Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2011

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-15491

 

KEMET CORPORATION

(Exact name of registrant as specified in its charter)

 

DELAWARE

 

57-0923789

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

2835 KEMET WAY, SIMPSONVILLE, SOUTH CAROLINA 29681

(Address of principal executive offices, zip code)

 

(864) 963-6300

(Registrant’s telephone number, including area code)

 

Former name, former address and former fiscal year, if changed since last report:  N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YES x NO o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES x NO o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o YES x NO

 

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of July 29, 2011 was 44,148,787.

 

 

 



Table of Contents

 

KEMET CORPORATION AND SUBSIDIARIES

Form 10-Q for the Quarter Ended June 30, 2011

 

INDEX

 

 

 

Page

PART I FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2011 and March 31, 2011

 

2

 

 

 

Condensed Consolidated Statements of Operations for the Quarters Ended June 30, 2011 and June 30, 2010

 

3

 

 

 

Condensed Consolidated Statements of Cash Flows for the Quarters Ended June 30, 2011 and June 30, 2010

 

4

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

5

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

36

 

 

 

Item 4. Controls and Procedures

 

36

 

 

 

PART II OTHER INFORMATION

 

 

 

 

 

Item 1. Legal Proceedings

 

36

 

 

 

Item 1A. Risk Factors

 

36

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

36

 

 

 

Item 3. Defaults Upon Senior Securities

 

36

 

 

 

Item 4. [Removed and Reserved]

 

36

 

 

 

Item 5. Other Information

 

36

 

 

 

Item 6. Exhibits

 

37

 

 

 

Exhibit 3.1

 

 

Exhibit 31.1

 

 

Exhibit 31.2

 

 

Exhibit 32.1

 

 

Exhibit 32.2

 

 

Exhibit 101

 

 

 



Table of Contents

 

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

 

KEMET CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in thousands, except per share data)

 

 

 

June 30, 2011

 

March 31, 2011

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

133,998

 

$

152,051

 

Accounts receivable, net

 

145,192

 

150,370

 

Inventories, net

 

240,469

 

206,440

 

Prepaid expenses and other

 

32,582

 

30,441

 

Deferred income taxes

 

4,505

 

5,301

 

Total current assets

 

556,746

 

544,603

 

Property and equipment, net of accumulated depreciation of $754,652 and $740,773 as of June 30, 2011 and March 31, 2011, respectively

 

316,538

 

310,412

 

Goodwill and intangible assets, net

 

22,605

 

20,092

 

Other assets

 

8,667

 

9,202

 

Total assets

 

$

904,556

 

$

884,309

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

38,395

 

$

42,101

 

Accounts payable, trade

 

94,870

 

90,997

 

Accrued expenses

 

78,378

 

88,291

 

Income taxes payable

 

4,399

 

4,265

 

Total current liabilities

 

216,042

 

225,654

 

Long-term debt, less current portion

 

229,702

 

231,215

 

Other non-current obligations

 

55,358

 

59,727

 

Deferred income taxes

 

7,496

 

7,960

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value $0.01, authorized 10,000 shares, none issued

 

 

 

Common stock, par value $0.01, authorized 300,000 shares, issued 46,508 and 39,508 shares at June 30, 2011 and March 31, 2011, respectively

 

465

 

395

 

Additional paid-in capital

 

480,257

 

479,322

 

Retained deficit

 

(55,896

)

(87,745

)

Accumulated other comprehensive income

 

25,704

 

22,555

 

Treasury stock, at cost (2,361 and 2,370 shares at June 30, 2011 and March 31, 2011, respectively)

 

(54,572

)

(54,774

)

Total stockholders’ equity

 

395,958

 

359,753

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

904,556

 

$

884,309

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

 

KEMET CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share data)

(Unaudited)

 

 

 

Quarters Ended June 30,

 

 

 

2011

 

2010

 

Net sales

 

$

289,856

 

$

243,794

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

Cost of sales

 

210,504

 

182,886

 

Selling, general and administrative expenses

 

30,276

 

24,215

 

Research and development

 

7,086

 

6,031

 

Restructuring charges

 

1,025

 

1,792

 

Net loss on sales and disposals of assets

 

123

 

335

 

Total operating costs and expenses

 

249,014

 

215,259

 

 

 

 

 

 

 

Operating income

 

40,842

 

28,535

 

 

 

 

 

 

 

Other (income) expense:

 

 

 

 

 

Interest income

 

(43

)

(21

)

Interest expense

 

7,400

 

7,458

 

Loss on early extinguishment of debt

 

 

38,248

 

Other (income) expense, net

 

(95

)

1,674

 

 

 

 

 

 

 

Income (loss) before income taxes

 

33,580

 

(18,824

)

 

 

 

 

 

 

Income tax expense

 

1,731

 

1,275

 

 

 

 

 

 

 

Net income (loss)

 

$

31,849

 

$

(20,099

)

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

Basic

 

$

0.81

 

$

(0.74

)

Diluted

 

$

0.61

 

$

(0.74

)

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

Basic

 

39,452

 

27,045

 

Diluted

 

52,338

 

27,045

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

 

KEMET CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

 

 

 

Quarters Ended June 30,

 

 

 

2011

 

2010

 

Sources (uses) of cash and cash equivalents

 

 

 

 

 

Operating activities:

 

 

 

 

 

Net income (loss)

 

$

31,849

 

$

(20,099

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Loss on early extinguishment of debt

 

 

38,248

 

Depreciation and amortization

 

11,159

 

14,510

 

Amortization of debt discount and debt issuance costs

 

1,044

 

1,924

 

Net loss on sales and disposals of assets

 

123

 

335

 

Stock-based compensation expense

 

1,191

 

149

 

Change in deferred income taxes

 

270

 

(65

)

Change in operating assets

 

(21,298

)

(23,018

)

Change in operating liabilities

 

(19,193

)

(7,898

)

Other

 

183

 

(148

)

Net cash provided by operating activities

 

5,328

 

3,938

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Capital expenditures

 

(5,738

)

(6,857

)

Acquisition, net of cash received

 

(11,584

)

 

Net cash used in investing activities

 

(17,322

)

(6,857

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Proceeds from issuance of debt

 

 

226,975

 

Payments of long-term debt

 

(3,015

)

(228,544

)

Net borrowings (payments) under other credit facilities

 

(3,081

)

(1,688

)

Proceeds from exercise of stock options

 

16

 

 

Debt issuance costs

 

(29

)

(6,593

)

Debt extinguishment costs

 

 

(207

)

Net cash used in financing activities

 

(6,109

)

(10,057

)

Net decrease in cash and cash equivalents

 

(18,103

)

(12,976

)

Effect of foreign currency fluctuations on cash

 

50

 

(255

)

Cash and cash equivalents at beginning of fiscal period

 

152,051

 

79,199

 

Cash and cash equivalents at end of fiscal period

 

$

133,998

 

$

65,968

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 1. Basis of Financial Statement Presentation

 

The condensed consolidated financial statements contained herein are unaudited and have been prepared from the books and records of KEMET Corporation and its subsidiaries (“KEMET” or the “Company”). In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q, and therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and notes thereto included in the Company’s fiscal year ended March 31, 2011, Form 10-K (the “Company’s 2011 Annual Report”).

