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, 2013

 

or

 

o         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

 

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, 2013 was 45,088,744.

 

 

 



Table of Contents

 

KEMET CORPORATION AND SUBSIDIARIES

Form 10-Q for the Quarter Ended June 30, 2013

 

INDEX

 

 

Page

PART I FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2013 and March 31, 2013

3

 

 

Condensed Consolidated Statements of Operations for the Quarters Ended June 30, 2013 and June 30, 2012

4

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters Ended June 30, 2013 and June 30, 2012

5

 

 

Condensed Consolidated Statements of Cash Flows for the Quarters Ended June 30, 2013 and June 30, 2012

6

 

 

Notes to the Condensed Consolidated Financial Statements

7

 

 

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

23

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

34

 

 

Item 4. Controls and Procedures

35

 

 

PART II OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

35

 

 

Item 1A. Risk Factors

35

 

 

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

35

 

 

Item 3. Defaults Upon Senior Securities

35

 

 

Item 4. Mine Safety Disclosures

35

 

 

Item 5. Other Information

35

 

 

Item 6. Exhibits

36

 

 

Exhibit 10.1

 

Exhibit 31.1

 

Exhibit 31.2

 

Exhibit 32.1

 

Exhibit 32.2

 

Exhibit 101

 

 

2



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,
 2013

 

March 31,
 2013

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

53,155

 

$

95,978

 

Accounts receivable, net

 

101,254

 

96,564

 

Inventories, net

 

217,543

 

205,615

 

Prepaid expenses and other

 

39,377

 

41,101

 

Deferred income taxes

 

4,250

 

4,167

 

Total current assets

 

415,579

 

443,425

 

Property and equipment, net of accumulated depreciation of $785,335 and $771,398 as of June 30, 2013 and March 31, 2013, respectively

 

309,877

 

304,508

 

Goodwill

 

35,584

 

35,584

 

Intangible assets, net

 

38,310

 

38,646

 

Investment in NEC TOKIN

 

48,709

 

52,738

 

Restricted cash

 

15,851

 

17,397

 

Deferred income taxes

 

8,321

 

7,994

 

Other assets

 

8,939

 

11,299

 

Total assets

 

$

881,170

 

$

911,591

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

7,648

 

$

10,793

 

Accounts payable

 

89,854

 

73,669

 

Accrued expenses

 

83,313

 

95,944

 

Income taxes payable and deferred income taxes

 

2,063

 

1,074

 

Total current liabilities

 

182,878

 

181,480

 

Long-term debt, less current portion

 

375,645

 

372,707

 

Other non-current obligations

 

69,584

 

71,946

 

Deferred income taxes

 

8,694

 

8,542

 

 

 

 

 

 

 

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 June 30, 2013 and March 31, 2013

 

465

 

465

 

Additional paid-in capital

 

465,766

 

467,096

 

Retained deficit

 

(198,374

)

(163,235

)

Accumulated other comprehensive income

 

9,420

 

7,694

 

Treasury stock, at cost (1,431 and 1,519 shares at June 30, 2013 and March 31, 2013, respectively)

 

(32,908

)

(35,104

)

Total stockholders’ equity

 

244,369

 

276,916

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

881,170

 

$

911,591

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3



Table of Contents

 

KEMET CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share data)

(Unaudited)

 

 

 

Quarters Ended June 30,

 

 

 

2013

 

2012

 

Net sales

 

$

202,723

 

$

223,632

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

Cost of sales

 

185,189

 

191,321

 

Selling, general and administrative expenses

 

26,502

 

27,255

 

Research and development

 

6,380

 

7,733

 

Restructuring charges

 

4,610

 

1,264

 

Net loss on sales and disposals of assets

 

 

104

 

Total operating costs and expenses

 

222,681

 

227,677

 

 

 

 

 

 

 

Operating loss

 

(19,958

)

(4,045

)

 

 

 

 

 

 

Other (income) expense:

 

 

 

 

 

Interest income

 

(164

)

(31

)

Interest expense

 

10,034

 

10,457

 

Other expense, net

 

354

 

1,511

 

Loss before income taxes and equity loss from NEC TOKIN

 

(30,182

)

(15,982

)

Income tax expense

 

1,580

 

1,771

 

Loss before equity loss from NEC TOKIN

 

(31,762

)

(17,753

)

Equity loss from NEC TOKIN

 

(3,377

)

 

Net loss

 

$

(35,139

)

$

(17,753

)

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

Basic

 

$

(0.78

)

$

(0.40

)

Diluted

 

$

(0.78

)

$

(0.40

)

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

Basic

 

45,022

 

44,808

 

Diluted

 

45,022

 

44,808

 

 

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 Comprehensive Loss

(Amounts in thousands)

(Unaudited)

 

 

 

Quarters Ended June 30,

 

 

 

2013

 

2012

 

Net loss

 

$

(35,139

)

$

(17,753

)

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

Foreign currency translation gains (losses)

 

2,272

 

(7,966

)

Defined benefit pension plans, net of tax impact

 

175

 

102

 

Post-retirement plan adjustments

 

(70

)

71

 

Equity interest in investee’s other comprehensive income

 

(651

)

 

Other comprehensive income (loss)

 

1,726

 

(7,793

)

 

 

 

 

 

 

Total comprehensive loss

 

$

(33,413

)

$

(25,546

)

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5



Table of Contents

 

KEMET CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

 

 

 

Quarters Ended June 30,

 

 

 

2013

 

2012

 

Net loss

 

$

(35,139

)

$

(17,753

)

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

 

 

 

 

 

Depreciation and amortization

 

13,731

 

11,656

 

Amortization of debt discount and debt issuance costs

 

1,014

 

971

 

Equity loss from NEC TOKIN

 

