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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-K
(Mark One)
 
 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2020 
Or
 
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.)

KEMET Tower, One East Broward Blvd., Fort Lauderdale, Florida 33301
(Address of principal executive offices, zip code)

 Registrant’s telephone number, including area code: (954766-2800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of exchange on which registered
Common Stock, par value $0.01
KEM
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.
____________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes     No 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes     No 
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     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer 
Smaller Reporting Company
Emerging Growth Company
 
 
 
 
 
 
 
 
 
 
    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.        

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes     No 
The aggregate market value of voting common stock held by non-affiliates of the registrant as of September 30, 2019 computed by reference to the closing sale price of the registrant’s common stock was approximately $1,044,995,999.
The number of shares of each class of common stock, $0.01 par value, outstanding as of May 26, 2020 was 58,508,445.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of KEMET Corporation's subsequent amendment to this Form 10-K to be filed within 120 days of March 31, 2020, or the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Registrant's 2020 annual meeting of stockholders, are incorporated by reference in this annual report on Form 10-K in response to Part III, Items 10, 11, 12, 13, and 14.



Table of Contents
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 









3


PART I
ITEM 1.    BUSINESS
Forward-looking Information
This report contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements is contained in Part I - Item 1A of this report.
Background of Company
KEMET Corporation (“we,” “us,” “our,” “KEMET” and the “Company”), is a global manufacturer of passive electronic components. We first began manufacturing tantalum capacitors in 1958 as a division of Union Carbide Corporation (“UCC”) and became a stand-alone legal entity in 1990 following a management buyout from UCC. In 1992, we publicly issued shares of our common stock. Since then, we have made the following acquisitions:
Segment
Fiscal Year
Business
Solid Capacitors Segment (“Solid Capacitors”)
2007
Tantalum Business Unit of EPCOS AG
Film and Electrolytic Segment (“Film and Electrolytic”)
2008
Evox Rifa Group Oyj
Film and Electrolytic
2008
Arcotronics Italia S.p.A.
Film and Electrolytic
2012
Cornell Dubilier Foil, LLC (renamed KEMET Foil Manufacturing, LLC (“KFM”))
Solid Capacitors
2012
Niotan Incorporated (renamed KEMET Blue Powder Corporation (“KBP”))
Corporate
2016
IntelliData, Inc. (“IntelliData”)
Solid Capacitors and Electro-Magnetic, Sensors, and Actuators Segment (“MSA”)
2018
TOKIN Corporation (“TOKIN”) (1)
Film and Electrolytic
2020
Novasentis, Inc. (“Novasentis”) (2)
______________________________________________________________________________
(1) In fiscal year 2013, the Company acquired a 34% economic interest in TOKIN. During fiscal year 2018, KEMET acquired the outstanding shares of TOKIN not already held by the Company and TOKIN became a fully owned subsidiary of KEMET.
(2) In fiscal year 2018, the Company acquired a 15% economic interest in Novasentis, which increased to 27.9% in fiscal year 2019. During fiscal year 2020, KEMET acquired the outstanding shares of Novasentis not already held by the Company and Novasentis became a fully owned subsidiary of KEMET.
Through the above acquisitions and organic growth we have expanded our product base to include multilayer ceramic, solid and electrolytic aluminum and film capacitors, and electro-magnetics, sensors, and actuators.
Yageo Merger
On November 11, 2019, the Company entered into an agreement and plan of merger (the “Agreement”) pursuant to which Yageo Corporation (“Yageo”) will acquire all of the Company’s outstanding shares of common stock for $27.20 per share, subject to the satisfaction (or waiver of) specified conditions (the “Merger”). The consummation of the Merger is subject to customary closing conditions, including the approval by the Company’s stockholders. Certain further closing conditions in the Agreement include: (a) obtaining antitrust and other regulatory approvals in the United States and certain other jurisdictions (including, among others, China and Taiwan), (b) the absence of any applicable restraining order or injunction prohibiting the Merger, (c) receipt of approval from the Committee on Foreign Investment in the United States (“CFIUS”), (d) obtaining foreign investment approval by the Investment Commission, Ministry of Economic Affairs, Taiwan, (e) the approval of Yageo’s stockholders, if required by applicable law and (f) in the case of Yageo’s obligations to complete the Merger, there not having been any “material adverse effect” (as customarily defined) on the Company. The Agreement contains certain restrictions on the conduct of our business prior to the completion of the Merger or the termination of the Agreement, including, among other things, a restriction prohibiting us from paying any dividends or making certain other distributions. Upon consummation of the Merger, the Company would be a fully owned subsidiary of Yageo.
The Agreement is subject to termination if the Merger is not consummated within twelve months, subject to an automatic extension for a period of ninety days, for the purpose of obtaining certain antitrust clearances. The Agreement also contains certain other termination rights and provides that, upon termination of the Agreement under specified circumstances, including Yageo’s decision to terminate the Agreement if there is a change in the recommendation of the Company’s Board of

4






Directors (the “Board”) to adopt the Merger or a termination of the Agreement by the Company to enter into an agreement for a “superior proposal,” the Company will pay Yageo a cash termination fee of $63.8 million. The Agreement additionally provides that, upon termination of the Agreement under specified circumstances, Yageo will pay the Company a cash termination fee of $65.4 million.
The Merger with Yageo is proceeding as planned with several key milestones already completed. On February 4, 2020, the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the review period under the Austrian Cartel Act expired, and the pending Merger was approved by the German Federal Cartel Office. On February 20, 2020 the Company’s stockholders approved the Merger. On March 5, 2020, the Mexican Competition Authority authorized the pending Merger and on April 15, 2020, the Taiwan Fair Trade Commission (“TFTC”) announced its approval of the pending Merger. On April 23, 2020, CFIUS notified KEMET and Yageo that it completed its review of the Merger and determined that there were no unresolved national security concerns with respect to the transaction. On April 29, 2020, the Anti-Monopoly Bureau of China's State Administration for Market Regulation approved the pending Merger.
If Yageo fails to obtain approval by Yageo’s stockholders, if such approval is required by applicable law, Yageo will pay the Company a cash termination fee of $49.1 million. If Yageo fails to obtain debt financing upon the satisfaction of all conditions to closing, the Company may, within 30 days of termination, elect to receive a cash termination fee of $63.8 million.
The only remaining regulatory approval required for the consummation of the Merger is the approval from the Investment Commission, Ministry of Economic Affairs in Taiwan. The Company currently expects the transaction to close in the summer of 2020.
Strategy
KEMET is committed to providing its customers with high quality, low cost solutions for their electronic applications and strives to create stockholder value primarily through the following strategic priorities:
leveraging our manufacturing expertise;
strengthening our “Go-to-Market” leadership position; and
consistently attracting and retaining exceptional talent;
KEMET measures its progress against these strategic priorities over the long-term based primarily on financial metrics including revenue growth, profitability, free cash flow, and balance sheet liquidity.
We believe this strategy has strengthened the Company's position in the market to be able to capture the growing demand for custom designed, higher margin electronic components in several industry segments. KEMET's transformation has resulted in increased and sustainable margins, and has enhanced the durability of our revenue base. In addition, we intend to leverage KEMET's strong proprietary technology to support future organic growth in key markets.
Strategic Highlights
With the completion of the TOKIN acquisition and the vertical integration of KEMET's Solid Capacitors' Tantalum product line, the Tantalum product line is well positioned to remain successful in the market. The Tantalum product line focuses on its polymer technology and benefits from operational synergies from the TOKIN acquisition, which reduced operating costs, improved yields, and provided access to new market segments. In addition, it's our belief that our vertical integration strategy continues to keep our tantalum costs the lowest among our competitors. This enables us to avoid large fluctuations in selling prices for tantalum products when the market price for tantalum ore fluctuates. As a result of the enhanced polymer focus, we believe KEMET’s polymer tantalum sales lead the industry with an estimated market share of approximately 50%. We believe that leveraging KEMET's and TOKIN's manufacturing expertise, combined with our vertical integration, has successfully transformed KEMET's Tantalum product line. This has positioned it well for new growth opportunities across multiple industry segments, especially those segments demanding higher reliability in harsh environment applications. 
KEMET's Solid Capacitors' Ceramic product line is also well positioned for new opportunities. The Ceramic product line began its transformation in 2008 when it shifted focus from consumer markets to business to business markets, across the automotive, defense/aerospace, medical, energy, telecommunications, and industrial sectors. While KEMET's competitors focused on small case size multi-layer ceramic capacitors (MLCC's), KEMET's Ceramic product line focused on building a core competency in high-reliability, high-voltage/power, large case size MLCC's. Since 2010, the Ceramic product line's Cumulative Annual Growth Rate (CAGR) in the markets in which it operates has been approximately 16%. Based on expected strong medium and long term demand for MLCC's, the Company entered into three long-term (10 year) customer supply agreements during fiscal year 2019 which are projected to account for approximately 33% of KEMET's MLCC capacity in fiscal year 2022. KEMET is in the process of expanding its current MLCC production capacity, which currently is approximately 53 billion pieces per year. The Company expects to have the ability to produce 72 billion pieces per year by