 

Net sales and operating results for the quarter ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year.  The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. In consolidation, all significant intercompany amounts and transactions have been eliminated.  Certain prior year amounts have been reclassified to conform to current year presentation.

 

The significant accounting policies followed by the Company are presented in the Company’s 2011 Annual Report.  The Company has evaluated events and material transactions for potential recognition or disclosure occurring between the end of the Company’s most recent quarterly period and through the time that this Form 10-Q was filed with the SEC.

 

Recently Issued Accounting Pronouncements

 

New accounting standards adopted

 

There were no accounting standards adopted in the first quarter of fiscal year 2012.

 

New accounting standards issued but not yet adopted

 

There are currently no new accounting standards that have been issued that will have a significant impact on the Company’s financial position, results of operations or cash flows upon adoption.

 

Restricted Cash

 

A guarantee was issued by a European bank on behalf of the Company in August 2006 in conjunction with the establishment of a Valued-Added Tax (“VAT”) registration in The Netherlands.  The bank guarantee is in the amount of EUR 1.5 million ($2.2 million). An interest-bearing deposit was placed with a European bank for EUR 1.7 million ($2.5 million). The deposit is in KEMET’s name, and KEMET receives all interest earned by this deposit. However, the deposit is pledged to the European bank, and the bank can use the money if a valid claim is made. The bank guarantee will remain valid until it is discharged by the beneficiary.

 

Restricted cash of $2.4 million and $2.3 million is included in the line item “Prepaid expenses and other” on the Condensed Consolidated Balance Sheets as of June 30, 2011 and March 31, 2011, respectively.

 

Warrant Liability

 

Concurrent with the consummation of the tender offer as discussed in Note 2, “Debt”, the Company issued K Financing, LLC (“K Financing”) a warrant (the “Platinum Warrant”) to purchase up to 26.8 million shares of the Company’s common stock, subject to certain adjustments, representing, at the time of issuance, approximately 49.9% of the Company’s outstanding common stock on a post-Platinum Warrant basis. The Platinum Warrant was subsequently transferred to K Equity, LLC (“K Equity”). The Platinum Warrant was exercisable at a purchase price of $1.05 per share.

 

On December 20, 2010, in connection with a secondary offering in which K Equity was the selling security holder, K Equity exercised a portion of the Platinum Warrant representing the right to purchase 10.9 million shares of the Company’s common stock to the underwriters of the secondary offering, who exercised their full portion of the warrant at a price of $12.80 per share in a cashless exercise and received a net settlement of 10.0 million shares of the Company’s common stock.  These shares were sold as part of the secondary offering and KEMET did not receive any of the proceeds from the transaction.  K Equity retained the remaining portion of the warrant, representing the right to purchase 15.9 million shares of the Company’s common stock.

 

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Table of Contents

 

On May 31, 2011, K Equity sold a portion of the Platinum Warrant to Deutsche Bank Securities Inc., in connection with the offering of 7.0 million shares of the Company’s common stock, at a public offering price of $14.60 per share.  This transaction resulted in a 7.5 million share reduction to the outstanding warrants due to K Equity’s cashless exercise.  K Equity retained the remaining portion of the warrant, representing the right to purchase 8.4 million shares of the Company’s common stock.

 

Fair Value Measurement

 

The Company utilizes three levels of inputs to measure the fair value of (a) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company’s consolidated financial statements on a recurring basis (at least annually) and (b) all financial assets and liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The first two inputs are considered observable and the last is considered unobservable. The levels of inputs are as follows:

 

·                  Level 1—Quoted prices in active markets for identical assets or liabilities.

 

·                  Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

·                  Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Assets measured at fair value on a recurring basis as of June 30, 2011 and March 31, 2011 are as follows (amounts in thousands):

 

 

 

Fair Value

 

 

 

 

 

 

 

Fair Value

 

 

 

 

 

 

 

 

 

June 30,

 

Fair Value Measurement Using

 

March 31,

 

Fair Value Measurement Using

 

 

 

2011

 

Level 1

 

Level 2 (2)

 

Level 3

 

2011

 

Level 1

 

Level 2 (2)

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money markets (1)

 

$

31,179

 

$

31,179

 

$

 

$

 

$

51,575

 

$

51,575

 

$

 

$

 

Long-term debt

 

295,403

 

291,697

 

3,706

 

 

307,543

 

301,379

 

6,164

 

 

 


(1)          Included in the line item “Cash and cash equivalents” on the Condensed Consolidated Balance Sheets.

(2)          The valuation approach used to calculate fair value was a discounted cash flow for each respective debt facility.

 

Revenue Recognition

 

The Company recognizes revenue only when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to the buyer is fixed or determinable, and (4) collectability is reasonably assured.

 

A portion of sales is related to products designed to meet customer specific requirements. These products typically have stricter tolerances making them useful to the specific customer requesting the product and to customers with similar or less stringent requirements. Products with customer specific requirements are tested and approved by the customer before the Company mass produces and ships the product. The Company recognizes revenue when title to the products transfers to the respective 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.

 

The SFSD program provides a mechanism for the distributor to meet a competitive price after obtaining authorization from the Company’s local sales office. This program allows the distributor to ship its higher-priced inventory and debit the Company for the difference between KEMET’s list price and the lower authorized price for that specific transaction. Management analyzes historical SFSD activity to determine the SFSD exposure on the global distributor inventory at the balance sheet date.  The establishment of these reserves is recognized as a component of the line item “Net sales” on the Condensed Consolidated Statements of Operations, while the associated reserves are included in the line item “Accounts receivable, net” on the Condensed Consolidated Balance Sheets.

 

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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 as a percentage of net sales were approximately 1% for the quarters ended June 30, 2011 and 2010. The Company recognizes warranty costs when they are both probable and reasonably estimable.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions, and judgments. Estimates and assumptions are based on historical data and other assumptions that management believes are reasonable.  These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, they affect the reported amounts of revenues and expenses during the reporting period.