3,377

 

 

Net loss on sales and disposals of assets

 

 

104

 

Stock-based compensation expense

 

968

 

1,264

 

Long-term receivable write down

 

1,444

 

 

Change in deferred income taxes

 

(241

)

122

 

Change in operating assets

 

(14,385

)

(12,029

)

Change in operating liabilities

 

1,706

 

(5,490

)

Other

 

(106

)

(52

)

Net cash used in operating activities

 

(27,631

)

(21,207

)

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Capital expenditures

 

(15,481

)

(13,101

)

Change in restricted cash

 

1,591

 

 

Net cash used in investing activities

 

(13,890

)

(13,101

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Proceeds from issuance of debt

 

 

15,825

 

Deferred acquisition payments

 

(1,204

)

(1,439

)

Payments of long-term debt

 

(306

)

(1,576

)

Proceeds from exercise of stock options

 

19

 

41

 

Debt issuance costs

 

 

(275

)

Net cash provided by (used in) financing activities

 

(1,491

)

12,576

 

Net decrease in cash and cash equivalents

 

(43,012

)

(21,732

)

Effect of foreign currency fluctuations on cash

 

189

 

(943

)

Cash and cash equivalents at beginning of fiscal period

 

95,978

 

210,521

 

Cash and cash equivalents at end of fiscal period

 

$

53,155

 

$

187,846

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

 

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 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 Form 10-K for the fiscal year ended March 31, 2013 (the “Company’s 2013 Annual Report”).

 

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.  Net sales and operating results for the quarter ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year.

 

The Company’s significant accounting policies are presented in the Company’s 2013 Annual Report.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions, and judgments 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.

 

Recently Issued Accounting Pronouncements

 

New accounting standards adopted

 

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  The ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income.  The ASU does not amend any existing requirements for reporting net income or other comprehensive income in the financial statements.  The ASU is effective for the Company for interim and annual periods beginning after April 1, 2013.  The adoption of the ASU had no effect on the Company’s financial position, results of operations, comprehensive income or liquidity.

 

In July 2012, the FASB issued ASU No. 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment,” which states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. This provision is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. This accounting guidance is not expected to have a material impact on the Company’s financial position, results of operations, comprehensive income or liquidity.

 

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.

 

Restricted Cash

 

As discussed in Note 2, Debt, the Company received a $24.0 million prepayment from an original equipment manufacturer (“OEM”) and utilized $10.3 million for the purchase of manufacturing equipment; the remaining proceeds of $13.7 million are classified as restricted cash at June 30, 2013.

 

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Table of Contents

 

A bank guarantee in the amount of EUR 1.5 million ($2.0 million) was issued by a European bank on behalf of the Company in August 2006 in conjunction with the establishment of a Value-Added Tax (“VAT”) registration in The Netherlands.  Accordingly, a deposit was placed with the European bank for EUR 1.7 million ($2.2 million). While the deposit is in KEMET’s name, and KEMET receives all interest earned by this deposit, the deposit is pledged to the European bank, and the bank can use the funds if a valid claim against the bank guarantee is made. The bank guarantee will remain valid until it is discharged by the beneficiary.

 

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 measured at fair value on a recurring basis as of June 30, 2013 and March 31, 2013 are as follows (amounts in thousands):

 

 

 

Carrying
Value
June 30,

 

Fair Value
June 30,

 

Fair Value Measurement Using

 

Carrying
Value
March 31,

 

Fair Value
March 31,

 

Fair Value Measurement Using

 

 

 

2013

 

2013

 

Level 1

 

Level 2 (2)

 

Level 3

 

2013

 

2013

 

Level 1

 

Level 2 (2)

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money markets (1)

 

$

8,585

 

$

8,585

 

$

8,585

 

$

 

$

 

$

29,984

 

$

29,984

 

$

29,984

 

$

 

$

 

Long-term debt

 

383,293

 

384,249

 

361,213

 

23,036

 

 

383,500

 

393,928

 

369,200

 

24,728

 

 

NEC TOKIN derivative (3)

 

489

 

489

 

 

 

489

 

489

 

489

 

 

 

489

 

 


(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.

(3)             See Note 5, Investment in NEC TOKIN, for a description of this net call derivative.  The value of the option is interrelated and depend on the enterprise value of NEC TOKIN Corporation and its EBITDA over time. Therefore, the derivative has been valued using option pricing methods in a Monte Carlo simulation.

 

Inventories

 

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

 

 

 

June 30,
2013

 

March 31,
2013

 

Raw materials and supplies

 

$

99,634

 

$

84,852

 

Work in process

 

71,352

 

70,522

 

Finished goods

 

70,782

 

68,705

 

 

 

241,768

 

224,079

 

Inventory reserves (1)

 

(24,225

)

(18,464

)

 

 

$

217,543

 

$

205,615

 

 


(1)         During the quarter ended June 30, 2013, the Company recorded a $3.9 million reserve for inventory held by a third party.

 

Warrant Liability

 

As of June 30, 2013 and March 31, 2013, 8.4 million shares were subject to the warrant held by K Equity, LLC.

 

8



Table of Contents

 

Revenue Recognition

 

The Company ships products to customers based upon firm orders and recognizes revenue when the sales process is complete.  This occurs when products are shipped to the customer in accordance with the terms of an agreement of sale, there is a fixed or determinable selling price, title and risk of loss have been transferred and collectability is reasonably assured.  Shipping and handling costs are included in cost of sales.

 

A portion of sales is related to products designed to meet customer specific requirements. These products typically have stricter tolerances making them useful to the specific customer requesting the product and to customers with similar or less stringent requirements. The Company recognizes revenue when title to the products transfers to the customer.

 

A portion of sales is made to distributors under agreements allowing certain rights of return, 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.