5






fiscal year 2022. Approximately 24 billion, or 33% of these pieces are committed to the three customers that signed long-term supply agreements. We believe the operational and strategic changes that we have made have successfully positioned our Ceramic product line for continued success.
The completion of KEMET's acquisition of TOKIN in fiscal year 2018 further diversified KEMET's products and geographic markets, facilitating cross selling opportunities that support KEMET's "long tail" (defined below) selling strategy. The added liquidity from TOKIN's balance sheet reduced KEMET's consolidated net debt, permitting a debt refinancing arrangement in Japan. The Company's interest expense for the fiscal year ended March 31, 2020 decreased $10.2 million and $21.9 million compared to the fiscal years ended March 31, 2019 and 2018, respectively, due to the benefit of the debt refinancing. Additionally, the TOKIN acquisition has contributed to the development of new technology, and as noted above, has created operational synergies and improved yields in KEMET's existing Tantalum product line.
KEMET's “Go-to-Market” strategy includes four key elements which have contributed to KEMET's success and supported the structural transformation noted above:
Global Sales Team
Design-In Focus
Service "Long Tail" (high mix, low volume) Customers
Customer Digital Engagement Platform
KEMET's global sales team consists of professionals that are local to the regions that they serve. Sales personnel, application engineers, and customer service representatives are located near KEMET's customers, which permits frequent face-to-face conversations. In addition, we partner with all the premier distributors in the electronics industry, ensuring we obtain a large geographical sales presence and can leverage their expertise in stocking and servicing customers.
Adding value to our customers is an important part of our relationship, and over the years we have transformed our product portfolio from a commodity-based approach to a customized, design-in approach. To support our design-in strategy, our global sales team includes field application engineers with degrees in electrical engineering that work directly with our customers at the early stages of product development to ensure KEMET's products are designed-into the product applications. As a result, today we target all the key fast growing applications in the electronic market including, but not limited to, electric vehicles, industry 4.0 (as described below), autonomous driving, artificial intelligence, and data storage.
While our global sales team focuses on our larger customers, KEMET has also developed a comprehensive strategy to serve our “long tail” customers (the smaller customers), which are approximately 180,000 customers. This not only allows us to provide world class customer service to our smaller customers, but also provides KEMET with an improved opportunity to partner with today's smaller companies that are potentially tomorrow's leading electronic companies. To do so, we have developed an internal culture and supporting business processes to engage with high-mix/low-volume requirements that are typical from the “long-tail” customer.
KEMET supports its global sales initiatives with what we believe is a market leading customer digital engagement platform. We believe the electronic component industry is still in the early stages of “digital disruption” (how electronic manufacturers go to market). We believe our existing and continuously improving component simulation, component search, and component quoting platforms for buyers are market leading and put KEMET at the forefront of the “digital disruption” that will transform how the electronic components are sold in the future.
We believe KEMET's business strategy will allow us to leverage the global mega-trends of an increasingly electrified and connected world and positions KEMET well for growth.
General
While KEMET competes in the broader passive electronic component industry, our strategic focus is on growth markets, specialty products requiring high reliability, and, within Ceramic, larger case size capacitors.
Our product line consists of multilayer ceramic, tantalum, film and aluminum (solid and electrolytic) capacitors, and Electro-Magnetic Compatible (“EMC”) devices, sensors, and actuators. Product offerings include surface mounts, which are attached directly to the circuit board; leaded capacitors, which are attached to the circuit board using lead wires; and chassis-mount and other pin-through-hole board-mount capacitors, which utilize attachment methods such as screw terminal and snap-in. Capacitors are electronic components that store, filter, and regulate electrical energy and current flow. As an essential passive component used in nearly all circuit boards, capacitors are typically used for coupling, decoupling, filtering, oscillating and wave shaping and are used in communication systems, servers, personal computers, tablets, cellular phones, automotive electronic systems, defense and aerospace systems, consumer electronics, power management systems and many other electronic devices and systems (basically anything that plugs in or has a battery). While our broad product offering allows us to

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meet the majority of those needs independent of application and end use, our strategic focus is on high growth and specialty markets as noted above.
Solid Capacitors' products are commonly used in conjunction with integrated circuits, and the same circuit may contain both ceramic and tantalum capacitors. Tantalum capacitors are a popular choice because of their ability for high capacitance in a small volume package. While ceramic capacitors are more cost-effective at lower capacitance values, tantalum capacitors are more cost-effective at higher capacitance values, and solid aluminum capacitors can be more effective in special applications.
KEMET's Tantalum business continues to transition toward a higher proportion of polymer technology sales in which we believe KEMET has an estimated market share leadership of approximately 50%. Growth drivers for this product line include advanced driver assistance and autonomous driving systems, tablets and PC’s, 5G infrastructure and connectivity, data servers and solid state drives and power density energy systems. 
KEMET's Ceramic business continues to focus on its specialty (value added) and large cap size business. Growth drivers for the Ceramic business include electric vehicles, advanced driver assistance and autonomous driving systems, 5G infrastructure and connectivity, data servers and solid state drives, wireless charging, satellites, radar, and guidance systems.
Film, paper and aluminum electrolytic capacitors can be used to support integrated circuits, but also are used in the field of power electronics to provide energy for applications such as motor starts, power conditioning, electromagnetic interference filtering safety, and inverters. Film and Electrolytic's self-healing products deliver high reliability solutions for extreme conditions. Growth drivers for Film and Electrolytic include alternative energy solutions, electric vehicle charging stations, and hybrid and electric vehicles.
KEMET's MSA business offers a broad line of electrical noise management products that play a key role in maintaining signal integrity across a number of end markets including telecommunications, mobile computing, automotive, and general industries. The MSA business also offers power solutions through the inductance properties of our proprietary ferrite and metal composite materials. MSA's focus on material development enhances MSA's magnetic portfolio by providing unique magnets, e-magnets, and memoalloy products. Additionally, MSA's sensor and actuator business manufactures products that sense and respond to human activity, physical vibration, temperature change, and electric current, which are found in home appliances, consumer devices, and industrial electrical equipment. Growth drivers for MSA include electric vehicles, advanced driver assistance and autonomous driving systems, industry 4.0, 5G infrastructure and connectivity, and power density and energy efficiency systems.
We believe the long-term demand for the components we offer will grow on a regional and global basis due to a variety of factors including electric vehicles ("EV"), vehicles with advanced driver assisted electronics, 5G infrastructure, industry 4.0, alternative energy and energy storage. The 'electrification of everything' is driving growth. We expect growth not only in end-products, but due to the increasing complexity of electronic products and the additional capacitors required in those products, we expect strong growth of the products required to support the 'electrification of everything'. We believe KEMET is strategically aligned in its manufacturing operations and in how we go-to-market to serve these growing markets.
Our Industry
We compete with others that manufacture and distribute electronic components both domestically and globally and our success in the market is influenced by many factors, including price, availability, engineering specifications, quality and breadth of offering, performance characteristics, customer service and geographic location of our manufacturing sites. As in all manufacturing industries, improving cost of production is key to staying competitive. KEMET, as well as many of its larger competitors, have relocated their respective manufacturing operations to low cost regions and locations in closer proximity to their respective customers.
Because capacitors are a fundamental component of electronic circuits, demand for capacitors tends to reflect the general demand for electronic products, as well as integrated circuits, which we believe over time will continue to grow. We believe growth in the electronics market and the resulting growth in demand for capacitors will be driven primarily by a number of recent trends which include:
industry 4.0:
the development of new products, applications and electronic controls for engines and industrial machinery, including cyber physical systems, cloud computing, and cognitive computing; security smart phones and mobile personal computing devices;
the “internet-of-things;”

7






the increase in the electronic content of existing products, such as home appliances and medical equipment, smart phones and mobile personal computing devices;
the enhanced functionality, complexity and convergence of electronic devices that use state-of-the-art microprocessors;
alternative and renewable energy systems;
EV and advanced driver assisted electronics; and,
the development of 5G infrastructure and connectivity.
The acquisition of TOKIN increased our market opportunity through the EMC devices and sensor and actuator markets.
Markets and Customers
Our products are sold to a variety of Original Equipment Manufacturers (“OEM”) in a broad range of industries including the computer, communications, automotive, military, consumer, industrial, medical, and aerospace industries. We also sell products to electronics manufacturing services (“EMS”) providers, which serve OEMs in these industries. Electronics distributors are an important channel of distribution in the electronics industry and represent a large channel through which we sell our capacitors. One electronics distributor, TTI, Inc., accounted for over 10% of our net sales in each of fiscal years 2020, 2019 and 2018. If our relationship with this customer were to terminate, we would need to determine alternative means of delivering our products to the end-customers served by them. In addition, an aggregate of over 10% of our net sales in fiscal year 2020 were driven by sales to EMS providers for incorporation into Apple Inc. products.
Diversification is critical to the success of our business as our products reach a multitude of industries with various opportunities for growth. As a full-service provider in the capacitor space, KEMET produces the majority of the dielectrics available to cover our customer needs. The TOKIN acquisition has increased KEMET's offering with a larger product portfolio including magnetics, sensors and actuators, enhancing its ability to deliver specialty and design-in solutions to the automotive, military, aerospace, medical, energy, communications, and industrial markets. While we are seeing a merging of major segments as connectivity and “internet-of-things” grow, the following table presents an overview of the diverse industries that incorporate our capacitors into their products and the general nature of those products.
Industry
 
Products
Automotive
 
Adaptive cruise control, High intensity discharge headlamps, Light emitting diode electronic modules, Lane departure warning, Camera systems, Audio systems, Tire pressure monitoring, Power train electronics, Instrumentation, Airbag systems, Anti-lock braking and stabilization systems, Hybrid and electric drive vehicles, Electronic engine control modules, Driver comfort controls, Security systems, Radar, Connectivity systems and Advance driver assistance gear
Communications
 
Smart phones, Telephones, Switching equipment, Relays, Base stations, and Wireless infrastructure
Computer-related
 
Personal computers (laptops, tablets, notebooks), Workstations, Servers, Mainframes, Computer peripheral equipment, Power supplies, Solid state drives, and Local area networks
Industrial
 
Electronic controls, Measurement equipment, Instrumentation, Solar and wind energy generation, Down-hole drilling and Medical electronics
Consumer
 
Digital media devices, Game consoles, Televisions, Audio devices, and Global positioning systems
Military/Aerospace
 
Avionics, Radar, Guidance systems, and Satellite communications
Medical
 
Defibrillators, Diagnostic equipment, Imaging equipment, Cardiac devices, and Pain management devices
Alternative Energy
 
Wind generation systems, Solar generation systems, Geothermal generation systems, Tidal generation systems and Electric drive vehicles
We produce a small percentage of capacitors under military specification standards sold for both military and commercial uses. We do not sell any capacitors directly to the United States government. Certain of our customers purchase capacitors for products in the military and aerospace industries.

