacitors and, based on net sales,
we believe 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. The Company continues to review its cost structure and may take
actions to improve the cost structure if the anticipated result is advantageous.
Tantalum'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 headquartered in the United States and among
the ten largest manufacturers worldwide.
Ceramic's 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. In addition,
the business group designs and produce EMI filters. For applications requiring high power and high voltages, film capacitors
are more suitable. For applications requiring high energy at a reasonable price, aluminum electrolytic capacitors are preferred.
EMI filters consist of capacitive and inductive elements that reduce electromagnetic disturbance in the frequency range desired.
We believe we are one of the world's largest suppliers of direct current film and one of the leaders in wet aluminum electrolytic
capacitors. In addition, we produce capacitor grade aluminum foils utilized as a core component in the manufacture of
electrolytic capacitors. For fiscal years 2016, 2015 and 2014, our Film and Electrolytic Business Group had consolidated net
sales of $178.5 million, $201.9 million and $207.2 million, respectively. One of the primary drivers of the decreases in sales
from fiscal year 2014 to fiscal year 2016 is the reduction of the USD to EURO exchange rate from a weighted average value of
1.34 to 1.10.
Our Film and Electrolytic Business Group primarily serves the industrial and automotive markets. We believe our
Film and Electrolytic Business Group's product portfolio, technology and experience allow us to significantly benefit from the
continued growth in alternative energy solutions and energy efficiency solutions within both the automotive and industrial
markets especially for demanding applications such as humidity, temperature, voltage, etc. We operate ten film and electrolytic
manufacturing sites throughout Europe and Asia and maintain product innovation centers in the United Kingdom, Italy,
Germany and Sweden. Our Film and Electrolytic Business Group employs approximately 2,090 employees worldwide.
As part of our restructuring efforts for Film and Electrolytic, we have been executing our plan to reduce the number of
operations and headcount. The restructuring plan is now substantially complete even though the full effects of these actions
9
have not been reflected in the income statement yet and a few actions are still being completed. During fiscal year 2016, three
operations were ceased and we reduced headcount by approximately 160 employees. The total closing, severance, and startup
expenses incurred in fiscal year 2016 were approximately $3.0 million. These actions resulted in approximately a $4.0 million
reduction in our operating costs in fiscal year 2016. We expect an additional $4.6 million of savings in fiscal year 2017 as a
result of our plan, followed by another $1.8 million in fiscal year 2018.
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 compliance with these laws and regulations will have a material adverse effect on our
capital expenditures, earnings, or competitive position. We believe, however, it is reasonably likely 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.
We are strongly committed to economic, environmental, and socially sustainable development. As a result of this
commitment, we have adopted the Electronic Industry Citizenship 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, business ethics, and related management system elements. It outlines standards to ensure working
conditions in the electronic industry supply chain are safe, workers are treated with respect and dignity, manufacturing
processes are environmentally sustainable and materials are sourced responsibly.
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 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 intend to 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 are actively involved in developing a transparent supply chain through our membership in the EICC/GeSI
Conflict-Free Sourcing Initiative. We were 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
participate in smelter engagement to increase the number of conflict-free validated smelters globally, the development of due
diligence guidance documents and the advancement of the industry adopted conflict minerals reporting template. 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.
Global Code of Conduct and Mission, Vision and Values
KEMET maintains a Global Code of Conduct ("Code of Conduct"), which became effective August 1, 2010, as well as
mission ("Mission"), vision ("Vision") and values ("Values") statements along with a set of core values, which became effective
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 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 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.
10
Employees
We have approximately 8,800 employees as of March 31, 2016 in the following locations:
Mexico
Asia
Europe
United States
4,950
1,825
1,450
575
The number of employees represented by labor organizations at KEMET locations in each of the following countries
is as follows:
Mexico
Italy
Macedonia
Bulgaria
Indonesia
Finland
Sweden
3,350
250
25
125
325
175
100
In fiscal year 2016, 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 ("Exchange Act") 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 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.
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 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 actual outcomes 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 plans;
11
(ix) equity method investment in NEC TOKIN exposes us to a variety of risks; (x) acquisitions and other strategic transactions
expose us to a variety of risks; (xi) possible acquisition of NEC TOKIN may not achieve all of the anticipated results; (xii) our
business could be negatively impacted by increased regulatory scrutiny and litigation; (xiii) inability to attract, train and retain
effective employees and management; (xiv) inability to develop innovative products to maintain customer relationships and
offset potential price erosion in older products; (xv) exposure to claims alleging product defects; (xvi) the impact of laws and
regulations that apply to our business, including those relating to environmental matters; (xvii) the impact of international laws
relating to trade, export controls and foreign corrupt practices; (xviii) volatility of financial and credit markets affecting our
access to capital; (xix) the need to reduce the total costs of our products to remain competitive; (xx) potential limitation on the
use of net operating losses to offset possible future taxable income; (xxi) restrictions in our debt agreements that limit our
flexibility in operating our business; (xxii) failure of our information technology systems to function properly or our failure to
control unauthorized access to our systems may cause business disruptions; (xxiii) additional exercise of the warrant by K
Equity which could potentially result in the existence of a significant stockholder who could seek to influence our corporate
decisions; and (xxiv) fluctuation in distributor sales could adversely affect our results of operations.
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 we cannot predict could cause a shortfall in net cash generated from
operations. As an example, the electronics industry is a 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 general
economic activity and other factors affecting 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.
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 we would be able to secure such amendments
or refinancing on satisfactory terms.
However, to provide financial flexibility, if necessary we could explore the sale of certain non-core assets. There can
be no assurances we would be successful in this strategic initiative. 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 the carrying amount of a long-lived asset or group of assets may not be recoverable. In the
event the test shows 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. If the economic conditions decline we could incur impairment charges in the future.
Goodwill is reviewed for impairment annually and whenever events or changes in circumstances indicate the carrying
amount of goodwill may not be recoverable. In the event the test shows the carrying value of goodwill is impaired, we would
12
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 for our products could hinder our ability to manufacture our products, negatively impacting our
competitive position and our relationships with our customers.
Tantalum is mined principally in the Democratic Republic of Congo, 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 not be able 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 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 2016 the price of
palladium fluctuated between $470 and $802 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 competitive worldwide, with low transportation costs and few import barriers. Competition
is based on factors such as product quality and reliability, availability, customer service, technical innovation, 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.
13
We may experience difficulties, delays or unexpected costs in completing our restructuring plan and may not
realize all of the expected benefits from our restructuring plan.
During fiscal year 2016, we continued our restructuring plan for Film and Electrolytic and took actions to reduce
headcount by a total of approximately 160 employees and we expect to further reduce headcount in fiscal year 2017 by an
additional 35 employees.
Solid Capacitors took actions to reduce headcount by approximately 230 in fiscal year 2016. The full benefits of this
restructuring activity are expected to be realized in fiscal year 2017. 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
interest. Any of these factors could adversely impact our results of operations and the value of our investment. In fiscal years
2016, 2015 and 2014 we incurred a loss on our equity investment in NEC TOKIN of $16.4 million, $2.2 million and $7.1
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. Our management devotes significant attention and resources 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.
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.
We may not realize the anticipated synergies and revenue expansion expected to result from completing the
acquisition of NEC TOKIN and we may experience difficulties in integrating NEC TOKIN’s business which may adversely
affect our financial performance.
There can be no assurance we will complete the acquisition of the remaining shares of common stock and preferred
stock of NEC TOKIN. KEC’s first and second call options to purchase additional capital stock of NEC TOKIN expired on
April 30, 2015 and as a result KEC does not currently have the right to purchase the remaining capital stock of NEC TOKIN.
There can be no assurance KEC will be able to negotiate new terms to purchase the additional capital stock of NEC TOKIN.
From April 1, 2015 through May 31, 2018, NEC Corporation (“NEC”) of Japan may require KEC to purchase all outstanding
capital stock of NEC TOKIN from its stockholders, primarily NEC (the “Put Option”), provided KEC’s payment of the Put
Option price is permitted under the 10.5% Senior Notes and Loan and Security Agreement.
14
Even if we do complete the acquisition, there can be no assurance we will realize the anticipated operating synergies,
tax benefits and revenue expansion from the acquisition of NEC TOKIN or we will not experience difficulties in integrating the
operations of NEC TOKIN with our operations. For example, the integration of NEC TOKIN will require the experience and
expertise of certain of our key managers and key managers of NEC TOKIN. There can be no assurance, however, that these
managers will remain with us for the time period necessary to successfully integrate the operations of NEC TOKIN with our
operations. In addition, the acquisition of NEC TOKIN may present significant challenges for our management due to the
increased time and resources required to properly integrate our management, employees, information systems, accounting
controls, personnel and administrative functions with those of NEC TOKIN and to manage the combined company on a going
forward basis. There can be no assurance we will be able to successfully integrate and streamline overlapping functions or, if
successfully accomplished, that such integration will not be more costly to accomplish than presently contemplated or that we
will not encounter difficulties in managing the combined company due to its increased size and scope. Furthermore, expansions
or acquisitions into new geographic markets and services may require us to comply with new and unfamiliar legal and
regulatory requirements, which could impose substantial obligations on us and our management, cause us to expend additional
time and resources and increase our exposure to penalties or fines for non-compliance with such requirements.
Furthermore, there can be no assurance that, as a combined company, we will continue to maintain all of the supplier
and customer relationships we and NEC TOKIN enjoyed as separate companies. As a combined company, we may encounter
difficulties managing relationships with our suppliers and our customers due to our increased size and scope and to the
increased number of relationships we will have with suppliers and customers.
We are currently subject to increased regulatory scrutiny and litigation that may negatively impact our business.
The growth of our Company and our expansion into a variety of new products expose us to a variety of new regulatory
issues, and we have experienced increased regulatory scrutiny as we have grown. We are subject to various federal, foreign and
state laws, including antitrust laws, violations of which can involve civil or criminal sanctions. Beginning in March 2014, NEC
TOKIN and certain of its subsidiaries have received inquiries, requests for information and other communications from
government authorities in China, the United States, the European Commission, Japan, South Korea, Taiwan, Singapore and
Brazil concerning alleged anti-competitive activities within the capacitor industry, and NEC TOKIN has subsequently received
significant fines from the United States Department of Justice and the Taiwan Fair Trade Commission arising out of their
respective investigations. Given our leading position within several segments of the capacitor industry and our substantial
investment in NEC TOKIN, these investigations have exposed us to civil litigation costs and could interfere with our ability to
meet certain business objectives. Further, the Company received a request for information from the European Commission in
connection with its investigation of NEC TOKIN as the regulators evaluate any potential liability to which shareholders of
NEC TOKIN may be subject.
In addition, in connection with the antitrust litigation and settlement proceedings involving NEC TOKIN as described
in Note 5 to the consolidated financial statements; the line item " Net income (loss) from NEC TOKIN on our Consolidated
Statement of Operations reflects our 34% economic interest in NEC TOKIN's litigation and settlement expenses.
Various purported antitrust class actions as described in "Item 3. Legal Proceedings", have been filed in United States
district courts (the "U.S. Complaints") and Canada (the "Canadian Complaints") alleging collusion and restraint of trade in
capacitors by the named defendants, including KEMET Corporation, KEC and NEC TOKIN.
The Company has not recorded any accrual concerning the U.S. Complaints and the Canadian Complaints.
The impact of these and other investigations could have a material adverse effect on our financial position, liquidity
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.
15
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 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 we will be unable to anticipate the direction of
technological change or we will be unable to develop and market new products and applications in a timely fashion to satisfy
customer demands. If this occurs, we could lose customers and experience adverse effects on our results of operations.
We may be exposed to claims alleging product defects.
Our business exposes us to claims alleging product defects or nonconformance with product specifications. We may be
held liable for, or incur costs related to, such claims if any of our products, or products in which our products are incorporated,
are found to have caused end market product application failures, product recalls, property damage or personal injury.
Provisions in our 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, antitrust, 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 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.
The SEC requires issuers for whom tantalum, tin, tungsten and gold are necessary to the functionality or production of
a product manufactured, or contracted to be manufactured, by such person to disclose annually whether any of those minerals
originated in the Democratic Republic of 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. We have exercised due diligence on the source and chain of
custody during the reporting period and, as required under the rule, will disclose a description of these measures and certain of
our findings in a special disclosure on Form SD. Disclosure in accordance with the rule may cause changes to the pricing of
3TG minerals, which could adversely affect our profitability. In addition, it is possible 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
16
substances and generate waste 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.
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 and trade sanctions laws and regulations
administered by the Office of the United States Trade Representative ("OFTR") and the United States Department of the
Treasury's Office of Foreign Assets Control ("OFAC"). The import and export of our products from each of our United States
and international manufacturing facilities and distribution hubs are subject to international trade agreements, the modification
or repeal of which could impact our business. We must comply with the requirements of OFTR and non-U.S. trade
representative offices in order to benefit from existing trade agreements. 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.
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.
17
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 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 our view
will be unchallenged.
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 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.
Failure of our information technology systems to function properly may cause business disruptions.
As a global company we depend on our information technology systems to support our business. Any inability to
successfully manage the procurement, development, implementation, execution or maintenance of our information systems,
including matters related to system and data security, reliability, compliance or performance could have an adverse effect on
our business including our results of operation and timeliness of financial reporting.
In the ordinary course of business, we collect and store sensitive data and information, including our proprietary and
regulated business information, as well as personally identifiable information about our employees, in addition to other
information upon which our business processes rely. Our information systems, like those of other companies, are susceptible to
malicious damage, intrusions and outages due to, among other events, viruses, breaches of security, natural disasters, power
loss or telecommunications failures. We have taken steps to maintain adequate data security and address these risks and
uncertainties by implementing security technologies, internal controls, network and data center resiliency and recovery
processes. However, any operational failure could lead to the loss or disclosure of confidential and other important information
which could have the following implications: loss of intellectual property, significant remediation costs, disruption to key
business operations and diversion of management’s attention and key informational technology resources.
K Equity may obtain significant influence over all matters submitted to a stockholder vote if they exercise Platinum
Warrant and retain ownership of the shares, 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, LLC ("K Equity"), an affiliate of K Financing. As of March 31, 2016, 8,416,815 shares
remain subject to the Platinum Warrant. To the extent K Equity exercises the remainder of the Platinum Warrant in whole or in
18
part but does not sell all or a significant part of the shares it acquires upon exercise, K Equity may own up to 15.4% 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. 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.
Sales to distribution channel customers may fluctuate and adversely affect our results of operations.
From time-to-time, if end customer demand decreases, our sales to distributors also decrease while the distributors
reduce their inventory levels. In addition, a single customer, a distributor, accounted for over 10% of our net sales in fiscal
years 2016, 2015 and 2014. 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 it.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
We are headquartered in Simpsonville, South Carolina, and have 19 manufacturing plants located in North America,
Europe and Asia. Our manufacturing and research facilities include approximately 3.3 million square feet of floor space and
use 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 believe substantially all of our property and equipment is in good condition, and overall, we have sufficient
capacity to meet our current and projected manufacturing and distribution needs.
19
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)
Ciudad Victoria, Mexico
Carson City, Nevada U.S.A.
Film and Electrolytic Business Group
Evora, Portugal
Skopje, Macedonia
Granna, Sweden
Suomussalmi, Finland
Batam, Indonesia
Knoxville, Tennessee U.S.A.
Kyustendil, Bulgaria
Landsberg, Germany
Pontecchio, Italy
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
384
532
353
265
87
233
126
132
93
86
78
83
81
226
96
38
28
(1)
(1)
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Innovation Center
Manufacturing and Innovation Center
Innovation Center
Manufacturing
Manufacturing and Innovation Center
_______________________________________________________________________________
1.
2.
Includes two manufacturing facilities, one owned and one leased facility. The leased facility processes raw materials.
Includes two manufacturing facilities.
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.
As previously reported, KEMET Corporation and KEC, along with more than 20 other capacitor manufacturers and
subsidiaries, are defendants in a purported antitrust class action complaint, In re: Capacitors Antitrust Litigation, No. 3:14-
cv-03264-JD, filed on December 4, 2014 with the United States District Court, Northern District of California (the “U.S.
Complaint”). The complaint alleges a violation of Section 1 of the Sherman Act, for which it seeks injunctive and equitable
relief and money damages. On March 30, 2016, KEMET Corporation and KEC filed a motion for summary judgement with the
District Court; response and reply briefs concerning the motion have not yet been filed.
In addition, as previously reported, KEMET Corporation and KEC, along with certain other capacitor manufacturers
and subsidiaries, were named as defendants in several additional suits that were filed in Canada (collectively, the “Canadian
Complaints”): Badashmin v. Panasonic Corporation, et al., filed August 6, 2014 in the Superior Court, Province of Quebec,
District of Montreal; Herard v. Panasonic Corporation, et al., filed August 6, 2014 in the Superior Court, Province of Quebec,
District of Montreal; Cygnus Electronics Corporation v. Panasonic Corporation, et al., filed August 6, 2014 in the Superior
Court of Justice, Province of Ontario; LeClaire v. Panasonic Corporation, et al., filed August 6, 2014 in the Superior Court,
Province of Quebec, District of Montreal; Taylor v Panasonic Corporation, et al., filed August 11, 2014 in the Superior Court
of Justice, Province of Ontario; Ramsay v. Panasonic Corporation, et al., filed August 14, 2014 in the Supreme Court, Province
of British Columbia; Martin v. Panasonic Corporation, et al., filed September 25, 2014 in the Superior Court, Province of
20
Quebec, District of Montreal; Parikh v. Panasonic Corporation, et al., filed October 3, 2014 in the Superior Court of Justice,
Province of Ontario; Fraser v. Panasonic Corporation, et al., filed October 3, 2014 in the Court of Queen’s Bench, Province of
Saskatchewan; Pickering v. Panasonic Corporation, et al., filed October 6, 2014 in the Supreme Court, Province of British
Columbia; and McPherson v Panasonic Corporation et al., filed on November 6, 2014 in the Court of Queen’s Bench,
Province of Manitoba. The Canadian Complaints generally allege the same unlawful acts as in the U.S. Complaint, assert
claims under Canada’s Competition Act as well as various civil and common law causes of action, and seek injunctive and
equitable relief and money damages.
Except for certain attorneys’ fees, the Company has not recorded any accrual concerning the U.S. Complaint and the
Canadian Complaints.
Beginning in March 2014, NEC TOKIN and certain of its subsidiaries have received inquiries, requests for
information and other communications from government authorities in China, the United States, the European Commission,
Japan, South Korea, Taiwan, Singapore and Brazil concerning alleged anti-competitive activities within the capacitor industry.
In connection with the European Commission ("EC") investigation, EC regulators are evaluating any potential liability to
which shareholders of NEC TOKIN, including KEC, may be subject. See Note 5 , "Investment in NEC TOKIN".
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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. There are no family relationships among
our executive officers and directors.
Name
Per-Olof Lööf
Age
Position
65 Chief Executive Officer and Director
William M. Lowe, Jr.
62 Executive Vice President and Chief Financial Officer
Charles C. Meeks, Jr.
54 Executive Vice President, Solid Capacitor Business Group
R. James Assaf
Susan B. Barkal
56 Senior Vice President, General Counsel and Secretary
53 Senior Vice President Quality, Chief Compliance Officer and Chief of Staff
Dr. Phillip M. Lessner
57 Senior Vice President and Chief Technology Officer
Claudio Lollini
Stefano Vetralla
36 Senior Vice President of Global Sales and Marketing
53 Senior Vice President and Chief Human Resources Officer
Robert S. Willoughby
55 Senior Vice President, Global Supply Chain
Andreas Meier
48 Senior Vice President, Film and Electrolytic Business Group
Michael L. Raynor
Richard J. Vatinelle
50 Vice President and Corporate Controller
52 Vice President and Treasurer
_______________________________________________________________________________
Executive Officers
Years with
Company
11
8
32
8
16
20
11
8
30
18
8
3
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 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.
21
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.
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.
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, a Master of Science degree in Mechanical Engineering from California Polytechnic 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
increasing 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.
Claudio Lollini, Senior Vice President of Global Sales and Marketing, was named such in July 2015. He joined
KEMET in October 2007 through the Company’s acquisition of Arcotronics Italia S.p.A., where he served as Manager, Sales -
Great China. Mr. Lollini was appointed Director of Product Management for Film & Electrolytic in January 2009, Director of
Sales Taiwan in June 2012, and Vice President, Sales - Asia Pacific in May 2013 prior to his appointment to his current
position. Mr. Lollini holds a Bachelor of Science degree in Engineering Management from the University of Bologna and is a
2011 graduate of the KEMET Leadership Forum.
Stefano Vetralla, Senior Vice President and Chief Human Resources Officer, was named such in July 2015. He joined
KEMET in May 2008 as Director - HR, Film and Electrolytic Business Group. Mr. Vetralla was appointed Director - HR,
Global Sales and Film and Electrolytic Business Group in January 2011; Senior Director HR, Global Sales and Film and
Electrolytic Business Group in January 2012; Senior Director - HR, Field in September 2012; Vice President - Global HR
Operations in September 2013; and Vice President - Global HR and Chief Human Resources Officer in May 2014 prior to his
current appointment. Prior to KEMET, he held Human Resources positions of increasing responsibility in international
corporations including Hewlett-Packard Company, 3Com Corporation and Telindus /Belgacom. Mr. Vetralla holds a Law
Degree from the State University of Milan and is a 2011 graduate of the KEMET Leadership Forum.
Robert S. Willoughby, Senior Vice President-Global Supply Chain, was named such in May 2016. He joined KEMET
in December 1985 and has held positions of increasing responsibility within Diagnostic, Quality, New Product and Process
Engineering. Mr. Willoughby served as Director - Ceramic Operations from July 2007 until March 2010; served as Vice
President of Operations - Film and Electrolytic Business Unit from March 2010 until May 2013; served as Vice President, Film
and Electrolytic Business Group from May 2013 through December 2014; and served as Senior Vice President-Film and
Electrolytic Business Group from January 2015 through April 2016. He holds a Bachelor of Science degree in Industrial
Engineering from Clemson University and is a 2007 graduate of the KEMET Leadership Forum.
22
Other Key Employees
Andreas Meier, Senior Vice President-Film and Electrolytic Business Group, was named such in May 2016. Mr. Meier
joined KEMET in January 1998 and has held several positions of increasing responsibility in the Sales and Product
Management areas. Mr. Meier was named Vice President - Product Management, Film and Electrolytic Business Group in
January, 2010 and Vice President, Sales - EMEA in December, 2012 prior to his appointment to his current position. Mr. Meier
holds a degree in Electronic Engineering from the University of Paderborn in Germany.
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, is a Certified Public
Accountant in the state of North Carolina and is a 2015 graduate of the KEMET Leadership Forum.
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 and is
a 2015 graduate of the KEMET Leadership Forum.
23
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 112 stockholders of
record as of May 17, 2015. 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 2016
Fiscal Year 2015
High
Low
High
Low
$
$
4.57
2.80
2.97
2.41
$
2.88
1.56
1.87
1.30
$
6.07
6.13
4.80
4.58
4.51
3.94
3.92
3.75
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."