 

The Company’s judgments are based on management’s assessment as to the effect certain estimates, assumptions, or future trends or events may have on the financial condition and results of operations reported in the unaudited condensed consolidated financial statements. It is important that readers of these unaudited financial statements understand that actual results could differ from these estimates, assumptions, and judgments.

 

Inventories

 

Inventories are stated at the lower of cost or market.  The components of inventories are as follows (amounts in thousands):

 

 

 

June 30,
2011

 

March 31,
2011

 

Raw materials and supplies

 

$

99,368

 

$

78,913

 

Work in process

 

77,624

 

78,681

 

Finished goods

 

80,285

 

64,310

 

 

 

257,277

 

221,904

 

Inventory reserves

 

(16,808

)

(15,464

)

Total inventory

 

$

240,469

 

$

206,440

 

 

Note 2. Debt

 

A summary of debt is as follows (amounts in thousands):

 

 

 

June 30,
2011

 

March 31,
2011

 

 

 

 

 

 

 

10.5% Senior Notes, net of discount of $2,724 and $2,792 as of June 30, 2011 and March 31, 2011, respectively

 

$

227,276

 

$

227,208

 

Convertible Notes, net of discount of $893 and $1,569 as of June 30, 2011 and March 31, 2011, respectively

 

36,673

 

39,012

 

Other

 

4,148

 

7,096

 

Total debt

 

268,097

 

273,316

 

Current maturities

 

(38,395

)

(42,101

)

Total long-term debt

 

$

229,702

 

$

231,215

 

 

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The line item “Interest expense” on the Condensed Consolidated Statements of Operations for the quarters ended June 30, 2011 and 2010, is as follows (amounts in thousands):

 

 

 

Quarters Ended

 

 

 

June 30,

 

 

 

2011

 

2010

 

Contractual interest expense

 

$

6,356

 

$

5,534

 

Amortization of debt issuance costs

 

276

 

429

 

Amortization of debt discount

 

768

 

1,495

 

Total interest expense

 

$

7,400

 

$

7,458

 

 

10.5% Senior Notes

 

On May 5, 2010, the Company completed a private placement of $230.0 million in aggregate principal amount of the Company’s 10.5% Senior Notes due 2018 (the “10.5% Senior Notes”).  The private placement of the 10.5% Senior Notes resulted in proceeds to the Company of $222.2 million. The Company used a portion of the proceeds of the private placement to repay all of the outstanding indebtedness under the credit facility with K Financing, the EUR 60 million credit facility and EUR 35 million credit facility with UniCredit and the term loan with a subsidiary of Vishay Intertechnology, Inc. The Company 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 2.25% Convertible Senior Notes (the “Convertible Notes”) and to pay costs incurred in connection with the private placement, the tender offer and the foregoing repayments. Debt issuance costs related to the 10.5% Senior Notes, net of amortization, were $5.9 million as of June 30, 2011; these costs will be amortized over the term of the 10.5% Senior Notes.

 

On October 26, 2010, the Company filed a Form S-4 to offer, in exchange for the outstanding 10.5% Senior Notes due 2018 (“Old Notes”), up to $230.0 million in aggregate principal amount of 10.5% Senior Notes due 2018 and the guarantees thereof which have been registered under the Securities Act of 1933, as amended. The Form S-4 was declared effective on December 14, 2010 and on January 13, 2011 the Company completed the exchange for all of the Old Notes.

 

The Company had interest payable related to the 10.5% Senior Notes included in the line item “Accrued expenses” on its Condensed Consolidated Balance Sheets of $4.0 million and $10.1 million at June 30, 2011 and March 31, 2011, respectively.

 

Revolving Line of Credit

 

On September 30, 2010, KEMET Electronics Corporation (“KEC”) and KEMET Electronics Marketing (S) Pte Ltd. (“KEMET Singapore”) (each a “Borrower” and, collectively, the “Borrowers”) entered into a Loan and Security Agreement (the “Loan and Security Agreement”), with Bank of America, N.A, as the administrative agent and the initial lender. The Loan and Security Agreement provides a $50 million revolving line of credit, which is bifurcated into a U.S. facility (for which KEC is the Borrower) and a Singapore facility (for which KEMET Singapore is the Borrower).  The size of the U.S. facility and Singapore facility can fluctuate as long as the Singapore facility does not exceed $30 million and the total facility does not exceed $50 million.  A portion of the U.S. facility and of the Singapore facility can be used to issue letters of credit.  The facilities expire on September 30, 2014.

 

Debt issuance costs related to the Loan and Security Agreement, net of amortization, were $1.2 million and $1.3 million as of June 30, 2011 and March 31, 2011, respectively.  These costs will be amortized over the term of the Loan and Security Agreement.  There were no borrowings against the Loan and Security Agreement as of June 30, 2011 or March 31, 2011.

 

Convertible Notes

 

In November 2006, the Company sold and issued its 2.25% Convertible Senior Notes due 2026 (the “Convertible Notes”) which are unsecured obligations and rank equally with the Company’s existing and future unsubordinated and unsecured obligations and are junior to any of the Company’s future secured obligations to the extent of the value of the collateral securing such obligations. In connection with the issuance and sale of the Convertible Notes, the Company entered into an indenture (the “Convertible Notes Indenture”) dated as of November 1, 2006, with Wilmington Trust Company, as trustee.

 

The Convertible Notes bear interest at a rate of 2.25% per annum, payable in cash semi-annually in arrears on each May 15 and November 15. The Convertible Notes are convertible into (i) cash in an amount equal to the lesser of the principal amount of the Convertible Notes and the conversion value of the Convertible Notes on the conversion date and (ii) cash or shares of the Company’s common stock (“Common Stock”) or a combination of cash and shares of the Common Stock, at the Company’s option, to the extent

 

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the conversion value at that time exceeds the principal amount of the Convertible Notes, at any time prior to the close of business on the business day immediately preceding the maturity date of the Convertible Notes, unless the Company has redeemed or purchased the Convertible Notes, subject to certain conditions. The conversion rate was 34.364 shares of common stock per $1,000 principal amount of the Convertible Notes, which represents a conversion price of approximately $29.1 per share, subject to adjustments. The Convertible Notes are currently not convertible.

 

The terms of the Convertible Notes are governed by the Convertible Notes Indenture. The Convertible Notes mature on November 15, 2026 unless earlier redeemed, repurchased or converted. The Company may redeem the Convertible Notes for cash, either in whole or in part, anytime after November 20, 2011 at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed plus accrued and unpaid interest, including additional interest, if any, up to but not including the date of redemption. In addition, holders of the Convertible Notes will have the right to require the Company to repurchase for cash all or a portion of their Convertible Notes on November 15, 2011, 2016 and 2021, at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased plus accrued and unpaid interest, if any, in each case, up to but not including, the date of repurchase. Currently there is $37.6 million of Convertible Notes outstanding.