 

Estimates used in determining sales allowances are subject to various factors including, but 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.

 

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 1% or less for the quarters ended June 30, 2013 and 2012. The Company recognizes warranty costs when they are both probable and reasonably estimable.

 

Note 2. Debt

 

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

 

 

 

June 30,
2013

 

March 31,
2013

 

10.5% Senior Notes, net of premium of $3,620 and $3,773 as of June 30, 2013 and March 31, 2013, respectively

 

$

358,620

 

$

358,773

 

Advanced payment from OEM, net of discount of $840 and $1,056 as of June 30, 2013 and March 31, 2013, respectively

 

22,856

 

22,944

 

Other

 

1,817

 

1,783

 

Total debt

 

383,293

 

383,500

 

Current maturities

 

(7,648

)

(10,793

)

Total long-term debt

 

$

375,645

 

$

372,707

 

 

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Table of Contents

 

The line item “Interest expense” on the Condensed Consolidated Statements of Operations for the quarters ended June 30, 2013 and 2012, is as follows (amounts in thousands):

 

 

 

Quarters Ended June 30,

 

 

 

2013

 

2012

 

Contractual interest expense

 

$

9,020

 

$

9,486

 

Amortization of debt issuance costs

 

426

 

426

 

Amortization of debt (premium) discount

 

62

 

(153

)

Imputed interest on acquisition related obligations

 

526

 

698

 

 

 

$

10,034

 

$

10,457

 

 

Advanced Payment from OEM

 

On August 28, 2012, the Company entered into and amended an agreement (the “Agreement”) with an original equipment manufacturer (“OEM”), pursuant to which the OEM agreed to advance the Company $24.0 million (the “Advance Payment”).  As of June 30, 2013 and March 31, 2013, the Company had $23.7 million and $24.0 million, respectively, outstanding to the OEM.  On a monthly basis starting in June 2013, the Company began repaying the OEM an amount equal to a percentage of the aggregate purchase price of the capacitors sold to the OEM the preceding month, not to exceed $1.0 million per month.  Pursuant to the terms of the Agreement, the percentage of the aggregate purchase price of capacitors sold to the OEM that will be used to repay the Advance Payment will double, not to exceed $2.0 million per month, in the event that (1) the OEM provides evidence that the price charged by KEMET for a particular capacitor during any prior quarter was equal to or greater than 110% of the price paid by the OEM or its affiliates for a third-party part qualified for the same product, and shipping in volume during such period, and (2) agreement cannot be reached between the OEM and the Company for a price adjustment during the current quarter which would bring KEMET’s price within 110% of the third-party price.  In June 2015, the outstanding balance, if any, is due in full.  Pursuant to the terms of the Agreement, the Company delivered to the OEM an irrevocable standby letter of credit in the amount of $16.0 million on October 8, 2012 and on October 22, 2012, the Company received the Advance Payment from the OEM.

 

The OEM may demand repayment of the entire balance outstanding or draw upon the Letter of Credit if any of the following events occur while the Agreement is still in effect: (i) the Company commits a material breach of the Agreement, the statement of work or the master purchase agreement between the OEM and the Company; (ii) the Company’s credit rating issued by Standard & Poor’s Financial Services LLC or its successor or Moody’s Investors Services, Inc. or its successors drops below CCC+ or Caa1, respectively; (iii) the Company’s cash balance on the last day of any fiscal quarter is less than $60,000,000; (iv) the Letter of Credit has been terminated without being replaced prior to repayment of the Advance Payment amount; (v) the Company or substantially all of its assets are sold to a party other than a subsidiary of the Company; (vi) all or substantially all of the assets of a subsidiary of the Company, or any of the shares of such subsidiary, are sold, whose assets are used to develop and produce the Goods; (vii) the Company or any subsidiary which accounts for 20% or more of the Company’s consolidated total assets (“Company Entity”) applies for judicial or extra judicial settlement with its creditors, makes an assignment for the benefit of its creditors, voluntarily files for bankruptcy or has a receiver or trustee in bankruptcy appointed by reason of its insolvency, or in the event of an involuntary bankruptcy action, liquidation proceeding, dissolution or similar proceeding is filed against a Company Entity and not dismissed within sixty (60) days.  The Company believes none of these triggers have been met since the Company’s cash balance including restricted cash exceeds the $60.0 million threshold.

 

10.5% Senior Notes

 

As of June 30, 2013 and March 31, 2013, the Company had outstanding $355.0 million in aggregate principal amount of the Company’s 10.5% Senior Notes due May 1, 2018 (the “10.5% Senior Notes”).  The Company had interest payable related to the 10.5% Senior Notes included in the line “Accrued expenses” on its Condensed Consolidated balance sheets of $6.2 million and $15.6 million at June 30, 2013 and March 31, 2013, respectively.

 

Revolving Line of Credit

 

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 which provides a $50 million revolving line of credit.  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.

 

As described above under Advance Payment from OEM, a standby letter of credit for $16.0 million was delivered to the OEM on October 8, 2012 which reduced the Company’s availability under the Loan and Security Agreement.  In the first quarter of fiscal year 2014, the Company issued a letter of credit for EUR 1.1 million ($1.4 million) related to the construction of the new

 

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manufacturing location in Italy which reduced the Company’s availability under the Loan and Security Agreement.  As of June 30, 2013, the Company’s borrowing capacity under the revolving line of credit was $23.7 million.

 

Note 3. Restructuring Charges

 

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 as a whole. Since that time the restructuring plan has been expanded to all business groups and includes implementing programs to make the Company more competitive by removing excess capacity, moving production to lower cost locations and eliminating unnecessary costs throughout the Company.