24
PERFORMANCE GRAPH
The following graph compares our cumulative total stockholder return for the past five fiscal years, beginning on
March 31, 2011, 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 3/31/11 in stock or index, including reinvestment of dividends.
Fiscal year ending March 31.
RETURNS
Years Ending March 31,
KEMET Corporation
Russell 3000
Peer Group
2011
2012
2013
2014
2015
2016
100.00
100.00
100.00
63.12
105.07
88.86
42.14
117.85
92.09
39.18
141.70
116.20
27.92
156.24
124.21
13.01
152.57
144.80
Unregistered Sales of Equity Securities
We did not sell any of our equity securities during fiscal year 2016 that were not registered under the Securities Act of
1933, as amended (the "Securities Act").
25
Repurchase of Equity Securities
The following table provides information relating to our purchase of shares of our common stock during the quarter
ended March 31, 2016 (amounts in thousands, except per share price):
Periods
January 1 to January 31, 2016
February 1 to February 29, 2016
March 1 to March 31, 2016
Total for Quarter Ended March 31, 2016
(a) Total
Number of
Shares
Purchased (1)
(b) Average
Price Paid
per Share
(c) Total Number of
Shares Purchased as
Part of Publicly
Announced
Programs
(d) Maximum
Number of Shares
that may yet be
Purchased Under
the Programs
21 $
—
—
21 $
1.49
—
—
1.49
—
—
—
—
—
—
(1) Represents shares withheld by the Company upon vesting of restricted stock to pay taxes due. The Company does
not currently have a publicly announced share repurchase plan or program.
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, 2016:
Plan category
(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))
Equity compensation plans approved by stockholders
4,747,780
(1) $
Equity compensation plans not approved by stockholders
—
4,747,780
$
8.66
—
8.66
1,095,932
—
1,095,932
Total
(1)
Includes 1,275,387 shares subject to outstanding LTIP Awards (time-based), 705,500 shares subject to outstanding
LTIP Awards (performance-based) and 1,430,021 outstanding non-vested restricted shares of Common Stock; the
weighted-average exercise price does not take into account these shares as they have no exercise price.
26
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:
Net sales
Operating income (loss)
Interest income
Interest expense
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of
income tax expense (benefit)
Net income (loss)
Per Share Data:
Net income (loss) per basic share:
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of
income tax expense (benefit)
Net income (loss)
Net income (loss) per diluted share:
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of
income tax expense (benefit)
Net income (loss)
Balance Sheet Data:
Total assets (3)
Working capital
Long-term debt, less current portion(2)
Other non-current obligations
Stockholders' equity
Other Data:
Fiscal Years Ended March 31,
2016
2015
2014
2013
2012(1)
$
734,823
$
823,192
$
32,326
(14)
39,605
(53,629)
—
(53,629)
22,378
(15)
40,701
(19,522)
5,379
(14,143)
$
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
28,083
(175)
28,567
(2,350)
9,042
6,692
$
$
$
$
$
$
$
(1.17) $
(0.43) $
(1.44) $
(1.75) $
(0.05)
— $
(1.17) $
$
0.12
(0.31) $
(0.08) $
(1.52) $
(0.08) $
(1.83) $
0.21
0.16
(1.17) $
(0.43) $
(1.44) $
(1.75) $
(0.04)
— $
(1.17) $
0.12
$
(0.31) $
(0.08) $
(1.52) $
(0.08) $
(1.83)
0.17
0.13
702,544
$
746,693
$
841,608
$
909,857
$
977,855
228,793
388,597
74,892
112,481
228,478
390,409
57,131
164,682
227,070
391,292
55,864
221,884
257,801
372,707
69,022
276,916
392,274
345,380
101,229
358,996
Cash flow provided by (used in) operating activities
$
32,365
$
24,402
$
Capital expenditures
Research and development
20,469
24,955
22,232
25,802
_______________________________________________________________________________
(6,746) $
32,147
(22,827) $
46,174
24,466
26,876
80,730
49,314
27,765
(1)
(2)
In fiscal year 2012, the Company acquired KEMET Foil on June 13, 2011 and Blue Powder on February 21, 2012.
In fiscal years 2013 and 2012, the Company issued $15.0 million and $110.0 million, respectively of 10.5% Senior
Notes. In fiscal year 2013, the Company received a $24.0 million advance payment from an original equipment
manufacturer and in fiscal year 2015 this advance payment was repaid in full. In fiscal years 2016, 2015 and 2014, the
Company had $33.9 million, $33.5 million and $18.4 million, respectively, outstanding under a Loan and Security
Agreement (the "Loan and Security Agreement") with Bank of America, N.A.
(3)
Fiscal years 2012 through 2015 have been restated due to the retroactive adoption of Financial Accounting Standards
Board ("FASB") Accounting Standards Update ("ASU") No. 2015-17, Balance Sheet Classification of Deferred Taxes.
27
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, 2016, 2015, and 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. 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.
Our Competitive Strengths
We believe that our Company benefits from the following competitive strengths:
Strong Customer Relationships
We have a large and diverse customer base. We believe that our emphasis on quality control and our performance
history 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., HP Inc.,
International Business Machines Corporation, Motorola Solutions, L.M. Ericsson, Siemens AG 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 results 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 spanning a full spectrum of dielectric
materials including tantalum, multilayer ceramic, solid and electrolytic aluminum and film capacitors. 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 end-markets, including computing, industrial, telecommunications, transportation, consumer,
defense and healthcare across all geographical regions. No single industry accounted for more than 30% of net sales; although,
one customer, an electronics distributor, accounted for more than 10% of our net sales in fiscal year 2016. No single end-use
customer accounted for more than 6% of our net sales in fiscal year 2016. 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 substantial 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 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. Whether at the concept or design stage, KEMET provides
engineering tools and samples to our customers to enable them to make the best product selections. KEMET's Field Application
Engineers (experts in electrical circuits) and Technical Product Managers (experts in product applications) assist our Sales team
as they navigate the product selection process with our customers. During fiscal years 2016 and 2015, respectively, specialty
products accounted for 41.3% and 40.5% of our revenue. By allocating an increasing portion of our management resources and
research and development ("R&D") investment (particularly through our partnership with NEC TOKIN as discussed below) to
specialty products, we have established ourselves as one of the leading innovators in this fast growing, emerging segment of the
market, including healthcare, renewable energy, telecommunication infrastructure and oil and gas.
28
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.
In addition to our traditional reputation of being the "Easy-To-Buy-From" company by providing excellent customer service
and on-time delivery, we have now evolved to being the “Easy-To-Design-In” company with the addition of technical resources
like KEMET’s online Engineering Center and capacitor selection simulation tools.
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 14 member executive management team has an average of 18 years of experience with us and an average of
26 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 commercial and technological 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 that allow us to provide
our customers with the technologies they require at a competitive "total cost of ownership." 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 our Lean and Six Sigma
culture evolution, our global customer accounts management program and our evolution toward a philosophy of being "easy to
design-in."
Develop Our Significant Customer Relationships and Industry Presence.
We continue to focus on our responsiveness to our customers' needs and requirements by making order entry and
fulfillment easier, faster, more flexible and more reliable for our customers. This will be accomplished by focusing on building
products around customers' needs and by giving decision-making authority to customer-facing personnel and by providing
purpose-built systems and processes.
Leverage Our Technological Competence and Expand Our Leadership in Specialty Products
We continue to leverage our technological competence and partnership with NEC TOKIN by introducing new
products in a timely and cost-efficient manner. This allows us to generate an increasing portion of our sales from new and
customized solutions that meet our customers' varied and evolving capacitor needs as well as improves our financial
performance. We believe that by continuing to build on our strength in the higher growth and higher margin specialty segments
of the capacitor market, we will be well-positioned to achieve our long-term growth objectives while also improving our
profitability. During fiscal year 2016, we introduced 23,294 new products of which 889 were first to market, and specialty
products accounted for 41.3% of our revenue over this period.
29
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, multilayer ceramic, solid and
electrolytic aluminum, film and paper. As discussed below, through our partnership with NEC TOKIN we have further
expanded our product offerings to other electro-magnetic, electro-mechanical and access devices. 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 allowing 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 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 2015, we received the “Asia Supplier Excellence Award” and "Global Operations Excellence Award"
from TTI, Inc. and the “Excellence in Sustainability” award from Cisco Systems, Inc.
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) have account managers, field application engineers and strategic marketing managers. 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.
Partnership with NEC TOKIN
Through our cross licensing agreement and Amended and Restated Private Label Agreement 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 enhances 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
compared to 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.
Recent Developments and Trends
Equity Investment
On March 12, 2012, KEC, a wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement with
NEC TOKIN, a manufacturer of tantalum capacitors, electro-magnetic, electro-mechanical and access devices, to acquire 51%
of the common stock of NEC TOKIN (which represented 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 outstanding common and
convertible preferred shares of NEC TOKIN as of such date) from NEC. 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.
30
Concurrent with KEC’s execution of the Stock Purchase Agreement, KEC was granted First and Second Call Options
(as defined in Note 5, "Investment in NEC TOKIN") to purchase additional capital stock of NEC TOKIN, which expired on
April 30, 2015 without being exercised. In addition, NEC was granted a Put Option, pursuant to which from April 1, 2015
through May 31, 2018, NEC may require KEC to purchase all outstanding capital stock of NEC TOKIN from its stockholders,
primarily NEC, provided that KEC's payment of the Put Option price is permitted under the 10.5% Senior Notes and Loan and
Security Agreement.
The Company and NEC have had continued discussions regarding the terms of any potential acquisitions of NEC
TOKIN. See Note 5, “Investment in NEC TOKIN” for further discussion of the NEC TOKIN Equity Investment.
In the fiscal year ended March 31, 2016, we incurred a net loss from NEC TOKIN of $16.4 million primarily due to
NEC TOKIN's additional accrual of $51.6 million for antitrust fines and civil litigation as described in Note 5, “Investment in
NEC TOKIN”, which resulted in additional expense to KEMET of $17.5 million related to our 34% economic interest. The
civil fines were accrued during the quarter ended March 31, 2016.
In addition, the Company has marked KEC’s options to fair value and in the fiscal year ended March 31, 2016
recognized a $26.3 million loss, which was included on the line item “Change in value of NEC TOKIN options” in the
Consolidated Statement of Operations. The line item “"Other non-current obligations” on the Consolidated Balance Sheets
includes $20.6 million as of March 31, 2016 related to the Put Option.
Restructuring
In the fiscal year ended March 31, 2016 we incurred $4.2 million in restructuring charges including $1.8 million
related to personnel reduction costs and $2.4 million of manufacturing relocation costs.
Subsequent Event
Revolving Line of Credit and Debt Repurchase
On May 2, 2016, the Loan and Security Agreement, as defined herein, was amended and, as a result, the revolving
credit facility has increased to $65.0 million. In addition, on May 10, 2016, the company repurchased and retired $2.0 million
of our 10.5% Senior Notes.
Off-Balance Sheet Arrangements
As of March 31, 2016, other than operating lease commitments as described in Note 16, "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:
31
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. Based on product availability, customer requirements and customer consent, KEMET may ship products
earlier than the initial planned ship date. 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.
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 2016, net sales would be impacted by $0.8 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:
•
•
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
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
weighted average discount rate would result in changes to the projected benefit obligation of $(1.9) million and $2.2 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 tested for impairment at least on an annual
basis. We perform our impairment test during the fourth 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
32
each reporting unit, with the corresponding carrying amounts. If the reporting unit's carrying amount exceeds its fair value, then
an indication exists that the reporting unit's goodwill may be impaired. The impairment to be recognized is measured by the
amount by which the carrying value of the reporting unit's goodwill being measured exceeds its implied fair value. The implied
fair value of goodwill is the excess of the fair value of the reporting unit over the sum of the amounts assigned to identified net
assets. As a result, the implied fair value of goodwill is generally the residual amount that results from subtracting the value of
net assets including all tangible assets and identified intangible assets from the fair value of the reporting unit's fair value. We
determine the fair value of our reporting units using an income-based, discounted cash flow ("DCF") analysis, and market-
based approaches (Guideline Publicly Traded Company Method and Guideline Transaction Method) which examine
transactions in the marketplace involving the sale of the stocks of similar publicly-owned companies, or the sale of entire
companies engaged in operations similar to KEMET. In addition to the above described reporting unit valuation techniques, our
goodwill impairment assessment also considers our aggregate fair value based upon the value of our outstanding shares of
common stock.
Our goodwill balance of $40.3 million is comprised of $35.6 million related to Blue Powder, which is within the
Tantalum product line of the Solid Capacitors Business Group, and $4.7 million related to IntelliData (see Note 8,
"Acquisitions") which is a corporate asset. As part of our annual impairment testing, we determine the fair value of the relevant
reporting unit(s) using an income-based, discounted cash flow ("DCF") analysis for Blue Powder, and an internal rate of return
analysis for IntelliData. Recognizing that Blue Powder is now fully integrated and reliant on other facilities within the
Tantalum product line, we have updated the reporting unit used this year to evaluate Blue Powder’s goodwill at the Tantalum
product line level.
Significant assumptions used in the DCF analysis are:
•
•
•
the discount rate based on the weighted average cost of capital (“WACC”),
estimated sales growth rates, and
the estimated market price and production cost for tantalum products
Our WACC is determined through market comparisons combined with small stock and equity risk premiums.
Tantalum’s sales growth rates are estimated through KEMET’s three-year strategic plan.
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.
The decline in KEMET’s stock price is also a potential indication the carrying amount of certain long-lived asset
groups might not be fully recoverable. Therefore, the Company tested long-lived assets for each of our reporting units for
impairment as of March 31, 2016 and concluded that they were not impaired. The Company will monitor the Film and
Electrolytic long-lived assets in future periods as material changes in certain assumptions could have a material effect on the
estimated future undiscounted cash flows expected to be generated by the assets. This, in turn, could result in Film and
Electrolytic not passing step 1 of the impairment test which would require the Company to perform a discounted cash flow
analysis to determine the impairment amount (if any).
We evaluate the value of our other indefinite-lived intangible assets (trademarks) using an income-based, relief from
royalty analysis.
The Company completed its impairment test on goodwill and intangible assets with indefinite useful lives as of
January 1, 2016 and concluded that goodwill and indefinite-lived assets were not impaired nor were they at risk of failing step
one of the impairment test as the fair value of each of the assets exceeds the carrying value by more than 10%. A one percent
33
increase or decrease in the discount rate used in the goodwill and indefinite-lived assets valuation would have resulted in
changes in fair value in the following amounts, and would not have resulted in an impairment change:
Discount Rate Sensitivity, in millions
Fair Value in
Excess of
Carrying Value,
%
+1%
-1%
18% $
870%
33%
(21.3) $
(6.1)
(1.0)
25.8
7.4
1.3
Goodwill - Blue Powder
Trademarks
Goodwill - IntelliData
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 $0.3 million in fiscal year 2016.
34
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):
95,856
24,466
14,122
4,476
32
(18,211)
(195)
40,962
(3,111)
430
(56,297)
1,482
(57,779)
(7,090)
(64,869)
(3,634)
(68,503)
Fiscal Years Ended March 31,
2016
2015
2014
$
734,823
$
823,192
$
833,666
663,683
712,925
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 loss on sales and disposals of assets
Operating (loss) income
Interest income
Interest expense
Change in value of NEC TOKIN options
Other (income) expense, net
Income (loss) from continuing operations before income taxes and
equity income (loss) from NEC TOKIN
Income tax expense (benefit)
Income (loss) from continuing operations before equity income (loss)
from NEC TOKIN
Equity income (loss) from NEC TOKIN
Income (loss) from continuing operations
571,543
101,446
24,955
4,178
—
375
32,326
(14)
39,605
26,300
(2,348)
(31,217)
6,006
(37,223)
(16,406)
(53,629)
98,533
25,802
13,017
—
(221)
22,378
(15)
40,701
(2,100)
(4,082)
(12,126)
5,227
(17,353)
(2,169)
(19,522)
Income (loss) from discontinued operations, net of income tax expense
(benefit) of $0, $1,976, and $(98), respectively
Net income (loss)
—
(53,629) $
5,379
(14,143) $
$
Consolidated Comparison of Fiscal Year 2016 to Fiscal Year 2015
Net sales:
Net sales of $734.8 million in fiscal year 2016 decreased 10.7% from $823.2 million in fiscal year 2015. Solid
Capacitor and Film and Electrolytic sales decreased by $65.0 million and $23.4 million, respectively. The overall Solid
Capacitors net sales decrease was primarily driven by a decrease in net sales to the Americas and EMEA distribution channel,
typical market price erosion and changes in product line mix. In addition, Solid Capacitor net sales were unfavorably impacted
by $12.0 million from foreign currency exchange primarily due to the change in the value of the Euro compared to the U.S.
dollar for the fiscal year 2016 as compared to fiscal year 2015. The overall Film and Electrolytic net sales included a $18.9
million unfavorable impact from foreign currency exchange primarily due to the change in the value of the Euro compared to
the U.S. dollar. Excluding the foreign exchange impact, Film and Electrolytic net sales decreased by $4.4 million primarily
driven by decreased net sales in the APAC and Americas regions partially offset by the marginally improved net sales in the
EMEA region.
35
In fiscal years 2016 and 2015, net sales by region were as follows (dollars in millions):
Americas
APAC
EMEA
Total
Fiscal Year 2016
Net Sales
% of
Total
$
$
225.7
275.8
233.3
734.8
31% Americas
37% APAC
32% EMEA
Total
Fiscal Year 2015
Net Sales
% of
Total
$
$
260.0
281.8
281.4
823.2
32%
34%
34%
In fiscal years 2016 and 2015, the percentages of net sales by channel to total net sales were as follows:
Fiscal Year 2016
Net Sales
% of Total
$
$
308.1
155.5
271.2
734.8
42% Distributors
21% EMS
37% OEM
Total
Fiscal Year 2015
Net Sales
% of Total
$
$
366.3
151.2
305.7
823.2
45%
18%
37%
Distributors
EMS
OEM
Total
Gross margin:
Gross margin for the fiscal year ended March 31, 2016 of $163.3 million (22.2% of net sales) increased $3.8 million
or 2.4% from $159.5 million (19.4% of net sales) in the prior fiscal year. Despite the decrease in net sales, gross margin as a
percentage of net sales improved 280 basis points. This improvement was driven by cost reductions achieved through
headcount reductions, manufacturing relocations previously completed as part of our restructuring plans, cost reduction
activities, vertical integration, the favorable foreign currency impact to manufacturing costs, and manufacturing process
improvements as a result of our partnership with NEC TOKIN.
Selling, general and administrative expenses ("SG&A"):
SG&A expenses of $101.4 million (13.8% of net sales) for fiscal year 2016 increased $2.9 million or 3.0% compared
to $98.5 million (12.0% of net sales) for fiscal year 2015. The increase consists primarily of the following items: a $2.5 million
increase in consulting and contractor expenses; a $2.4 million increase in ERP integration and technology transition costs; a
$2.3 million increase in legal expenses, which were primarily related to ongoing antitrust lawsuits; and a $0.4 million increase
in non-income-related taxes. Partially offsetting these increases was a $1.2 million decrease in software expenses; a $1.1
million decrease in professional fees; a $1.1 million decrease in payroll, commissions, and related expenses and benefits; a $0.9
million decrease related to the change in the allocation of IT and other costs between SG&A and cost of goods sold following
an internal usage study; and a $0.4 million decrease in director fees.
Research and development:
R&D expenses of $25.0 million (3.4% of net sales) for fiscal year 2016 decreased $0.8 million or 3.3% compared to
$25.8 million (3.1% of net sales) for fiscal year 2015.
Restructuring charges:
Restructuring charges of $4.2 million in fiscal year 2016 decreased $8.8 million or 67.9% from $13.0 million in fiscal
year 2015.
Restructuring charges in the fiscal year ended March 31, 2016 included $1.8 million of personnel reduction costs and
$2.4 million of relocation costs. The personnel reduction costs were due to the following: $0.9 million for headcount reductions
in Matamoros, Mexico related to the relocation of certain Solid Capacitor manufacturing from Matamoros, Mexico to Victoria,
Mexico, $0.6 million related to a headcount reduction in Suzhou, China for the Film & Electrolytic production line transfer
from Suzhou, China to Anting, China, $0.5 million related to the consolidation of certain Solid Capacitor manufacturing in
Victoria, Mexico, $0.5 million for headcount reductions related to the outsourcing of the Company's information technology
function and overhead reductions in North America and Europe, and $0.3 million for headcount reductions in Europe (primarily
Landsberg, Germany). These personnel reduction costs were partially offset by a $1.0 million credit to expense in Italy due to
the partial reversal of a severance accrual. The Company originally recorded the accrual in the third quarter of fiscal year 2015
corresponding with a plan to reduce headcount by 50 employees. Under the plan, 24 employees were terminated. However, due
36
to unexpected workforce attrition combined with achieving other cost reduction goals, the Company decided not to complete
the remaining headcount reduction. Consequently, the Company reversed the remaining accrual during the second quarter of
fiscal year 2016.
The $2.4 million relocation costs include $1.1 million for the Landsberg, Germany shut-down including relocating
equipment to Pontecchio, Italy and Skopje, Macedonia; $0.4 million for the relocation of certain Solid Capacitor manufacturing
equipment in Victoria, Mexico; $0.4 million for the exit of Film & Electrolytic manufacturing from Suzhou, China; and $0.5
million for other costs related to shut-downs in Europe, North America, and Asia.
Restructuring charges in the fiscal year ended March 31, 2015 included $10.3 million related to personnel reduction
costs which is primarily comprised of the following: $4.1 million related to headcount reductions in Europe (primarily
Landsberg, Germany) as the Company relocates production to lower cost regions; $3.2 million is related to a headcount
reduction of 50 employees due to the consolidation of manufacturing facilities in Italy; $1.9 million related to the reduction of
certain Solid Capacitor production workforce from Matamoros, Mexico to Victoria, Mexico; and $1.1 million related to
headcount reductions taken as the Company began to outsource its information technology function.
In addition to these personnel reduction costs, the Company incurred manufacturing relocation costs of $2.7 million
comprised of the following: $1.4 million for the exit of solid capacitors in Evora, Portugal and the relocation of certain Solid
Capacitors manufacturing operations from Evora, Portugal to Victoria, Mexico; $0.4 million for the Landsberg, Germany shut-
down including relocating equipment to Pontecchio, Italy; $0.3 million for the relocation of certain Film & Electrolytic lines
from Monterrey, Mexico and Skopje, Macedonia to Suzhou China and $0.5 million for other costs related to shut-downs in
Europe and Asia.
Operating income (loss):
Operating income for fiscal year 2016 of $32.3 million improved $9.9 million compared to operating income of $22.4
million in fiscal year 2015. The improvement was primarily due to a $8.8 million decrease in restructuring charges, a $3.8
million increase in gross margin, and a $0.8 million decrease in R&D expenses. These improvements were partially offset by a
$2.9 million increase in SG&A expenses and a $0.6 million unfavorable change in gains or losses on disposals of fixed assets.
