Annual report pursuant to Section 13 and 15(d)

Equity Method Investments

v3.19.1
Equity Method Investments
12 Months Ended
Mar. 31, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Equity Method Investments
Equity Method Investments
The following table provides a reconciliation of equity method investments to the Company's Consolidated Balance Sheets (amounts in thousands):
 
 
March 31,
 
 
2019
 
2018
Nippon Yttrium Co., Ltd ("NYC")
 
$
8,215

 
$
8,148

NT Sales Co., Ltd ("NTS")
 
1,218

 
998

Novasentis
 
977

 
2,870

KEMET Jianghai Electronics Components Co., Ltd (“KEMET Jianghai”)
 
2,515

 

 
 
$
12,925

 
$
12,016


TOKIN's Joint Ventures - NYC and NTS
As noted in Note 2, “Acquisitions,” on April 19, 2017, the Company completed its acquisition of the remaining 66% economic interest in TOKIN and TOKIN became a 100% owned subsidiary of KEMET. TOKIN had two investments at the time of acquisition: NYC and NTS. The Company accounts for both investments using the equity method due to the related nature of operations and the Company's ability to influence management decisions.
NYC was established in 1966 by TOKIN and Mitsui Mining and Smelting Co., Ltd (“Mitsui”). NYC was established to commercialize yttrium oxides and the Company owns 30% of NYC's stock. The carrying amount of the Company's equity investment in NYC was $8.2 million and $8.1 million as of March 31, 2019 and 2018, respectively.
NTS was established in 2004 by TOKIN, however subsequent to its formation, TOKIN sold 67% of its stock. NTS provides world-class electronic devices by utilizing global procurement networks and the Company owns 33% of NTS' stock. During the year ended March 31, 2019, a significant portion of NTS' sales were TOKIN’s products. The carrying amount of the Company's equity investment in NTS was $1.2 million and $1.0 million as of March 31, 2019 and 2018, respectively.
 Summarized transactions between TOKIN and NTS are as follows (amounts in thousands):
 
 
Fiscal Year Ended March 31,
 
 
2019
 
2018
KEMET's sales to NTS
 
$
49,740

 
$
52,883

NTS' sales to KEMET
 
2,501

 
1,616


Investment in Novasentis
During fiscal year 2018, KEMET invested in the Series-D round of funding of Novasentis, a leading developer of film-based haptic actuators. Novasentis produces the world’s thinnest electro mechanical polymer-based actuators that provide rich haptic feedback for a variety of applications, including augmented/virtual reality and wearables. Novasentis supplies its “smart” film and KEMET applies its expertise in manufacturing film capacitors to the development and commercial production of the actuators. The Company's ownership percentage in Novasentis is 27.9% and has 1 of 3 seats on Novasentis’ board of directors. Additionally, KEMET has an exclusive manufacturing supply agreement, whereby Novasentis (the “Buyer”) will purchase goods exclusively from KEMET (the “Seller”) and the Seller shall manufacture and sell goods exclusively to the Buyer.
While the Company determined that Novasentis is a variable interest entity, the Company concluded that it is not the primary beneficiary of Novasentis. Accordingly, the Company accounts for its investment in Novasentis under the equity method of accounting.
Under the equity method, the Company's share of profits and losses and impairment charges on investments in affiliates are included in “Equity income (loss) from equity method investments” in the Consolidated Statements of Operations. During the fourth quarter of fiscal year 2019, the Company recorded $2.7 million of impairment on its investment in Novasentis. The carrying amount of the Company's equity investment in Novasentis was $1.0 million and $2.9 million as of March 31, 2019 and 2018, respectively.
KEMET JIANGHAI Joint Venture
On January 29, 2018, KEC entered into a joint venture agreement (the “Agreement”) with Jianghai (Nantong) Film Capacitor Co., Ltd (“Jianghai Film”), a subsidiary of Nantong Jianghai Capacitor Co., Ltd (“Jianghai”) for the formation of KEMET Jianghai Electronic Components Co. Ltd., a limited liability company located in Nantong, China. KEMET Jianghai was officially formed on May 16, 2018 to manufacture axial electrolytic capacitors and (H)EV Film DC brick capacitors, for distribution through the KEMET and Jianghai Film sales channels. During fiscal year 2019 the Company signed an amendment to the Agreement with Jianghai Film to expand the scope of KEMET Jianghai to also produce solid aluminum capacitors and aluminum electrolytic capacitors. The Company's ownership percentage is 50.0% and the Company and Jianghai Film are equally represented on the joint venture’s board of directors.     
The Company's initial capital contribution to KEMET Jianghai was made during the second quarter of fiscal year 2019, and the Company accounts for its investment using the equity method due to the related nature of operations and its ability to influence the joint venture's decisions. As of March 31, 2019, the carrying amount of the Company's equity investment in KEMET Jianghai was $2.5 million.
Investment in TOKIN
As noted in Note 2, “Acquisitions,” the Company held a 34% economic interest in TOKIN from February 1, 2013 through April 19, 2017. The Company completed its acquisition of the remaining 66% economic interest in TOKIN on April 19, 2017. During the time period that the Company held its 34% economic interest in TOKIN, the Company accounted for its investment using the equity method for a non-consolidated variable interest entity since KEMET did not have the power to direct significant activities of TOKIN. Prior to the acquisition, the Company had a put option that could have required KEMET to purchase all of the outstanding capital stock of TOKIN from its shareholders (the “Put Option”). The Put Option was canceled as part of the TOKIN acquisition and accounted for as a reduction in the purchase price of TOKIN. In fiscal years prior to the TOKIN acquisition, the Put Option was marked to fair value as of the end of each reporting period with the change in fair value included in the line item “Change in the value of TOKIN options” in the Consolidated Statements of Operations. For the fiscal year ended March 31, 2017, the Company recognized a $10.7 million gain related to the change in the fair value of the Put Option.
Summarized financial information for TOKIN for fiscal years 2018 and 2017 are as follows (amounts in thousands):
 
19 Day Period Ended April 19, 2017
Fiscal Year March 31, 2017
Net sales
$
23,649

$
328,822

Gross profit
6,647

74,465

Net income
247,786

128,502


A reconciliation between TOKIN’s net income and KEMET’s equity investment income for fiscal years 2018 and 2017 are as follows (amounts in thousands):
 
19 Day Period Ended April 19, 2017
 
Fiscal Year March 31, 2017
TOKIN net income
$
247,786

 
$
128,502

KEMET’s equity ownership %
34
%
 
34
%
Equity income from TOKIN before Adjustments
$
84,247

 
$
43,691

 
 
 
 
Adjustments:
 
 
 
Amortization and depreciation
(113
)
 
(2,210
)
Removal of EMD memo accounts
(8,981
)
 

Inventory profit elimination
24

 
162

Equity income from TOKIN
75,177

 
41,643

 
 
 
 
Acquired equity method investment income
1,015

 

Equity income from equity method investments
$
76,192

 
$
41,643


Summarized transactions between KEC and TOKIN are as follows (amounts in thousands):
 
19 Day Period Ended April 19, 2017
 
Fiscal Year March 31, 2017
KEC’s sales to TOKIN
$
727

 
$
17,100

TOKIN’s sales to KEMET
356

 
8,341