 

A summary of the expenses aggregated on the Condensed Consolidated Statements of Operations line item “Restructuring charges” in the quarters ended June 30, 2013 and 2012, are as follows (amounts in thousands):

 

 

 

Quarters Ended June 30,

 

 

 

2013

 

2012

 

Cost of relocating manufacturing equipment

 

$

475

 

$

146

 

Personnel reduction costs

 

4,135

 

1,118

 

 

 

$

4,610

 

$

1,264

 

 

Quarter ended June 30, 2013

 

In the quarter ended June 30, 2013 restructuring charges included personnel reduction costs of $4.1 million and manufacturing relocation costs of $0.5 million.  The personnel reduction costs were comprised of the following: $1.9 million related to the closure of a portion of our innovation center in the U.S., $1.1 million related to a reduction of solid capacitor production workforce in Mexico, $0.7 million related to the Company’s initiative to reduce overhead within the Company as a whole and $0.4 million related to an additional Cassia Integrazione Guadagni Straordinaria (“CIGS”) plan in Italy.  The additional expense related to CIGS is 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 for the program. The employees who are in CIGS are not working, but are still employed by the Company. Only employees that are not classified as management or executive level personnel can participate in the CIGS program. Upon termination of the plan, the affected employees return to work.

 

In addition to these personnel reduction costs, the Company incurred manufacturing relocation costs of $0.5 million for the consolidation of manufacturing operations within Italy and relocation of equipment to Evora, Portugal.

 

Quarter Ended June 30, 2012

 

Restructuring charges in the quarter ended June 30, 2012 were primarily comprised of termination benefits associated with converting the Weymouth, United Kingdom manufacturing facility into a technology center.  In addition to these personnel reduction costs, the Company incurred manufacturing relocation costs of $0.2 million for relocation of equipment to China and Macedonia.

 

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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, 2013

 

 

 

Personnel

 

Manufacturing

 

 

 

Reductions

 

Relocations

 

Beginning of period

 

$

13,509

 

$

567

 

Costs charged to expense

 

4,135

 

475

 

Costs paid or settled

 

(8,869

)

(1,042

)

Change in foreign exchange

 

172

 

 

End of period

 

$

8,947

 

$

 

 

Note 4. Comprehensive Income (Loss) and Accumulated Other Comprehensive Income

 

Changes in Accumulated Other Comprehensive Income (Loss) for the quarter ended June 30, 2013 includes the following components (amounts in thousands):

 

 

 

Foreign
Currency
Translation (1)

 

Defined
Benefit
Pension
Plans, Net of
Tax (2)

 

Post-
Retirement
Benefit Plans

 

Share of Equity
Method
Investees’ Other
Comprehensive
Income (Loss)

 

Net
Accumulated
Other
Comprehensive
Income (Loss)

 

Balance at March 31, 2013

 

$

13,538

 

$

(7,662

)

$

1,818

 

$

 

$

7,694

 

Other comprehensive income (loss) before reclassifications

 

2,272

 

 

 

(651

)

1,621

 

Amounts reclassified out of AOCI

 

 

175

 

(70

)

 

105

 

Other comprehensive income (loss)

 

2,272

 

175

 

(70

)

(651

)

1,726

 

Balance at June 30, 2013

 

$

15,810

 

$

(7,487

)

$

1,748

 

$

(651

)

$

9,420

 

 

Changes in Accumulated Other Comprehensive Income (Loss) for the quarter ended June 30, 2012 includes the following components (amounts in thousands):

 

 

 

Foreign
Currency

Translation (1)

 

Defined
Benefit

Pension
Plans, Net of
Tax (2)

 

Post-
Retirement

Benefit Plans

 

Net

Accumulated

Other
Comprehensive

Income (Loss)

 

Balance at March 31, 2012

 

$

18,107

 

$

(8,082

)

$

1,995

 

$

12,020

 

Other comprehensive income (loss) before reclassifications

 

(7,966

)

 

 

(7,966

)

Amounts reclassified out of AOCI

 

 

102

 

71

 

173

 

Other comprehensive income (loss)

 

(7,966

)

102

 

71

 

(7,793

)

Balance at June 30, 2012

 

$

10,141

 

$

(7,980

)

$

2,066

 

$

4,227

 

 


(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 currency translation gains and losses during the quarters ended June 30, 2013 and 2012.

 

(2)   Ending balance is net of tax of $2.3 million and $2.6 million as of June 30, 2013 and June 30, 2012, respectively.

 

Note 5. Investment in NEC TOKIN

 

On March 12, 2012, KEMET Electronics Corporation (“KEC”), a wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) to acquire 51% of the common stock (which represents a 34% economic interest) of NEC TOKIN Corporation (“NEC TOKIN”), a manufacturer of tantalum capacitors, electro-magnetic, electro-mechanical and access devices, (the “Initial Purchase”) from NEC Corporation (“NEC”) of Japan. The transaction closed on February 1, 2013, at which time KEC paid a purchase price of $50.0 million for new shares of common stock of NEC TOKIN (the “Initial Closing”). The Company accounts for the equity investment using the equity method in a non-consolidated variable interest entity since KEC does not have the power to direct significant activities of NEC TOKIN.

 

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In connection with KEC’s execution of the Stock Purchase Agreement, KEC entered into a Stockholders’ Agreement (the “Stockholders’ Agreement”) with NEC TOKIN and NEC, which provides for restrictions on transfers of NEC TOKIN’s capital stock, certain tag-along and first refusal rights on transfer, restrictions on NEC’s ability to convert the preferred stock of NEC TOKIN held by it, certain management services to be provided to NEC TOKIN by KEC (or an affiliate of KEC) and certain board representation rights. KEC holds four of seven NEC TOKIN director positions. However, NEC has significant board rights.