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The acquisition of TOKIN increased our position in the following industries that incorporate EMC devices, sensors, and actuators into their products:
Industry
 
Products
Telecom Infrastructure
 
Switching equipment, Base stations, and Wireless infrastructure
Gaming
 
Consoles, Displays, Power management
Consumer
 
Battery chargers/AC adapters, Power supply, Refrigerators, Inductive cooking and Air conditioning
Automotive
 
Infotainment and Power supply
Medical
 
Test and Diagnostic
Industrial
 
Semiconductor producing equipment and Measurement equipment
Our customer base includes most of the world’s major electronics OEMs, EMS providers, and distributors listed below.
Major OEMs:
Bosch Group, Cisco Systems Inc., Continental AG, Delphi Technologies PLC, Tesla Inc., and Denso in the automotive segment.
Apple Inc., Western Digital Corporation, Dell Inc., and Google LLC in the Computer and consumer segment.
ABB Group, Yaskawa Electric Inc., and Schlumberger in the industrial and alternative energy segment.
Major EMSs:
Flextronics International Ltd., Jabil Circuit Inc., Celestica Inc., and Sanmina-SCI Corporation
Major Distributors:
TTI, Inc., Arrow Electronics, Inc., Satori Electric Co., Ltd., and Avnet, Inc.
KEMET in the United States
Our corporate headquarters are in Fort Lauderdale, Florida.
Component manufacturing previously located in the United States has been substantially relocated to our lower-cost manufacturing facilities in Mexico, China, Vietnam, Indonesia, Thailand, and countries in Europe. The vision for KEMET's foreign subsidiaries is for them to be primarily local operations, with local management and workers, to help achieve our objective of being a global company. These facilities are responsible for maintaining our tradition of excellence in quality, service, and delivery, while accelerating cost-reduction efforts and supporting efforts to grow our customer base. Production remaining in the United States focuses primarily on early-stage manufacturing of new products and other specialty products for which customers are predominantly located in North America.
In 2012, we completed the acquisition of all of the outstanding shares of Blue Powder, a leading manufacturer of tantalum powders. Blue Powder had been a significant supplier of tantalum powder to KEMET for several years and its principal operating location was in Carson City, Nevada. During fiscal year 2020, the Company completed the process of modifying its vertical integration strategy by relocating its tantalum powder facility equipment from Carson City, Nevada to its existing Matamoros, Mexico plant.
To accelerate the pace of innovations, KEMET maintains an Innovation Center for Solid Capacitors near Greenville, South Carolina. The primary objectives of the KEMET Innovation Center are to ensure the flow of new product platforms, material sets, and processes that are expected to keep us at the forefront of our customers’ product designs, while enabling these products to be transferred rapidly to the most appropriate KEMET manufacturing location in the world for low-cost, high-volume production.
KEMET in Mexico
We believe our operations in Mexico are among the most cost efficient in the world, and we expect they will continue to be our primary production facilities supporting North American and European customers for Solid Capacitors. The facilities in Victoria and Matamoros are primarily focused on tantalum capacitors, while the facilities in Monterrey are focused on ceramic capacitors.

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KEMET in Asia Pacific
We have a well-established manufacturing, sales and logistics network in Asia to support our customers’ Asian operations. We currently manufacture tantalum and aluminum polymer, film, and electrolytic products in China, tantalum products in Thailand, and film products in Indonesia. We manufacture electromagnetic compatible and sensor and actuator products in China, Japan, and Vietnam. In addition, we operate one innovation center for Solid Capacitors and one innovation center for MSA in Japan.
KEMET in Europe
We currently have one or more manufacturing locations in each of the following countries: Bulgaria, Finland, Italy, Macedonia, Portugal, and Sweden. In addition, we operate product innovation centers in Italy and Portugal. We continue to maintain and enhance our strong European sales and customer service infrastructure, allowing us to continue to meet the local preferences of European customers who remain an important focus for KEMET.
Global Sales and Logistics
KEMET serves the needs of our global customer base through four geographic regions: North America and South America (“Americas”), Europe, the Middle East and Africa (“EMEA”), Asia and the Pacific Rim (“APAC”) and Japan and Korea (“JPKO”). We have a global sales team with 29 sales offices located in 15 countries and a global distribution network. We also have independent sales representatives located in several countries worldwide including: Brazil, Israel, Canada, and the United States. Our strategic focus is to ensure we have people near our customers to facilitate regular face-to-face communication. This is critical to ensure that KEMET is included during the design-in phase.
Consequently, in our major markets, we market and sell our products primarily through a direct sales force. With a global sales organization that is customer-focused, our direct sales personnel from around the world serve on KEMET Global Account Teams committed to serving any customer location in the world with a dedicated KEMET representative. The traditional sales team is supported by regional Field Application Engineers who are experts in electronic engineering and market KEMET’s products by assisting customers with the resolution of capacitor application issues. We believe our direct sales force creates a distinct advantage in the marketplace by enabling us to establish and maintain strong relationships with our customers to efficiently process simple repeat business as well as to consult with customers on new and technically complex custom applications. In addition, where appropriate, we use independent commissioned representatives. This approach requires a blend of accountability and responsibility for specific customer locations, guided by an overall account strategy for each customer. Our sales team works with the customers throughout the entire purchasing process, following opportunities as they progress through concept, design, validation and, finally, mass production. In Japan, we market and sell directly and through manufacturers agents. These manufacturers agents create unique custom solutions integrating our products which help pull our products though the channel.
Electronics distributors are an important distribution channel in the electronics industry and accounted for 40.4%, 42.2%, and 39.2% of our net sales in fiscal years 2020, 2019 and 2018, respectively. A portion of our net sales to distributors are made under agreements allowing certain rights of return and price protection on unsold merchandise held by distributors. In addition, our distributor policy includes inventory price protection and “ship-from-stock and debit” (“SFSD”) programs common in the industry.
Sales by Geography
In fiscal years 2020 and 2019, net sales by region were as follows (dollars in thousands):
 
 
Fiscal Year 2020
 
Fiscal Year 2019
 
 
Net Sales
 
% of
Total
 
Net Sales
 
% of
Total
APAC
 
$
509,161

 
40.4
%
 
$
533,340

 
38.6
%
Americas
 
296,929

 
23.6
%
 
337,842

 
24.4
%
EMEA
 
276,477

 
21.9
%
 
315,535

 
22.8
%
JPKO
 
177,987

 
14.1
%
 
196,101

 
14.2
%
Total
 
$
1,260,554

 
 
 
$
1,382,818

 
 
We believe our regional balance of revenues is a benefit to our business. The geographic diversity of our net sales diminishes the impact of regional sales decreases caused by various holiday seasons. The Americas remain the leading region in the world for product design-in activity where engagement with OEM design engineers determines product placement independent of the region of the world where the final product is manufactured. Please see Note 8, “Reportable Segment and Geographic Information” to our Consolidated Financial Statements.