 

On May 17, 2010, $40.5 million in aggregate principal amount of the Convertible Notes was extinguished.  The extinguishment resulted in $1.6 million loss on early extinguishment of debt. The calculation of the loss is as follows (amounts in thousands):

 

Reacquisition price:

 

 

 

Cash paid

 

$

37,867

 

Tender offer fees

 

207

 

 

 

38,074

 

 

 

 

 

Extinguished debt:

 

 

 

Carrying amount of debt

 

36,770

 

Unamortized debt cost

 

(248

)

 

 

36,522

 

 

 

 

 

Net loss

 

$

(1,552

)

 

Platinum Credit Facility

 

On May 5, 2009, the Company executed a credit facility with K Financing, an affiliate of Platinum Equity Capital Partners II, L.P. (the “Platinum Credit Facility”). The Platinum Credit Facility consisted of a term loan of $37.8 million (“Platinum Term Loan”), a line of credit loan (“Platinum Line of Credit Loan”) that could be borrowed from time to time (but not reborrowed after being repaid) of up to $12.5 million and a working capital loan (“Platinum Working Capital Loan”) of up to $12.5 million. On May 5, 2010, the Platinum Term Loan, the Platinum Line of Credit Loan, and the Platinum Working Capital Loan were extinguished.  The extinguishment of the Platinum Credit Facility resulted in a $33.3 million loss on early extinguishment of debt due to the significant debt discount allocated to the Platinum Credit Facility upon issuance. The calculation of the loss is as follows (amounts in thousands):

 

Reacquisition price:

 

 

 

Cash paid

 

$

57,861

 

Success fee

 

5,000

 

 

 

62,861

 

 

 

 

 

Extinguished debt:

 

 

 

Carrying amount of debt

 

32,135

 

Carrying amount of success fee

 

2,001

 

Unamortized debt cost

 

(4,619

)

 

 

29,517

 

 

 

 

 

Net loss

 

$

(33,344

)

 

UniCredit Credit Facility

 

As of March 31, 2010, the Company had two Senior Facility Agreements outstanding with UniCredit.  As of March 31, 2010, Facility A had EUR 53.2 million ($71.7 million) outstanding and Facility B had EUR 33.0 million ($44.5 million) outstanding.

 

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On May 5, 2010, Facility A and Facility B were extinguished.  The extinguishment resulted in a $3.4 million loss on early extinguishment of debt. The calculation of the loss is as follows (amounts in thousands):

 

Reacquisition price:

 

 

 

Cash paid

 

$

104,683

 

Extinguished debt:

 

 

 

Carrying amount of debt

 

104,674

 

Unamortized debt cost

 

(3,343

)

 

 

101,331

 

 

 

 

 

Net loss

 

$

(3,352

)

 

Note 3. Restructuring Charges

 

A summary of the expenses aggregated on the Condensed Consolidated Statements of Operations line item “Restructuring charges” in the quarters ended June 30, 2011 and 2010, is as follows (amounts in thousands):

 

 

 

Quarters Ended June 30,

 

 

 

2011

 

2010

 

Manufacturing relocation costs

 

$

747

 

$

1,438

 

Personnel reduction costs

 

278

 

354

 

Restructuring charges

 

$

1,025

 

$

1,792

 

 

Quarter Ended June 30, 2011

 

In the first 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 as a whole.  The restructuring plan includes implementing programs to make the Company more competitive, removing excess capacity, moving production to lower cost locations and eliminating unnecessary costs throughout the Company.  Restructuring charges in the quarter ended June 30, 2011 relate to this plan and are primarily comprised of manufacturing relocation costs of $0.7 million for relocation of equipment from Italy to Mexico and China.  In addition, the Company incurred $0.3 million in personnel reduction costs due primarily to headcount reductions related to the Company’s initiative to reduce overhead within the Company as a whole.

 

Quarter Ended June 30, 2010

 

Restructuring expenses in the quarter ended June 30, 2010 are primarily comprised of manufacturing relocation costs of $1.4 million for relocation of equipment from various plants to Mexico.  In addition, the Company incurred $0.4 million in personnel reduction costs due primarily to headcount reductions within Film and Electrolytic.

 

Reconciliation of restructuring liability

 

A reconciliation of the beginning and ending liability balances for restructuring charges included in the line items “Accrued expenses” and “Other non-current obligations” on the Condensed Consolidated Balance Sheets are as follows (amounts in thousands):

 

 

 

Quarter Ended June 30, 2011

 

Quarter Ended June 30, 2010

 

 

 

Personnel

 

Manufacturing

 

Personnel

 

Manufacturing

 

 

 

Reductions

 

Relocations

 

Reductions

 

Relocations

 

Beginning of period

 

$

1,827

 

$

 

$

8,398

 

$

 

Costs charged to expense

 

278

 

747

 

354

 

1,438

 

Costs paid or settled

 

(377

)

(747

)

(1,490

)

(1,438

)

Change in foreign exchange

 

23

 

 

(566

)

 

End of period

 

$

1,751

 

$

 

$

6,696

 

$

 

 

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Note 4. Accumulated Other Comprehensive Income (Loss)

 

Comprehensive income (loss) for the quarters ended June 30, 2011 and 2010 includes the following components (amounts in thousands):

 

 

 

Quarters Ended June 30,

 

 

 

2011

 

2010

 

Net income (loss)

 

$

31,849

 

$

(20,099

)

 

 

 

 

 

 

Amortization of postretirement benefit plan

 

(71

)

(75

)

Amortization of defined benefit pension plans

 

115

 

75

 

Currency translation gain (1)

 

3,105

 

10,774

 

Total net income (loss) and other comprehensive income (loss)

 

$

34,998

 

$

(9,325

)

 


(1) Due primarily to the Company’s permanent re-investment assertion relating to foreign earnings, there was no significant deferred tax effect associated with the cumulative translation gains and losses during these two quarters.