Non-operating (income) expense, net:
Non-operating (income) expense, net was a net expense of $63.5 million in fiscal year 2016 compared to a net expense
of $34.5 million in fiscal year 2015. The $29.0 million increase is primarily attributable to a $26.3 million decrease in the value
of the NEC TOKIN options recognized in fiscal year 2016, the change in value is primarily attributable to the expiration of
KEMET's call option and resulting from the NEC TOKIN antitrust and civil litigation, compared to a $2.1 million increase in
fiscal year 2015. In addition, we incurred a $3.0 million foreign exchange gain in fiscal year 2016 compared to a $4.2 million
foreign exchange gain in fiscal year 2015, and a $1.0 million gain from the extinguishment of an advance payment from an
OEM debt in fiscal year 2015. Partially offsetting these unfavorable items was $1.1 million in professional fees related to
financing activities during fiscal year 2015 that did not repeat in fiscal year 2016.
Income taxes:
The income tax expense from continuing operations was $6.0 million in fiscal year 2016 compared to an income tax
expense of $5.2 million in fiscal year 2015. Fiscal year 2016 income tax expense is comprise of $6.4 million and $0.2 million
in foreign and state income tax expense, respectively, partially offset by $0.6 million of U.S. income tax benefit. No U.S.
federal income tax benefit is recognized for the U.S. taxable loss for fiscal year 2016 due to a valuation allowance provided for
U.S. net operating losses.
Equity loss from NEC TOKIN:
In fiscal year 2016, we incurred an equity loss related to our 34% economic interest in NEC TOKIN of $16.4 million
compared to a loss of $2.2 million in fiscal year 2015. The change is primarily comprised of the following: a $15.7 million
increase in accrued antitrust and civil litigation fines and a $2.7 million unfavorable change in the foreign exchange rates.
Partially offsetting these unfavorable items were: a $1.7 million improvement in gross margin and a $1.2 million decrease in
business restructuring expenses. The improvement in gross margin was driven primarily by sales mix improvement,
improvements in manufacturing efficiencies, and a reduction of personnel costs.
37
Segment Comparison of Fiscal Year 2016 to Fiscal Year 2015:
The following table sets forth the operating income (loss) for each of our business segments for the fiscal years 2016
and 2015. The table also sets forth each of the segments' net sales as a percentage of total net sales and total operating income
(loss) 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, 2016
March 31, 2015
Amount
% to Total
Sales
Amount
% to Total
Sales
$
$
$
$
556,303
178,520
734,823
129,909
(71)
(97,512)
32,326
75.7% $
24.3%
100.0% $
621,275
201,917
823,192
75.5%
24.5%
100.0%
$
4.4% $
135,946
(16,685)
(96,883)
22,378
2.7%
The table below sets forth Net sales, Operating income and Operating income as a percentage of net sales for Solid
Capacitors for fiscal years 2016 and 2015 (amounts in thousands, except percentages):
Tantalum product line net sales
Ceramic product line net sales
Net sales
Segment operating income
Net sales:
For the Fiscal Years Ended
March 31, 2016
March 31, 2015
Amount
% to Net
Sales
Amount
% to Net
Sales
$
337,392
218,911
556,303
129,909
$
377,893
243,382
621,275
135,946
23.4%
21.9%
Net sales of $556.3 million in fiscal year 2016 decreased $65.0 million or 10.5% from $621.3 million in fiscal year
2015. Tantalum product line net sales of $337.4 million in fiscal year 2016 decreased $40.5 million or 10.7% from $377.9
million in fiscal year 2015. Ceramic product line net sales of $218.9 million in fiscal year 2016 decreased $24.5 million or
10.1% from $243.4 million in fiscal year 2015. Included in the decrease in net sales was an unfavorable impact of $12.0 million
from foreign currency exchange primarily due to the change in the value of the Euro compared to the U.S. dollar.
38
The overall Solid Capacitors net sales decrease was primarily driven by a decrease in net sales to the Americas and
EMEA distribution channel (as shown in the table below), typical market price erosion and changes in product line mix:
For the Fiscal Years Ended
March 31, 2016
March 31, 2015
Solid Capacitor Distributor Sales by Region
Amount
Amount
Change in Sales
Americas
EMEA
APAC
Solid Capacitor distributor net sales
Segment Operating Income:
$
$
99.6
65.0
73.1
$
121.3
$
87.7
81.8
237.7
$
290.8
$
(21.7)
(22.7)
(8.7)
(53.1)
Segment operating income of $129.9 million for fiscal year 2016 decreased $6.0 million or 4.4% from $135.9 million
for fiscal year 2015; however operating income as a percentage of net sales improved 150 basis points. The decrease in
segment operating income is primarily attributable to the following: a decrease in gross margin of $6.5 million and a $1.1
million increase in SG&A expenses. Despite the decrease in net sales, our gross margin decrease was mitigated by vertical
integration, the favorable foreign currency impact to manufacturing costs, and manufacturing process improvements as a result
of our partnership with NEC TOKIN. These items were partially offset by a decrease in restructuring charges of $1.4 million, a
$0.1 million decrease loss on disposal of assets and a $0.1 million decrease in R&D expenses.
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 2016 and 2015 (amounts in thousands, except percentages):
Net sales
Segment operating loss
Net sales:
For the Fiscal Years Ended
March 31, 2016
March 31, 2015
Amount
$
178,520
(71)
% to Net
Sales
Amount
% to Net
Sales
$
— %
201,917
(16,685)
(8.3)%
Net sales of $178.5 million in fiscal year 2016 decreased $23.4 million or 11.6% from $201.9 million in fiscal year
2015. Capacitor unit sales volume for fiscal year 2016 decreased 5.7% compared to fiscal year 2015. The decrease in net sales
included an $18.9 million unfavorable impact from foreign currency exchange primarily due to the change in the value of the
Euro compared to the U.S. dollar. In addition to the foreign exchange impact, net sales decreased by $4.4 million primarily
driven by decreased net sales in the APAC and Americas regions partially offset by the marginal improvement in net sales in
the EMEA region.
Segment Operating loss:
Segment operating loss of $0.1 million in fiscal year 2016 improved $16.6 million from $16.7 million of segment
operating loss in fiscal year 2015 and operating income as a percentage of net sales improved 820 basis points. The
improvement was attributable to a $10.2 million improvement in gross margin, a $6.5 million decrease in restructuring charges,
a $0.4 million decrease in SG&A expenses, and a $0.2 million decrease in R&D expenses. The improvement in gross margin is
mainly driven by the headcount reductions and manufacturing relocations previously completed as part of our restructuring
plan and cost reduction actions across all plants. The improvements were partially offset by a $0.7 million decrease in the gain
on disposals of fixed assets for fiscal year 2016 compared to fiscal year 2015.
Consolidated Comparison of Fiscal Year 2015 to Fiscal Year 2014
Net sales:
Net sales of $823.2 million for fiscal year 2015 decreased 1.3% from $833.7 million for fiscal year 2014. Film and
Electrolytic and Solid Capacitor sales decreased by $5.3 million and $5.2 million, respectively. Capacitor unit sales volumes
decreased 0.9% for fiscal year 2015 as compared to fiscal year 2014. Average selling prices for capacitors decreased 0.4% for
39
fiscal year 2015 compared to fiscal year 2014 due to an unfavorable $9.3 million impact on net sales related to foreign
exchange and an unfavorable product mix shift in Film and Electrolytic. These unfavorable impacts on average selling prices
were partially offset by an increase in sales of higher priced specialty products within Solid Capacitors.
In fiscal years 2015 and 2014, net sales by region were as follows (dollars in millions):
Americas
APAC
EMEA
Total
Fiscal Year 2015
Net Sales
% of Total
$
$
260.0
281.8
281.4
823.2
32% Americas
34% APAC
34% EMEA
Total
Fiscal Year 2014
Net Sales
% of Total
$
$
262.9
282.3
288.5
833.7
31%
34%
35%
In fiscal years 2015 and 2014, the percentages of net sales by channel to total net sales were as follows:
Fiscal Year 2015
Net Sales
% of Total
$
$
366.3
151.2
305.7
823.2
45% Distributors
18% EMS
37% OEM
Total
Fiscal Year 2014
Net Sales
% of Total
$
$
377.0
139.4
317.3
833.7
45%
17%
38%
Distributors
EMS
OEM
Total
Gross margin:
Gross margin for the fiscal year ended March 31, 2015 of $159.5 million (19.4% of net sales) increased $38.8 million
or 32.1% from $120.7 million (14.5% of net sales) in the prior fiscal year. The primary contributor to the gross margin
improvement was a $36.9 million gross margin increase in Solid Capacitors for the fiscal year 2015 compared to fiscal year
2014 corresponding with further cost savings from vertical integration, an increase in average selling prices, and sales of higher
margin specialty products. The improvement in Solid Capacitors' gross margin was supplemented by a $1.9 million increase in
Film and Electrolytic gross margin for the fiscal year 2015 compared to fiscal year 2014 and is primarily attributable to cost
reduction activities.
Selling, general and administrative expenses ("SG&A"):
SG&A expenses of $98.5 million (12.0% of net sales) for fiscal year 2015 increased $2.7 million or 2.8% compared to
$95.9 million (11.5% of net sales) for fiscal year 2014. The increase consisted primarily of the following items: a $4.7 million
increase in payroll expenses primarily due to an increase in bonus and incentive compensation, a $0.8 million increase in
professional fees, a $0.8 million increase in software expense, and a $0.7 million increase in legal fees. Partially offsetting these
increases was a $1.2 million decrease in depreciation expense, a $0.9 million decrease in office and equipment rent expense, a
$0.6 million decrease in ERP integration and technology transition costs, a $0.5 million decrease in charitable contributions, a
$0.5 million decrease in consulting and contractor expenses, $0.5 million decrease in non-income-related taxes, and a $0.4
million decrease in travel expenses.
Restructuring charges:
Restructuring charges of $13.0 million in fiscal year 2015 decreased $1.1 million or 7.8% from $14.1 million in fiscal
year 2014.
Restructuring charges in the fiscal year ended March 31, 2015 included $10.3 million related to personnel reduction
costs which were primarily comprised of the following: $4.1 million related to headcount reductions in Europe (primarily
Landsberg, Germany) as the Company relocates production to lower cost regions; $3.2 million is related to a headcount
reduction of 50 non-manufacturing labor employees; $1.9 million related to the reduction of certain Solid Capacitor production
workforce from Matamoros, Mexico to Victoria, Mexico; and $1.1 million related to headcount reductions taken as the
Company begins to outsource its information technology function.
In addition to these personnel reduction costs, the Company incurred manufacturing relocation costs of $2.7 million
comprised of the following: $1.4 million for the exit of solid capacitors in Evora, Portugal and the relocation of certain Solid
Capacitors manufacturing operations from Evora, Portugal to Victoria, Mexico; $0.4 million for the Landsberg, Germany shut-
down including relocating equipment to Pontecchio, Italy; $0.3 million for the relocation of certain Film & Electrolytic lines
40
from Monterrey, Mexico and Skopje, Macedonia to Suzhou China; and $0.5 million for other cost related to shut-downs in
Europe and Asia.
Restructuring charges in the fiscal year ended March 31, 2014 included 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 a temporary "lay-off" plan in Italy.
Research and development:
R&D expenses of $25.8 million (3.1% of net sales) for fiscal year 2015 increased $1.3 million or 5.5% compared to $24.5
million (2.9% of net sales) for fiscal year 2014. The increase is primarily a result of additional product testing and an increase in
headcount.
Write down of long-lived assets:
In fiscal year 2013, the Company initiated a restructuring plan for its Evora, Portugal manufacturing operations. As a
part of 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 was
disposed. In fiscal year 2014, Solid Capacitors incurred a $3.9 million impairment charge due to a decrease in forecasted
revenues because production was relocated to Mexico sooner than originally planned. The Company used an income approach
to estimate the fair value of the assets to be disposed. In addition, during fiscal year 2014, Film and Electrolytic incurred
impairment charges totaling $0.6 million related to manufacturing equipment in a facility in Italy.
Operating income:
Operating income for fiscal year 2015 of $22.4 million improved $40.6 million compared to an operating loss of $18.2
million in fiscal year 2014. The improvement was primarily due to a $38.8 million increase in gross margin, a $4.5 million
decrease in write down of long-lived assets, and a $1.1 million decrease in restructuring charges. These improvements were
partially offset by a $2.7 million increase in SG&A expenses and a $1.3 million increase in R&D expenses.
Non-operating (income) expense, net:
Non-operating (income) expense, net was a net expense of $34.5 million in fiscal year 2015 compared to a net expense of
$38.1 million in fiscal year 2014. The $3.6 million improvement is primarily attributable to a $4.2 million foreign exchange
gain in fiscal year 2015 compared to a $0.3 million foreign exchange gain in fiscal year 2014, a $1.0 million gain from the
extinguishment of an advance payment from an OEM debt in fiscal year 2015, and during fiscal year 2014 we incurred a $1.4
million charge related to the write off of a long-term note receivable. Partially offsetting these improvements was $1.1 million
in professional fees related to financing activities and a $2.1 million increase in the value of the NEC TOKIN options
recognized in fiscal year 2015 compared to a $3.1 million increase in fiscal year 2014.
Income taxes:
The income tax expense from continuing operations was $5.2 million in fiscal year 2015 compared to an income tax
expense of $1.5 million in fiscal year 2014. The fiscal year 2015 income tax expense was comprised of an income tax expense
resulting from operations in certain foreign jurisdictions totaling $5.0 million, $0.3 million income tax expense allocated from
outside of continuing operations to continuing operations, and $0.1 million of state income tax benefit. No U.S. federal income
tax benefit was recognized for the U.S. taxable loss for fiscal year 2015 due to a valuation allowance provided for U.S. net
operating losses.
Equity loss from NEC TOKIN:
In fiscal year 2015, we incurred an equity loss related to our 34% economic interest in NEC TOKIN of $2.2 million
compared to a loss of $7.1 million in fiscal year 2014 due primarily to a $5.4 million improvement in operating income and a
$2.5 million equity adjustment primarily for the deferred tax impact related to the sale of land in fiscal year 2014 and step up
basis adjustments. The improvement in operating income was primarily driven by sales mix improvement, improvements in
manufacturing efficiencies, and a reduction of personnel costs. Partially offsetting these favorable items was a net $1.7 million
accrual related to estimated antitrust investigation fines (net of KEMET's portion of a $25 million indemnity asset to be
41
received from NEC, of which KEMET's portion is $8.5 million) and a $1.4 million increase in income tax expenses which
primarily relates to additional income tax expense and penalty incurred in Vietnam.
Segment Comparison of Fiscal Year 2015 to Fiscal Year 2014:
The following table sets forth the operating income (loss) for each of our business segments for the fiscal years 2015
and 2014. 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, 2015
Fiscal Year 2014
Amount
% to Total
Sales
Amount
% to Total
Sales
$
$
$
$
621,275
201,917
823,192
135,946
(16,685)
(96,883)
22,378
75.5% $
24.5%
100.0% $
626,494
207,172
833,666
75.1 %
24.9 %
100.0 %
$
2.7% $
91,848
(17,587)
(92,472)
(18,211)
(2.2)%
The table sets forth Net sales, Operating income and Operating income as a percentage of net sales for Solid
Capacitors for the fiscal years 2015 and 2014 (amounts in thousands, except percentages):
Tantalum product line net sales
Ceramic product line net sales
Net sales
Segment operating income
Net sales:
For the Fiscal Years Ended
March 31, 2015
March 31, 2014
Amount
% to Net
Sales
Amount
% to Net
Sales
$
377,893
243,382
621,275
135,946
$
390,422
236,072
626,494
91,848
21.9%
14.7%
Net sales of $621.3 million in fiscal year 2015 decreased $5.2 million or 0.8% from $626.5 million in fiscal year 2014.
Tantalum product line net sales of $377.9 million in fiscal year 2015 decreased $12.5 million or 3.2% from $390.4 million in
fiscal year 2014 primarily due to unfavorable foreign exchange as well as a shift away from sales of lower margin commercial
products. Ceramic product line net sales of $243.4 million in fiscal year 2015 increased $7.3 million or 3.1% from $236.1
million in fiscal year 2014 primarily due to growth in specialty products across all regions. Unit sales volume for fiscal year
2015 decreased 1.3% compared to fiscal year 2014. The average selling price in fiscal year 2015 increased 0.4% compared to
fiscal year 2014 primarily driven by an increase in higher priced specialty products.
Segment operating income:
Segment operating income of $135.9 million for fiscal year 2015 improved $44.1 million or 48.0% from $91.8 million
for fiscal year 2014. The increase in segment operating income was primarily attributable to the following: an increase in gross
margin of $36.9 million, a decrease in restructuring charges of $4.8 million, a $3.9 million decrease in write down of long-lived
assets, and a $0.6 million decrease in SG&A expenses. The improvement in gross margin was mainly driven by continued
improvement seen in vertical integration, an increase in sales of higher margin specialty products, and lower manufacturing
costs as a result of restructuring efforts which moved production from Evora, Portugal to our Mexico facilities. These
42
improvements were partially offset by a $0.7 million increase in R&D expenses and a $0.6 million loss on disposals of fixed
assets for fiscal year 2015 compared to a gain on disposals of fixed assets of $0.7 million in fiscal year 2014.
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 2015 and 2014 (amounts in thousands, except percentages):
Net sales
Segment operating (loss) income
Net sales:
For the Fiscal Years Ended
March 31, 2015
March 31, 2014
Amount
$
201,917
(16,685)
% to Net
Sales
$
(8.3)%
Amount
207,172
(17,587)
% to Net
Sales
(8.5)%
Net sales of $201.9 million in fiscal year 2015 decreased $5.3 million or 2.5% from $207.2 million in fiscal year 2014.
Capacitor unit sales volume for fiscal year 2015 increased 11.7% compared to fiscal year 2014 driven by an overall increase in
customer demand across all regions. This increase was offset by a $6.0 million unfavorable impact related to foreign exchange
(primarily the decrease in the euro) and an 8.9% decrease in average selling prices at comparable exchange rates for fiscal year
2015 as compared to fiscal year 2014 due to an unfavorable shift in product line mix.
Segment operating loss:
Segment operating loss of $16.7 million in fiscal year 2015 improved $0.9 million or 5.1%, from $17.6 million of
segment operating loss in fiscal year 2014. The improvement was attributable to a $1.9 million increase in gross margin, a $0.6
million decrease in write down of long-lived assets, and a $1.0 million gain on disposals of fixed assets for fiscal year 2015
compared to a loss on disposals of fixed assets of $0.8 million in fiscal year 2014. The improvement in gross margin was due to
realized cost reductions achieved through our restructuring and cost reduction efforts. The improvements were partially offset
by a $2.6 million increase in restructuring charges, a $0.6 million increase in SG&A expenses, and a $0.2 million increase in
R&D expenses.
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 "Guarantor Subsidiaries") 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 Guarantor Subsidiaries 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
43
(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.
At any time, at its option, the Company may redeem the 10.5% Senior Notes, in whole or in part, at the redemption
price of 100% of the Principal amount. The Company may also at any time and from time to time purchase its 10.5% Senior
Notes in the open market, subject to compliance with the Indenture.
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, as amended, among the Company, the Guarantor Subsidiaries party thereto and Wilmington Trust Company, as trustee.
The Company may from time to time seek to retire or purchase our outstanding 10.5% Senior notes through cash
purchases, in open market purchases, privately negotiated transactions or otherwise. Repurchases, if any, will depend on
prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The Board of Directors has
authorized a debt repurchase plan, initially up to $20 million over the course of fiscal year 2017. There can be no assurance
regarding the timing or price of debt repurchases, if any.
Revolving Line of Credit
On September 30, 2010, KEMET Electronics Corporation ("KEC") and KEMET Electronics Marketing (S) Pte Ltd.
("KEMET Singapore") (each a "Borrower" and, collectively, the "Borrowers") entered into a Loan and Security Agreement (the
"Loan and Security Agreement"), with Bank of America, N.A, as the administrative agent and the initial lender. A portion of the
U.S. facility and the Singapore facility can be used to issue letters of credit. On December 19, 2014, the Loan and Security
Agreement was amended and as a result the expiration was extended to December 19, 2019. On May 2, 2016, the Loan and
Security Agreement was further amended. Under the terms of the amended Loan and Security Agreement, the revolving credit
facility has increased to $65.0 million, 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 amendment contains an accordion feature permitting the U.S.
Borrowers to increase commitments under the facility by an aggregate principal amount up to $15.0 million (for a total facility
of $75.0 million), subject to terms and documentation acceptable to the Agent and/or the Lenders. In addition, KEMET Foil,
Blue Powder and The Forest Electric Company were included as Borrowers under the U.S. facility. The principal features of
the Loan and Security Agreement as amended are reflected in the description below.
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 $65.0 million.
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
44
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 Loan and Security Agreement 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 2.00% and 2.50% for LIBOR advances and 1.00% and 1.50% for base rate advances, and under the Singapore
facility varies between 2.25% and 2.75% for LIBOR advances and 1.25% and 1.75% for base rate advances.
The base rate is subject to a floor that is 100 basis points above LIBOR.
An unused line fee is payable monthly in an amount equal to 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.
KEMET and the Guarantor Subsidiaries 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 Guarantor Subsidiaries (other than assets that secure the
10.5% Senior Notes due 2018). The collection accounts of the Borrowers and Guarantor Subsidiaries 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) 12.5% 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 Guarantor Subsidiaries 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 1.0 :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) 12.5% 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 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 and its direct and indirect subsidiaries to, among other things: incur additional indebtedness; create liens on assets;
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.
45
The Company had the following activity for the twelve month period ended March 31, 2016 and resulting balances
under the revolving line of credit (amounts in millions, excluding percentages):
March 31,
2015
Twelve Month Period
Ended March 31, 2016
March 31,
2016
Outstanding
Borrowings
Additional
Borrowings
Repayments
Outstanding
Borrowings
Rate (1)
(2)
Due Date
21,481
$
8,000
$
9,600
$
19,881
4.750% December 19, 2019
12,000
—
—
2,000
—
—
12,000
3.250%
August 22, 2016
2,000
3.250%
July 11, 2016
33,481
$
10,000
$
9,600
$
33,881
U.S. Facility
Singapore Facility
Singapore Borrowing 1 (3)
Singapore Borrowing 2 (3)
Total Facilities
$
$
______________________________________________________________________________
(1) For U.S. borrowings, Base Rate plus 1.5%, as defined in the Loan and Security Agreement.
(2) For Singapore borrowings, LIBOR plus a spread of 2.50% as of March 31, 2016.
(3) The Company has the intent and ability to extend the due date on the Singapore borrowings beyond one year.
These were the only borrowings under the revolving line of credit, and the Company's available borrowing capacity
under the Loan and Security Agreement was $25.6 million as of March 31, 2016. The borrowing capacity has increased from
the prior year due to an improvement in the fixed charged coverage ratio and an increase in the eligible account receivable
collateral.