 

Concurrent with execution of the Stock Purchase Agreement and the Stockholders’ Agreement, KEC entered into an Option Agreement (the “Option Agreement”) with NEC whereby KEC may purchase additional shares of NEC TOKIN common stock from NEC TOKIN for a purchase price of $50.0 million resulting in an economic interest of approximately 49% while maintaining ownership of 51% of NEC TOKIN’s common stock (the “First Call Option”) by providing notice of the First Call Option between the Initial Closing and August 31, 2014. Upon providing such notice, but not before August 1, 2014, KEC may also exercise an option to purchase all outstanding capital stock of NEC TOKIN from its stockholders, primarily NEC, for a purchase price based on the greater of six times LTM EBITDA (as defined in the Option Agreement) less the previous payments and certain other adjustments, or the outstanding amount of NEC TOKIN’s debt obligation to NEC (the “Second Call Option”) by providing notice of the Second Call Option by May 31, 2018. From August 1, 2014 through May 31, 2018, NEC may require KEC to purchase all outstanding capital stock of NEC TOKIN from its stockholders, primarily NEC. However, NEC may only exercise this right (the “Put Option”) from August 1, 2014 through April 1, 2016 if NEC TOKIN achieves certain financial performance measures. The purchase price for the Put Option will be based on the greater of six times LTM EBITDA less previous payments and certain other adjustments, or the outstanding amount of NEC TOKIN’s debt obligation to NEC as of the date the Put Option is exercised. The purchase price for the Put Option is reduced by the amount of NEC TOKIN’s debt obligation to NEC which KEC will assume. The determination of the purchase price will be modified in the event there is an unresolved agreement between NEC and KEC under the Stockholders’ Agreement. In the event the Put Option is exercised, NEC will be required to maintain in place the outstanding debt obligation owed by NEC TOKIN to NEC. The Company valued these options as a net call derivative of $0.5 million which is included in line item “Other Assets” on the Consolidated Balance Sheets.

 

KEC’s total investment in NEC TOKIN including the net call derivative described above on February 1, 2013 was $54.5 million which includes $50.0 million cash consideration plus approximately $4.5 million in transaction expenses (fees for legal, accounting, due diligence, investment banking and other various services necessary to complete the transactions). The Company has made a preliminary allocation of the aggregate purchase price, which are based upon estimates that the Company believes are reasonable and are subject to revision as additional information becomes available.

 

Summarized financial information for NEC TOKIN follows (in thousands):

 

 

 

June 30, 2013

 

Current assets

 

$

209,185

 

Noncurrent assets

 

391,632

 

Current liabilities

 

106,023

 

Noncurrent liabilities

 

398,739

 

 

 

 

Quarter Ended
June 30, 2013

 

Sales

 

$

123,192

 

Gross profit

 

18,300

 

Net loss

 

(8,729

)

 

As of June 30, 2013, the excess of the carrying value for its investment in NEC TOKIN over KEMET’s share of NEC TOKIN’s equity is $16.1 million. As of June 30, 2013, KEC’s maximum loss exposure as a result of its investments in NEC TOKIN is limited to the aggregate of the carrying value of the investment and any accounts receivable balance due from NEC TOKIN.

 

Note 6. Segment and Geographic Information

 

In the first quarter of fiscal year 2014, the Company reorganized its business by combining its Tantalum Business Group and Ceramic Business Group into one business group, Solid Capacitors.  Following the reorganization, based on information regularly reviewed by the chief operating decision maker, KEMET’s two business groups are comprised of: the Solid Capacitors Business

 

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Group (“Solid Capacitors”) and the Film and Electrolytic Business Group (“Film and Electrolytic”).  These business groups are responsible for their respective manufacturing sites as well as all related research and development efforts.

 

Consistent with management reporting, the Company does not allocate indirect Selling, general and administrative (“SG&A”) and Research and development (“R&D”) expenses to the business groups.  Prior period information has been reclassified to conform to current year presentation.

 

Solid Capacitors

 

Operating in ten manufacturing sites in the United States, Mexico, China and Portugal, Solid Capacitors primarily produces tantalum, aluminum polymer and ceramic capacitors which are sold globally.  Solid Capacitors also produces tantalum powder used in the production of tantalum capacitors and has a product innovation center in the United States.

 

Film and Electrolytic

 

Film and Electrolytic operates fourteen manufacturing sites throughout Europe, Asia, and the United States and produces film, paper, and electrolytic capacitors which are sold globally. Film and Electrolytic also manufactures etched foils utilized as a core component in the manufacture of electrolytic capacitors and operates a machinery division located in Italy that provides automation solutions for the manufacture, processing and assembly of metalized films, film/foil and electrolytic capacitors; and designs, assembles and installs automation solutions for the production of energy storage devices. In addition, this business group has product innovation centers in the United Kingdom, Italy, Germany and Sweden.

 

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, 2013 and 2012 (amounts in thousands):

 

 

 

Quarters Ended June 30,

 

 

 

2013

 

2012

 

Net sales:

 

 

 

 

 

Solid Capacitors

 

$

149,401

 

$

160,744

 

Film and Electrolytic

 

53,322

 

62,888

 

 

 

$

202,723

 

$

223,632

 

 

 

 

 

 

 

Operating income (loss)(1):

 

 

 

 

 

Solid Capacitors

 

$

12,808

 

$

25,518

 

Film and Electrolytic

 

(8,043

)

(6,208

)

Unallocated operating expenses

 

(24,723

)

(23,355

)

 

 

$

(19,958

)

$

(4,045

)

 

 

 

 

 

 

Depreciation and amortization expenses:

 

 

 

 

 

Solid Capacitors

 

$

7,310

 

$

7,191

 

Film and Electrolytic

 