 

The components of “Accumulated other comprehensive income” on the Condensed Consolidated Balance Sheets are as follows (amounts in thousands):

 

 

 

June 30, 2011

 

March 31, 2011

 

Foreign currency translation gain

 

$

30,180

 

$

27,076

 

Defined benefit postretirement plan adjustments

 

2,041

 

2,111

 

Defined benefit pension plans

 

(6,517

)

(6,632

)

Accumulated other comprehensive income

 

$

25,704

 

$

22,555

 

 

Note 5. Goodwill and Intangible Assets

 

On June 13, 2011, the Company completed its acquisition of Cornell Dubilier Foil, LLC (whose name was subsequently changed to KEMET Foil Manufacturing, LLC), a Tennessee based manufacturer of etched foils utilized as a core component in the manufacture of electrolytic capacitors.  The purchase price was $15 million plus or minus an adjustment amount, of which $11.6 million (net of cash received) was paid at closing and $1 million is to be paid on each of the first, second and third anniversaries of the closing date.  As a result of the acquisition, the Company has preliminarily recorded goodwill of $1.1 million and amortizable intangibles of $1.7 million.  The allocation of the purchase price to specific assets and liabilities was based on the relative fair value of all assets and liabilities.  Factors contributing to the purchase price which resulted in the goodwill (which is tax deductible) include the trained workforce. Pro forma results are not presented because the acquisition was not material.

 

The following table highlights the Company’s intangible assets (amounts in thousands):

 

 

 

June 30, 2011

 

March 31, 2011

 

 

 

Carrying

 

Accumulated

 

Carrying

 

Accumulated

 

 

 

Amount

 

Amortization

 

Amount

 

Amortization

 

Indefinite Lived Intangibles:

 

 

 

 

 

 

 

 

 

Goodwill

 

$

1,140

 

$

 

$

 

$

 

Trademarks

 

7,644

 

 

7,644

 

 

Unamortized Intangibles

 

8,784

 

 

7,644

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Intangibles:

 

 

 

 

 

 

 

 

 

Customer relationships, patents and other (3-18 years)

 

22,821

 

9,000

 

20,910

 

8,462

 

 

 

 

 

 

 

 

 

 

 

 

 

$

31,605

 

$

9,000

 

$

28,554

 

$

8,462

 

 

The Company completed its annual impairment test on the indefinite lived intangible assets in the first quarter of fiscal year 2012 and concluded no impairment existed.

 

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Note 6. Segment and Geographic Information

 

The Company is organized into three business groups: the Tantalum Business Group (“Tantalum”), the Ceramic Business Group (“Ceramics”), and Film and Electrolytic Business Group. Each business group is responsible for the operations of certain manufacturing sites as well as all related research and development efforts. The sales and marketing functions are shared by the business groups and are allocated to each business group based on the business group’s respective budgeted net sales. In addition, all corporate costs are allocated to the business groups based on the business group’s respective budgeted net sales.

 

Tantalum

 

Tantalum operates in five manufacturing sites in the United States, Mexico, China, and Portugal. This business group produces tantalum and aluminum polymer capacitors. Tantalum shares with Ceramics the Company’s product innovation center in the United States.  Tantalum products are sold in all regions of the world.

 

Ceramics

 

Ceramics operates in two manufacturing sites in Mexico and a manufacturing site in China. The business group shares with Tantalum the Company’s product innovation center in the United States.  In addition, Ceramics maintains a design and manufacturing plant for electrical transformers, inductors, chokes, coils and filters in the United States.  This business group produces ceramic capacitors.  Ceramics products are sold in all regions of the world.

 

Film and Electrolytic

 

Film and Electrolytic operates in sixteen manufacturing sites in Europe, Asia and North America. This business group produces film, paper, and electrolytic capacitors. In addition, the business group has a product innovation center in Sweden.  Film and Electrolytic products are sold in all regions in the world.

 

The following table reflects each business group’s net sales, operating income (loss), depreciation and amortization expenses and sales by region for the quarters ended June 30, 2011 and 2010 (amounts in thousands):

 

 

 

Quarters Ended June 30,

 

 

 

2011

 

2010

 

Net sales:

 

 

 

 

 

Tantalum

 

$

122,443

 

$

113,568

 

Ceramics

 

59,378

 

54,324

 

Film and Electrolytic

 

108,035

 

75,902

 

 

 

$

289,856

 

$

243,794

 

 

 

 

 

 

 

Operating income (loss) (1):

 

 

 

 

 

Tantalum

 

$

17,414

 

$

17,506

 

Ceramics

 

10,860

 

11,030

 

Film and Electrolytic

 

12,568

 

(1

)

 

 

$

40,842

 

$

28,535

 

 

 

 

 

 

 

Depreciation and amortization expenses:

 

 

 

 

 

Tantalum

 

$

6,208

 

$

8,318

 

Ceramics

 

1,803

 

2,269

 

Film and Electrolytic

 

3,148

 

3,923

 

 

 

$

11,159

 

$

14,510

 

Sales by region:

 

 

 

 

 

 

 

North and South America (Americas)

 

$

72,759

 

$

56,786

 

Europe, Middle East, Africa (EMEA)

 

 

102,712

 

 

86,372

 

Asia and Pacific Rim (APAC)

 

 

114,385

 

 

100,636

 

 

 

$

289,856

 

$

243,794

 

 


(1)          Restructuring charges included in Operating income were as follows (amounts in thousands):

 

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Quarters Ended June 30,

 

 

 

2011

 

2010

 

Total restructuring:

 

 

 

 

 

Tantalum

 

$

35

 

$

457

 

Ceramics

 

38

 

94

 

Film and Electrolytic

 

952

 

1,241

 

 

 

$

1,025

 

$

1,792

 

 

The following table reflects each business group’s total assets as of June 30, 2011 and March 31, 2011 (amounts in thousands):

 

 

 

June 30, 2011

 

March 31, 2011

 

Total assets:

 

 

 

 

 

Tantalum

 

$

412,251

 

$

435,311

 

Ceramics

 

168,914

 

179,639

 

Film and Electrolytic

 

323,391

 

269,359

 

 

 

$

904,556

 

$

884,309

 

 

Note 7.  Defined Benefit Pension and Other Postretirement Benefit Plans

 

The Company sponsors defined benefit pension plans which include seven in Europe, one in Singapore and two in Mexico and a postretirement plan in the United States.  Costs recognized for these benefit plans are recorded using estimated amounts, which may change as actual costs for the fiscal year are determined.

 

The components of net periodic benefit costs relating to the Company’s pension and other postretirement benefit plans are as follows for the quarters ended June 30, 2011 and 2010 (amounts in thousands):

 

 

 

Pension

 

Postretirement Benefit Plans

 

 

 

Quarters Ended June 30,

 

Quarters Ended June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net service cost

 

$

331

 

$

266

 

$

 

$

 

Interest cost

 

533

 

457

 

14

 

16

 

Expected return on net assets

 

(175

)

(164

)

 

 

Amortization:

 

 

 

 

 

 

 

 

 

Actuarial (gain) loss

 

96

 

31

 

(71

)

(79

)

Prior service cost

 

6

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net periodic benefit (income) costs

 

$

791

 

$

595

 

$

(57

)

$

(63

)

 

In fiscal year 2012, the Company expects to contribute up to $4.5 million to the pension plans of which the Company has contributed $0.4 million as of June 30, 2011.  The Company’s policy is to pay benefits as costs are incurred for the postretirement benefit plans.