Short-term Liquidity
Cash and cash equivalents totaled $65.0 million as of March 31, 2016, representing an increase of $8.6 million as
compared to $56.4 million as of March 31, 2015. Our net working capital (current assets less current liabilities) remained
essentially flat with the balance as of March 31, 2016 of $228.8 million compared to $228.5 million of net working capital as of
March 31, 2015. Cash and cash equivalents held by our foreign subsidiaries totaled $28.2 million and $22.6 million at
March 31, 2016 and March 31, 2015, respectively. Our operating income outside the U.S. is no longer deemed to be
permanently reinvested in foreign jurisdictions. As a result, we set up a deferred tax liability on the undistributed foreign
earnings which was offset by a reduction to the valuation allowance for deferred tax assets. However, 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. withholding taxes on the distributed 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 $38.4 million in interest payments, expected capital expenditures in the range of $20.0 million to
$25.0 million, payments of $1.0 million related to restructuring liabilities, and $2.0 million for repurchase of our 10.5% Senior
Notes.
Our cash and cash equivalents increased by $8.6 million during the year ended March 31, 2016, decreased $1.6
million during the year ended March 31, 2015 and decreased $38.0 million during the year ended March 31, 2014 as follows
(amounts in thousands):
Fiscal Years Ended March 31,
2016
2015
2014
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Effect of foreign currency fluctuations on cash
Net increase (decrease) in cash and cash equivalents
$
$
46
32,365
(20,588)
(3,803)
668
8,642
$
$
24,402
$
3,629
(26,868)
(2,730)
(1,567) $
(6,746)
(25,253)
(6,877)
827
(38,049)
Fiscal Year 2016 compared to Fiscal Year 2015
Operations
In fiscal year 2016, cash provided by operating activities totaled $32.4 million, representing an $8.0 million
improvement compared to cash provided by operating activities of $24.4 million in fiscal year 2015. The improvement for
fiscal year 2016 compared to fiscal year 2015 relates to a $11.5 million improvement in cash flows related to operations
(change in net loss adjusted for the change in: net cash provided by operating activities of discontinued operations, gain on sale
of discontinued operations, gain on early extinguishment of debt, equity loss from NEC TOKIN, change in value of NEC
TOKIN options, depreciation and amortization, deferred income taxes, net (gain) loss on sales and disposals of assets,
amortization of debt discount and debt issuance costs, stock-based compensation, non-cash pension and other post-retirement
benefits, write down of receivables, and other non-cash changes to net loss).
We used $5.6 million through changes in assets and liabilities in fiscal year 2016 as compared to using $2.0 million
through changes in assets and liabilities in fiscal year 2015.
In fiscal year 2016, the cash usage of $5.6 million was primarily related to a decrease in other operating liabilities of
$13.8 million (primarily related to a decrease in accrued salaries, wages and benefits), a decrease in accounts payable of $6.0
million, an increase in accounts receivable of $2.3 million, and a decrease in accrued income taxes of $0.4 million. This was
partially offset by a decrease in prepaid expenses and other assets of $13.6 million (primarily related to a decrease in value-
added-tax receivable), and a reduction in inventory of $3.3 million achieved through cost reductions and yield improvements.
In fiscal year 2015, the cash use of $2.0 million was primarily related to an increase in prepaid expenses and other
assets of $8.4 million, a decrease in other operating liabilities of $7.3 million, a decrease in accounts payable of $2.9 million,
and a decrease in accrued income taxes of $0.2 million. This was partially offset by a reduction in inventory of $8.6 million
achieved through cost reduction and yield improvements and a reduction in accounts receivable of $8.2 million.
Investing
Cash used in investing activities was $20.6 million in fiscal year 2016 compared to cash provided by investing
activities of $3.6 million in fiscal year 2015. Cash provided by investing activities in fiscal year 2015 was achieved due to the
release of restricted cash due to the repayment of an advance payment from an OEM which provided cash of $11.5 million, the
sale of discontinued operations provided $9.6 million and proceeds from the sale of assets of $4.8 million, whereas in fiscal
year 2016 cash provided from these items was $1.8 million, none and $1.0 million, respectively.
Cash used for investing activities in fiscal year 2016 included capital expenditures of $20.5 million, and acquisition
payments net of cash received related to Intellidata used cash of $2.9 million. Capital expenditures were primarily related to
expanding capacity at our manufacturing facilities in Suzhou, China; Pontecchio, Italy; Gränna, Sweden; Matamoros, Mexico;
and Evora, Portugal as well as information technology projects in Simpsonville, South Carolina.
Cash used for investing activities in fiscal year 2015 included capital expenditures of $22.2 million, primarily related
to expanding capacity at our manufacturing facilities in Europe and Asia.
Financing
Cash used in financing activities of $3.8 million in fiscal year 2016 decreased $23.1 million from cash used in
financing activities of $26.9 million in fiscal year 2015.
In fiscal year 2016, we used $3.0 million for deferred acquisition payments related to the Intellidata acquisition, $0.5
million for payments of long term debt, and $0.4 million for net payments on the revolving line of credit.
In fiscal year 2015, we used $19.5 million for deferred acquisition payments related to the KEMET Foil and Blue
Powder acquisitions and $21.7 million for debt payments. This was partially offset by $15.0 million in net proceeds from the
revolving line of credit.
47
Commitments
At March 31, 2016, we had contractual obligations in the form of non-cancelable operating leases and debt, including
interest payments (see Note 2, "Debt" and Note 16, "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):
Payment Due by Period
Total
Year 1
Years 2 - 3
Years 4 - 5
$
388,881
$
2,000
$
353,000
$
33,881
$
Contractual obligations
Debt obligations
Interest obligations
Operating lease obligations
Pension and other post-retirement benefits (1)
Employee separation liability
Restructuring liability
Purchase commitments
Capital lease obligations
Total
83,119
10,809
19,375
9,352
976
2,827
1,258
516,597
$
$
38,449
3,653
1,710
285
946
1,876
614
49,533
43,553
4,831
3,243
740
30
951
1,117
1,124
3,552
797
—
—
More than
5 years
—
—
1,201
10,870
7,530
—
—
561
406,909
$
$
72
40,543
$
11
19,612
_______________________________________________________________________________
(1)
Reflects expected benefit payments through 2023.
Derivative Investments
Certain operating expenses at the Company's Mexican facilities are paid in Mexican pesos or Japanese yen, and
certain sales are made in euros. In order to hedge these forecasted cash flows, the Company purchases foreign exchange
contracts to buy Mexican pesos, buy Japanese yen, or sell euros for periods and amounts consistent with the underlying cash
flow exposures. At March 31, 2016, the Company had outstanding forward exchange contracts with maturities of less than
twelve months to purchase Mexican pesos with notional amounts of $37.7 million. The fair value of these contracts at
March 31, 2016 totaled $0.4 million and was recorded as a derivative liability on the Consolidated Balance Sheets under the
line item "Accrued Expenses". See Note 13, "Derivatives" for further discussion of derivative financial instruments.
Uncertain Income Tax Positions
We have recognized a liability for our unrecognized uncertain income tax positions of approximately $7.1 million as
of March 31, 2016. 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 gross margin, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted EBITDA. We believe that
Adjusted gross margin, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted EBITDA are complements
to U.S. GAAP amounts and such measures are useful to investors. The presentation of these non-GAAP measures is not meant
to be considered in isolation or as an alternative to net income (loss) as an indicator of our performance, or as an alternative to
cash flows from operating activities as a measure of liquidity.
48
The following table provides a reconciliation from U.S. GAAP Gross margin to Non-U.S. GAAP Adjusted gross
margin (amounts in thousands):
Net sales
Gross Margin
Gross margin as a % of net sales
Non-U.S. GAAP-adjustments:
Plant shut-down costs
Plant start-up costs
Stock-based compensation expense
Adjusted gross margin
Adjusted gross margin as a % of net sales
Fiscal Years Ended March 31,
2016
2015
2014
$ 734,823
163,280
$ 823,192
159,509
$ 833,666
120,741
22.2%
19.4%
14.5%
372
861
1,418
$ 165,931
889
4,556
1,576
$ 166,530
2,668
3,336
1,006
$ 127,751
22.6%
20.2%
15.3%
Adjusted operating income (loss) is calculated as follows (amounts in thousands):
Operating income (loss)
Adjustments:
ERP integration costs/IT transition costs
Stock-based compensation
Restructuring charges
Legal expenses related to antitrust class actions
NEC TOKIN investment related expenses
Plant start-up costs
Net (gain) loss on sales and disposals of assets
Plant shut-down costs
Pension plan adjustment
Write down of long-lived assets
Inventory write downs
Infrastructure tax
Adjusted operating income (loss)
Fiscal Years Ended March 31,
2016
2015
$
32,326
$
22,378
$
2014
(18,211)
5,677
4,774
4,178
3,041
900
861
375
372
312
—
—
—
3,248
4,512
13,017
844
1,778
4,556
(221)
889
—
—
—
—
3,880
2,909
14,122
—
2,299
3,336
32
2,668
—
4,476
3,886
1,079
$
52,816
$
51,001
$
20,476
49
Adjusted net income (loss) is calculated as follows (amounts in thousands):
Net income (loss)
Adjustments:
Change in value of NEC TOKIN options
Equity (gain) loss from NEC TOKIN
Restructuring charges
ERP integration costs/IT transition costs
Stock-based compensation
Legal expenses related to antitrust class actions
Net foreign exchange (gain) loss
NEC TOKIN investment related expenses
Income tax effect on pension curtailment
Plant start-up costs
Amortization included in interest expense
Net (gain) loss on sales and disposals of assets
Plant shut-down costs
Pension plan adjustment
Income tax effect of non-GAAP adjustments (1)
(Income) loss from discontinued operations
(Gain) loss on early extinguishment of debt
Professional fees related to financing activities
Write down of long-lived assets
Inventory write downs
Long-term receivable write down
Infrastructure tax
Adjusted net income (loss)
Fiscal Years Ended March 31,
2016
(53,629) $ (14,143) $
2015
2014
(68,503)
$
26,300
16,406
4,178
5,677
4,774
3,041
(3,036)
900
875
861
859
375
372
312
652
—
—
—
—
—
—
—
(2,100)
2,169
13,017
3,248
4,512
844
(4,249)
1,778
—
4,556
1,814
(221)
889
—
84
(5,379)
(1,003)
1,142
—
—
—
—
$
8,917
$
6,958
$
(3,111)
7,090
14,122
3,880
2,909
—
(304)
2,299
—
3,336
3,596
32
2,668
—
(301)
3,634
—
—
4,476
3,886
1,444
1,079
(17,768)
(1) Fiscal year 2014 has been adjusted to reflect the income tax adjustment related to the recognition of KEMET's portion of
NEC TOKIN's AOCI activity.
50
Adjusted EBITDA is calculated as follows (amounts in thousands):
Net income (loss)
Adjustments:
Income tax expense (benefit)
Interest expense, net
Depreciation and amortization
Change in value of NEC TOKIN options
Equity (gain) loss from NEC TOKIN
ERP integration costs/IT transition costs
Stock-based compensation
Restructuring charges
Legal expenses related to antitrust class actions
Net foreign exchange (gain) loss
NEC TOKIN investment related expenses
Plant start-up costs
Net (gain) loss on sales and disposals of assets
Plant shut-down costs
Pension plan adjustment
(Income) loss from discontinued operations
(Gain) loss on early extinguishment of debt
Professional fees related to financing activities
Write down of long-lived assets
Inventory write downs
Long-term receivable write down
Infrastructure tax
Fiscal Years Ended March 31,
2016
(53,629) $
2015
(14,143) $
2014
(68,503)
$
6,006
39,591
39,016
26,300
16,406
5,677
4,774
4,178
3,041
(3,036)
900
861
375
372
312
—
—
—
—
—
—
—
5,227
40,686
40,768
(2,100)
2,169
3,248
4,512
13,017
844
(4,249)
1,778
4,556
(221)
889
—
(5,379)
(1,003)
1,142
—
—
—
—
1,482
40,767
49,527
(3,111)
7,090
3,880
2,909
14,122
—
(304)
2,299
3,336
32
2,668
—
3,634
—
—
4,476
3,886
1,444
1,079
—
Adjusted EBITDA
$
91,144
$
91,741
$
70,713
Adjusted gross margin represents net sales less cost of sales excluding adjustments which are outlined in the
quantitative reconciliation provided above. Management uses Adjusted gross margin to facilitate our analysis and
understanding of our business operations and believes that Adjusted gross margin is useful to investors because it provides a
supplemental way to understand the underlying operating performance of the Company. Adjusted gross margin should not be
considered as an alternative to gross margin or any other performance measure derived in accordance with U.S. GAAP.
Adjusted operating income (loss) represents operating income (loss), excluding adjustments which are outlined in the
quantitative reconciliation provided above. We use Adjusted operating income (loss) to facilitate our analysis and
understanding of our business operations and believe that Adjusted operating income (loss) is useful to investors because it
provides a supplemental way to understand the underlying operating performance of the Company. Adjusted operating income
(loss) should not be considered as an alternative to operating income (loss) 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 (loss) to evaluate the Company's operating performance and
believe that Adjusted net income (loss) is useful to investors because it provides a supplemental way to understand the
underlying operating performance of the Company. Adjusted net income (loss) should not be considered as an alternative to net
income (loss), operating income (loss) 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
51
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 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 (loss), operating income (loss) 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 March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation. This guidance changes
several aspects of the accounting for share-based payment award transactions, including: (1) Accounting and Cash Flow
Classification for Excess Tax Benefits and Deficiencies, (2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow
Classification. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016.
Early application is permitted, KEMET adopted ASU No. 2016-09 as of April 1, 2016. This new guidance is not expected to
have a material impact on the Company's Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The ASU requires lessees to recognize a right-of-use
asset and a lease liability for virtually all of their leases (other than short-term leases). The guidance is to be applied using a
modified retrospective approach at the beginning of the earliest comparative period in the financial statements. This ASU is
effective for fiscal years and interim periods within those years beginning after December 15, 2018. Early application is
permitted. We are currently in the process of assessing the impact the adoption of this guidance will have on our consolidated
financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. The
Company has adopted the provisions of ASU No. 2015-17 which requires deferred tax liabilities and assets be classified as
either a noncurrent asset or noncurrent liability in the accompanying balance sheet. Prior to the issuance of this ASU, an entity
52
would present deferred taxes as a net current asset or liability and a net noncurrent asset or liability. The new accounting
guidance simplifies financial reporting by reducing the presentation of deferred taxes into a single line and reduces
complexities in determining when the recognized deferred tax amounts are expected to be recovered or settled. The balance
sheet as of March 31, 2015 has been adjusted to reflect retrospective application of the new accounting guidance as follows:
Assets
Deferred income taxes (current)
Total current assets
Deferred income taxes (non-current)
Total assets
Income taxes payable and deferred income taxes (current)
Total current liabilities
Deferred income taxes (non-current)
Total liabilities and stockholders' equity
As Previously
Reported
Retrospective
Adjustment
As Adjusted
10,762
371,327
5,111
752,792
1,017
132,220
8,350
752,792
(10,762)
(10,762)
4,663
(6,099)
(133)
(133)
(5,966)
(6,099)
—
360,565
9,774
746,693
884
132,087
2,384
746,693
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period
Adjustments. The ASU requires that an acquirer recognize adjustments to provisional amounts recognized in a business
combination in the reporting period in which the adjustment amounts are determined. It also requires disclosure of the
adjustment recorded in current period earnings by line item that would have been recorded in previous reporting periods if the
adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 eliminates the requirement
to retrospectively revise comparative information for prior periods. ASU 2015-16 is effective for interim and annual reporting
periods beginning April 1, 2016. Early application is permitted. The Company will apply the new standard to measurement
period adjustments related to future business acquisitions.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. The ASU requires an
entity that uses first-in, first-out or average cost to measure its inventory at the lower of cost or net realizable value. Net
realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation. ASU 2015-11 will be effective for interim and annual reporting periods beginning
April 1, 2017. Early application is permitted. The Company is currently evaluating the impact of the adoption of ASU 2015-11
on its operating results and financial position.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs. The ASU specifies that debt issuance costs related to a note shall be reported in the
balance sheet as a direct reduction from the face amount of the note. The ASU is effective for the Company for interim and
annual periods beginning after April 1, 2016. Early adoption is permitted. The ASU will require the Company to reclassify its
capitalized debt issuance costs currently recorded as assets on the consolidated condensed balance sheets. The ASU will have
no effect on the Company's results of operations or liquidity.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern. The new
guidance is effective for the Company's fiscal year that begins on April 1, 2017 and interim periods within that fiscal year and
requires management to assess if there is substantial doubt about an entity’s ability to continue as a going concern for each
annual and interim period. If conditions or events give rise to substantial doubt, disclosures are required. This new guidance is
not expected to have a material impact on the Company's Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes existing
accounting standards for revenue recognition and creates a single framework. The new guidance is effective for the Company's
fiscal year that begins on April 1, 2018 and interim periods within that fiscal year and requires either a retrospective or a
modified retrospective approach to adoption. The Company is currently evaluating the potential impact on its Consolidated
Financial Statements and related disclosures, as well as the available transition methods. Early adoption is permitted, but not
before Company's fiscal year that begins on April 1, 2017 (the original effective date of the ASU). We are currently in the
process of assessing the impact the adoption of this guidance will have on our consolidated financial statements.
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.
53
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,
2016, of $33.9 million. This debt has a variable interest rate and a 1% change in the interest rate would yield a $0.3 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 (see Note 13, "Derivatives" to the consolidated
financial statements).
A 10 percent increase or decrease in foreign exchange rates would have resulted in changes in net income (loss) of
$16.5 million and $(18.5) million, respectively.
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 2016 the price of
palladium fluctuated between $470 and $802 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.
To evaluate the impact of price changes in precious metals on net income (loss) we used the following assumptions:
the selling prices of our products would not be impacted, all the precious metals change in the same direction at the same time
and we do not have commitment contracts in place. Under these assumptions, a 10 percent increase or decrease in the cost of
precious metals would result in approximately $11.3 million of increase or decrease to our net income (loss). We believe we
have partially mitigated this risk through our vertical integration efforts.
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.
54
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As of March 31, 2016, an evaluation of the effectiveness of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) was performed under the supervision and with
the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer. Based on
that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its
reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms, and that information required to be disclosed by the
Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act). Internal control over financial
reporting is a process, designed by, or under the 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 (2013 framework).
Based on that assessment, as of March 31, 2016, 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 62 of this annual report on
Form 10-K.
Changes in Internal Control over Financial Reporting
There was no change in the Company's internal control over financial reporting during the fiscal quarter ended
March 31, 2016, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
55
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 28, 2016 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 28, 2016 under the headings "Compensation Discussion and Analysis,"
"Summary Compensation Table," "Grants of Plan-Based Awards Table," "Outstanding Equity Awards at Fiscal Year-End
Table," "Option Exercises and Stock Vested 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 28, 2016 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 28, 2016 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 28, 2016 under the heading "Audit and Non-Audit Fees."
56
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, 2016 and 2015
Consolidated Statements of Operations for the years ended March 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income (Loss) for the years ended March 31, 2016, 2015 and 2014
Consolidated Statements of Changes in Stockholders' Equity for the years ended March 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended March 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements
(a)
(2) Financial Statement Schedules
Financial statement schedules are omitted because they are not applicable or because the required information is
included in the consolidated financial statements or notes thereto.
(a)
(3) List of Exhibits
61
62
63
64
65
66
67
69
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)
57
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))
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)*
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))*
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)*
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)
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)
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)*
58
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
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)*
Form of Change in Control Severance Compensation Agreement, entered into with executive officers of the
Company*
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)
10.22
Form of Long-Term Incentive Plan Award Agreement*
10.23
10.24
10.25
10.26
10.27
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)
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)
2014 Amendment and Restatement of the 2014 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 July 24, 2014)*
Amendment No. 1 to Option Agreement, dated as of August 29, 2014, between KEMET Electronics
Corporation and NEC Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K (File No. 001-15491) filed on September 4, 2014)
Incentive Award, Severance and Non-Competition Agreement, dated as of December 1, 2014, between KEMET
Corporation and William M. Lowe, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K (File No. 1-15491) filed on December 5, 2014)*
59
10.28
10.29
10.30
10.31
10.32
10.33
21.1
23.1
23.2
31.1
31.2
32.1
32.2
99.1
101
Incentive Award and Non-Competition Agreement, dated as of December 1, 2014, between KEMET
Corporation and Charles C. Meeks, Jr. (incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K (File No. 1-15491) filed on December 5, 2014)*
Amendment No. 6 to Loan and Security Agreement, Waiver and Consent dated December 19, 2014, among
KEMET Electronics Corporation, KEMET Foil Manufacturing, LLC, KEMET Blue Powder Corporation, The
Forest Electric Company and KEMET Electronics Marketing (S) PTE LTD., as Borrowers, the financial
institutions party thereto, as Lenders, 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 December
22, 2014)
Amendment No. 7 to Loan and Security Agreement, dated March 27, 2015, among KEMET Electronics
Corporation, KEMET Foil Manufacturing, LLC, KEMET Blue Powder Corporation, The Forest Electric
Company and KEMET Electronics Marketing (S) PTE LTD., as Borrowers, the financial institutions party
thereto, as Lenders, and Bank of America, N.A., as agent for the Lenders
Third Supplemental Indenture dated May 21, 2015, among KEMET Corporation, IntelliData, Inc., the other
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 26, 2015)
Amended and Restated Employment Agreement between KEMET Corporation and Per-Olof Lööf, dated June
29, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.
1-15491) filed on July 6, 2015)*
Amendment No. 8 to Loan and Security Agreement, dated May 2, 2016, among KEMET Electronics
Corporation, KEMET Foil Manufacturing, LLC, KEMET Blue Powder Corporation, The Forest Electric
Company and KEMET Electronics Marketing (S) PTE LTD., as Borrowers, the financial institutions party
thereto, as Lenders, 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, 2016)
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
NEC TOKIN Financial Statements as of March 31, 2016 and March 21, 2015 and for NEC TOKIN’s fiscal
years ended March 31, 2016, 2015 and 2014
The following financial information from KEMET Corporation's Annual Report on Form 10-K for the year
ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated
Balance Sheets at March 31, 2016, and March 31, 2015, (ii) Consolidated Statements of Income for the years
ended March 31, 2016, 2015 and 2014, (iii) Consolidated Statements of Comprehensive Income for the years
ended March 31, 2016, 2015 and 2014, (iv) Consolidated Statements of Changes in Stockholders' Equity for the
years ended March 31, 2016, 2015 and 2014, (v) Consolidated Statements of Cash Flows for the years ended
March 31, 2016, 2015 and 2014 and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of
text
_______________________________________________________________________________
*
Exhibit is a management contract or a compensatory plan or arrangement.