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Inventory and Backlog
Our customers often encounter uncertain or changing demand for their products. They historically order products from us based on their forecast and if demand does not meet their forecasts, they may cancel or reschedule the shipments included in our backlog, in many instances without penalty. Additionally, many of our customers have started to require shorter lead times and “just in time” delivery. Consequently, the twelve-month order backlog is not a meaningful trend indicator for us.
Although we manufacture and inventory standardized products, a portion of our products are produced to meet specific customer requirements. Cancellations by customers of orders already in production could have an impact on inventories. Historically, however, cancellations have not been significant.
Competition
The capacitor industry, and the electronic industry in general, is characterized by a competitive and growing market environment. Competitive factors influencing the market for our products include: product quality, customer service, technical innovation, pricing, and timely delivery. We believe we compete favorably based on each of these factors. Additionally, we believe our strategic focus positions KEMET well in specific markets within the capacitor industry, aligns with our core competencies, and allows us to focus on growth and higher profitability markets.
Our major global competitors in the passive electronic component industry include AVX Corporation, Panasonic Corporation, Murata Manufacturing Co., Ltd., Samsung Electro-Mechanics Co. LTD., Taiyo Yuden Co., Ltd., TDK-EPC Corporation, Yageo Corporation, Walsin Technology Corporation, LTD., Vishay Intertechnology, Inc. (“Vishay”), Xiamen Faratronic Co. LTD., Hitachi High-Technologies Corp., Nippon Chemi-Con Corp., Nichicon Corp., and Rubycon Corporation.
We believe the Company's strategic shift over the last few years to more customized, design-in, and high reliability solutions has given it a unique competitive position in the market place and enhanced its durability of revenue base. In the highly commoditized multi layered ceramic capacitor market, KEMET focuses primarily on the large case sizes capacitors and the growing automotive market segment offering niche products required in high temperature, vibration, and voltage environments.
Raw Materials
The principal raw materials used in the manufacture of our products are tantalum powder, tantalum ore, barium titanate, calcium zirconate, rare earth oxides, palladium, aluminum, silver, copper, nickel and tin. These materials are considered commodities and are subject to price volatility. Additionally, any delays in obtaining raw materials for our products could hinder our ability to manufacture our products, negatively impacting our competitive position and our relationships with our customers. KEMET is committed to partnerships and close relationships with key suppliers of the critical materials listed above. We also actively pursue sourcing from multiple manufacturing sites of current suppliers, as well as second sourcing of critical raw materials to mitigate the risk of supply discontinuity in case of unforeseen geo-political events or natural disasters.
Tantalum is mined principally in the Democratic Republic of Congo, Australia, Brazil, Canada, Ethiopia, Nigeria, and Rwanda. As a result of our tantalum vertical integration program which began in fiscal year 2012, we have reduced our exposure to price volatility and supply uncertainty in the tantalum supply chain. Our tantalum ore supply requirements are now met through our direct sourcing partners of conflict free tantalum, which is then processed into the intermediate product potassium heptafluorotantalate (commonly known as K-salt) at our own facility in Mexico or at third party locations, before final processing into tantalum powder at KBP operations in Matamoros, Mexico. However, price increases for tantalum ore, or for the remaining tantalum powder that we source from third parties, could impact our financial performance as we may not be able to pass all such price increases on to our customers. We believe that our vertical integration strategy continues to keep our tantalum costs the lowest among our competitors. This enables us to avoid large fluctuations in selling prices for tantalum products when the market price for tantalum ore fluctuates.
Silver and aluminum have generally been available in sufficient quantities, and we believe there are enough suppliers from which we can purchase our requirements. An increase in the price of silver and aluminum that we are unable to pass on to our customers, could, however, have an adverse effect on our profitability.
Patents and Trademarks
As of March 31, 2020, we held the following number of patents and trademarks:
 
 
Patents
 
Trademarks
United States
 
339

 
20

Foreign
 
1,019

 
254


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We believe the success of our business is not materially dependent on the existence or duration of any individual patent, license, or trademark other than the trademarks “KEMET,” “KEMET Charged,” and "TOKIN". Our engineering and research and development staffs have developed and continue to develop proprietary manufacturing processes and equipment designed to enhance our manufacturing facilities and reduce costs.
Segment Reporting
We are organized into three reportable segments: Solid Capacitors, Film and Electrolytic and MSA. Each reportable segment is responsible for the operations of certain manufacturing sites as well as all related research and development efforts. The sales, marketing and corporate functions are shared by each of the segments. See Note 8, “Reportable Segment and Geographic Information” to our Consolidated Financial Statements for other information regarding the Company's reportable segments, including net sales, operating income, total assets, and financial information about geographic areas.
Solid Capacitors Reportable Segment
Solid Capacitors operates in nine manufacturing sites in the United States, Mexico and Asia and operates innovation centers in the United States and Japan. 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. Solid Capacitors employs approximately 6,600 employees worldwide. For fiscal years 2020, 2019 and 2018, Solid Capacitors had consolidated net sales of $886.1 million, $935.8 million and $771.2 million, respectively.
We continue to make significant investments in tantalum production within Solid Capacitors and, based on net sales, we believe we are the largest tantalum capacitor manufacturer in the world. We believe we have one of the broadest lines of tantalum product offerings and are one of the leaders in the growing market for high-frequency low equivalent series resistance (“ESR”) surface mount tantalum and aluminum polymer capacitors.
We believe KBP, which we acquired in 2012, to be among the largest production facilities for tantalum powder in the western hemisphere. Since the acquisition of KBP, KEMET has been able to stabilize its tantalum powder costs and significantly improve its operating margin through its vertical integration efforts. The Company continues to streamline its vertical integration strategy and may take actions to improve the cost structure if the anticipated results are advantageous. The Company completed the process of relocating its tantalum powder facility equipment from Carson City, Nevada to its existing Matamoros, Mexico plant during fiscal year 2020.
Our tantalum product line has a broad product portfolio with industry leading processes and materials technology, a global manufacturing base, and on-time delivery capabilities that allow us to serve a wide range of customers in a diverse group of end markets, including computing, telecommunications, consumer, medical, military, automotive, and general industries. KEMET is the market leader in polymer tantalum, with an estimated market share of approximately 50%.
Within our ceramic product line, we are making significant investments to support future MLCC growth. KEMET is a global and well known MLCC supplier in the automotive, industrial, medical, energy, defense, and aerospace markets. Due to the extended global shortage of ceramic capacitors that began in 2016, customers are looking to KEMET as a long-term stable MLCC supplier to support their growth. The Company has entered into agreements with three of its largest customers pursuant to which the customers have agreed to provide interest free funds to the Company in exchange for assurance of future supply. These funds are being used by the Company to fund the purchase of certain production equipment and to make other investments and improvements in the Company and its operations in order to increase its overall capacity to produce various electronic components. We are continuing to work with many of our other customers to help them secure future MLCC supply.
Our ceramic product line offers an extensive line of MLCC's in a variety of sizes and configurations. Our high voltage, high temperature and ultra-stable dielectric technology provides us with what we believe to be a significant advantage over many of our competitors, particularly in the high reliability markets mentioned. We are increasing investments in research and development to extend our current portfolio, as well as to be able to offer more effective high-density packaging solutions for connecting multiple components. We are also working with our customers to design-in our products with a focus on the growing automotive segment.
Film and Electrolytic Reportable Segment
Our Film and Electrolytic reportable segment produces film, paper and wet aluminum electrolytic capacitors. In addition, the segment designs and produces electromagnetic interference filters ("EMI filters"). Film capacitors can be used for applications requiring high power and high voltages, whereas aluminum electrolytic capacitors can be used for applications requiring high energy at a reasonable price. EMI filters consist of capacitive and inductive elements that reduce electromagnetic disturbance in the frequency range desired. We believe we are one of the world’s largest suppliers of film capacitors and one of the leaders in wet aluminum electrolytic capacitors. Both product families serve industrial and automotive customers, and in

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particular, the emerging market for alternative energy and electrical vehicles. For fiscal years 2020, 2019, and 2018, our Film and Electrolytic segment had consolidated net sales of $175.8 million, $206.2 million, and $202.0 million, respectively. Our Film and Electrolytic business is mostly concentrated in Europe and, as such, is impacted by changes in the exchange rate for the Euro to the U.S. dollar.
Our Film and Electrolytic reportable segment primarily serves the industrial and automotive markets. We believe our Film and Electrolytic Segment’s product portfolio, technology and experience allow us to significantly benefit from the continued growth in alternative energy solutions and energy efficiency solutions within both the automotive and industrial markets especially for demanding applications such as humidity, temperature, voltage, etc. We operate eight manufacturing sites throughout Europe and Asia and maintain product innovation centers in Italy and Portugal. Our Film and Electrolytic Segment employs approximately 1,650 employees worldwide.
The Company completed the process of relocating axial electrolytic production from Granna, Sweden to its plant in Evora, Portugal during fiscal year 2020, which is expected to increase flexibility, capabilities, and competitiveness in the marketplace.
Electro-Magnetic, Sensors, and Actuators Reportable Segment
MSA operates in four manufacturing sites throughout Asia and operates a product innovation center in Japan. MSA primarily produces EMC materials and devices, piezo materials and actuators, and various types of sensors which are sold globally. For fiscal years 2020, 2019, and 2018, our MSA Segment had consolidated net sales of $198.7 million, $240.7 million, and $227.0 million, respectively. Currently, most of MSA's net sales come from Japan, Korea, and other countries in Asia, however MSA aims to sell products globally. Our MSA segment employs approximately 2,750 employees worldwide.
The EMC device product line offers a broad line of electrical noise management products. As circuits become more complex within a device, and the amount of information being communicated between devices increases at a dramatic rate, the quality of electronic signals becomes key to the integrity of the information being communicated. In addition, power efficiency is a critical component of electronic devices, and with increased switching frequencies, our power inductors enable stable inductance at high currents. Our EMC and power solution products play a key role across a number of end-markets including telecommunications, mobile computing, automotive, and general industries. In addition, our electro-magnets are used in particle accelerators and in our super elastic alloy (memoalloy), which are used in guide wires in the medical field. These many offerings and uses showcase out ability to customize our materials to the needs of our customers.
The sensor and actuator product line manufactures products that sense and respond to human activity, physical vibration, temperature change, and electric current. These products are found in home appliances, consumer devices, and industrial electrical equipment. Sensors are an important family of devices as the “internet-of-things” continues to permeate everyday life. Furthermore, we manufacture electromechanical actuation devices that are critical to the manufacture of semiconductor devices, the management of industrial and chemical gas flow, ultrasonic transducers, and in medical or scientific equipment where precise position control is of the utmost importance.
Corporate Sustainability and Risk Management
We are subject to various North American, European, and Asian national, state, and local environmental laws and regulations relating to the protection of the environment, including those governing the handling and management of certain chemicals and materials used and generated in the manufacturing of electronic components. We recognize an increasing number of laws and regulations, including stakeholder expectations related to climate change. In 2019, we integrated climate change into our risk management strategy to help identify and evaluate potential risks. We do not believe compliance with these laws and regulations, or stakeholder expectations, will have a material adverse effect on our capital expenditures, earnings, or competitive position. However, we believe it is reasonably likely the trend in environmental litigation, laws, and regulations will continue to move toward stricter standards. Such changes in the laws and regulations may require us to make additional capital expenditures which, while not currently estimable with certainty, are not presently expected to have a material adverse effect on our financial condition.
We are strongly committed to economic, environmental, and socially sustainable development. As a result of this commitment, in 2008 we adopted the Responsible Business Alliance ("RBA") Code of Conduct. The RBA Code of Conduct is a comprehensive code of conduct that addresses all aspects of corporate responsibility including labor, health and safety, the environment, business ethics, and related management system elements. It outlines standards to ensure working conditions in the electronic industry supply chain are safe, free from slavery and human trafficking, workers are treated with respect and dignity, manufacturing processes are environmentally sustainable, materials are sourced responsibly, and business operations are conducted ethically.