 

Note 8. Stock-based Compensation

 

Stock Options

 

At June 30, 2011, the Company had three stock option plans that reserved shares of common stock for issuance to executives and key employees: the 1992 Key Employee Stock Option Plan, the 1995 Executive Stock Option Plan, and the 2004 Long-Term Equity Incentive Plan. All of these plans were approved by the Company’s stockholders. Collectively, these plans authorized the grant of up to 4.0 million shares of the Company’s common stock. Options issued under these plans usually vest in one or two years and expire ten years from the grant date.  Stock options granted to the Company’s Chief Executive Officer on January 27, 2010 vest 50% on June 30, 2014 and 50% on June 30, 2015.

 

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The compensation expense associated with stock-based compensation for the quarters ended June 30, 2011 and 2010 were recorded on the Condensed Consolidated Statements of Operations as follows (amounts in thousands):

 

 

 

Quarters Ended June 30,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Cost of sales

 

$

84

 

$

38

 

Selling, general and administrative expenses

 

1,107

 

111

 

Total stock-based compensation expense

 

$

1,191

 

$

149

 

 

In the “Operating activities” section of the Condensed Consolidated Statements of Cash Flows, stock-based compensation expense was treated as an adjustment to Net income (loss) for the quarters ended June 30, 2011 and 2010. Approximately 9 thousand stock options were exercised in the quarter ended June 30, 2011.  No stock options were exercised during the quarter ended June 30, 2010.

 

Restricted Stock

 

The Company grants shares of its common stock as restricted stock to members of the Board of Directors and the Chief Executive Officer. Restricted stock granted to the Board of Directors vests in one year while restricted stock granted to the Chief Executive Officer on January 27, 2010 vest 50% on June 30, 2014 and 50% on June 30, 2015. Once vested, restricted shares cannot be sold until 90 days after the Chief Executive Officer or the member of the Board of Directors resigns from his position.  The contractual term on restricted stock is indefinite. In the second quarter of fiscal year 2011, 47 thousand shares of restricted stock were granted to the non-management members of the Board of Directors.  As of June 30, 2011, unrecognized compensation costs related to the unvested restricted stock share based compensation arrangements granted was $0.4 million. The expense is to be recognized over the respective vesting periods.

 

2012/2013 LTIP

 

During the first quarter of fiscal year 2012, the Board of Directors of the Company approved the 2012/2013 LTIP , a new long-term incentive plan based upon the achievement of an Adjusted EBITDA target for the two-year period comprised of fiscal years ending in March 2012 and 2013.  At the time of the award, participants will receive restricted shares of the Company’s common stock of up to 100% of the award earned.  The Company assesses the likelihood of meeting the Adjusted EBITDA financial metric on a quarterly basis and recorded expense of $0.7 million and the related liability is reflected in the line item “Additional paid-in capital” on the Condensed Consolidated Balance Sheets for the quarter ended June 30, 2011, based on this assessment.  The Company will continue to monitor the likelihood of whether the Adjusted EBITDA financial metric will be realized and will adjust compensation expense to match expectations.

 

2011/2012 LTIP

 

During the first quarter of fiscal year 2011, the Board of Directors of the Company approved the 2011/2012 LTIP , a long-term incentive plan based upon the achievement of an Adjusted EBITDA target for the two-year period comprised of fiscal years ending in March 2011 and 2012.  At the time of the award, participants will receive at least 10% of the award in restricted shares of the Company’s common stock; and the remainder will be realized in cash.  The Company assesses the likelihood of meeting the Adjusted EBITDA financial metric on a quarterly basis and recorded expense of $1.3 million in the quarter ended June 30, 2011, based on this assessment.  As of June 30, 2011, the Company has accrued $5.6 million and the related liability is reflected in the line item “Accrued expenses” on the Condensed Consolidated Balance Sheets and $0.6 million in the line item “Additional paid-in capital” on the Condensed Consolidated Balance Sheets.  The Company will continue to monitor the likelihood of whether the Adjusted EBITDA financial metric will be realized and will adjust compensation expense to match expectations.

 

2010/2011 LTIP

 

During the second quarter of fiscal year 2010, the Board of Directors of the Company approved the 2010/2011 LTIP, a long-term incentive plan based upon the achievement of an Adjusted EBITDA target for the two-year period comprised of fiscal years ending in March 2010 and 2011.  At the time of the award and at the sole discretion of the Compensation Committee, participants may receive up to 15% of the award in restricted shares of the Company’s common stock, and the remainder of the award will be realized in cash.  The Company had accrued $4.5 million based upon this assessment and the related liability is reflected in the line item “Accrued expenses” on the Condensed Consolidated Balance Sheets and $0.5 million in the line item “Additional paid-in capital” on the Condensed Consolidated Balance Sheets.

 

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Note 9. Income Taxes

 

During the first quarter of fiscal year 2012, the Company incurred $1.7 million of income tax expense which was comprised of $2.5 million of income tax expense from foreign operations, $0.1 million of state income tax expense, and a $0.9 million U.S. federal income tax benefit related to a prior year settlement.  There was no U.S. federal income tax expense related to the current quarter earnings due to the utilization of net operating loss carryforward deductions and a valuation allowance on net deferred tax assets.

 

During the first quarter of fiscal year 2011, the net income tax expense of $1.3 million is comprised of a $1.2 million income tax expense related to foreign operations and $0.1 million of state income tax expense.  No federal tax benefit was recognized from the loss on early extinguishment of debt due to the Company’s position regarding its valuation allowances.  The $1.2 million foreign income tax expense includes a $0.4 million tax expense as a result of a tax law change in Portugal.

 

Note 10. Reconciliation of Basic and Diluted Income (Loss) Per Common Share

 

The following table presents a reconciliation of basic EPS to diluted EPS (amounts in thousands, except per share data):

 

 

 

Quarters Ended June 30,

 

 

 

2011

 

2010

 

Numerator:

 

 

 

 

 

Net income (loss)

 

$

31,849

 

$

(20,099

)

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

Basic

 

39,452

 

27,045

 

Assumed conversion of employee stock options

 

365

 

 

Assumed conversion of Closing Warrant

 

12,521

 

 

Diluted

 

52,338

 

27,045

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

Basic

 

$

0.81

 

$

(0.74

)

Diluted

 

$

0.61

 

$

(0.74

)

 

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, are as follows (amounts in thousands):

 

 

 

Quarters Ended June 30,

 

 

 

2011

 

2010

 

Assumed conversion of employee stock options

 

704

 

200

 

Assumed conversion of Closing Warrant

 

 

22,212

 

 

Note 11.  Stockholders’ Equity

 

On May 31, 2011, K Equity sold a portion of the Platinum Warrant to Deutsche Bank Securities Inc., in connection with an offering of 7.0 million shares of the Company’s common stock, at a public offering price of $14.60 per share.  K Equity retained the remaining portion of the warrant, representing the right to purchase 8.4 million shares of the Company’s common stock.