60
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, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), changes in
stockholders' equity, and cash flows for the three years in the period ended March 31, 2016. 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, 2016 and 2015, and the consolidated results of their
operations and their cash flows for the three years ended March 31, 2016, 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, 2016, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated May 24, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Greenville, South Carolina
May 24, 2016
61
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, 2016,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 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, 2016, 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, 2016 and 2015, and the
related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity and cash flows for
each of the three years in the period ended March 31, 2016 of KEMET Corporation and subsidiaries and our report dated
May 24, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Greenville, South Carolina
May 24, 2016
62
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
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Investment in NEC TOKIN
Deferred income taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued expenses
Income taxes payable
Total current liabilities
Long-term debt
Other non-current obligations
Deferred income taxes
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, 2016 and 2015
Additional paid-in capital
Retained deficit
Accumulated other comprehensive income (loss)
Treasury stock, at cost (611 and 1,056 shares at March 31, 2016 and 2015, respectively)
Total stockholders' equity
Total liabilities and stockholders' equity
March 31,
2016
2015
$
65,004
$
93,168
168,879
25,496
352,547
241,839
40,294
33,301
20,334
8,397
5,832
56,362
90,857
171,843
41,503
360,565
249,641
35,584
33,282
45,016
9,774
12,831
$
$
702,544
$
746,693
2,000
$
70,981
50,320
453
123,754
388,597
74,892
2,820
—
465
452,821
(299,510)
(31,425)
(9,870)
112,481
962
69,785
60,456
884
132,087
390,409
57,131
2,384
—
465
461,191
(245,881)
(28,796)
(22,297)
164,682
$
702,544
$
746,693
See accompanying notes to consolidated financial statements.
63
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
Net (gain) loss on sales and disposals of assets
Total operating costs and expenses
Operating income (loss)
Other (income) expense:
Interest income
Interest expense
Change in value of NEC TOKIN options
Non-operating (income) expense, net
Income (loss) from continuing operations before income taxes and
equity income (loss) from NEC TOKIN
Income tax expense (benefit)
Income (loss) from continuing operations before equity income
(loss) from NEC TOKIN
Equity income (loss) from NEC TOKIN
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income tax expense
(benefit) of $0, $1,976, and $(98), respectively
Net income (loss)
Net income (loss) per basic share:
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income tax expense
(benefit)
Net income (loss)
Net income (loss) per diluted share:
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income tax expense
(benefit)
Net income (loss)
Weighted-average shares outstanding:
Basic
Diluted
$
$
$
$
$
$
$
Fiscal Years Ended March 31,
2016
2015
2014
$
734,823
$
823,192
$
833,666
571,543
101,446
24,955
4,178
—
375
702,497
32,326
(14)
39,605
26,300
(2,348)
(31,217)
6,006
(37,223)
(16,406)
(53,629)
663,683
98,533
25,802
13,017
—
(221)
800,814
22,378
(15)
40,701
(2,100)
(4,082)
(12,126)
5,227
(17,353)
(2,169)
(19,522)
—
(53,629) $
5,379
(14,143) $
712,925
95,856
24,466
14,122
4,476
32
851,877
(18,211)
(195)
40,962
(3,111)
430
(56,297)
1,482
(57,779)
(7,090)
(64,869)
(3,634)
(68,503)
(1.17) $
(0.43) $
(1.44)
— $
(1.17) $
0.12
$
(0.31) $
(0.08)
(1.52)
(1.17) $
(0.43) $
(1.44)
— $
(1.17) $
0.12
$
(0.31) $
(0.08)
(1.52)
46,004
46,004
45,381
45,381
45,102
45,102
See accompanying notes to consolidated financial statements.
64
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 income (loss)
Foreign exchange contracts
Other comprehensive income (loss)
Total comprehensive income (loss)
Fiscal Years Ended March 31,
2016
2015
2014
$
(53,629) $
(14,143) $
(68,503)
1,860
5,202
(45)
(8,276)
(1,370)
(2,629)
(56,258) $
(35,467)
(12,977)
(305)
766
1,003
(46,980)
(61,123) $
9,797
276
(354)
771
—
10,490
(58,013)
$
See accompanying notes to consolidated financial statements.
65
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, 2013
44,989
$
465
$ 467,096
Net income (loss)
Other comprehensive income
(loss)
Issuance of restricted shares
Stock-based compensation
Exercise of stock options
—
—
129
—
89
Balance at March 31, 2014
45,207
Net income (loss)
Other comprehensive income
(loss)
Issuance of restricted shares
Stock-based compensation
Exercise of stock options
—
—
239
—
6
Balance at March 31, 2015
45,452
Net income (loss)
Other comprehensive income
(loss)
Issuance of restricted shares
Stock-based compensation
Exercise of stock options
—
—
445
—
—
—
—
—
—
—
465
—
—
—
—
—
465
—
—
—
(3,164)
2,909
(1,814)
465,027
—
—
(8,238)
4,512
(110)
461,191
—
—
—
— (13,144)
4,774
—
—
—
$ (163,235) $
(68,503)
—
—
—
—
(231,738)
(14,143)
—
—
—
—
(245,881)
(53,629)
—
—
—
—
7,694
$ (35,104) $
—
10,490
—
—
—
18,184
—
(46,980)
—
—
—
(28,796)
—
—
—
2,986
—
2,064
(30,054)
—
—
7,623
—
134
(22,297)
—
(2,629)
—
—
12,427
—
—
—
—
276,916
(68,503)
10,490
(178)
2,909
250
221,884
(14,143)
(46,980)
(615)
4,512
24
164,682
(53,629)
(2,629)
(717)
4,774
—
Balance at March 31, 2016
45,897
$
465
$ 452,821
$ (299,510) $
(31,425) $ (9,870) $
112,481
See accompanying notes to consolidated financial statements.
66
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:
Fiscal Years Ended March 31,
2016
2015
2014
$
(53,629) $
(14,143) $
(68,503)
Gain on sale of discontinued operations
—
(5,644)
—
Net cash provided by (used in) operating activities of discontinued
operations
Depreciation and amortization
Non-cash debt and financing costs
Gain on early extinguishment of debt
Equity (income) loss from NEC TOKIN
Change in value of NEC TOKIN options
Net (gain) loss on sales and disposals of assets
Stock-based compensation expense
Non-cash pension and other post-retirement benefits
Deferred income taxes
Write down of long-lived assets
Write down of receivables
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 provided by (used in) operating activities
Investing activities:
Capital expenditures
Change in restricted cash
Acquisitions, net of cash received
Proceeds from sale of discontinued operations
Proceeds from sale of assets
Net cash provided by (used in) investing activities
—
39,016
859
—
16,406
26,300
375
4,774
3,013
495
—
24
306
(2,346)
3,338
13,588
(5,982)
(382)
(13,790)
32,365
(20,469)
1,802
(2,892)
—
971
(20,588)
(679)
40,768
2,032
(1,003)
2,169
(2,100)
(221)
4,512
2,742
(2,084)
—
52
(7)
8,220
8,559
(8,404)
(2,879)
(232)
(7,256)
24,402
(22,232)
11,509
—
9,564
4,788
3,629
336
49,527
3,596
—
7,090
(3,111)
32
2,909
2,642
(6,369)
4,476
1,484
(521)
(4,618)
14,891
3,748
(2,070)
252
(12,537)
(6,746)
(32,147)
4,047
—
—
2,847
(25,253)
67
Financing activities:
Proceeds from revolving line of credit
Payments of revolving line of credit
Deferred acquisition payments
Payment of long-term debt
Proceeds from exercise of stock options
Purchase of treasury stock
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
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,
2016
2015
2014
$
$
$
$
10,000
(9,600)
(3,000)
(481)
—
(722)
(3,803)
7,974
668
56,362
65,004
39,091
4,892
$
$
$
$
42,340
(27,342)
(19,527)
(21,733)
24
(630)
(26,868)
1,163
(2,730)
57,929
56,362
39,008
6,611
$
$
$
$
21,000
(2,551)
(21,977)
(3,599)
250
—
(6,877)
(38,876)
827
95,978
57,929
38,809
5,521
See accompanying notes to consolidated financial statements.
68
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 related research and development efforts.
Basis of Presentation
Certain amounts for fiscal years 2015 and 2014 have been reclassified to conform to the fiscal year 2016 presentation
of the line item "Change in the value of NEC TOKIN options" instead of including the activity within the line item "Non-
operating (income) expense, net on the Consolidated Statement of Operations. In addition, certain amounts for fiscal years 2015
and 2014 have been reclassified within the operating section of the Consolidated Statement of Cash Flows to conform to the
fiscal year 2016 presentation and the condensed consolidating balance sheet for fiscal year 2015 has been revised to conform
with the fiscal year 2016 presentation.
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 at March 31, 2016 and 2015 consist of money market accounts with an original term
of three months or less. The Company considers all liquid debt instruments with original maturities of three months or less to be
cash equivalents.
Restricted Cash
A guarantee was issued by a European bank on behalf of the Company in August 2006 in conjunction with the
establishment of a Value-Added Tax registration in The Netherlands. The bank guarantee was in the amount of €1.5 million
($1.7 million). An interest-bearing deposit was placed with a European bank for €1.7 million ($1.8 million). The deposit was in
KEMET's name and KEMET received all interest earned by this deposit. However, the deposit was pledged to the European
bank, and the bank could use the money should a valid claim be made. The bank guarantee was discharged by the beneficiary in
February 2016 and, subsequently, the €1.7 million ($1.8 million) was re-classified and is included in the line item "Cash and
cash equivalents" on the Consolidated Balance Sheets at March 31, 2016. The Company no longer has any restricted cash.
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 $8.5 million and $10.8
million at March 31, 2016 and 2015, respectively.
69
Property, Plant 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,
including amortization of capital leases, was $36.9 million, $38.7 million and $47.5 million for the fiscal years ended March 31,
2016, 2015 and 2014, 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. See Note 9 "Impairment Charges"
for further discussion of property, plant and equipment impairment charges.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indefinite useful lives are not amortized but are subject to annual impairment
tests during the fourth quarter of each fiscal year and when otherwise warranted. The Company evaluates its goodwill 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. The Company evaluates the value of its other
indefinite-lived intangible assets (trademarks) using an income-based, relief from royalty analysis. In addition to the previously
described reporting unit valuation techniques, the Company's goodwill and intangible assets 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 subjective and involve the use
of 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.
70
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, 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 income (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 $99.3 million, $124.4 million and $128.4 million of the Company's net sales in fiscal years ended
March 31, 2016, 2015, and 2014, respectively. There were no customers' accounts receivable balances exceeding 10% of gross
accounts receivable at March 31, 2016 or March 31, 2015.
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 end-users. For fiscal years ended March 31, 2016,
2015, and 2014, net sales to electronics distributors accounted for 42%, 45% 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").
71
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 gains (losses) on derivatives held as cash flow hedges, 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
$ 23,335
$
1,464
Defined
Benefit
Pension
Plans (3)
$ (7,386) $
Ownership
Share of Equity
Method
Investees’
Other
Comprehensive
Income (Loss)
Balance at March 31, 2014
Other comprehensive income (loss) before
reclassifications (1)
Amounts reclassified in (out) of AOCI (1)
Other comprehensive income (loss)
Balance at March 31, 2015
Other comprehensive income (loss) before
reclassifications (2)
Amounts reclassified in (out) of AOCI (2)
Other comprehensive income (loss)
(35,467)
—
(35,467)
(12,132)
1,860
—
1,860
Balance at March 31, 2016
$ (10,272) $
(119)
(186)
(305)
1,159
146
(191)
(45)
1,114
(13,404)
427
(12,977)
(20,363)
3,865
1,337
5,202
$ (15,161) $
Net
Accumulated
Other
Comprehensive
Income (Loss)
Foreign
Exchange
Contracts
771
$
— $
18,184
766
—
766
1,537
(8,276)
—
(8,276)
(6,739) $
1,003
—
1,003
1,003
2,618
(3,988)
(1,370)
(367) $
(47,221)
241
(46,980)
(28,796)
213
(2,842)
(2,629)
(31,425)
_______________________________________________________________________________
(1)
Activity within foreign currency translation gains and defined benefit pension plans are net of a tax benefit of $0.3
million and $0.1 million, respectively.
Activity within foreign currency translation losses and defined benefit pension plans are net of a tax expense of zero
and $0.3 million, respectively.
Balance is net of a tax benefit of $2.0 million, $2.3 million, and $2.2 million as of March 31, 2016, March 31, 2015,
and March 31, 2014, respectively.
(2)
(3)
Stock Warrant
Concurrent with the consummation of a credit facility in May 2009, 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, 2016. The Platinum Warrant expires on
June 30, 2019.
72
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.
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 and liabilities are measured at fair value on a recurring basis as of March 31, 2016 and 2015 are as follows
(amounts in thousands):
Carrying
Value
March 31,
2016
Fair
Value
March 31,
2016
Fair Value Measurement
Using
Level 1
Level 2 (2)
Level 3
Assets and Liabilities:
Money markets (1)
$
738
$
738
$
Total debt
(390,597)
(284,261)
NEC TOKIN options, net (3)
(20,600)
(20,600)
738
(254,713)
—
$
— $
—
(29,548)
—
—
(20,600)
Carrying
Value
March 31,
2015
Fair
Value
March 31,
2015
Fair Value Measurement
Using
Level 1
Level 2 (2)
Level 3
Assets and Liabilities:
Money markets (1)
$
738
$
738
$
Total debt
(391,371)
(391,283)
NEC TOKIN options, net (3)
5,700
5,700
738
(362,988)
—
$
— $
(28,295)
—
—
—
5,700
_______________________________________________________________________________
(1)
(2)
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 based on the borrowing rate for each
respective debt facility.
See Note 5, "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.
Changes to the Monte Carlo simulation inputs could have a material effect on the value of the NEC TOKIN options.
(3)
73
The table below summarizes NEC TOKIN options valuation activity using significant unobservable inputs (Level 3)
(amounts in thousand):
March 31, 2014
Change in value of NEC TOKIN options
March 31, 2015
Change in value of NEC TOKIN options
March 31, 2016
$
$
$
3,600
2,100
5,700
(26,300)
(20,600)
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. Based
on product availability, customer requirements and customer consent, KEMET may ship products earlier than the initial planned
ship date. 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.
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 on a case-by-case basis to certain customers in each of the Company's sales channels.
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 customers that the Company's 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, 2016, 2015 and 2014. 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
74
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 $16.1 million, $17.9 million, and $19.9 million in the fiscal years
ended March 31, 2016, 2015 and 2014, 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 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.
Derivative Financial Instruments
Derivative financial instruments have been utilized by the Company to reduce exposures to volatility of foreign
currencies impacting the sales and costs of its products.
The Company accounts for derivatives and hedging activities in accordance with Accounting Standards Codification
815 ("ASC 815"), "Derivatives and Hedging." See Note 13 for further discussion of derivative financial instruments.
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; allowances for
doubtful accounts, 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.
Impact of Recently Issued Accounting Standards
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
No. 2016-09, Compensation-Stock Compensation. This guidance changes several aspects of the accounting for share-based
payment award transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits and Deficiencies,
(2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow Classification. This ASU is effective for fiscal years and
interim periods within those years beginning after December 15, 2016. Early application is permitted, KEMET adopted ASU
No. 2016-09 as of April 1, 2016. This new guidance is not expected to have a material impact on the Company's Consolidated
Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The ASU requires lessees to recognize a right-of-use
asset and a lease liability for virtually all of their leases (other than short-term leases). The guidance is to be applied using a
modified retrospective approach at the beginning of the earliest comparative period in the financial statements. This ASU is
effective for fiscal years and interim periods within those years beginning after December 15, 2018. Early application is
permitted. We are currently in the process of assessing the impact the adoption of this guidance will have on our consolidated
financial statements.
75
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. The
Company has adopted the provisions of ASU No. 2015-17 which requires deferred tax liabilities and assets be classified as
either a noncurrent asset or noncurrent liability in the accompanying balance sheet. Prior to the issuance of this ASU, an entity
would present deferred taxes as a net current asset or liability and a net noncurrent asset or liability. The new accounting
guidance simplifies financial reporting by reducing the presentation of deferred taxes into a single line and reduces complexities
in determining when the recognized deferred tax amounts are expected to be recovered or settled. The balance sheet as of
March 31, 2015 has been adjusted to reflect retrospective application of the new accounting guidance as follows:
Assets
Deferred income taxes (current)
Total current assets
Deferred income taxes (non-current)
Total assets
Income taxes payable and deferred income taxes (current)
Total current liabilities
Deferred income taxes (non-current)
Total liabilities and stockholders' equity
As Previously
Reported
Retrospective
Adjustment
As Adjusted
10,762
371,327
5,111
752,792
1,017
132,220
8,350
752,792
(10,762)
(10,762)
4,663
(6,099)
(133)
(133)
(5,966)
(6,099)
—
360,565
9,774
746,693
884
132,087
2,384
746,693
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period
Adjustments. The ASU requires that an acquirer recognize adjustments to provisional amounts recognized in a business
combination in the reporting period in which the adjustment amounts are determined. It also requires disclosure of the
adjustment recorded in current period earnings by line item that would have been recorded in previous reporting periods if the
adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 eliminates the requirement
to retrospectively revise comparative information for prior periods. ASU 2015-16 is effective for interim and annual reporting
periods beginning April 1, 2016. Early application is permitted. The Company will apply the new standard to measurement
period adjustments related to future business acquisitions.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. The ASU requires an
entity that uses first-in, first-out or average cost to measure its inventory at the lower of cost or net realizable value. Net
realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. ASU 2015-11 will be effective for interim and annual reporting periods beginning April 1, 2017.
Early application is permitted. The Company is currently evaluating the impact of the adoption of ASU 2015-11 on its operating
results and financial position.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs. The ASU specifies that debt issuance costs related to a note shall be reported in the
balance sheet as a direct reduction from the face amount of the note. The ASU is effective for the Company for interim and
annual periods beginning April 1, 2016. Early adoption is permitted. The ASU will require the Company to reclassify its
capitalized debt issuance costs currently recorded as assets on the consolidated condensed balance sheets. The ASU will have
no effect on the Company's results of operations or liquidity.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern. The new
guidance is effective for the Company's fiscal year that begins on April 1, 2017 and interim periods within that fiscal year and
requires management to assess if there is substantial doubt about an entity’s ability to continue as a going concern for each
annual and interim period. If conditions or events give rise to substantial doubt, disclosures are required. This new guidance is
not expected to have a material impact on the Company's Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes existing
accounting standards for revenue recognition and creates a single framework. The new guidance is effective for the Company's
fiscal year that begins on April 1, 2018 and interim periods within that fiscal year and requires either a retrospective or a
76
modified retrospective approach to adoption. The Company is currently evaluating the potential impact on its Consolidated
Financial Statements and related disclosures, as well as the available transition methods. Early adoption is permitted, but not
before Company's fiscal year that begins on April 1, 2017 (the original effective date of the ASU). We are currently in the
process of assessing the impact the adoption of this guidance will have on our consolidated financial statements.
There are currently no other accounting standards that have been issued that may have a significant impact on the
Company's Consolidated Financial Statements.
Note 2: Debt
A summary of debt is as follows (amounts in thousands):
10.5% Senior Notes, net of premium of $1,716 and $2,461 as of March 31, 2016 and 2015,
respectively
$
356,716
$
357,461
March 31,
2016
2015
Revolving line of credit
Other
Total debt
Current maturities
Total long-term debt
33,881
—
390,597
(2,000)
388,597
$
33,481
429
391,371
(962)
390,409
$
The line item "Interest expense" on the Consolidated Statements of Operations for the fiscal years 2016, 2015 and
2014, respectively, is as follows (amounts in thousands):
Contractual interest expense
Capitalized interest
Amortization of debt issuance costs
Amortization of debt (premium) discount
Imputed interest on acquisition related obligations
Interest expense on capital leases
Total interest expense
Revolving Line of Credit
$
Fiscal Years Ended March 31,
2016
2015
2014
$
39,087
(509)
1,392
(745)
212
168
$
38,953
(237)
1,480
(407)
741
171
38,918
(1,552)
1,704
105
1,787
—
$
39,605
$
40,701
$
40,962
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). A portion of the U.S. facility and the
Singapore facility can be used to issue letters of credit. On December 19, 2014, the Loan and Security Agreement was amended
and as a result the expiration was extended to December 19, 2019. Under the terms of amended Loan and Security Agreement,
the revolving credit facility has increased to $60.0 million, bifurcated into a U.S. facility (for which KEC is the Borrower) and a
Singapore facility (for which KEMET Singapore is the Borrower). The amendment contains an accordion feature permitting the
U.S. Borrowers to increase commitments under the facility by an aggregate principal amount up to $15.0 million (for a total
facility of $75.0 million), subject to terms and documentation acceptable to the Agent and/or the Lenders. In addition, KEMET
Foil Manufacturing, LLC ("KEMET Foil"), KEMET Blue Powder Corporation (“KEMET Blue Powder”) and The Forest
Electric Company were included as Borrowers under the U.S. facility. The principal features of the Loan and Security
Agreement as amended are reflected in the description below.
77
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 $60.0 million.
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 Loan and Security Agreement, 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 2.00% and 2.50% for LIBOR advances and 1.00% and 1.50% for base rate advances, and under the Singapore
facility varies between 2.25% and 2.75% for LIBOR advances and 1.25% and 1.75% for base rate advances.
The base rate is subject to a floor that is 100 basis points above LIBOR.
An unused line fee is payable monthly in an amount equal to 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.
KEMET and the Company's 100% owned domestic subsidiaries ("Guarantor Subsidiaries") 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 Guarantor
Subsidiaries (other than assets that secure the 10.5% Senior Notes due 2018). The collection accounts of the Borrowers and
Guarantor Subsidiaries 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) 12.5% 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 Guarantor Subsidiaries 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.
78
A fixed charge coverage ratio of at least 1.0:1.0 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) 12.5% 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 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 and its direct and indirect subsidiaries to, among other things: incur additional indebtedness; create liens on assets;
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 $0.3
million as of March 31, 2016 and 2015, respectively; these costs will be amortized over the term of the Loan and Security
Agreement.
The Company had the following activity for the twelve month period ended March 31, 2016 and resulting balances
under the revolving line of credit (amounts in thousands, excluding percentages):
March 31,
2015
Twelve Month Period Ended
March 31, 2016
March 31, 2016
Outstanding
Borrowings
Additional
Borrowings
Repayments
Outstanding
Borrowings
Rate
(1) (2)
Due Date
U.S. Facility
$
21,481
$
8,000
$
9,600
$
19,881
4.750% December 19, 2019
Singapore Facility
Singapore Borrowing 1 (3)
Singapore Borrowing 2 (3)
12,000
—
—
2,000
—
—
12,000
3.250%
August 22, 2016
2,000
3.250%
July 11, 2016
Total Facilities
$
33,481
$
10,000
$
9,600
$
33,881
______________________________________________________________________________
(1) For U.S. borrowings, Base Rate plus 1.5%, as defined in the Loan and Security Agreement.
(2) For Singapore borrowings, LIBOR, plus a spread of 2.50% as of March 31, 2016.
(3) The Company has the intent and ability to extend the due date on the Singapore borrowings beyond one year.
These were the only borrowings under the revolving line of credit, and the Company's available borrowing capacity
under the Loan and Security Agreement was $25.6 million as of March 31, 2016. The borrowing capacity has increased from
the prior year due to an improvement in the fixed charged coverage ratio and increase in the eligible account receivable
collateral.
