Annual report pursuant to Section 13 and 15(d)

Acquisitions

v2.4.0.6
Acquisitions
12 Months Ended
Mar. 31, 2013
Acquisitions  
Acquisitions

Note 5: Acquisitions

Fiscal Year 2012 Acquisitions

Cornell Dubilier Foil, LLC

        On June 13, 2011, the Company completed its acquisition of Cornell Dubilier Foil, LLC (whose name was subsequently changed to KEMET Foil Manufacturing, LLC ("KEMET Foil")), a Tennessee based manufacturer of etched foils utilized as a core component in the manufacture of aluminum electrolytic capacitors. The purchase price was $15.0 million plus a $0.5 million working capital adjustment, of which $11.6 million (net of cash received) was paid at closing and $1.0 million was paid on the first anniversary of the closing date and $1.0 million is to be paid on each of the next two anniversaries of the closing date. The Company recorded goodwill of $1.1 million and amortizable intangibles of $1.6 million. The allocation of the purchase price to specific assets and liabilities was based on the relative fair value of all assets and liabilities. Factors contributing to the purchase price which resulted in the goodwill (which is tax deductible) included the trained workforce. Pro forma results are not presented because the acquisition was not material to the consolidated financial statements. KEMET Foil is included within Film and Electrolytic.

        The total discounted purchase price for KEMET Foil was $15.3 million and is comprised of (amounts in thousands):

Cash at closing

  $ 12,000  

Deferred payments (discounted)

    2,815  

Working capital adjustment

    526  
       

 

  $ 15,341  
       

        The purchase price was determined through arms-length negotiations between representatives of the Company and Cornell Dubilier Marketing, Inc.

        The following table presents the final allocations of the aggregate purchase price based on the assets and liabilities estimated fair values (amounts in thousands):

 
  Fair Value  

Cash

  $ 416  

Accounts receivable

    2,577  

Inventories

    3,382  

Other current assets

    84  

Property, plant and equipment

    9,534  

Goodwill

    1,092  

Intangible assets

    1,660  

Current liabilities

    (3,404 )
       

Total net assets acquired

  $ 15,341  
       

        As discussed in Note 6, "Goodwill and Intangible Assets," the goodwill recorded for KEMET Foil was fully impaired in fiscal year 2013.

  • Niotan Incorporated

        On February 21, 2012, KEMET acquired all of the outstanding shares of Niotan Incorporated, whose name was subsequently changed to KEMET Blue Powder Corporation ("Blue Powder"), a leading manufacturer of tantalum powders, from an affiliate of Denham Capital Management LP. Blue Powder has its headquarters and principal operating location in Carson City, Nevada. KEMET paid an initial purchase price of $30.5 million (net of cash received) at the closing of the transaction. Additional deferred payments of $45 million are payable over a thirty-month period after the closing and a working capital adjustment of $0.4 million which was paid in April 2012. In fiscal year 2013 KEMET has made installment payments totaling $15.0 million. KEMET will also be required to make quarterly royalty payments for tantalum powder produced by Blue Powder, in an aggregate amount equal to $10.0 million by December 31, 2014. The Company determined that the royalty payments should be treated as part of the consideration for Blue Powder instead of a separate transaction because (i) it is paid to the selling shareholder who is not continuing with Blue Powder, (ii) it was based solely on the negotiation process and (iii) KEMET now owns the technology. The Company recorded goodwill of $35.6 million and amortizable intangibles of $22.4 million. The allocation of the purchase price to specific assets and liabilities was based on the relative fair value of all assets and liabilities. Factors contributing to the purchase price which resulted in the goodwill (which is not tax deductible) include market recognition of the world class quality of Blue Powder's tantalum powder, the Company's cost savings due to vertical integration and Blue Powder's ability to provide a constant and reliable supply of tantalum powder. Pro forma results are not presented because the acquisition was not material to the consolidated financial statements. Blue Powder is included within Tantalum.

        The total discounted purchase price for Blue Powder was $82.0 million which includes (amounts in thousands):

Cash at closing

  $ 30,656  

Deferred payments (discounted)

    41,938  

Royalty payments (discounted)

    8,975  

Working capital adjustment

    403  
       

 

  $ 81,972  
       

        The purchase price was determined through arms-length negotiations between representatives of the Company and Denham Capital Management LP.

        The following table presents the final allocations of the aggregate purchase price based on the assets and liabilities estimated fair values (amounts in thousands):

 
  Fair Value  

Cash

  $ 153  

Accounts receivable

    479  

Inventories

    7,305  

Prepaid expenses

    186  

Property, plant and equipment

    15,122  

Goodwill

    35,584  

Intangible assets

    22,420  

Deferred income taxes

    311  

Other noncurrent assets

    1,303  

Current liabilities

    (873 )

Long-term liabilities

    (18 )
       

Total net assets acquired

  $ 81,972  
       

        The following table presents the amounts assigned to intangible assets (amounts in thousands except useful life data):

 
  Fair Value   Useful
Life (years)
 

Developed technology

  $ 22,300     18  

Software

    120     4  
             

 

  $ 22,420        
             

        The useful life for developed technology of 18 years is based on the history of the underlying chemical processes and an estimate of the future economic benefit. The Company also considered that the technology was developed approximately 4 years ago and considered functional obsolescence. The useful life for software is based upon its implementation in 2011 and taking into consideration functional obsolescence.