4,507

 

3,449

 

Unallocated operating expenses

 

1,914

 

1,016

 

 

 

$

13,731

 

$

11,656

 

 


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

 

 

 

Quarters Ended June 30,

 

Restructuring charges:

 

2013

 

2012

 

Solid Capacitors

 

$

3,045

 

$

142

 

Film and Electrolytic

 

1,410

 

1,122

 

Corporate

 

155

 

 

 

 

$

4,610

 

$

1,264

 

 

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Quarters Ended June 30,

 

 

 

2013

 

2012

 

Sales by region:

 

 

 

 

 

North and South America (“Americas”)

 

$

59,570

 

$

60,485

 

Europe, Middle East, Africa (“EMEA”)

 

73,041

 

79,385

 

Asia and Pacific Rim (“APAC”)

 

70,112

 

83,762

 

 

 

$

202,723

 

$

223,632

 

 

The following table reflects each business group’s total assets as of June 30, 2013 and March 31, 2013 (amounts in thousands):

 

 

 

June 30, 2013

 

March 31, 2013

 

Total assets:

 

 

 

 

 

Solid Capacitors

 

$

497,165

 

$

517,024

 

Film and Electrolytic

 

304,708

 

308,751

 

Corporate

 

79,297

 

85,816

 

 

 

$

881,170

 

$

911,591

 

 

Note 7.  Defined Benefit Pension and Other Postretirement Benefit Plans

 

The Company sponsors six defined benefit pension plans in Europe, one plan in Singapore and two plans in Mexico.  In addition, the Company sponsors a post-retirement 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 (income) costs relating to the Company’s pension and other postretirement benefit plans are as follows for the quarters ended June 30, 2013 and 2012 (amounts in thousands):

 

 

 

Pension

 

Post-retirement Benefit Plan

 

 

 

Quarters Ended June 30,

 

Quarters Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Net service cost

 

$

331

 

$

414

 

$

 

$

 

Interest cost

 

428

 

494

 

5

 

9

 

Expected return on net assets

 

(109

)

(172

)

 

 

Amortization:

 

 

 

 

 

 

 

 

 

Actuarial (gain) loss

 

78

 

130

 

(70

)

(72

)

Prior service cost

 

1

 

6

 

 

 

Curtailment loss on benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net periodic benefit (income) costs

 

$

729

 

$

872

 

$

(65

)

$

(63

)

 

In fiscal year 2014, the Company expects to contribute up to $1.6 million to the pension plans, of which the Company has contributed $0.3 million as of June 30, 2013.  The Company’s policy is to pay benefits as costs are incurred for the postretirement benefit plan.

 

Note 8. Stock-based Compensation

 

Historically, the Board of Directors of the Company has approved annual Long Term Incentive Plans which cover two year periods and are primarily based upon the achievement of an Adjusted EBITDA target for the two-year period. At the time of the award, the individual plans entitle the participants to receive cash or restricted shares of the Company’s common stock, or a combination of both as determined by the Company’s Board of Directors. The 2014/2015 LTIP and 2013/2014 LTIP also awarded restricted stock shares which vest over the course of three years from the anniversary of the establishment of the plan and are not subject to a performance metric. The Company assesses the likelihood of meeting the Adjusted EBITDA financial metric on a quarterly basis and adjusts compensation expense to match expectations. Any related liability is reflected in the line item “Accrued expenses” on the Consolidated Balance Sheets and any restricted stock commitment is reflected in the line item “Additional paid-in capital” on the Consolidated Balance Sheets.

 

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The compensation expense associated with stock-based compensation for the quarters ended June 30, 2013 and 2012 are recorded on the Condensed Consolidated Statements of Operations as follows (amounts in thousands):

 

 

 

Quarter Ended June 30, 2013

 

Quarter Ended June 30, 2012

 

 

 

Stock
Options

 

Restricted
Stock

 

LTIPs

 

Stock
Options

 

Restricted
Stock

 

LTIPs

 

Cost of sales

 

$

138

 

$

63

 

$

114

 

$

212

 

$

121

 

$

68

 

Selling, general and administrative expenses

 

147

 

233

 

214

 

254

 

398

 

173

 

Research and development.

 

10

 

 

49

 

18

 

 

20

 

 

 

$

295

 

$

296

 

$

377

 

$

484

 

$

519

 

$

261

 

 

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, 2013 and 2012. Approximately six thousand and twenty-one thousand stock options were exercised in the quarters ended June 30, 2013 and 2012, respectively.

 

Note 9. Income Taxes

 

During the first quarter of fiscal year 2014, the Company incurred $1.6 million of income tax expense which is comprised of $1.5 million related to income taxes for foreign operations and $0.1 million of state income tax expense.  There is no U.S. federal income tax benefit from the first quarter of fiscal year 2014 loss due to a valuation allowance on deferred tax assets.

 

During the first quarter of fiscal year 2013, the Company incurred $1.8 million of income tax expense which was comprised of $1.7 million related to income taxes for foreign operations and $0.1 million of state income tax expense.  There was no U.S. federal income tax benefit from the first quarter of fiscal year 2013 loss due to a valuation allowance on deferred tax assets.

 

Note 10. Reconciliation of Basic and Diluted Net 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,

 

 

 

2013

 

2012

 

Numerator:

 

 

 

 

 

Net loss

 

$

(35,139

)

$

(17,753

)

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

Basic

 

45,022

 

44,808

 

Assumed conversion of employee stock grants

 

 

 

Assumed conversion of warrants

 

 

 

Diluted

 

45,022

 

44,808

 

 

 

 

 

 

 

Basic loss per sare

 

$

(0.78

)

$

(0.40

)

Diluted loss per share

 

$

(0.78

)

$

(0.40

)

 

Common stock equivalents that could potentially dilute net loss 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,

 

 

 

2013

 

2012

 

Assumed conversion of employee stock grants

 

1,987

 

1,469

 

Assumed conversion of warrants

 

6,687

 

7,160

 

 

Note 11. Concentrations of Risks

 

The Company sells to customers globally.  Monthly the Company evaluates customer account balances in order to assess the Company’s financial risks of collection as the Company generally does not require collateral from its customers.  Two customers each accounted for over 10% of the Company’s net sales in the quarter ended June 30, 2013 and one customer accounted for over 10% of

 

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the Company’s net sales in the quarter ended June 30, 2012.  There were no customers’ accounts receivable balances exceeding 10% of gross accounts receivable at June 30, 2013 and March 31, 2013.

 

Electronics distributors are an important distribution channel in the electronics industry and accounted for 46% of the Company’s net sales in the quarters ended June 30, 2013 and 2012.  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.

 

Note 12. 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. The Company is 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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Condensed Consolidating Balance Sheet

June 30, 2013

(Unaudited)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Reclassifications
and Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,822

 

$

26,088

 

$

18,245

 

$

 

$

53,155

 

Accounts receivable, net

 

 

46,683

 

54,571

 

 

101,254

 

Intercompany receivable

 

298,203

 

274,135

 

175,292

 

(747,630

)

 

Inventories, net

 

 

133,048

 

84,495

 

 

217,543

 

Prepaid expenses and other

 

3,182

 

17,170

 

21,977

 

(2,952

)

39,377

 

Deferred income taxes

 

 

990

 

3,260

 

 

4,250

 

Total current assets

 

310,207

 

498,114

 

357,840

 

(750,582

)

415,579

 

Property and equipment, net

 

344

 

113,476

 

196,057

 

 

309,877

 

Investments in NEC TOKIN

 

 

48,709

 

 

 

48,709

 

Investments in subsidiaries

 

399,792

 

424,386

 

10,750

 

(834,928

)

 

Goodwill

 

 

35,584

 

 

 

35,584

 

Intangible assets, net

 

 

29,417

 

8,893

 

 

38,310

 

Restricted cash

 

 

15,851

 

 

 

15,851

 

Deferred income taxes

 

 

1,500

 

6,821

 

 

8,321

 

Other assets

 

6,410

 

1,146

 

1,383

 

 

8,939

 

Long-term intercompany receivable

 

77,549

 

57,549

 

2,800

 

(137,898

)

 

Total assets

 

$

794,302

 

$

1,225,732

 

$

584,544

 

$

(1,723,408

)

$

881,170

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

6,391

 

$

15

 

$

1,242

 

$

 

$

7,648

 

Accounts payable, trade

 

137

 

44,246

 

45,471

 

 

89,854

 

Intercompany payable

 

122,753

 

510,941

 

113,936

 

(747,630

)

 

Accrued expenses

 

28,360

 

14,643

 

40,310

 

 

83,313

 

Income taxes payable and deferred income taxes

 

 

3,124

 

1,891

 

(2,952

)

2,063

 

Total current liabilities

 

157,641

 

572,969

 

202,850

 

(750,582

)

182,878

 

Long-term debt, less current portion

 

375,084

 

 

561

 

 

375,645

 

Other non-current obligations

 

17,208

 

2,975

 

49,401

 

 

69,584

 

Deferred income taxes

 

 

3,219

 

5,475

 

 

8,694

 

Long-term intercompany payable

 

 

77,549

 

60,349

 

(137,898

)

 

Stockholders’ equity

 

244,369

 

569,020

 

265,908

 

(834,928

)

244,369

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

794,302

 

$

1,225,732

 

$

584,544

 

$

(1,723,408

)

$

881,170

 

 

18



Table of Contents

 

Condensed Consolidating Balance Sheet

March 31, 2013

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Reclassifications

and Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,202

 

$

52,056

 

$

26,720

 

$

 

$

95,978

 

Accounts receivable, net

 

 

42,051

 

54,513

 

 

96,564

 

Intercompany receivable

 

287,513

 

251,524

 

150,376

 

(689,413

)

 

Inventories, net

 

 

126,286

 

79,329

 

 

205,615

 

Prepaid expenses and other

 

3,186

 

13,564

 

27,303

 

(2,952

)

41,101

 

Deferred income taxes

 

 

578

 

3,589

 

 

4,167

 

Total current assets

 

307,901

 

486,059

 

341,830

 

(692,365

)

443,425

 

Property and equipment, net

 

361

 

111,584

 

192,563

 

 

304,508

 

Investments in NEC TOKIN

 

 

52,738

 

 

 

52,738

 

Investments in subsidiaries

 

423,695

 

424,386

 

10,750

 

(858,831

)

 

Goodwill

 

 

35,584

 

 

 

35,584

 

Intangible assets, net

 

 

29,763

 

8,883

 

 

38,646

 

Restricted cash

 

 

17,397

 

 

 

17,397

 

Deferred income taxes

 

 

1,500

 

6,494

 

 

7,994

 

Other assets

 

6,741

 

3,173

 

1,385

 

 

11,299

 

Long-term intercompany receivable

 

75,919

 

56,338

 

2,800

 

(135,057

)

 

Total assets

 

$

814,617

 

$

1,218,522

 

$

564,705

 

$

(1,686,253

)

$

911,591

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

9,561

 

$

16

 

$

1,216

 

$

 

$

10,793

 

Accounts payable, trade

 

61

 

37,444

 

36,164

 

 

73,669

 

Intercompany payable

 

100,947

 

481,707

 

106,759

 

(689,413

)

 

Accrued expenses

 

37,490

 

19,615

 

38,839

 

 

95,944

 

Income taxes payable

 