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, as amended, by and among the Company, Guarantor Subsidiaries 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
79
Notes are senior obligations of the Company and will be guaranteed by each of the Guarantor Subsidiaries 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
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.
At any time, at its option, the Company may redeem the 10.5% Senior Notes, in whole or in part, at the redemption
price of 100% of the Principal amount. The Company may also at any time and from time to time purchase 10.5% Senior Notes
in the open market, subject to compliance with the Indenture.
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 issuance of $110.0 million and $15.0 million
aggregate principal amount of its 10.5% Senior Notes due May 1, 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 Guarantor Subsidiaries party thereto and Wilmington Trust Company,
as trustee.
In total, debt issuance costs related to the 10.5% Senior Notes, net of amortization, were $2.8 million and $4.1 million
as of March 31, 2016 and 2015; 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, 2016 and 2015. The effective interest rate for the Senior Notes was 10.3% for the years
ended March 31, 2016 and 2015.
The following table highlights the Company's annual cash maturities of debt (amounts in thousands):
10.5% Senior Notes
Revolving line of credit
Annual Maturities of Debt Fiscal Years Ended March 31,
2017
2018
2019
2020
2021
Thereafter
$
$
2,000
—
2,000
$
$
— $ 353,000
—
—
— $ 353,000
$
$
— $
33,881
33,881
$
— $
—
— $
—
—
—
80
Note 3: Restructuring
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, relocating 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, 2016, 2015 and 2014, is as follows (amounts in thousands):
Manufacturing and sales office relocation costs
Personnel reduction costs
Restructuring charges
Fiscal Year Ended March 31, 2016
Fiscal Years Ended March 31,
2016
2015
2014
$
$
2,375
1,803
4,178
$
$
2,672
10,345
13,017
$
$
3,555
10,567
14,122
The Company incurred $4.2 million in restructuring charges in the fiscal year ended March 31, 2016 including $1.8
million of personnel reduction costs and $2.4 million of relocation costs.
The personnel reduction costs correspond with the following: $0.9 million for headcount reductions in Matamoros,
Mexico related to the relocation of certain Solid Capacitor manufacturing from Matamoros, Mexico to Victoria, Mexico, $0.6
million related to a headcount reduction in Suzhou, China for the Film & Electrolytic production line transfer from Suzhou,
China to Anting, China, $0.5 million related to the consolidation of certain Solid Capacitor manufacturing in Victoria, Mexico,
$0.5 million for headcount reductions related to the outsourcing of the Company's information technology function and
overhead reductions in North America and Europe, and $0.3 million for headcount reductions in Europe (primarily Landsberg,
Germany). These personnel reduction costs were partially offset by a $1.0 million credit to expense in Italy due to the partial
reversal of a severance accrual. The Company originally recorded the accrual in the third quarter of fiscal year 2015
corresponding with a plan to reduce headcount by 50 employees. Under the plan, 24 employees were terminated. However, due
to unexpected workforce attrition combined with achieving other cost reduction goals, the Company decided not to complete
the remaining headcount reduction. Consequently, the Company reversed the remaining accrual during the second quarter of
fiscal year 2016.
The $2.4 million relocation costs include $1.1 million for the Landsberg, Germany shut-down including relocating
equipment to Pontecchio, Italy and Skopje, Macedonia; $0.4 million for the relocation of certain Solid Capacitor manufacturing
equipment in Victoria, Mexico; $0.4 million for the exit of Film & Electrolytic manufacturing from Suzhou, China; and $0.5
million for other costs related to shut-downs in Europe, North America, and Asia.
Fiscal Year Ended March 31, 2015
The Company incurred $13.0 million in restructuring charges in the fiscal year ended March 31, 2015 including $10.3
million related to personnel reduction costs which is primarily comprised of the following: $4.1 million related to headcount
reductions in Europe (primarily Landsberg, Germany) as the Company relocates production to lower cost regions; $3.2 million
is related to a headcount reduction of 50 employees due to the consolidation of manufacturing facilities in Italy; $1.9 million
related to the reduction of certain Solid Capacitor production workforce from Matamoros, Mexico to Victoria, Mexico; and $1.1
million related to headcount reductions taken as the Company begins to outsource its information technology function.
In addition to these personnel reduction costs, the Company incurred manufacturing relocation costs of $2.7 million
comprised of the following: $1.4 million for the exit of solid capacitors in Evora, Portugal and the relocation of certain Solid
Capacitors manufacturing operations from Evora, Portugal to Victoria, Mexico; $0.4 million for the Landsberg, Germany shut-
down including relocating equipment to Pontecchio, Italy; $0.3 million for the relocation of certain Film & Electrolytic lines
from Monterrey, Mexico and Skopje, Macedonia to Suzhou China and $0.5 million for other cost related to shut-downs in
Europe and Asia.
81
Fiscal Year Ended March 31, 2014
The Company incurred $14.1 million in restructuring charges in the fiscal year ended March 31, 2014 including
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 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.
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, 2013
Costs charged to expense
Costs paid or settled
Change in foreign exchange
Balance at March 31, 2014
Costs charged to expense
Costs paid or settled
Change in foreign exchange
Balance at March 31, 2015
Costs charged to expense
Costs paid or settled
Change in foreign exchange
Balance at March 31, 2016
Personnel
Reductions
Manufacturing
and Sales Office
Relocation Costs
$
13,509
$
10,567
(18,235)
376
6,217
10,345
(7,995)
(1,328)
7,239
1,803
(8,273)
207
$
976
$
567
3,555
(4,122)
—
—
2,672
(2,672)
—
—
2,375
(2,375)
—
—
82
Note 4: 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, 2016
March 31, 2015
Carrying
Amount
Accumulated
Amortization
Carrying
Amount
Accumulated
Amortization
7,207
$
— $
7,207
$
—
43,089
16,995
40,489
50,296
$
16,995
$
47,696
$
14,414
14,414
For fiscal years ended March 31, 2016, 2015 and 2014 amortization related to intangibles was $2.2 million, $2.1
million and $2.1 million, respectively. The weighted-average useful life of amortized intangibles was 16.6 years in the fiscal
years ended March 31, 2016 and 16 years in the fiscal year ended March 31, 2015. The weighted-average period prior to the
next renewal for patents was 1.5 years and 2.5 years in the fiscal years ended March 31, 2016 and March 31, 2015, respectively.
Estimated amortization of intangible assets for each of the next five fiscal years is $2.2 million and, thereafter, amortization will
total $15.1 million.
For fiscal year 2016, the Company completed its impairment test on goodwill and intangible assets with indefinite
useful lives as of January 1, 2016 and concluded that goodwill and indefinite-lived assets were not impaired.
The changes in the carrying amount of goodwill for the years ended March 31, 2016 and 2015 are as follows (amounts
in thousands):
Solid
Capacitors
Fiscal Year 2016
Film and
Electrolytic
Fiscal Year 2015
Corporate
(1)
Solid
Capacitors
Film and
Electrolytic
Gross balance at beginning of fiscal year
Goodwill
Accumulated impairment losses
Net balance at the end of the year
Acquisitions
Impairment charges
Balance at the end of the year
Goodwill
Accumulated impairment losses
Balance at the end of the year, net
$
$
$
$
$
$
35,584
—
35,584
$
$
$
1,092
(1,092)
— $
35,584
—
—
— $
— $
35,584
$
$
1,092
(1,092)
—
— $
— $
— $
— $
4,710
$
— $
— $
— $
—
—
35,584
—
35,584
$
$
1,092
(1,092)
$
4,710
—
— $
4,710
$
$
35,584
—
35,584
$
$
1,092
(1,092)
—
(1) Corporate goodwill established as a result of the IntelliData acquisition on April 1, 2015.
Note 5: Investment in NEC TOKIN
On March 12, 2012, 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 common stock of NEC TOKIN (which represented 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 outstanding common and convertible 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
83
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 convertible 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, which was amended on August 29, 2014, whereby KEC had the right
to 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 April 30, 2015. Upon providing such
First Call Option notice, but not before April 1, 2015, KEC could also have exercised a second 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. The First and Second Call Options expired on April 30, 2015 without being exercised.
From April 1, 2015 through May 31, 2018, NEC may require KEC to purchase all outstanding capital stock of NEC
TOKIN from its stockholders, primarily NEC (the "Put Option"), provided that KEC's payment of the Put Option price is
permitted under the 10.5% Senior Notes and Loan and Security Agreement. However, in the event that KEC issues new debt
securities principally to refinance its outstanding 10.5% senior notes due 2018 and its currently outstanding credit agreement,
including amounts to pay related fees and expenses and to use for general corporate purposes (“Refinancing Notes”), prior to
NEC’s delivery of its notification of exercise of the Put Option, then the earliest date NEC may exercise the Put Option is
automatically extended to the day immediately following the final scheduled maturity date of such Refinancing Notes, or in the
event such Refinancing Notes are redeemed in full prior to such final scheduled maturity date, then on the day immediately
following the date of such full redemption, but in any event beginning no later than November 1, 2019. If not previously
exercised, the Put Option will expire on October 31, 2023.
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 could be modified in the event there is a disagreement between NEC
and KEC under the Stockholders' Agreement.
The Company has marked these options to fair value and in the fiscal year ended March 31, 2016, 2015 and 2014
recognized a $26.3 million loss, $2.1 million gain, and $3.1 million gain respectively, which was included on the line item
“Change in value of the NEC TOKIN options” in the Consolidated Statement of Operations. The line item "Other non-current
obligations" on the Consolidated Balance Sheets includes $20.6 million as of March 31, 2016 and the line item “Other assets”
on the Consolidated Balance Sheets includes $5.7 million as of March 31, 2015 related to the options.
KEC's total investment in NEC TOKIN including the net call forward contract 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.
84
Summarized financial information for NEC TOKIN follows (in thousands):
March 31,
2016
March 31,
2015
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
$
240,427 $
260,614
179,360
335,500
223,495
273,785
143,523
296,873
Fiscal Year March
31, 2016
Fiscal Year March
31, 2015
Fiscal Year March
31, 2014
$
Net sales
Gross profit
Net income (loss)
458,032 $
98,709
(42,995)
487,282 $
103,773
(24,091)
490,369
86,227
(42,937)
A reconciliation between NEC TOKIN's net loss and KEMET's equity investment loss follows (in thousands):
Fiscal Year
March 31, 2016
Fiscal Year
March 31, 2015
(42,995) $
(24,091) $
34%
34%
Fiscal Year
March 31, 2014
(42,937)
34%
(14,618) $
(8,191) $
(14,599)
(1,625)
—
—
—
(2,270)
—
—
—
—
(163)
(16,406) $
8,500
(208)
(2,169) $
(1,390)
(5,998)
14,643
254
—
—
(7,090)
NEC TOKIN net income (loss)
KEMET's equity ownership %
Equity income (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
Indemnity asset
Inventory profit elimination
Equity income (loss) from NEC TOKIN
$
$
$
85
A reconciliation between NEC TOKIN's net assets and KEMET's equity investment balance follows (amounts in
thousands):
Investment in NEC TOKIN
Purchase price accounting basis adjustment:
Property, plant and equipment (1)
Technology (1)
Long-term debt (1)
Goodwill
Indemnity asset for legal investigation
Inventory profit elimination (2)
Other
March 31, 2016
March 31, 2015
$
20,334 $
45,016
3,365
(10,134)
(1,975)
(7,555)
(8,500)
371
(604)
(4,698) $
3,334
(10,889)
(2,707)
(7,082)
(8,500)
208
(39)
19,341
KEMET's 34% interest of NEC TOKIN's equity
$
(1) Depreciated or amortized over the estimated lives.
(2) Adjusted each period for any activity.
As of March 31, 2016, 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, any accounts receivable balance due from NEC TOKIN and obligations in
the Put Option.
Summarized transactions between KEC and NEC TOKIN are as follows (amounts in thousands):
KEC's sales to NEC TOKIN
NEC TOKIN's sales to KEMET
Accounts receivable
Accounts payable
Management service agreement receivable (1)
Twelve Month Periods Ended
March 31,
2016
2015
2014
$
21,061
$
13,500
$
5,912
3,605
6,040
1,789
March 31,
2016
March 31,
2015
$
$
5,220
1,019
748
3,344
765
572
(1) In accordance with the Stockholders’ Agreement, KEC entered into a management services agreement with NEC TOKIN to
provide services for which KEC is being reimbursed.
Beginning in March 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, South Korea,
Taiwan, Singapore and Brazil concerning alleged anti-competitive activities within the capacitor industry.
On September 2, 2015, the United States Department of Justice announced a plea agreement with NEC TOKIN in
which NEC TOKIN agreed to plead guilty to a one-count felony charge of unreasonable restraint of interstate and foreign trade
and commerce in violation of Section 1 of the Sherman Act, and to pay a criminal fine of $13.8 million. The plea agreement
was approved by the United States District Court, Northern District of California, on January 21, 2016. The fine is payable over
five years in six installments of $2.3 million each, plus accrued interest. The first payment was made in February 2016.
86
On December 9, 2015, the Taiwan Fair Trade Commission (“TFTC”) publicly announced that NEC TOKIN would be
fined 1,218.2 million New Taiwan dollars ("NTD") (approximately U.S. $37.7 million) for violations of the Taiwan Fair Trade
Act. Subsequently, the TFTC indicated the fine would be reduced to NTD609.1 million (approximately U.S. $18.9 million). In
February, 2016, NEC TOKIN commenced an administrative suit in Taiwan, challenging the validity of the amount of the fine.
On March 29, 2016, the Japan Fair Trade Commission published an order by which NEC TOKIN was fined ¥127.2
million (approximately U.S. $1.1 million) for violation of the Japanese Antimonopoly Act. Payment of the fine is due by
October 31, 2016.
The remaining governmental investigations are continuing at various stages.
On May 2, 2016, NEC TOKIN reached a preliminary settlement in two antitrust suits pending in the United States
District Court, Northern District of California as In re: Capacitors Antitrust Litigation, No. 3:14-cv-03264-JD (the “Class
Action Suits”). Pursuant to the terms of the settlement, in consideration of the release of NEC TOKIN and its subsidiaries
(including NEC TOKIN America, Inc.) from claims asserted in the Class Action Suits, NEC TOKIN will pay an aggregate
$37.3 million to a settlement class of direct purchasers of capacitors and a settlement class of indirect purchasers of capacitors.
Payments will be made in installments, with the initial installment being due shortly after the execution of the definitive
settlement agreement, subsequent payments due each year thereafter for three years, and a final, fifth payment due by
December 31, 2019.
Pursuant to the Stock Purchase Agreement, NEC is required to indemnify NEC TOKIN and/or KEC for any breaches
by NEC TOKIN or NEC of certain representations, warranties and covenants in the Stock Purchase Agreement. NEC’s
aggregate liability for indemnification claims is limited to $25.0 million. Accordingly, KEMET, under equity method
accounting, has established an indemnity asset in the amount of $8.5 million (based upon our 34% economic interest in NEC
TOKIN). However, pursuant to the Stock Purchase Agreement, claims arising out of fraud or criminal conduct are not limited
by the $25.0 million indemnification cap, and for such claims the claimant retains all remedies available in equity or at law.
In the fiscal year ended March 31, 2016, KEMET incurred a loss of $17.5 million related to NEC TOKIN's antitrust
and civil litigation, based upon its 34% economic interest in NEC TOKIN, which is included in the line item "Equity income
(loss) from NEC TOKIN" on the Condensed Consolidated Statements of Operations.
As of March 31, 2016, NEC TOKIN's accrual for antitrust and civil litigation totaled $84.0 million. This amount
includes the best estimate of losses which may result from the ongoing antitrust investigations and civil litigation. However, the
actual outcomes could differ from what has been accrued.
Note 6: 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. 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 and China, 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 ten manufacturing sites throughout Europe, Asia 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.
87
The following tables summarize information about each segment's net sales, operating income (loss), depreciation and
amortization, capital 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
Depreciation and amortization:
Solid Capacitors
Film and Electrolytic
Corporate
Capital expenditures:
Solid Capacitors
Film and Electrolytic
Corporate
Fiscal Years Ended March 31,
2016
2015
2014
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
556,303
178,520
734,823
129,909
(71)
(97,512)
32,326
21,318
11,984
5,714
39,016
10,098
5,902
4,469
$
$
$
$
$
$
$
621,275
201,917
823,192
135,946
(16,685)
(96,883)
22,378
21,202
13,886
5,680
40,768
12,552
7,752
1,928
20,469
$
22,232
$
626,494
207,172
833,666
91,848
(17,587)
(92,472)
(18,211)
28,081
14,557
6,889
49,527
10,498
14,494
7,155
32,147
_______________________________________________________________________________
(1)
Restructuring charges included in Operating income (loss) were as follows (amounts in thousands):
Total restructuring:
Solid Capacitors
Film and Electrolytic
Corporate
Fiscal Years Ended March 31,
2016
2015
2014
$
$
1,916
1,714
548
4,178
$
$
3,297
8,221
1,499
13,017
$
$
8,108
5,657
357
14,122
(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,
2016
2015
2014
$
$
— $
—
— $
— $
—
— $
3,920
556
4,476
88
(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,
2016
2015
2014
$
$
$
536
(270)
109
375
$
$
606
(1,008)
181
(221) $
(705)
767
(30)
32
_______________________________________________________________________________
Total assets:
Solid Capacitors
Film and Electrolytic
Corporate
The following highlights net sales by geographic location (amounts in thousands):
March 31,
2016
2015
$
$
426,751
$
235,493
40,300
447,540
235,044
64,109
702,544
$
746,693
United States
Hong Kong
Germany
Europe (2)
China
Asia Pacific (2)
United Kingdom
Netherlands
Singapore
Italy
Hungary
Mexico
Other Countries (2)
Fiscal Years Ended March 31,(1)
2016
2015
2014
$
$
201,878
133,117
83,589
57,362
65,043
61,414
28,083
31,218
16,260
14,391
17,766
23,041
1,661
734,823
$
$
238,840
131,109
107,859
58,879
65,289
62,864
32,127
38,853
22,516
19,013
22,745
21,164
1,934
823,192
$
$
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
_______________________________________________________________________________
(1)
Revenues are attributed to countries or regions based on the location of the customer. Net Sales to one customer
exceeded 10% of total net sales as follows: $99.3 million, $124.4 million and $128.4 million in fiscal years 2016, 2015
and 2014, respectively. Solid Capacitor sales to one customer over 10% were $85.3 million, $109.1 million and $115.5
million in fiscal years 2016, 2015 and 2014, respectively. Film and Electrolytic sales to one customer over 10% were
$14.0 million, $15.3 million and $12.9 million in fiscal years 2016, 2015 and 2014, respectively.
(2)
Excluding the specific countries listed in this table, no country included in this caption exceeded 3% of consolidated
net sales for fiscal years 2016, 2015 and 2014.
_______________________________________________________________________________
89
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
Other (1)
March 31,
2016
2015
$
54,658
$
61,859
44,699
26,705
23,449
14,131
4,556
989
10,793
59,754
66,120
44,595
29,871
17,352
13,726
5,335
1,439
11,449
$
241,839
$
249,641
(1)
Excluding the specific countries listed in this table, no country included in this caption exceeded 3% of consolidated
Property, plant and equipment net for fiscal years 2016, 2015 and 2014.
Note 7. Discontinued Operations
The Film and Electrolytic business group ("Film and Electrolytic”) completed the sale of its machinery division in
April 2014, which resulted in a gain of $5.6 million on the sale of the business (after income tax expense) offset by a loss from
machinery operations of $0.3 million during the fiscal year ended March 31, 2015 resulting in net income from discontinued
operations of $5.4 million.
Net sales and net operating loss from the Company’s discontinued operation for years ended March 31, 2016, 2015
and 2014 were as follows (in thousands):
Net sales
Operating income (loss)
Note 8: Acquisitions
IntelliData
Fiscal Years Ended March 31,
2016
2015
2014
$
— $
—
$
104
(265)
11,489
(3,730)
On April 1, 2015, KEMET purchased 100% of the stock of IntelliData, Inc. "IntelliData", a Greenwood Village,
Colorado-based developer of digital solutions supporting discovery, decision support, and the sales and marketing of electronic
components. IntelliData had been a key vendor of KEMET for over 15 years and had provided critical software and support to
allow the Company's sales team and customers to use real-time part number search and competitor cross references based on
complex capacitor-specific specifications. The primary reason for the purchase of IntelliData was to gain more control over the
direction of future iterations of the software and its functionality and to protect this critical link in the sales process from any
potential unfavorable changes in IntelliData's business model in the future. The purchase price was $6.0 million plus an
additional $0.1 million per a post-acquisition amendment for a total purchase price of $6.1 million, as amended. KEMET paid
$3.0 million at closing, $0.1 million on June 3, 2015, and $3.0 million on January 4, 2016 per the amended agreement. The
Company recorded goodwill of $4.7 million and amortizable intangibles of $1.8 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, include the knowledge and expertise of the trained workforce as well as various
trademarks. Pro forma results are not presented as the acquisition was not material to the consolidated financial statements.
90
The following table presents the allocations of the aggregate purchase price based on the estimated fair values of the
assets and liabilities (amounts in thousands):
Cash
Accounts receivable
Other current assets
Property, plant and equipment
Goodwill
Intangible assets
Current liabilities
Deferred income taxes
Total net assets acquired
Fair Value
233
10
6
3
4,710
1,820
(9)
(648)
6,125
$
$
The following table presents the amounts assigned to intangible assets (amounts in thousands except useful life data):
Developed technology
Fair Value
$
1,820
Useful
Life (years)
10
The useful life of 10 years is based on IntelliData's history with the first major iteration of the underlying technology,
including its reliability, performance, and ongoing maintenance requirements. In determining the value of the developed
technology, the Company considered any remaining value of the first major iteration of the technology as well as the value of
the substantial development work that had already gone into the second major iteration of the technology as of the acquisition
date. The second major iteration of the technology is scheduled to be implemented in the second quarter of fiscal year 2017.
Note 9: Impairment Charges
During fiscal years 2016 and 2015 the Company incurred no impairment charges. During fiscal year 2014, the
Company incurred impairment charges of $4.5 million. The impairment charges are recorded on the Consolidated Statements of
Operations line item “Write down of long-lived assets” in fiscal year 2014.
In fiscal year 2014, Solid Capacitors incurred $3.9 million ($0.09 per basic and diluted share) in additional impairment
charges related to the relocation of certain Solid Capacitor manufacturing operations from the Evora, Portugal facility to a
manufacturing facility in Mexico due to a decrease in forecasted revenues related to the accelerated timing of the relocation to
Mexico. In addition, during fiscal year 2014, Film and Electrolytic incurred impairment charges totaling $0.6 million ($0.01 per
basic and diluted share) related to manufacturing equipment in Italy.
Note 10: Pension and Other Post-retirement Benefit Plans
The Company sponsors nine defined benefit pension plans: 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 fiscal year 2016, the Company recognized a curtailment gain of $0.7 million due to headcount reductions in
Landsberg, Germany corresponding with the relocation of production to lower cost regions.
In addition, the Company maintains two frozen 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.