 

At the July 27, 2011 annual meeting of stockholders, an amendment to the Company’s Restated Certificate of Incorporation to reduce the number of authorized shares of common stock from 300,000,000 to 175,000,000 was approved.  The amendment became effective August 1, 2011 pursuant to a Certificate of Amendment to the Company’s Restated Certificate of Incorporation filed with the Secretary of State of Delaware.

 

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Note 12. Concentrations of Risks

 

Sales and Credit Risk

 

The Company sells to customers globally.  Credit evaluations of the Company’s customers’ financial condition are performed periodically, and the Company generally does not require collateral from its customers.  One customer, TTI, Inc. accounted for over 10% of the Company’s net sales in the quarters ended June 30, 2011 and 2010.  There were no customers’ accounts receivable balances exceeding 10% of gross accounts receivable at June 30, 2011 or March 31, 2011.

 

Electronics distributors are an important distribution channel in the electronics industry and accounted for 45% and 49% of the Company’s net sales in the quarters ended June 30, 2011 and 2010, respectively.  As a result of the Company’s concentration of sales to electronics distributors, the Company may experience fluctuations in the Company’s operating results as electronics distributors experience fluctuations in end-market demand or adjust their inventory stocking levels.

 

Employee Risks

 

As of June 30, 2011, KEMET had 11,100 employees, of which 600 are located in the United States, 5,600 in Mexico, 2,600 in Asia and 2,300 in Europe.  The number of employees represented by labor organizations at KEMET locations in each of the following countries is:  4,600 hourly employees in Mexico (as required by Mexican law), 710 employees in Italy, 690 employees in Indonesia, 360 employees in Portugal, 250 employees in China, 280 employees in Bulgaria, 240 employees in Finland and 90 employees in Sweden.  For fiscal year 2011 and the current fiscal year to date, the Company has not experienced any major work stoppages. Our labor costs in Mexico, Asia and various locations in Europe are denominated in local currencies, and a significant depreciation or appreciation of the United States dollar against the local currencies would increase or decrease our labor costs.

 

Note 13. Condensed Consolidating Financial Statements

 

The 10.5% Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by certain of the Company’s 100% owned domestic subsidiaries (“Guarantor Subsidiaries”) and secured by a first priority lien on 51% of the capital stock of certain of our foreign restricted subsidiaries (“Non-Guarantor Subsidiaries”).  The Company’s Guarantor Subsidiaries and Non-Guarantor Subsidiaries are not consistent with the Company’s business groups or geographic operations; accordingly this basis of presentation is not intended to present the Company’s financial condition, results of operations or cash flows for any purpose other than to comply with the specific requirements for subsidiary guarantor reporting. We are required to present condensed consolidating financial information in order for the subsidiary guarantors of the Company’s public debt to be exempt from reporting under the Securities Exchange Act of 1934, as amended.

 

Condensed consolidating financial statements for the Company’s Guarantor Subsidiaries and Non-Guarantor Subsidiaries are presented in the following tables (amounts in thousands):

 

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Table of Contents

 

Condensed Consolidating Balance Sheet

June 30, 2011

(Unaudited)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Reclassifications
and Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,531

 

$

92,070

 

$

35,397

 

$

 

$

133,998

 

Accounts receivable, net

 

(4

)

58,750

 

86,446

 

 

145,192

 

Intercompany receivable

 

175,049

 

120,883

 

179,149

 

(475,081

)

 

Inventories, net

 

 

125,574

 

115,430

 

(535

)

240,469

 

Prepaid expenses and other

 

208

 

14,501

 

17,873

 

 

32,582

 

Deferred income taxes

 

(339

)

1,193

 

3,651

 

 

4,505

 

Total current assets

 

181,445

 

412,971

 

437,946

 

(475,616

)

556,746

 

Property and equipment, net

 

47

 

92,060

 

224,431

 

 

316,538

 

Investments in subsidiaries

 

388,958

 

345,416

 

(5,686

)

(728,688

)

 

Intangible assets, net

 

 

11,222

 

11,383

 

 

22,605

 

Other assets

 

5,977

 

1,649

 

1,041

 

 

8,667

 

Long-term intercompany receivable

 

85,689

 

104,097

 

 

(189,786

)

 

Total assets

 

$

662,116

 

$

967,415

 

$

669,115

 

$

(1,394,090

)

$

904,556

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

36,673

 

$

 

$

1,722

 

$

 

$

38,395

 

Accounts payable, trade

 

40

 

38,119

 

56,711

 

 

94,870

 

Intercompany payable

 

630

 

342,764

 

132,222

 

(475,616

)

 

Accrued expenses

 

4,550

 

25,231

 

48,597

 

 

78,378

 

Income taxes payable

 

(2,672

)

2,792

 

4,279

 

 

4,399

 

Total current liabilities

 

39,221

 

408,906

 

243,531

 

(475,616

)

216,042

 

Long-term debt, less current portion

 

227,276

 

 

2,426

 

 

229,702

 

Other non-current obligations

 

 

6,003

 

49,355

 

 

55,358

 

Deferred income taxes

 

(339

)

2,015

 

5,820

 

 

7,496

 

Long-term intercompany payable

 

 

85,689

 

104,097

 

(189,786

)

 

Stockholders’ equity

 

395,958

 

464,802

 

263,886

 

(728,688

)

395,958

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

662,116

 

$

967,415

 

$

669,115

 

$

(1,394,090

)

$

904,556

 

 

17



Table of Contents

 

Condensed Consolidating Balance Sheet

March 31, 2011

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Reclassifications
and Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,417

 

$

119,326

 

$

26,308

 

$

 

$

152,051

 

Accounts receivable, net

 

 

65,257

 

95,451

 

 

160,708

 

Intercompany receivable

 

190,973

 

176,233

 

197,329

 

(564,535

)

 

Inventories, net

 

 

113,908

 

92,830

 

(298

)

206,440

 

Prepaid expenses and other

 

302

 

10,418

 

7,300

 