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Policies, programs, and procedures implemented throughout KEMET are intended to ensure conformity with applicable legal and regulatory requirements, the content of the RBA Code of Conduct, and customer contractual requirements related to social and environmental responsibility.
We fully support the position of the RBA, the Responsible Minerals Initiative ("RMI"), and the Tantalum-Niobium International Study Center (“TIC”) in avoiding the use of conflict minerals which directly or indirectly finance or benefit armed groups in the Democratic Republic of Congo and its adjoining countries, or in any region determined to be a conflict affected and high-risk area. In furtherance of this support, we have utilized the Organisation for Economic Co-operation and Development (“OECD”) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas as the foundation for KEMET's supply chain policy by implementing the five-step risk-based framework due diligence in our mineral supply chain. This supply chain policy and requirement has been communicated to all suppliers of conflict minerals and is communicated publicly on our website. Our tantalum supply base has been and continues to be validated as conformant to the RMI's Responsible Minerals Assurance Program ("RMAP"). We will continue to work through the RMI and TIC towards the goal of greater transparency in the supply chain.
In May 2020, KEMET published its second Corporate Sustainability Report (“CSR”), outlining its commitment towards the environment, its employees, and the communities within which it operates. This second CSR highlights the environmental, social, and governance topics deemed most material to the Company, and emphasizes risk management and disclosures of third-party assessments of KEMET in these areas.
Summary of Activities to Develop a Transparent Supply Chain
We are actively involved in developing a transparent supply chain through our membership in the RMI. We were a member of the EICC Global e-Sustainability Initiative (“GeSI”) working group that developed the original Conflict Free Sourcing Program assessment protocols and we participated in the pilot implementation phase of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. We participate in smelter engagement to increase the number of conflict-free validated smelters globally, the development of due diligence guidance documents and the advancement of the industry adopted RMI Conflict Minerals Reporting Template. We rely on the RMAP independent third-party audits to supplement our internal due diligence of conflict mineral suppliers and are monitoring the progress of these audits to ensure our supply chain is conflict free. We fully support Section 1502 “Conflict Minerals” of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Global Code of Conduct and Mission, Vision and Values
KEMET maintains a Global Code of Conduct (“Code of Conduct”), which became effective August 1, 2010 and updated on May 16, 2019, as well as mission (“Mission”), vision (“Vision”) and values (“Values”) statements along with a set of core values, which became effective in June 2011. KEMET’s Mission is to help make the world a better, safer, more connected place to live. KEMET’s Vision is to be the world’s most trusted partner for innovative component solutions. KEMET’s Values are the keys to our success, and they are: a belief in the passion, skills, and engagement of our employees; supporting each other with no self-interest and no politics; a One KEMET global team valuing diversity and inclusion; ethics, integrity, and the courage to always do the right thing; energetic responsiveness and an unparalleled customer experience; materials innovation and breakthrough technology leveraging sustainable material science; delivering sustainable, profitable growth; and a commitment to protecting human health, safety, and natural resources. The Code of Conduct and Mission, Vision and Values are applicable to all employees, officers, and directors of the Company. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from a provision of our Code of Conduct, Mission, Vision and Values by posting such information on our website at http://www.kemet.com.
In May 2020, the Company published its second CSR, outlining its environmental and social commitments towards its stakeholders. Sustainability has been a large part of KEMET's culture for many years, and the report demonstrates to all stakeholders the Company's policy of conducting business in a responsible way. Sustainability is integrated throughout KEMET's global operations, and the Company has implemented programs worldwide in support of the policy. The CSR highlights these programs, which includes the RBA Code of Conduct, as well as yearly submissions of data to the Carbon Disclosure Project. KEMET's fiscal year 2019 Carbon Disclosure Project data was made public for the first time during fiscal year 2020. Our Carbon Disclosure Project scores were released in our latest CSR.
KEMET supports the Kisengo Foundation and certain other charitable endeavors in the Democratic Republic of Congo with periodic monetary donations. Funds have been used toward building and supporting a new hospital and school as well as the installation of freshwater wells, solar street lighting, infrastructure improvements and a micro-agriculture project.

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Employees
We have approximately 12,450 employees as of March 31, 2020 in the following locations:
Asia
5,100

Mexico
4,500

Europe
1,450

Japan and Korea
800

United States
600

The number of KEMET employees represented by labor organizations in each of the following countries are shown in the table below. Due to the General Data Protection Regulation (“GDPR”) that became effective in May 2018 in the European Union, the Company is not permitted to identify employees represented by labor unions in countries that are part of the European Union.
Mexico
2,939

China
2,310

Vietnam
1,260

Japan
586

Indonesia
229

United States
11

Taiwan
11

In fiscal year 2020, we did not experience any major work stoppages due to labor related issues. 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.
Securities Exchange Act of 1934 (“Exchange Act”) Reports
We maintain an Internet website at the following address: http://www.kemet.com. KEMET makes available on or through our Internet website certain reports and amendments to those reports filed or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Exchange Act. These include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and beneficial ownership reports on Forms 3, 4 and 5. This information is available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.
ITEM 1A.    RISK FACTORS.
This report contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates” or other similar expressions and future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Readers of this report should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report. The statements are representative only as of the date they are made, and we undertake no obligation to update any forward-looking statement.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. We face risks that are inherent in the businesses and the market places in which we operate. While management believes these forward-looking statements are accurate and reasonable, uncertainties, risks and factors, including those described below, could cause actual results to differ materially from those reflected in the forward-looking statements.
Factors that may cause actual outcomes and results to differ materially from those expressed in, or implied by, these forward-looking statements include, but are not necessarily limited to, the following: (i) the failure to complete the Merger and the effects such failure would have on the Company's financial condition and results of operations, (ii) certain business uncertainties and contractual restrictions related to the pendency of the Merger, (iii) our inability to pursue alternatives to the Merger during the pendency of the Merger, (iv) adverse economic conditions could impact our ability to realize operating plans if the demand for our products declines, and such conditions could adversely affect our liquidity and ability to continue to operate and could cause a write down of long-lived assets or goodwill; (v) an increase in the cost or a decrease in the

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availability of our principal or single-sourced purchased raw materials; (vi) changes in the competitive environment; (vii) uncertainty of the timing of customer product qualifications in heavily regulated industries; (viii) economic, political, or regulatory changes in the countries in which we operate; (ix) difficulties, delays, or unexpected costs in completing the Company’s restructuring plans; (x) acquisitions and other strategic transactions expose us to a variety of risks, including the ability to successfully integrate and maintain adequate internal controls over financial reporting in compliance with applicable regulations; (xi) our business could be negatively impacted by increased regulatory scrutiny and litigation; (xii) difficulties associated with retaining, attracting, and training effective employees and management; (xiii) the need to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xiv) exposure to claims alleging product defects; (xv) the impact of laws and regulations that apply to our business, including those relating to environmental matters, data protection, cyber security and privacy; (xvi) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xvii) changes impacting international trade and corporate tax provisions related to the global manufacturing and sales of our products may have an adverse effect on our financial condition and results of operations; (xviii) volatility of financial and credit markets affecting our access to capital; (xix) default or failure of one or more of our counterparty financial institutions could cause us to incur significant losses; (xx) the need to reduce the total costs of our products to remain competitive; (xxi) potential limitation on the use of net operating losses to offset possible future taxable income; (xxii) restrictions in our debt agreements that could limit our flexibility in operating our business; (xxiii) failure to maintain effective internal controls over financial reporting; (xxiv) service interruption, misappropriation of data, or breaches of security as it relates to our information systems could cause a disruption in our operations, financial losses, and damage to our reputation; (xxv) economic and demographic experience for pension and other post-retirement benefit plans could be less favorable than our assumptions; (xxvi) fluctuation in distributor sales could adversely affect our results of operations; (xxvii) earthquakes, natural disasters, and climate change could disrupt our operations and have a material adverse effect on our financial condition and results of operations; (xxviii) global health epidemics such as the coronavirus could materially affect our business, financial condition, and results of operations; and (xxix) volatility in our stock price.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and could cause actual results to differ materially from those included, contemplated or implied by the forward-looking statements made in this report, and the reader should not consider the above list of factors to be a complete set of all potential risks or uncertainties.
Completion of the merger with Yageo Corporation is subject to the satisfaction of certain conditions, including regulatory and stockholder approvals, if required, and there can be no assurances as to whether and when it may be completed.
Completion of the Merger is subject to conditions beyond our control that may prevent, delay or otherwise adversely affect its completion in a material way. For example, the Merger cannot be consummated until, among other things, the approval required from the Investment Commission, Ministry of Economic Affairs, Taiwan. Likewise, completion of the Merger is subject to (i) the approval of Yageo’s stockholders, if required by law, (ii) the absence of any applicable restraining order or injunction prohibiting the Merger, and, (iii) in the case of Yageo’s obligations to complete the Merger, there not having been any “material adverse effect.”
We can provide no assurance that all required consents and approvals will be obtained or that all closing conditions will otherwise be satisfied (or waived, if applicable), and, if all required consents and approvals are obtained and all closing conditions are satisfied (or waived, if applicable), we can provide no assurance as to the terms, conditions and timing of such consents and approvals or the timing of the completion of the Merger. Many of the conditions to completion of the Merger are not within either our or Yageo’s control, and neither company can predict when or if these conditions will be satisfied (or waived, if applicable). Any delay in completing the Merger could cause us not to realize some or all of the benefits that we expect to achieve if the Merger is successfully completed within its expected timeframe.
Failure to complete the Merger could negatively impact our stock price and our future business and financial results.
If the Merger is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Merger, we would be subject to a number of risks, including the following:
we may experience negative reactions from the financial markets, including negative impacts on our stock price;
we may experience negative reactions from our customers, vendors and employees;
we may be required to pay Yageo a termination fee of $63.8 million if the Agreement is terminated under certain circumstances, including if we accept a Superior Proposal (as defined in the Agreement);
we will have incurred substantial expenses and will be required to pay certain costs relating to the Merger, including legal, accounting, investment banking and advisory fees, whether or not the Merger is completed;

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we will have been bound by certain restrictions on the conduct of our business prior to completion of the Merger, the waiver of which is subject to the consent of Yageo, which may prevent us from making certain acquisitions or taking certain other specified actions during the pendency of the Merger; and
our management team will have devoted substantial time and resources to matters relating to the Merger (including integration planning), and would otherwise have devoted their time and resources to other opportunities that may have been beneficial to us as an independent company.
We will be subject to business uncertainties and contractual restrictions while the Merger is pending, which could adversely affect our business.
Uncertainty about the effect of the Merger on our employees and officers may have an adverse effect on the Company. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter, as employees and officers may experience uncertainty about their future roles. Additionally, the pendency of the Merger could cause those that deal with us to delay or defer certain business decisions, seek to terminate, change or renegotiate their relationships with us or seek alternative relationships with others.
In addition, the Agreement generally requires us to, and to cause our subsidiaries to, subject to specified exceptions, conduct our business in the ordinary course and use reasonable efforts to maintain and preserve intact our respective business organizations, employees and key business relationships. These restrictions could prevent us from pursuing certain business opportunities that arise prior to the effective time of the Merger and are outside the ordinary course of business. Under the Agreement we also are subject to certain specific restrictions on our corporate and business activity during the pendency of the Merger, including without limitation the ability in certain cases to enter into or amend contracts, dispose of assets, incur indebtedness, pay dividends, incur capital expenditures or settle claims. Such limitations could adversely affect our business and operations prior to completion of the Merger.
The Agreement limits our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire us.
The Agreement contains a non-solicitation covenant that makes it more difficult for the Company to be acquired by, or enter into certain combination transactions with, a third party. Such non-solicitation covenant, subject to certain limitations, restricts our ability to, directly or indirectly, solicit, initiate or knowingly encourage any inquiry, discussion, offer or request any proposal to enter into an alternative transaction, or to engage or participate in any negotiations or discussions or enter into certain agreements in furtherance of an alternative transaction. These provisions could discourage a potential third-party acquirer or merger partner that might have an interest in acquiring or combining with all or a significant portion of the Company or pursuing an alternative transaction from considering or proposing such a transaction.
Adverse economic conditions could impact our ability to realize operating plans if the demand for our products declines; and such conditions could adversely affect our liquidity and ability to continue to operate and could cause the write down of long-lived assets or goodwill.
While our operating plans provide for cash generated from operations to be sufficient to cover our future operating requirements, many factors, including reduced demand for our products, currency exchange rate fluctuations, increased raw material costs, and other adverse market conditions we cannot predict could cause a shortfall in net cash generated from operations. As an example, the electronics industry is a cyclical industry with demand for capacitors reflecting the demand for products in the electronics market. Customers’ requirements for our capacitors fluctuate as a result of changes in general economic activity and other factors affecting the demand for their end-products. During periods of increasing demand for their products, they typically seek to increase their inventory of our products to avoid production bottlenecks. When demand for their products peaks and begins to decline, they may rapidly decrease orders for our products while they use accumulated inventory. Business cycles vary somewhat in different geographical regions, such as Asia, and within customer industries. We are also vulnerable to general economic events beyond our control and our sales and profits may suffer in periods of weak demand.
Our ability to realize operating plans is also dependent upon meeting our payment obligations. If cash generated from operating, investing and financing activities is insufficient to pay for operating requirements and to cover interest payment obligations under debt instruments, planned operating and capital expenditures may need to be reduced.
Additionally, long-lived assets and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of a long-lived asset or group of assets may not be recoverable. Also, goodwill is reviewed for impairment annually and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. In the event the tests show the carrying value of certain long-lived assets, intangible assets, or goodwill are impaired, we would be required to take additional impairment charges to earnings under U.S.

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generally accepted accounting principles. However, such charges would have no direct effect on our cash. If the economic conditions decline we could incur additional impairment charges in the future.
An increase in the cost or decrease in the availability of our principal or single-sourced purchased raw materials could adversely affect profitability.
The principal raw materials used in the manufacture of our products include tantalum powder, tantalum ore, palladium, aluminum, silver, copper, nickel and tin. These materials are considered commodities and are subject to price volatility. Additionally, any delays in obtaining raw materials for our products could hinder our ability to manufacture our products, negatively impacting our competitive position and our relationships with our customers.
Tantalum is mined principally in the Democratic Republic of Congo, Australia, Brazil, Canada, Ethiopia, Nigeria, and Rwanda. As a result of our tantalum vertical integration program which began in fiscal year 2012, we have reduced our exposure to price volatility and supply uncertainty in the tantalum supply chain. Our tantalum ore supply requirements are now met through our direct sourcing partners of conflict free tantalum, which is then processed into the intermediate product potassium heptafluorotantalate (commonly known as K-salt) at our own facility in Mexico or at third party locations, before final processing into tantalum powder at KBP operations in Matamoros, Mexico. However, price increases for tantalum ore, or for the remaining tantalum powder that we source from third parties, could impact our financial performance as we may not be able to pass all such price increases on to our customers.
Silver and aluminum have generally been available in sufficient quantities, and we believe there are enough suppliers from which we can purchase our requirements. An increase in the price of silver and aluminum that we are unable to pass on to our customers, could, however, have an adverse effect on our profitability.
Changes in the competitive environment could harm our business.
The capacitor business is competitive worldwide, with low transportation costs and few import barriers. Competition is based on factors such as product quality and reliability, availability, customer service, technical innovation, timely delivery and price. The industry has become increasingly consolidated and global in recent years, and our primary U.S. and non-U.S. competitors, some of which are larger than us, have significant financial resources. The greater financial resources of such competitors may enable them to commit larger amounts of capital in response to changing market conditions. Some competitors may also have the ability to use profits from other operations to subsidize losses sustained in their businesses with which we compete. Certain competitors may also develop product or service innovations that could put us at a disadvantage.
Uncertainty of the timing of customer product qualifications in heavily regulated industries could affect the timing of product revenues and profitability arising from these industries.
Our capacitors are incorporated into products used in diverse industries. Certain of these industries, such as military, aerospace and medical, are heavily regulated, with long and sometimes unpredictable product approval and qualification processes. Due to such regulatory compliance issues, there can be no assurances as to the timing of product revenues and profitability arising from our product development and sales efforts in these industries.
We manufacture many capacitors in Europe, Mexico and Asia and economic, political or regulatory changes in any of these regions could adversely affect our profitability.
Our international operations are subject to a number of special risks, in addition to the same risks as our domestic business. These risks include currency exchange rate fluctuations, differing protections of intellectual property, trade barriers, labor unrest, exchange controls, regional economic uncertainty, differing (and possibly more stringent) labor regulation, risk of governmental expropriation, domestic and foreign customs and tariffs, current and changing regulatory regimes, differences in the availability and terms of financing, political instability and potential increases in taxes. These factors could impact our production capability or adversely affect our results of operations or financial condition.
We may experience difficulties, delays or unexpected costs in completing our restructuring plans and may not realize the expected benefits from our restructuring plans.
We may not realize, in full or in part, the anticipated benefits of our restructuring plans without encountering difficulties, which may include complications in the transfer of production knowledge, loss of key employees and/or customers, the disruption of ongoing business, possible inconsistencies in standards, controls and procedures and potential difficulty in meeting customer demand in the event the market dramatically improves. We are a party to collective bargaining agreements in certain jurisdictions in which we operate, which could potentially prevent or delay execution of parts of our restructuring plans.

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Acquisitions and other strategic transactions expose us to a variety of operational and financial risks.
Our ability to realize the anticipated benefits of acquisitions depends, to a large extent, on our ability to integrate the acquired companies with our own. Our management devotes significant attention and resources to these efforts, which may disrupt the business of each of the companies involved and, if executed ineffectively, could preclude realization of the full benefits we expect. Failure to realize the anticipated benefits of our acquisitions could cause an interruption of, or a loss of momentum in, the operations of the acquired company. In addition, the efforts required to realize the benefits of our acquisitions may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer relationships, and the diversion of management’s attention, and may cause our stock price to decline.
Management is responsible for establishing and maintaining adequate internal control over financial reporting and failure to timely integrate acquired businesses into our Company’s operating and internal control structures may increase the risk of failure to prevent misstatements in their financial records and in our Consolidated Financial Statements.
Additionally, we may finance acquisitions or future payments with cash from operations, additional indebtedness and/or the issuance of additional securities, any of which may impair the operation of our business or present additional risks, such as reduced liquidity or increased interest expense. Such acquisition financing could result in a decrease of our ratio of earnings to fixed charges. We may also seek to restructure our business in the future by disposing of certain of our assets, which may harm our future operating results, divert significant managerial attention from our operations and/or require us to accept non-cash consideration, the market value of which may fluctuate.
Furthermore, expansions or acquisitions into new geographic markets and services may require us to comply with new and unfamiliar legal and regulatory requirements, which could impose substantial obligations on us and our management, cause us to expend additional time and resources and increase our exposure to penalties or fines for non-compliance with such requirements. Failure to implement our acquisition strategy, including successfully integrating acquired businesses, could have an adverse effect on our business, financial condition and results of operations.
We are currently subject to increased regulatory scrutiny and litigation that may negatively impact our business.
The growth of our Company and our expansion into a variety of new products expose us to a variety of new regulatory issues, and we have experienced increased regulatory scrutiny as we have grown. We are subject to various federal, foreign and state laws, including antitrust laws, violations of which can involve civil or criminal sanctions. Furthermore, as a result of our acquisition of TOKIN, we assumed all liabilities assessed against TOKIN that may arise as a result of litigation to which TOKIN is a party. Refer to “Item 3. Legal Proceedings” for a summary of the Company's material litigation and investigations. The impact of these proceedings could have a material adverse effect on our financial position, liquidity, and results of operations.
If we are unable to attract, train or retain key employees, management or a highly skilled and diverse workforce, it could have a negative impact on our business, financial condition or results of operations.
Our success depends upon the continued contributions of our executive officers and certain other employees, many of whom have many years of experience with us and would be extremely difficult to replace. We must also attract and retain experienced and highly skilled engineering, sales and marketing and managerial personnel. Competition for qualified personnel is intense in our industry, and we may not be successful in hiring and retaining these people. If we lost the services of our executive officers or our other highly qualified and experienced employees or cannot attract and retain other qualified personnel, our business could suffer through less effective management due to loss of accumulated knowledge of our business or through less successful products due to a reduced ability to design, manufacture and market our products.
We must continue to develop innovative products to maintain relationships with our customers and to offset potential price erosion in older products.
While most of the fundamental technologies used in the passive components industry have been available for a long time, the market is nonetheless characterized by rapid changes in product designs and technological advances allowing for better performance, smaller size and/or lower cost. New applications are frequently found for existing technologies, and new technologies occasionally replace existing technologies for some applications or create new business opportunities in other areas of application. We believe successful innovation is critical for avoiding product redundancy or obsolescence caused by changes in technology; for maintaining profitability to offset potential erosion of selling prices for existing products; and to ensure the flow of new products and robust manufacturing processes that will keep us at the forefront of our customers’ product designs. Non-customized products are especially vulnerable to price pressure, but customized products have also experienced price pressure in recent years. Developing and marketing new products requires start-up costs that may not be recouped if these products or production techniques are not successful. There are numerous risks inherent in product development, including the risks we will be unable to anticipate the direction of technological change or we will be unable to develop and market new

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products and applications in a timely fashion to satisfy customer demands. If this occurs, we could lose customers and experience adverse effects on our results of operations.
We may be exposed to claims alleging product defects.
Our business exposes us to claims alleging product defects or nonconformance with product specifications. We may be held liable for, or incur costs related to, such claims if any of our products, or products in which our products are incorporated, are found to have caused end market product application failures, product recalls, property damage or personal injury. Provisions in our customer and distributor agreements are designed to limit our exposure to potential material product defect claims, including warranty, indemnification, waiver and limitation of liability provisions, but such provisions may not be effective under the laws of some jurisdictions. If we cannot successfully defend ourselves against product defect claims, we may incur substantial liabilities. Regardless of the merits or eventual outcome, defect claims could entail substantial expense and require the time and attention of key management personnel.
Our insurance program may not be adequate to cover all liabilities arising out of product defect claims and, at any time, insurance coverage may not be available on commercially reasonable terms or at all. If liability coverage is insufficient, a product defect claim could result in liability to us, which could materially and adversely affect our results of operations or financial condition. Even if we have adequate insurance coverage, product defect claims, or recalls could result in negative publicity or force us to devote significant time and attention to those matters.
Various laws and regulations that apply to our business, including those relating to conflict minerals and environmental matters, could limit our ability to operate as we are currently and could result in additional costs.
We are subject to various laws and regulations of national, state and local authorities in the countries in which we operate regarding a wide variety of matters, including conflict minerals, environmental, employment, land use, antitrust, and others that affect the day-to-day operations of our business. The liabilities and requirements associated with the laws and regulations that affect us may be costly and time-consuming. There can be no assurance we have been or will be at all times in compliance with such applicable laws and regulations. Failure to comply may result in the assessment of administrative, civil and criminal penalties, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits and other enforcement measures that could have the effect of limiting our operations. If we are pursued for sanctions, costs or liabilities in respect of these matters, our operations and, as a result, our profitability could be materially and adversely affected.
The SEC requires issuers for whom tantalum, tin, tungsten and gold are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by such person to conduct certain diligence procedures and make certain disclosures annually regarding whether any of those minerals originated in the Democratic Republic of Congo or an adjoining country. As defined by the SEC, tantalum, tin, tungsten and gold are commonly referred to as “conflict minerals” or “3TG”. If an issuer’s conflict minerals originated in those countries, the rule requires the issuer to submit a report to the SEC that includes a description of the measures it took to exercise due diligence on the conflict minerals’ source and chain of custody. We use tantalum, tin and, to a lesser degree, other of the 3TG minerals in our production processes and in our products. We have exercised due diligence on the source and chain of custody during the reporting period and, as required under the rule, annually disclose a description of these measures and certain of our findings in a special disclosure on Form SD. Disclosure in accordance with the rule may cause changes to the pricing of 3TG minerals, which could adversely affect our profitability. In addition, it is possible some of our disclosures pursuant to the rule related to our inquiries and supply chain custody diligence could cause reputational harm and cause the company to lose customers or sales.
In addition, we are subject to a variety of U.S. federal, state and local, as well as foreign, environmental laws and regulations relating, among other things, to wastewater discharge, air emissions, handling of hazardous materials, disposal of solid and hazardous wastes, and remediation of soil and groundwater contamination. We use a number of chemicals or similar substances and generate waste that are considered hazardous. We are required to hold environmental permits to conduct many of our operations. Violations of environmental laws and regulations could result in substantial fines, penalties, and other sanctions. Changes in environmental laws or regulations (or in their enforcement) affecting or limiting, for example, our chemical uses, certain of our manufacturing processes, or our disposal practices, could restrict our ability to operate as we are currently operating or impose additional costs. In addition, we may experience releases of certain chemicals or discover existing contamination, which could cause us to incur material cleanup costs or other damages.
Our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations.
We must comply with all applicable export control laws and regulations of the United States and other countries. United States laws and regulations applicable to us include the Arms Export Control Act, the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”) and the trade and trade sanctions laws and regulations administered by the Office of the United States Trade Representative (“OFTR”) and the United States Department of the