91
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
$
49,342
$
42,715
$
846
$
Pension
Other Benefits
2016
2015
2016
2015
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
1,507
1,347
—
342
(4,922)
221
(1,425)
(696)
45,716
10,483
(46)
(242)
1,528
(30)
—
(1,425)
10,268
$
$
$
1,286
1,819
—
1,006
13,673
(9,988)
(1,111)
(58)
49,342
9,946
1,737
(1,353)
1,303
(39)
—
(1,111)
10,483
—
19
464
—
(146)
—
(560)
—
623
$
— $
—
—
96
—
464
(560)
$
$
$
— $
$
10,268
(45,716)
(35,448) $
$
10,483
(49,342)
(38,859) $
— $
(623)
(623) $
$
$
$
$
$
785
—
29
474
—
118
—
(560)
—
846
—
—
—
86
—
474
(560)
—
—
(846)
(846)
The Company expects to contribute $1.7 million to the pension plans in fiscal year 2017, which includes direct
contributions to be made for funded plans and benefit payments to be made for unfunded plans.
The Company does not prefund its post-retirement health care and life insurance benefit plans. As a result, the
Company is responsible annually for the payment of benefits as incurred by the plans. The Company anticipates making
payments of $83 thousand during fiscal year 2017.
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
2016
2015
2016
2015
$
$
(833) $
(34,615)
(35,448) $
(626) $
(38,233)
(38,859) $
(82) $
(541)
(623) $
(97)
(749)
(846)
92
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) loss
Pension
Other Benefits
2016
2015
2016
2015
$
$
15,585
1,582
17,167
$
$
21,408
1,300
22,708
$
$
(1,114) $
—
(1,114) $
(1,159)
—
(1,159)
Although not reflected in the table above, the tax effect on the balances was $2.0 million and $2.3 million as of
March 31, 2016 and 2015, respectively.
Components of benefit costs (credit) consist of the following (amounts in thousands):
2016
Pension
2015
2014
2016
2015
2014
Other Benefits
$
1,507
$
1,286
$
1,308
$
— $
— $
1,347
(433)
1,819
(499)
1,734
(486)
19
—
29
—
—
23
—
Net service cost
Interest cost
Expected return on plan assets
Amortization:
Actuarial (gain) loss
Prior service cost
Net periodic benefit cost (credit)
$
3,185
$
2,900
$
2,878
$
704
60
277
17
318
4
(191)
—
(172) $
(187)
—
(158) $
(259)
—
(236)
The estimated amounts related to pensions that will be amortized from accumulated other comprehensive income into
net periodic benefit costs in fiscal year 2017 are actuarial losses of $460 thousand, and prior service costs of $85 thousand.
The asset allocation for the Company's defined benefit pension plans at March 31, 2016 and the target allocation for
2016, by asset category, are as follows:
Asset Category
Insurance (1)
International equities
International bonds
Other
Total
Target
Allocation
(%)
Plan Assets
at March 31,
2016
(%)
10
15
60
15
100
6
15
63
16
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.
93
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):
Current year actuarial (gain) loss
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)
2016
Pension
2015
$ (5,125) $ 12,397
(258)
1,006
(17)
$ (5,541) $ 13,128
(698)
342
(60)
$ (2,356) $ 16,028
$
$
$
2014
2016
2015
2014
Other Benefits
(190) $
(286)
285
(4)
(195) $
(146) $
191
—
—
45
118
187
—
—
$
305
2,683
$
(127) $
147
$
$
$
95
259
—
—
354
118
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
2017
2018
2019
2020
2021
2021- 2025
$
$
1,627
83
1,710
$
$
1,438
78
1,516
$
$
1,654
73
1,727
$
$
1,725
67
1,792
$
$
1,699
61
1,760
$
$
10,651
219
10,870
94
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
2016
2015
2016
2015
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
3.2%
3.4%
—
2.8%
3.5%
4.0%
—
2.8%
3.5%
—
4.6%
3.4%
4.9%
—
2.8%
—%
2.9%
—%
7.0%
decreasing to
ultimate trend
of 5% in 2021
7.0%
decreasing to
ultimate trend
of 5% in 2019
2.9%
—%
—%
3.4%
—%
—%
7.0%
decreasing to
ultimate trend
of 5% in 2019
7.0%
decreasing to
ultimate trend
of 5% in 2018
$
— $
6
—
(6)
—
18
—
(17)
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.
95
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, 2016 and March 31, 2015 (amounts in thousands):
Fair Value
March 31,
2016
Fair Value Measurement Using
Level 1
Level 2
(1)
Level 3
(2)
Fair Value
March 31,
2015
Fair Value Measurement Using
Level 1
Level 2
Level 3
Cash and cash equivalents
$
129
$
129
$ — $ — $
149
$
149
$ — $ —
Equity securities:
International equities
Fixed income securities:
International bonds
Insurance contracts
Diversified growth funds
1,567
6,469
611
1,492
—
—
—
—
1,567
—
3,626
6,469
—
1,492
—
611
—
6,132
576
—
—
—
—
—
3,626
6,132
—
—
$
10,268
$
129
$ 9,528
$
611
$
10,483
$
149
$ 9,758
$
—
—
576
—
576
(1)
Level 2 plan assets consist of pooled investment funds which are unquoted and have no restriction on redemption.
Fair value was determined using daily, weekly, or monthly trading activity which derives the unit price of the pooled fund.
(2)
participation of each contract. The actuarial reserve is the sum of discounted cash flows associated with future benefits and
premiums.
Level 3 plan assets are invested in reinsurance contracts whose value is the sum of the actuarial reserve and the profit
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 years ended March 31, 2015 and March 31, 2016 (amounts in thousands):
Balance at March 31, 2014
Actual return on plan assets
Employer contributions
Settlements
Benefits paid
Foreign currency exchange rate change
Balance at March 31, 2015
Actual return on plan assets
Employer contributions
Settlements
Benefits paid
Foreign currency exchange rate change
Balance at March 31, 2016
$
$
$
706
39
366
—
(375)
(160)
576
14
189
—
(202)
34
611
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 $5 thousand in fiscal year 2016, $115 thousand in fiscal year 2015, and $189 thousand in fiscal year
2014. Total benefits accrued under this plan were $1.5 million and $1.5 million at March 31, 2016 and March 31, 2015,
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 $2.1 million, $2.2 million and
$2.2 million in fiscal years 2016, 2015, and 2014, respectively.
96
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.
The major components of stock-based compensation expense are as follows (amounts in thousands):
Fiscal Year Ended
March 31, 2016
Fiscal Year Ended
March 31, 2015
Fiscal Year Ended
March 31, 2014
Stock
Options
Restricted
Stock
LTIPs
Stock
Options
Restricted
Stock
LTIPs
Stock
Options
Restricted
Stock
LTIPs
Cost of sales
$
81
$
617
$ 720
$
233
$
269
$ 1,075
$
421
$
62
$ 523
Selling, general and
administrative expenses
Research and development
Employee Stock Options
78
4
1,352
1,732
23
167
306
13
787
3
1,547
279
413
5
580
—
712
193
$
163
$
1,992
$2,619
$
552
$
1,059
$ 2,901
$
839
$
642
$ 1,428
As of March 31, 2016, the 2014 Amendment and Restatement of the KEMET Corporation 2011 Omnibus Equity
Incentive Plan (the “2011 Incentive Plan”), approved by the Company’s stockholders in 2014, is the only plan the Company has to
issue equity based awards to executives and key employees. Upon adoption of the 2011 Incentive Plan, no further awards were
permitted to be granted under the Company’s prior plans, including the 1992 Key Employee Stock Option Plan, the 1995
Executive Stock Option Plan, and the 2004 Long-Term Equity Incentive Plan (collectively, the “Prior Plans”).
The 2011 Incentive Plan authorized the grant of up to 7.4 million shares of the Company's Common Stock, comprised of
6.6 million shares under the 2011 Incentive Plan and 0.8 million shares remaining from the Prior Plans and authorizes the
Company to provide equity-based compensation in the form of:
•
•
•
•
•
stock options, including incentive stock options, entitling the optionee to favorable tax treatment under Section 422 of
the Code;
stock appreciation rights;
restricted stock and restricted stock units;
other share-based awards; and,
performance awards.
Options issued under these plans vest within one to three years and expire ten years from the grant date. For the stock options
granted to the Company's Chief Executive Officer on January 27, 2010, 50% vested on June 30, 2014 and 50% vested 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 plans in the near future.
97
Employee stock option activity for fiscal year 2016 is as follows:
Outstanding at March 31, 2015
Granted
Exercised
Forfeited
Expired
Outstanding at March 31, 2016
Exercisable at March 31, 2016
Remaining weighted average contractual life of options exercisable (years)
Remaining weighted average contractual life of options outstanding (years)
Options
(in thousands)
1,451
$
—
—
(20)
(177)
1,254
1,170
$
Weighted-
Average
Exercise
Price
8.49
—
—
5.45
14.96
7.63
7.76
4.9
5.1
Amounts included in the following table are in thousands, except weighted average fair value and weighted average
exercise price:
Weighted average grant-date fair value of non-vested shares
$
2.72
$
2.73
$
3.13
Weighted average grant-date fair value of shares
Fiscal Years Ended
March 31,
2016
2015
2014
Granted
Vested
Forfeited
Total estimated fair value of shares vested
Intrinsic value
Stock options exercised
Options outstanding
Options currently exercisable
Total unrecognized compensation cost, net of estimated
forfeitures, non-vested options
Weighted-average period of recognition for unrecognized
compensation cost (in years)
Weighted average exercise price of stock options expected to
vest
0.6
—
2.73
2.81
548
—
15
15
46
5.89
—
3.50
3.25
1,000
2.71
4.55
5.47
1,100
—
200
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.
98
The following table summarizes the weighted average assumptions used in the Black-Scholes valuation model to value
stock option grants:
Assumptions:
Expected volatility (1)
Risk-free interest rate (2)
Expected option lives in years (3)
Dividend yield (4)
Fiscal Years Ended
March 31,
2016
2015
2014
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
59.8%
1.0%
4.0
—
(1) Expected volatility is based on a historical volatility calculation of the Company's stock price.
(2) Risk-free rate is based on the U.S. Treasury yield with a maturity commensurate with the expected term.
(3) Expected term is based on the Company's historical option term which considers the weighted-average vesting, contractual term and vesting
schedule.
(4) Dividend yield is based on a set dividend rate of 0.0% as the Company has not paid and does not anticipate paying dividends.
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 2.7%. 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. All option 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 entitle him to receive shares of common stock if and when the stock price achieves
and maintains certain thresholds. These awards are open ended until they vest and have a ten-year life after vesting or 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 Units ("RSU's")
Restricted stock unit activity for fiscal year 2016 is as follows (amounts in thousands except fair value):
Non-vested restricted stock at March 31, 2015
Granted
Vested
Forfeited
Non-vested restricted stock at March 31, 2016
Weighted-
average
Fair Value on
Grant Date
Shares
1,000
$
748
(304)
(14)
1,430
$
4.57
2.72
4.98
5.31
3.51
The Company grants RSU's to members of the Board of Directors, the Chief Executive Officer and a limited group of
executives. In fiscal year 2016, RSU's granted to the Board of Directors vest in one year, RSU's granted to certain officers vest
over 3 years and RSU's granted under the key manager stock program vest approximately 33% per year over three years. Once
vested, RSU's are converted into restricted shares of common stock, except for RSU's granted to members of the Board of
Directors, who can elect to defer settlement of the RSU's to a later date. Restricted shares cannot be sold until 90 days after the
Chief Executive Officer, executive, key manager, or member of the Board of Directors, as applicable, resigns from his or her
position, or until the KEMET employee achieves the targeted ownership under the Company's stock ownership guidelines, and
99
only to the extent that such ownership exceeds the target. As of March 31, 2016 and 2015, unrecognized compensation costs
related to the unvested restricted stock share based compensation arrangements granted were $3.0 million and $3.1 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 a two
year performance period. A portion of the LTIPs awarded restricted stock units which vest over the course of three years from the
anniversary of the establishment of the plan and a portion of the award is based upon the achievement of an Adjusted EBITDA
range for the two-year period. At the time of the award, the individual plans entitle the participants to receive cash or restricted
stock units, or a combination of both. 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 (for the cash portion of the LTIP)
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 performance portion of the
2014/2015 LTIP achieved the lower range which resulted in 80 thousand shares issued in fiscal year 2016 with the remaining 73
thousand shares to be issued in fiscal year 2017 (subject to the respective participant's continued employment with KEMET). The
performance portion of the 2015/2016 LTIP achieved the lower range which will result in 207 thousand shares being issued in
both fiscal years 2017 and 2018 (subject to the respective participant's continued employment with KEMET). Under the
performance component of the 2016/2017 LTIP the Company could issue 426 thousand shares if the two-year Adjusted EBITDA
measure is achieved as of March 31, 2017 (potentially more shares could be issued if financial results exceed the two-year
Adjusted EBITDA target).
The following is the time-based vesting schedule of RSU under each respective LTIP, subject to the respective
participant's continued employment with KEMET (shares in thousands):
Time-based award vested fiscal year 2016
Potential time-based award vesting fiscal year 2017 (2)
Potential time-based award vesting fiscal year 2018 (2)
Potential time-based award vesting fiscal year 2019 (2)
—
187
187
193
124
111
114
—
139
130
—
—
90
—
—
—
2016/2017 (1)
2015/2016
2014/2015
2013/2014
(1)
(2)
Potential performance-based award assuming the target is achieved.
Subject to participants' continued employment with KEMET.
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 2016, 2015 and 2014.
Note 12: Income Taxes
The components of Income (loss) from continuing operations before income taxes and equity loss from NEC TOKIN
are as follows (amounts in thousands):
Domestic (U.S.)
Foreign (Outside U.S.)
Total
Fiscal Years Ended March 31,
2016
2015
2014
$
$
(38,581) $
7,364
(31,217) $
(26,238) $
14,112
(12,126) $
(89,529)
33,232
(56,297)
100
The provision (benefit) for Income tax expense is as follows (amounts in thousands):
Fiscal Years Ended March 31,
2016
2015
2014
Current:
Federal
State and local
Foreign
Total current income tax expense from continuing operations
Deferred:
Federal
State and local
Foreign
Deferred tax expense (benefit) from continuing operations
$
— $
95
5,416
5,511
(647)
172
970
495
Provision for income taxes
$
6,006
$
— $
(92)
7,403
7,311
270
39
(2,393)
(2,084)
5,227
$
—
35
7,816
7,851
(1,694)
406
(5,081)
(6,369)
1,482
The Company realized a deferred tax expense (benefit) for fiscal years ended 2016, 2015 and 2014 of $1.4 million,
$(2.1) million and $(2.7) million, respectively, in certain foreign jurisdictions based on changes in judgment about the
realizability of deferred tax assets in future years.
Differences between the provision for income taxes on earnings from continuing operations and the amount computed
using the U.S. Federal statutory income tax rate are as follows (amounts in thousands):
Amount computed using the statutory rate of 35%
Change in U.S. valuation allowance
Unremitted earnings of foreign subsidiaries
Effect of prior year adjustments (1)
Effect of business combination
Taxable foreign source income
Call option expiration
Other non-deductible expenses
State income taxes, net of federal taxes
Change in foreign operations tax exposure reserves
Change in foreign tax law
Change in foreign operations valuation allowance (2)
Other effect of foreign operations
Provision for income taxes
Fiscal Years Ended March 31,
2016
(10,926)
4,099
(231)
(286)
(648)
2,415
7,381
126
267
998
981
(200)
2,030
6,006
2015
(4,245)
(19,691)
18,502
5,766
—
4,660
—
217
(53)
1,119
—
1,378
(2,426)
5,227
2014
(19,704)
21,788
—
(786)
—
3,392
—
149
441
773
—
(2,733)
(1,838)
1,482
(1)
(2)
The effect of prior year adjustments is offset by a full valuation allowance resulting in no impact on the provision for
income taxes.
The change in foreign operations valuation allowance excludes other comprehensive income and currency translation
adjustments of $0.6 million, $(3.4) million, and $1.0 million for fiscal years ended 2016, 2015 and 2014, respectively
which has no impact on the provision for income taxes.
The foreign jurisdictions having the greatest effect on the provision for income taxes are China and Mexico. The
statutory tax rates for China and Mexico are 25% and 30%, respectively. The provision for income taxes for China and Mexico
for fiscal years ended 2016, 2015 and 2014 is $3.2 million, $6.4 million, and $2.2 million, respectively.
101
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
Medical and employee benefits
Tax credits
Stock-based compensation
Other
Total deferred tax assets before valuation allowance
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unremitted earnings of subsidiaries
Depreciation and differences in basis
Amortization of intangibles and debt discounts
NEC TOKIN put/call option
Non-amortized intangibles
Other
Total deferred tax liabilities
Net deferred tax assets
March 31,
2016
2015
$
173,041
$
162,691
16,918
11,234
9,840
2,576
2,988
216,597
(170,917)
45,680
(18,271)
(11,718)
(7,107)
—
(2,556)
(451)
(40,103)
5,577
$
21,696
15,982
10,025
3,578
3,411
217,383
(167,594)
49,789
(18,502)
(12,166)
(7,261)
(1,860)
(2,556)
(54)
(42,399)
7,390
$
The following table presents the annual activities included in the deferred tax valuation allowance:
Balance at March 31, 2013
Charge to costs and expenses
Deductions
Balance at March 31, 2014
Charge to costs and expenses
Deductions
Balance at March 31, 2015
Charge to costs and expenses
Deductions
Balance at March 31, 2016
Valuation
Allowance for
Deferred Tax
Assets
169,270
21,515
(1,509)
189,276
(19,900)
(1,782)
167,594
4,072
(749)
170,917
$
$
In fiscal year 2016, the valuation allowance increased $3.3 million primarily due to the reversal of the deferred tax
liability related to the NT Options offset by the increase in federal net operating loss carryforwards. In fiscal year 2015, the
valuation allowance decreased $21.7 million primarily from the recognition of a deferred tax liability for unremitted earnings of
the Company’s foreign subsidiaries and other adjustments relating to prior years, and from currency translation adjustments. In
fiscal year 2014, 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. Deductions in fiscal years
2016, 2015 and 2014 resulted primarily from expiring net operating loss carryforwards and expiring tax credits in certain U.S.
state and foreign jurisdictions.
102
The change in net deferred income tax asset (liability) for the current year is presented below (amounts in thousands):
Balance at March 31, 2015
Deferred income taxes related to continuing operations
Deferred income taxes resulting from business combination
Deferred income taxes related to other comprehensive income
Foreign currency translation
Balance at March 31, 2016
$
$
7,390
(495)
(648)
915
(1,585)
5,577
As of March 31, 2016 and 2015, the Company's gross deferred tax assets are reduced by a valuation allowance of
$170.9 million and $167.6 million, respectively. A 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. The amount of future income required for the Company to realize its deferred tax assets is $29.0 million. The realization
of $1.3 million of deferred tax assets in Italy is dependent on the sale of land and buildings in Italy.
In assessing the realizability of deferred tax assets in foreign jurisdictions, 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, 2016. 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, 2016, the Company had U.S. federal net operating loss carryforwards of $417.9 million. These U.S.
federal net operating losses were incurred from 2004 through 2016 and are available to offset future federal taxable income, if
any, through 2036. The Company had state net operating losses of $497.7 million, of which $3.0 million will expire in one year
if unused. These state net operating losses are available to offset future state taxable income, if any, through 2036. Foreign
subsidiaries, primarily in Finland, Italy, Portugal and Sweden had net operating loss carryforwards totaling $59.6 million. The
net operating losses in Portugal and Finland are available to offset future taxable income through 2027 and 2019, respectively.
The net operating losses in Italy and Sweden are available indefinitely to offset future taxable income. For the U.S. federal and
state jurisdictions 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.
103
At March 31, 2016, 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
5,173
1,425
3,242
2017
2023
2026
The Company conducts business in Macedonia through a subsidiary that qualifies for a tax holiday. The tax holiday
will terminate on January 1, 2023. For calendar years 2014, 2015, and 2016, the statutory rate of 10% was reduced to zero. For
the fiscal year ended March 31, 2016 the Company realized no income tax benefit from the tax holiday.
At March 31, 2016, the Company makes no assertion that unremitted earnings from subsidiaries outside the United
States are indefinitely reinvested. This assertion changed during fiscal year 2015 based on an analysis of cash needs in the U.S.
related to a planned acquisition and current debt funding. Due to the valuation allowance in the U.S., this assertion did not
result in a cash tax impact. The Company has recognized a deferred tax liability relating to its investments in subsidiaries
outside the United States.
At March 31, 2016, the Company had $7.1 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,
2016
2015
2014
$
6,377
$
5,691
$
763
—
—
(10)
(27)
7,103
$
1,115
—
(56)
(203)
(170)
6,377
$
$
5,395
639
19
(28)
—
(334)
5,691
At March 31, 2016, $2.5 million of the $7.1 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 $1.8
million in fiscal year 2017 if the advanced pricing arrangement for one of the Company’s foreign subsidiaries is agreed to by
the foreign tax authority.
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. The Company is 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 records potential interest
and penalty expenses 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, 2016 and 2015, 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.
104
Note 13: Derivatives
In fiscal year 2015, the Company began using certain derivative instruments (i.e., foreign exchange contracts) to
reduce exposures to the volatility of foreign currencies impacting revenues and the costs of its products.
Certain operating expenses at the Company's Mexican facilities are paid in Mexican pesos. In order to hedge a portion
of these forecasted cash flows, the Company purchases foreign exchange contracts, with terms generally less than twelve
months, to buy Mexican pesos for periods and amounts consistent with underlying cash flow exposures. These contracts are
designated as cash flow hedges at inception and monitored for effectiveness on a routine basis. There were $37.7 million in
peso contracts (notional value) outstanding at March 31, 2016.
Certain expenditures at the Company's Mexican facilities are paid in Japanese yen. In order to hedge a portion of these
forecasted cash flows, the Company purchases foreign exchange contracts, with terms generally less than six months, to buy
Japanese yen for periods and amounts consistent with underlying cash flow exposures. These contracts are designated as cash
flow hedges at inception and monitored for effectiveness on a routine basis. There were no yen contracts outstanding at March
31, 2016, as the yen hedge program has ended.
Certain sales are made in euros. In order to hedge a portion of these forecasted cash flows, management purchases
foreign exchange contracts, with terms generally less than six months, to sell euros for periods and amounts consistent with the
related underlying cash flow exposures. These contracts are designated hedges at inception and monitored for effectiveness on a
routine basis. There were no euro contracts outstanding at March 31, 2016, as the euro hedge program has ended.
The Company formally documents all relationships between hedging instruments and hedged items, as well as risk
management objectives and strategies for undertaking various hedge transactions.