 

18,020

 

Deferred income taxes

 

(596

)

1,373

 

4,524

 

 

5,301

 

Total current assets

 

197,096

 

486,515

 

423,742

 

(564,833

)

542,520

 

Property and equipment, net

 

122

 

82,962

 

227,328

 

 

310,412

 

Investments in subsidiaries

 

347,997

 

333,801

 

(5,686

)

(676,112

)

 

Intangible assets, net

 

 

8,666

 

11,426

 

 

20,092

 

Other assets

 

6,160

 

4,095

 

1,030

 

 

11,285

 

Long-term intercompany receivable

 

84,231

 

102,324

 

 

(186,555

)

 

Total assets

 

$

635,606

 

$

1,018,363

 

$

657,840

 

$

(1,427,500

)

$

884,309

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

39,012

 

$

 

$

3,089

 

$

 

$

42,101

 

Accounts payable, trade

 

40

 

32,762

 

58,195

 

 

90,997

 

Intercompany payable

 

732

 

419,043

 

145,058

 

(564,833

)

 

Accrued expenses

 

10,837

 

31,330

 

46,124

 

 

88,291

 

Income taxes payable

 

(1,380

)

1,434

 

4,211

 

 

4,265

 

Total current liabilities

 

49,241

 

484,569

 

256,677

 

(564,833

)

225,654

 

Long-term debt, less current portion

 

227,208

 

 

4,007

 

 

231,215

 

Other non-current obligations

 

 

7,989

 

51,738

 

 

59,727

 

Deferred income taxes

 

(596

)

2,169

 

6,387

 

 

7,960

 

Long-term intercompany payable

 

 

84,231

 

102,324

 

(186,555

)

 

Stockholders’ equity

 

359,753

 

439,405

 

236,707

 

(676,112

)

359,753

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

635,606

 

$

1,018,363

 

$

657,840

 

$

(1,427,500

)

$

884,309

 

 

18



Table of Contents

 

Condensed Consolidating Statement of Operations

For the Quarter Ended June 30, 2011

(Unaudited)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Reclassifications
and Eliminations

 

Consolidated

 

Net sales

 

$

 

$

269,687

 

$

280,022

 

$

(259,853

)

$

289,856

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

162

 

226,408

 

234,568

 

(250,634

)

210,504

 

Selling, general and administrative expenses

 

11,449

 

15,715

 

12,094

 

(8,982

)

30,276

 

Research and development

 

 

5,027

 

2,059

 

 

7,086

 

Restructuring charges

 

 

481

 

544

 

 

1,025

 

Net (gain) loss on sales and disposals of assets

 

3

 

19

 

101

 

 

123

 

Total operating costs and expenses

 

11,614

 

247,650

 

249,366

 

(259,616

)

249,014

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(11,614

)

22,037

 

30,656

 

(237

)

40,842

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

(4

)

(17

)

(22

)

 

(43

)

Interest expense

 

7,103

 

74

 

223

 

 

7,400

 

Other (income) expense, net

 

(11,544

)

7,987

 

3,393

 

69

 

(95

)

Equity in earnings of subsidiaries

 

(38,080

)

 

 

38,080

 

 

Income before income taxes

 

30,911

 

13,993

 

27,062

 

(38,386

)

33,580

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(938

)

603

 

2,066

 

 

1,731

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

31,849

 

$

13,390

 

$

24,996

 

$

(38,386

)

$

31,849

 

 

19



Table of Contents

 

Condensed Consolidating Statement of Operations

For the Quarter Ended June 30, 2010

(Unaudited)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Reclassifications
and Eliminations

 

Consolidated

 

Net sales

 

$

 

$

229,189

 

$

248,179

 

$

(233,574

)

$

243,794

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

181,304

 

224,808

 

(223,226

)

182,886

 

Selling, general and administrative expenses

 

8,689

 

13,268

 

12,409

 

(10,151

)

24,215

 

Research and development

 

 

4,322

 

1,709

 

 

6,031

 

Restructuring charges

 

 

1,532

 

260

 

 

1,792

 

Net (gain) loss on sales and disposals of assets

 

 

24

 

311

 

 

335

 

Total operating costs and expenses

 

8,689

 

200,450

 

239,497

 

(233,377

)

215,259

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(8,689

)

28,739

 

8,682

 

(197

)

28,535

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) expense, net

 

42,683

 

9,203

 

(4,298

)

(229

)

47,359

 

Equity in earnings of subsidiaries

 

(31,273

)

 

 

31,273

 

 

Income before income taxes

 

(20,099

)

19,536

 

12,980

 

(31,241

)

(18,824

)

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

67

 

1,176

 

32

 

1,275

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(20,099

)

$

19,469

 

$

11,804

 

$

(31,273

)

$

(20,099

)

 

Condensed Consolidating Statement of Cash Flows

For the Quarter Ended June 30, 2011

(Unaudited)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Reclassifications
and Eliminations

 

Consolidated

 

Sources (uses) of cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

3,114

 

$

(11,943

)

$

14,157

 

$

 

$

5,328

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(1

)

(3,700

)

(2,037

)

 

(5,738

)

Acquisition, net of cash received

 

 

(11,584

)

 

 

(11,584

)

Net cash used in investing activities

 

(1

)

(15,284

)

(2,037

)

 

(17,322

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

Payments of long-term debt

 

(3,015

)

 

 

 

(3,015

)

Net payments under other credit facilities

 

 

 

(3,081

)

 

(3,081

)

Debt issuance costs

 

 

(29

)

 

 

(29

)

Proceeds from exercise of stock options

 

16

 

 

 

 

16

 

Net cash used in financing activities

 

(2,999

)

(29

)

(3,081

)

 

(6,109

)

Net increase (decrease) in cash and cash equivalents

 

114

 

(27,256

)

9,039

 

 

(18,103

)

Effect of foreign currency fluctuations on cash

 

 

 

50

 

 

50

 

Cash and cash equivalents at beginning of fiscal period

 

6,417

 

119,326

 

26,308

 

 

152,051

 

Cash and cash equivalents at end of fiscal period

 

$

6,531

 

$

92,070

 

$

35,397

 

$

 

$

133,998

 

 

20



Table of Contents

 

Condensed Consolidating Statement of Cash Flows

For the Quarter Ended June 30, 2010

(Unaudited)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Reclassifications
and Eliminations

 

Consolidated

 

Sources (uses) of cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(14,885

)

$

7,481

 

$

11,342

 

$

 

$

3,938

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,363

)

(4,494

)

 

(6,857

)

Net cash used in investing activities

 

 

(2,363

)

(4,494

)

 

(6,857

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities: