Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v2.4.0.6
Acquisitions
3 Months Ended
Jun. 30, 2012
Acquisitions  
Acquisitions

Note 5. 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 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) include 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

 

 

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. KEMET will also be required to make quarterly royalty payments for tantalum powder produced by Blue Powder, in an aggregate amount equal to $10 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 as it is paid to the selling shareholder who is not continuing with Blue Powder, was based solely on the negotiation process and now KEMET 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 Niotan’s tantalum powder, the Company’s cost savings due to vertical integration and it provides 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 the Tantalum Business Group (“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

 

421

 

 

 

$

81,990

 

 

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

 

The following table presents the preliminary 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

 

Prepaid expenses

 

186

 

Inventories

 

7,305

 

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

)

Total net assets acquired

 

$

81,990

 

 

The allocation of the purchase price is preliminary as the Company is still evaluating the inventory valuation and tax attributes of the transaction.

 

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

 

 

 

Fair

 

Useful

 

 

 

Value

 

Life (years)

 

Developed technology

 

$

22,300

 

18

 

Software

 

120

 

4

 

 

 

$

22,420

 

 

 

 

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