The Company records and presents the fair values of all of its derivative assets and liabilities in the Consolidated
Balance Sheets on a net basis, since they are subject to master netting agreements. However, if the Company were to offset and
record the asset and liability balances of its forward foreign currency exchange contracts on a gross basis, the amounts
presented in the Consolidated Balance Sheets would be adjusted from the current net presentation to the gross amounts as
detailed in the following table. The balance sheet classifications and fair value of derivative instruments as of March 31, 2016
and 2015 are as follows (amounts in thousands):
Balance Sheet Presentation
As Presented
(1)
Offset
Gross
As Presented
(1)
Offset
Gross
Fair Value of Derivative Instruments
March 31, 2016
March 31, 2015
Prepaid and other current assets
Accrued expenses
$
$
— $
(367)
$
523
(523)
$
523
(890)
$
1,003
—
— $
—
1,003
—
(367) $
— $
(367) $
1,003
$
— $
1,003
______________________________________________________________________________
(1) Fair Value measured using Level 2 inputs by adjusting the market spot rate by forward points, based on the date of the
contract. The spot rates and forward points used are based on an average rate from an actively traded market.
105
The impact on the Consolidated Statement of Operations for the twelve month period ended March 31, 2016 is as
follows (amounts in thousands):
Impact of Foreign Exchange Contracts on Condensed Consolidated Statement of Operations
Statement Caption
Twelve Month Period
Ended March 31, 2016
Net Sales
Operating costs and expenses:
Cost of sales
Total operating costs and expenses
Operating income (loss)
$
$
(789)
3,199
3,199
(3,988)
Unrealized gains and losses associated with the change in value of these financial instruments are recorded in AOCI.
Changes in the derivatives' fair values are deferred and recorded as a component of AOCI until the underlying transaction is
settled and recorded to the income statement. When the hedged item affects income, gains or losses are reclassified from AOCI
to the Consolidated Statement of Operations as Net sales for foreign exchange contracts to sell euros, and as Cost of sales for
foreign exchange contracts to purchase Mexican pesos and Japanese yen. Any ineffectiveness, if material, in the Company's
hedging relationships is recognized immediately as a loss, within the same income statement accounts as described above; to
date, there has been no ineffectiveness. Changes in derivative balances impact the line items "Prepaid and other assets" and
"Accrued Expenses" on the Consolidated Balance Sheets and Statements of Cash Flows.
Note 14: Supplemental Balance Sheets and Statements of Operations Detail (amounts in thousands)
Accounts receivable:
Trade
Allowance for doubtful accounts reserve
Ship-from-stock and debit reserve
Returns reserves
Rebates reserves
Price protection reserves
Other
Accounts receivable, net
March 31,
2016
2015
$
$
116,146
(1,002)
(17,362)
(3,324)
(872)
(418)
—
93,168
$
$
115,504
(925)
(19,360)
(3,190)
(780)
(270)
(122)
90,857
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.
106
The following table presents the annual activities included in the allowance for these commitments:
Balance at March 31, 2013
Cost charged to expense
Actual adjustments applied
Other
Balance at March 31, 2014
Cost charged to expense
Actual adjustments applied
Other
Balance at March 31, 2015
Cost charged to expense
Actual adjustments applied
Other
Balance at March 31, 2016
Inventories:
Raw materials and supplies
Work in process
Finished goods
Inventory gross
Inventory reserves
Inventory, net
The following table presents the annual activities included in the inventory reserves:
Balance at March 31, 2013
Costs charged to expense
Write-offs
Other
Balance at March 31, 2014
Costs charged to expense
Write-offs
Other
Balance at March 31, 2015
Costs charged to expense
Write-offs
Other
Balance at March 31, 2016
107
$
18,518
89,909
(83,911)
144
24,660
91,091
(90,909)
(195)
24,647
95,212
(96,932)
51
$
22,978
March 31,
2016
2015
$
80,289
$
46,631
58,060
184,980
(16,101)
168,879
$
$
$
83,372
52,759
53,211
189,342
(17,499)
171,843
18,464
11,846
(3,880)
396
26,826
9,291
(17,520)
(1,098)
17,499
5,696
(7,326)
232
$
16,101
Property, plant and equipment:
Land and land improvements
Buildings
Machinery and equipment
Furniture and fixtures
Construction in progress
Other
Total property and equipment
Accumulated depreciation
Property, plant and equipment, net
Accrued expenses:
Salaries, wages, and related employee costs
Interest
Restructuring
Vacation
Other
Total accrued expenses
Other non-current obligations:
Pension plans
Employee separation liability
Deferred compensation
Long-term obligation on land purchase
Restructuring
NEC TOKIN option valuation
Long-term service contracts
Other
Total other non-current obligations
Useful life
(years)
March 31,
2016
2015
20
$
22,380
$
20 - 40
10
4 - 10
148,805
793,250
69,442
21,197
2,103
22,017
149,451
798,112
60,903
21,260
2,184
1,057,177
(815,338)
241,839
$
1,053,927
(804,286)
249,641
$
March 31,
2016
2015
$
20,708
$
15,683
946
7,892
5,091
26,117
15,678
6,591
6,286
5,784
$
50,320
$
60,456
March 31,
2016
2015
35,156
9,352
1,544
—
30
20,600
2,343
5,867
$
74,892
$
38,982
10,638
1,548
1,594
648
—
—
3,721
57,131
108
Non-operating (income) expense, net:
Net foreign exchange (gains) losses
Gain on early extinguishment of debt
Offering memorandum fees
Other
Total non-operating (income) expense, net
$
Fiscal Years Ended March 31,
2016
2015
2014
(3,036)
—
—
688
(2,348) $
(4,249)
(1,003)
1,142
28
(4,082) $
(304)
—
—
734
430
109
Note 15: Income/Loss Per Share
Basic earnings per share calculation is based on the weighted-average number of common shares outstanding. Diluted
earnings per share calculation is based on the weighted-average number of common shares outstanding adjusted by the number
of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially
dilutive shares of common stock include stock options and Platinum Warrant.
The following table presents the basic and diluted weighted-average number of shares of common stock (amounts in
thousands, except per share data):
Numerator
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income tax expense
(benefit) of $0, $1,976, and $(98), respectively
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:
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income tax expense
(benefit)
Net income (loss)
Net income (loss) per diluted share:
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income tax expense
(benefit)
Net income (loss)
Fiscal Years Ended March 31,
2016
2015
2014
(53,629) $
(19,522) $
(64,869)
—
(53,629) $
5,379
(14,143) $
(3,634)
(68,503)
46,004
45,381
45,102
—
—
—
—
—
—
46,004
45,381
45,102
(1.17) $
(0.43) $
(1.44)
— $
(1.17) $
0.12
$
(0.31) $
(0.08)
(1.52)
(1.17) $
(0.43) $
(1.44)
— $
(1.17) $
0.12
$
(0.31) $
(0.08)
(1.52)
$
$
$
$
$
$
$
$
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
Fiscal Years Ended
March 31,
2016
2015
2014
3,329
4,951
1,783
6,287
1,761
6,704
110
Note 16: Commitments and Contingencies
The Company's leases are primarily for distribution facilities or sales offices that expire principally between 2016 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 $7.1 million, $7.6 million and $9.9 million in fiscal years 2016, 2015, and 2014, respectively.
Future minimum lease payments over the next five fiscal years and thereafter under non-cancellable operating leases at
March 31, 2016, are as follows (amounts in thousands):
Minimum lease payments
3,653
2,922
1,909
628
496
1,201
2017
2018
2019
2020
2021
Thereafter
Fiscal Years Ended March 31,
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 17: Quarterly Results of Operations (Unaudited)
The following table sets forth certain quarterly information for fiscal years 2016 and 2015. 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):
Net sales
Operating income (loss) (1)
Income (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:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Fiscal Year 2016 Quarters Ended
Jun-30
Sep-30
Dec-31
Mar-31
$
187,590
$
186,123
$
177,184
$
183,926
1,243
(37,050)
—
(37,050)
13,987
7,194
—
7,194
$
$
$
$
$
$
(0.81) $
— $
(0.81) $
(0.81) $
— $
(0.81) $
0.16
$
— $
0.16
0.14
$
$
— $
0.14
$
8,493
(8,600)
—
(8,600)
(0.19) $
— $
(0.19) $
(0.19) $
— $
(0.19) $
8,603
(15,173)
—
(15,173)
(0.33)
—
(0.33)
(0.33)
—
(0.33)
111
Fiscal Year 2015 Quarters Ended
Jun-30
Sep-30
Dec-31
Mar-31
$
215,293
$
201,310
$
193,708
Net sales
Operating income (loss) (1)
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
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)
$
$
$
$
$
$
$
212,881
(606)
(10,483)
6,943
(3,540)
(0.23) $
$
0.15
(0.08) $
(0.23) $
0.15
$
(0.08) $
12,770
7,730
(1,400)
6,330
0.17
$
(0.03) $
$
0.14
$
0.15
(0.03) $
$
0.12
9,302
3,078
(164)
2,914
0.07
$
— $
0.07
$
0.06
$
— $
0.06
$
912
(19,847)
—
(19,847)
(0.44)
—
(0.44)
(0.44)
—
(0.44)
_______________________________________________________________________________
(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, foreign currency exchange, 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 18: 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 Guarantor Subsidiaries 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):
112
Condensed Consolidating Balance Sheet
March 31, 2016
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
Total current assets
Property and equipment, net
Investments in NEC TOKIN
Investments in subsidiaries
Goodwill
Intangible assets, net
Deferred income taxes
Other assets
Long-term intercompany receivable
$
640
$
36,209
$
28,155
$
— $
—
30,210
—
3,325
34,175
255
—
382,108
—
—
—
2,764
67,500
41,025
132,523
113,289
12,161
335,207
93,936
20,334
429,723
40,294
27,252
800
2,452
41,428
52,143
170,224
55,590
12,974
319,086
147,648
—
93,359
—
6,049
7,597
616
1,088
—
(332,957)
—
(2,964)
(335,921)
—
—
(905,190)
—
—
—
—
(110,016)
$ (1,351,127) $
Total assets
$ 486,802
$
991,426
$
575,443
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term debt
$
2,000
$
— $
— $
— $
Accounts payable, trade
Intercompany payable
Accrued expenses
Income taxes payable
Total current liabilities
Long-term debt, less current portion
Other non-current obligations
Deferred income taxes
Long-term intercompany payable
20
280
17,305
—
19,605
354,716
—
—
—
34,618
275,498
11,807
2,983
36,343
57,179
21,208
434
324,906
115,164
19,881
25,797
2,242
67,500
14,000
49,095
578
42,516
354,090
—
(332,957)
—
(2,964)
(335,921)
—
—
—
(110,016)
(905,190)
$ (1,351,127) $
Stockholders' equity
112,481
551,100
Total liabilities and stockholders' equity
$ 486,802
$
991,426
$
575,443
113
65,004
93,168
—
168,879
25,496
352,547
241,839
20,334
—
40,294
33,301
8,397
5,832
—
702,544
2,000
70,981
—
50,320
453
123,754
388,597
74,892
2,820
—
112,481
702,544
Condensed Consolidating Balance Sheet
March 31, 2015
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
Total current assets
Property and equipment, net
Investment in NEC TOKIN
Investment in subsidiaries
Goodwill
Intangible assets, net
Restricted cash
Deferred income taxes
Other assets
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
Total current liabilities
Long-term debt, less current portion
Other non-current obligations
Deferred income taxes
Long-term intercompany payable
Stockholders' equity
Total liabilities and stockholders' equity
$
640
—
321,233
—
3,191
325,064
293
—
401,062
—
—
—
—
4,088
63,788
794,295
$
$
— $
47
254,852
17,253
—
272,152
357,461
—
—
—
164,682
794,295
$
33,094
35,535
403,557
119,221
21,134
612,541
100,844
45,016
423,737
35,584
26,998
—
971
7,824
39,151
1,292,666
500
36,565
578,318
16,644
2,928
634,955
20,948
2,987
2,241
63,789
567,746
1,292,666
$
$
$
$
22,628
55,322
195,518
52,622
20,164
346,254
148,504
—
93,359
—
6,284
—
8,803
919
1,088
605,211
462
33,173
87,138
26,559
942
148,274
12,000
54,144
143
40,238
350,412
605,211
$
$
$
$
— $
—
(920,308)
—
(2,986)
(923,294)
—
—
(918,158)
—
—
—
—
—
(104,027)
(1,945,479) $
— $
—
(920,308)
—
(2,986)
(923,294)
—
—
—
(104,027)
(918,158)
(1,945,479) $
56,362
90,857
—
171,843
41,503
360,565
249,641
45,016
—
35,584
33,282
—
9,774
12,831
—
746,693
962
69,785
—
60,456
884
132,087
390,409
57,131
2,384
—
164,682
746,693
114
Condensed Consolidating Statements of Operations
Fiscal Year Ended March 31, 2016
Net sales
Operating costs and expenses:
Cost of sales
Selling, general and administrative
expenses
Research and development
Restructuring charges
Net (gain) loss on sales and disposals
of assets
Total operating costs and expenses
Operating income (loss)
Other (income) expense:
Interest income
Interest expense
Change in value of NEC TOKIN
options
Non-operating (income) expense, net
Equity in earnings of subsidiaries
Income (loss) from continuing
operations before income taxes and
equity income (loss) from NEC
TOKIN
Income tax expense (benefit)
Income (loss) from continuing
operations before equity income
(loss) from NEC TOKIN
Equity income (loss) from NEC
TOKIN
Income (loss) from continuing
operations
Income (loss) from discontinued
operations
Net income (loss)
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and
Eliminations
Consolidated
$
— $
866,163
$
703,690
$
(835,030) $
734,823
1,194
708,143
642,362
(780,156)
571,543
38,071
79
—
(7)
39,337
(39,337)
—
37,856
—
(36,183)
12,619
74,521
17,313
2,564
(484)
802,057
64,106
—
1,189
26,300
34,188
—
43,728
7,563
1,614
866
696,133
7,557
(14)
560
—
(353)
—
(54,874)
—
—
—
(835,030)
—
—
—
—
—
(12,619)
101,446
24,955
4,178
375
702,497
32,326
(14)
39,605
26,300
(2,348)
—
(53,629)
—
2,429
(269)
7,364
6,275
12,619
—
(31,217)
6,006
(53,629)
2,698
1,089
12,619
(37,223)
—
(16,406)
—
—
(16,406)
(53,629)
(13,708)
1,089
12,619
(53,629)
—
(53,629) $
—
(13,708) $
$
—
1,089
$
—
12,619
$
—
(53,629)
Condensed Consolidating Statements of Comprehensive Income (Loss)
Fiscal Year Ended March 31, 2016
Other comprehensive income (loss)
$
(49,918) $
(24,832) $
5,873
$
12,619
$
(56,258)
115
Condensed Consolidating Statements of Operations
Fiscal Year Ended March 31, 2015
Net sales
$
195
$
978,705
$
773,504
$
(929,212) $
823,192
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
Net (gain) loss on sales and disposals
of assets
Total operating costs and expenses
Operating income (loss)
Other (income) expense:
Interest income
Interest expense
Change in value of NEC TOKIN
options
Non-operating (income) expense, net
Equity in earnings of subsidiaries
Income (loss) from continuing
operations before income taxes and
equity income (loss) from NEC
TOKIN
Income tax expense (benefit)
Income (loss) from continuing
operations before equity income
(loss) from NEC TOKIN
Equity income (loss) from NEC
TOKIN
Income (loss) from continuing
operations
Income (loss) from discontinued
operations
2,468
823,429
707,493
(869,707)
663,683
41,783
436
—
(10)
44,677
(44,482)
—
38,632
—
(40,903)
(27,998)
70,074
17,588
3,310
181
914,582
64,123
—
998
(2,100)
49,069
—
46,181
7,778
9,707
(392)
770,767
2,737
(15)
1,071
—
(12,248)
—
(59,505)
—
—
—
(929,212)
—
—
—
—
—
27,998
98,533
25,802
13,017
(221)
800,814
22,378
(15)
40,701
(2,100)
(4,082)
—
(14,213)
(70)
16,156
576
13,929
4,721
(27,998)
—
(12,126)
5,227
(14,143)
15,580
9,208
(27,998)
(17,353)
—
(2,169)
(14,143)
13,411
—
102
—
9,208
5,277
—
(2,169)
(27,998)
(19,522)
—
(27,998) $
5,379
(14,143)
Net income (loss)
$
(14,143) $
13,513
$
14,485
$
Condensed Consolidating Statements of Comprehensive Income (Loss)
Fiscal Year Ended March 31, 2015
Comprehensive income (loss)
$
(32,103) $
19,650
$
(20,672) $
(27,998) $
(61,123)
116
Condensed Consolidating Statements of Operations
Fiscal Year Ended March 31, 2014
Net sales
$
218
$
966,369
$
817,945
$
(950,866) $
833,666
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
Net (gain) loss on intercompany asset
transfer
Total operating costs and expenses
Operating income (loss)
Other (income) expense:
Interest income
Interest expense
Change in value of NEC TOKIN
options
Other (income) expense, net
Equity in earnings of subsidiaries
Income (loss) from continuing
operations before income taxes and
equity income (loss) from NEC
TOKIN
Income tax expense (benefit)
Income (loss) from continuing
operations before equity income
(loss) from NEC TOKIN
Equity income (loss) from NEC
TOKIN
Income (loss) from continuing
operations
1,336
878,308
729,105
(895,824)
712,925
41,359
229
—
—
—
—
42,924
(42,706)
(12)
40,069
—
(40,642)
26,332
61,896
16,849
2,858
1,118
47,643
7,388
11,264
3,358
(625)
657
(55,042)
—
—
—
—
14,564
974,968
(8,599)
(4)
1,130
(3,111)
39,852
—
(14,564)
784,851
33,094
—
(950,866)
—
(179)
(237)
—
1,220
—
—
—
—
—
(26,332)
95,856
24,466
14,122
4,476
32
—
851,877
(18,211)
(195)
40,962
(3,111)
430
—
(68,453)
—
(46,466)
(1,302)
32,290
2,784
26,332
—
(56,297)
1,482
(68,453)
(45,164)
29,506
26,332
(57,779)
—
(7,090)
—
—
(7,090)
(68,453)
(52,254)
29,506
26,332
(64,869)
Income (loss) from discontinued
operations
(50)
Net income (loss)
$
(68,503) $
(1,195)
(53,449) $
(2,389)
27,117
$
—
26,332
$
(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)
117
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
Acquisitions, net of cash received
Net cash provided by (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
Purchase of treasury stock
Net cash provided by (used in) financing
activities
Net increase (decrease) in cash and
cash equivalents
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended March 31, 2016
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and
Eliminations
Consolidated
$
3,722
$
15,107
$
13,536
$
— $
32,365
(9,550)
1,802
248
(2,892)
(10,919)
—
723
—
(10,392)
(10,196)
8,000
(9,600)
—
—
—
—
3,115
—
2,000
—
—
(481)
—
—
1,519
4,859
668
(3,722)
(1,600)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(20,469)
1,802
971
(2,892)
(20,588)
10,000
(9,600)
(3,000)
(481)
—
(722)
(3,803)
7,974
668
56,362
65,004
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
$
33,094
22,628
$
36,209
$
28,155
$
— $
—
—
—
—
—
—
—
(3,000)
—
—
(722)
—
—
640
640
118
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended March 31, 2015
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and
Eliminations
Consolidated
$
39,575
$
(4,085) $
(11,088) $
— $
24,402
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
Proceeds from sale of discontinued
operations
Net cash provided by (used in) investing
activities
Financing activities:
Proceeds from revolving line of credit
Payments on revolving line of credit
Deferred acquisition payments
Payments of long-term debt
Proceeds from exercise of stock options
Purchase of treasury stock
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
Cash and cash equivalents at end of fiscal year
$
—
—
—
—
—
—
—
(18,527)
(20,417)
24
(630)
(12,930)
11,509
2,403
—
982
37,340
(22,342)
(1,000)
—
—
—
(39,550)
13,998
10,895
(1)
25
(1)
616
640
(9,302)
—
2,385
9,564
2,647
5,000
(5,000)
—
(1,316)
—
—
(1,316)
(9,757)
(2,728)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(22,232)
11,509
4,788
9,564
3,629
42,340
(27,342)
(19,527)
(21,733)
24
(630)
(26,868)
1,163
(2,730)
57,929
56,362
22,200
35,113
$
33,094
$
22,628
$
— $
119
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended March 31, 2014
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Reclassifications
and
Eliminations
Consolidated
Sources (uses) of cash and cash equivalents
Net cash provided by (used in) operating
activities
Investing activities:
Capital expenditures
Change in restricted cash
Proceeds from sale of assets
Net cash provided by (used in) investing
activities
Financing activities:
Proceeds from revolving line of credit
Payments on 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
$
7,724
$
(26,984) $
12,514
$
— $
(6,746)
—
—
—
—
—
—
(20,977)
(3,583)
250
(13,348)
4,047
996
(18,799)
—
1,851
(8,305)
(16,948)
9,000
(2,551)
(1,000)
(16)
—
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
$
— $
120
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 24, 2016
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 24, 2016
Date: May 24, 2016
Date: May 24, 2016
Date: May 24, 2016
Date: May 24, 2016
Date: May 24, 2016
Date: May 24, 2016
Date: May 24, 2016
Date: May 24, 2016
/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)
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
121
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Board of Directors
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.
Executive Officers
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
R. James Assaf
Senior Vice President
General Counsel & Secretary
Susan B. Barkal
Senior Vice President Quality
Chief Compliance Officer & Chief of Staff
Key Subsidiaries
KEMET Electronics Corporation
Simpsonville, South Carolina, USA
Jacob T. Kotzubei
Partner
Platinum Equity Advisors, LLC
A registered investment advisor
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
Dr. Philip M. Lessner
Senior Vice President &
Chief Technology Officer
Claudio Lollini
Senior Vice President
Global Sales & Marketing
Stefano Vetralla
Senior Vice President &
Chief Human Resources Officer
Robert S. Willoughby
Senior Vice President
Global Supply Chain
Other Key Employees
Andreas Meier
Senior Vice President
Film & Electrolytic Business Group
Michael L. Raynor
Vice President & Corporate Controller
Richard J. Vatinelle
Vice President & Treasurer
KEMET Electronics Italia, S.r.l.
Pontecchio, Italy
KEMET Electronics Marketing (S) Pte Ltd.
Singapore
KEMET Electronics Bulgaria EAD
Kyustendil, Bulgaria
KEMET Electronics Japan Co., Ltd.
Tokyo, Japan
KEMET Electronics AB
Gränna, Sweden
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 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 Limited
Weymouth, United Kingdom
KEMET Blue Powder Corporation
Mound House, Nevada, USA
KEMET Foil Manufacturing, LLC
Knoxville, Tennessee, USA
IntelliData, Inc.
Greenwood Village, Colorado, USA
Corporate Profile
KEMET Corporation is a leading global supplier of electronic components. We 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.
©2016 KEMET. All rights reserved.
Corporate Headquarters
KEMET Corporation
2835 KEMET Way
Simpsonville, SC 29681
USA
864.963.6300
www.kemet.com
Countries and Areas listed below represent
KEMET operations throughout the world.
Bulgaria
China
Finland
Germany
Hong Kong
India
Indonesia
Italy
Japan
Macedonia
Malaysia
Mexico
Portugal
Singapore
South Korea
Sweden
Taiwan
United Kingdom
USA