 

3,046

 

980

 

(2,952

)

1,074

 

Total current liabilities

 

148,059

 

541,828

 

183,958

 

(692,365

)

181,480

 

Long-term debt, less current portion

 

372,157

 

 

550

 

 

372,707

 

Other non-current obligations

 

17,485

 

3,899

 

50,562

 

 

71,946

 

Deferred income taxes

 

 

2,808

 

5,734

 

 

8,542

 

Long-term intercompany payable

 

 

75,919

 

59,138

 

(135,057

)

 

Stockholders’ equity

 

276,916

 

594,068

 

264,763

 

(858,831

)

276,916

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

814,617

 

$

1,218,522

 

$

564,705

 

$

(1,686,253

)

$

911,591

 

 

19



Table of Contents

 

Condensed Consolidating Statement of Operations

For the Quarter Ended June 30, 2013

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Reclassifications
and Eliminations

 

Consolidated

 

Net sales

 

$

19

 

$

237,323

 

$

208,303

 

$

(242,922

)

$

202,723

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

403

 

227,155

 

190,419

 

(232,788

)

185,189

 

Selling, general and administrative expenses

 

10,611

 

12,266

 

13,759

 

(10,134

)

26,502

 

Research and development

 

90

 

4,275

 

2,015

 

 

6,380

 

Restructuring charges

 

 

1,934

 

2,676

 

 

4,610

 

Total operating costs and expenses

 

11,104

 

245,630

 

208,869

 

(242,922

)

222,681

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(11,085

)

(8,307

)

(566

)

 

(19,958

)

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) expense, net

 

59

 

11,058

 

(893

)

 

10,224

 

Equity in earnings of subsidiaries

 

23,995

 

 

 

(23,995

)

 

Income (loss) before income taxes and equity loss from NEC TOKIN

 

(35,139

)

(19,365

)

327

 

23,995

 

(30,182

)

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

55

 

1,525

 

 

1,580

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before equity loss from NEC TOKIN

 

(35,139

)

(19,420

)

(1,198

)

23,995

 

(31,762

)

Equity loss from NEC TOKIN

 

 

(3,377

)

 

 

(3,377

)

Net income (loss)

 

$

(35,139

)

$

(22,797

)

$

(1,198

)

$

23,995

 

$

(35,139

)

 

Condensed Consolidating Statements of Comprehensive Income (Loss)

Quarter Ended June 30, 2013

 

Comprehensive income (loss)

 

$

(33,510

)

$

(24,340

)

$

442

 

$

23,995

 

$

(33,413

)

 

20



Table of Contents

 

Condensed Consolidating Statement of Operations

For the Quarter Ended June 30, 2012

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor

Subsidiaries

 

Reclassifications
and Eliminations

 

Consolidated

 

Net sales

 

$

 

$

240,944

 

$

228,715

 

$

(246,027

)

$

223,632

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

418

 

218,318

 

207,577

 

(234,992

)

191,321

 

Selling, general and administrative expenses

 

1,605

 

20,743

 

15,942

 

(11,035

)

27,255

 

Research and development

 

41

 

5,288

 

2,404

 

 

7,733

 

Restructuring charges

 

 

163

 

1,101

 

 

1,264

 

Net loss on sales and disposals of assets

 

 

33

 

71

 

 

104

 

Total operating costs and expenses

 

2,064

 

244,545

 

227,095

 

(246,027

)

227,677

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(2,064

)

(3,601

)

1,620

 

 

(4,045

)

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) expense, net

 

10,187

 

3,159

 

(1,409

)

 

11,937

 

Equity in earnings of subsidiaries

 

5,502

 

 

 

(5,502

)

 

Income before income taxes

 

(17,753

)

(6,760

)

3,029

 

5,502

 

(15,982

)

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

60

 

1,711

 

 

1,771

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(17,753

)

$

(6,820

)

$

1,318

 

$

5,502

 

$

(17,753

)

 

Condensed Consolidating Statements of Comprehensive Income (Loss)

For the Quarter Ended June 30, 2012

 

Comprehensive income (loss)

 

$

(22,294

)

$

(5,751

)

$

(3,003

)

$

5,502

 

$

(25,546

)

 

21



Table of Contents

 

Condensed Consolidating Statement of Cash Flows

For the Quarter Ended June 30, 2013

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Reclassifications 
and Eliminations

 

Consolidated

 

Sources (uses) of cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(7,889

)

$

(19,373

)

$

(369

)

$

 

$

(27,631

)

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(7,186

)

(8,295

)

 

(15,481

)

Change in restricted cash

 

 

1,591

 

 

 

1,591

 

Net cash used in investing activities

 

 

(5,595

)

(8,295

)

 

(13,890

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

Deferred acquisition payments

 

(204

)

(1,000

)

 

 

(1,204

)

Payments of long-term debt

 

(306

)

 

 

 

(306

)

Proceeds from exercise of stock options

 

19

 

 

 

 

19

 

Net cash used in financing activities

 

(491

)

(1,000

)

 

 

(1,491

)

Net decrease in cash and cash equivalents

 

(8,380

)

(25,968

)

(8,664

)

 

(43,012

)

Effect of foreign currency fluctuations on cash

 

 

 

189

 

 

189

 

Cash and cash equivalents at beginning of fiscal period

 

17,202

 

52,056

 

26,720

 

 

95,978

 

Cash and cash equivalents at end of fiscal period

 

$

8,822

 

$

26,088

 

$

18,245

 

$

 

$

53,155

 

 

Condensed Consolidating Statements of Cash Flows

For the Quarter Ended June 30, 2012

(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

 

$

(14,653

)

$

(15,306

)

$

8,752

 

$

 

$

(21,207

)

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(3,660

)