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Treasury’s Office of Foreign Assets Control (“OFAC”). The import and export of our products from each of our United States and international manufacturing facilities and distribution hubs are subject to international trade agreements, the modification or repeal of which could impact our business. We must comply with the requirements of OFTR and non-U.S. trade representative offices to benefit from existing trade agreements. EAR restricts the export of dual-use products and technical data to certain countries, while ITAR restricts the export of defense products, technical data and defense services. The U.S. government agencies responsible for administering EAR and ITAR have significant discretion in the interpretation and enforcement of these regulations. We also cannot provide services to certain countries subject to United States trade sanctions unless we first obtain the necessary authorizations from OFAC. In addition, we are subject to the Foreign Corrupt Practices Act and other anti-bribery laws that, generally, bar bribes or unreasonable gifts to foreign governments or officials.
Violations of these laws or regulations could result in significant additional sanctions including fines, more onerous compliance requirements, more extensive debarments from export privileges, loss of authorizations needed to conduct aspects of our international business and criminal penalties and may harm our ability to enter contracts with customers who have contracts with the U.S. government. A violation of the laws or the regulations enumerated above could materially adversely affect our business, financial condition and results of operations.
Changes impacting international trade and corporate tax provisions related to the global manufacturing and sales of our products may have an adverse effect on our financial condition and results of operations.
A significant portion of our business activities are conducted in foreign countries, including Mexico and China. Our business benefits from free trade agreements such as the North American Free Trade Agreement (“NAFTA”) and we also rely on various U.S. corporate tax provisions related to international commerce as we build, market and sell our products globally. Changes in trade treaties and corporate tax policy could impact U.S. trade relations with other countries such as Mexico, and adversely affect our financial condition and results of operations.
Volatility of financial and credit markets could affect our access to capital.
Uncertainty in the global financial and credit markets could impact our ability to implement new financial arrangements or to modify our existing financial arrangements. An inability to obtain new financing or to further modify existing financing could adversely impact the execution of our restructuring plans and delay the realization of the expected cost reductions. Our ability to generate adequate liquidity will depend on our ability to execute our operating plans and to manage costs in light of developing economic conditions. An unanticipated decrease in sales, or other factors that would cause the actual outcome of our plans to differ from expectations, could create a shortfall in cash available to fund our liquidity needs. Being unable to access new capital, experiencing a shortfall in cash from operations to fund our liquidity needs and the failure to implement an initiative to offset the shortfall in cash would likely have a material adverse effect on our business.
Default by or failure of one or more of our counterparty financial institutions could cause us to incur significant losses.
As part of our hedging activities, we enter into transactions involving derivative financial instruments with a financial institution. In addition, we have significant amounts of cash, cash equivalents and other investments on deposit or in accounts with banks or other financial institutions in the United States and abroad. As a result, we are exposed to the risk of default by or failure of counterparty financial institutions. The risk of counterparty default or failure may be heightened during economic downturns and periods of uncertainty in the financial markets. If one of our counterparties were to become insolvent or file for bankruptcy, our ability to recover losses incurred as a result of default or to retrieve our assets that are deposited or held in accounts with such counterparty may be limited by the counterparty's liquidity or the applicable laws governing any related financial institution's insolvency or bankruptcy proceedings. In the event of default by or failure of one or more of our counterparties, we could incur significant losses, which could negatively impact our results of operations and financial condition.
We must consistently reduce the total costs of our products to remain competitive.
Our industry is intensely competitive and prices for existing products tend to decrease steadily over their life cycle. There is substantial and continuing pressure from customers to reduce the total cost of capacitors. To remain competitive, we must achieve continuous cost reductions through process and product improvements.
We must also be in a position to minimize our customers’ shipping and inventory financing costs and to meet their other goals for rationalization of supply and production. Our growth and the profit margins of our products will suffer if our competitors are more successful in reducing the total cost to customers of their products than we are. We must also continue to introduce new products that offer performance advantages over our existing products and can thereby achieve premium prices, offsetting the price declines in our more mature products.

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Our use of net operating losses to offset possible future taxable income could be limited by ownership changes.
In addition to the general limitations on the carryback and carryforward of net operating losses under Section 172 of the Internal Revenue Code (the “Code”), Section 382 of the Code imposes further limitations on the utilization of net operating losses by a corporation following ownership changes which result in more than a 50-percentage point change in ownership of a corporation within a three-year period. If Section 382 applies, the post-ownership change utilization of our net operating losses may be subject to limitation for federal income tax purposes related to regular and alternative minimum tax. While we do not believe we have experienced an ownership change to date, the application of Section 382 of the Code now or in the future could limit a substantial part of our future utilization of available net operating losses. Such limitation could require us to pay substantial additional income taxes and adversely affect our liquidity and financial position.
Even if we have not experienced an ownership change to date, we could experience an ownership change in the near future if there are significant purchases of our common stock or other events outside our control.
Our debt agreements contain restrictions that could limit our flexibility in operating our business.
Our debt agreements contain various covenants that, subject to exceptions, may limit our ability to, among other things: incur additional indebtedness; create liens on assets; make capital expenditures; engage in mergers, consolidations, liquidations and dissolutions; sell assets (including pursuant to sale leaseback transactions); pay dividends and distributions on or repurchase capital stock; make investments (including acquisitions), loans, or advances; prepay certain junior indebtedness; engage in certain transactions with affiliates; enter into restrictive agreements; amend material agreements governing certain junior indebtedness; and change lines of business. The agreement governing our revolving credit facility also includes a fixed charge coverage ratio covenant that we must satisfy if an event of default occurs or in the event we do not meet certain excess availability requirements under our revolving credit facility. Our ability to comply with these covenants is dependent on our future performance, which may be subject to many factors, some of which are beyond our control.
Our controls and procedures may fail or be circumvented, which may result in a material adverse effect on our business, financial condition, and results of operations.
Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurance that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
As disclosed in Part II - Item 9A. “Controls and Procedures” of our fiscal year 2019 Form 10-K in the section “Management’s Report on Internal Control Over Financial Reporting,” a material weakness was identified in our internal control over financial reporting as of March 31, 2019 resulting from certain control deficiencies in our internal control over financial reporting pertaining to the initiation and recording of net sales and accounts receivable, net. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness identified at March 31, 2019 in Item 9A did not result in any misstatements of the Company’s Consolidated Financial Statements for any periods presented. When the material weakness was identified, we promptly developed and implemented a comprehensive remediation plan to address this material weakness, which included implementing new, and refining existing, controls, as well as providing additional training and improving our documentation as it pertains to the initiation and recording of net sales and accounts receivable. Based on these measures, management has concluded that the material weakness described above has been remediated as of March 31, 2020.
There is a risk that in the future the Company could have another material weakness, fail to maintain effective controls, or timely implement any necessary improvement of our internal and disclosure controls. This could, among other things, result in losses from errors, harm our reputation or cause investors to lose confidence in the reported financial information, all of which could have a material adverse effect on our results of operations and financial condition.
If we are unable to protect our information systems against service interruption, misappropriation of data, or breaches of security, our operations could be disrupted, we may suffer financial losses, and our reputation may be damaged.
As a global company we rely on networks and information systems and other technology (“information systems”), including the internet and third-party hosted services, to support our business. Any inability to successfully manage the procurement, development, implementation, execution or maintenance of our information systems, including matters related to

22






system and data security, reliability, compliance or performance could have an adverse effect on our business including our results of operation and timeliness of financial reporting.
Because information systems are critical to many of the Company's operating activities, our business may be impacted by system shutdowns, service disruptions or security breaches. These incidents may be caused by failures during routine operations such as system upgrades or by user errors, as well as network or hardware failures, malicious or disruptive software, unintentional or malicious actions of employees or contractors, cyberattacks by common hackers, criminal groups or nation-state organizations or social-activist (hacktivist) organizations, geopolitical events, natural disasters, failures or impairments of telecommunications networks, or other catastrophic events. In addition, such incidents could result in unauthorized or accidental disclosure of material confidential information of the Company or its customers, or regulated individual personal data. If our information systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, and we may lose revenue and profits as a result of our inability to timely manufacture, distribute, invoice and collect payments for products. The loss or disclosure of misappropriated confidential information could have the following implications: loss of intellectual property, disruption to key business operations, and diversion of management’s attention from key business operations and key informational technology resources. The Company could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and information systems
In addition, we are subject to federal defense procurement regulations relating to the effectiveness of our cybersecurity operations, and to laws, rules, and regulations in the U.S., U.K., European Union, and other countries relating to the collection, use, and security of user data. Our ability to execute transactions and to possess and use personal information and data in conducting our business subjects us to legislative and regulatory burdens that may require us to notify vendors, customers, or employees of a data security breach, potentially damaging our brand and reputation. If we fail to comply with applicable federal, state, or international cybersecurity, privacy-related, or data protection laws or regulations, we may incur a loss of business (including defense-related business) and/or penalties or significant legal liability or be subject to proceedings by government entities.
If economic and demographic experience for pension and other post-retirement benefit plans are less favorable than our assumptions (e.g., discount rates or return on investments), then it may affect our financial condition and results of operations.
The measurement of our obligations, costs, and liabilities associated with benefits pursuant to our pension and other post-retirement benefit plans requires that we estimate the present value of projected future payments to all participants. We use many assumptions in calculating these estimates, including assumptions related to discount rates, return on investments on designated plan assets, and demographic experience (e.g. mortality and retirement rates). To the extent actual results are less favorable than our assumptions, there could be a substantial adverse impact on our financial condition and results of operations. For instance, significant decreases in market interest rates could lead to increases in annual pension expense. Further, decreases in the value of plan assets could lead to an increased use of cash for plan contributions. For discussion of our assumptions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in Item 7 and Note 10 to the consolidated financial statements.
Sales to distribution channel customers may fluctuate and adversely affect our results of operations.
From time-to-time, if end customer demand decreases, our sales to distributors also decrease while the distributors reduce their inventory levels. In addition, a single customer, a distributor, accounted for over 10% of our net sales in each of fiscal years 2020, 2019 and 2018. If our relationship with this customer were to terminate, we would need to determine alternative means of delivering our products to the end-customers served by it.
Earthquakes, natural disasters, and climate change could disrupt our operations and have a material adverse effect on our financial condition and results of operations.
Several of our facilities in Japan are located in regions that could be subject to earthquakes and other natural disasters. Our production facilities located in Japan are in areas with above average seismic activity and some have been affected by other natural disasters such as tsunami. If any of our facilities in Japan or elsewhere were to experience a catastrophic earthquake or other natural disaster, such event could disrupt our operations, delay production, shipments, and revenue, and result in large expenses to repair or replace the facility or facilities. While KEMET has property insurance to partially reimburse it for losses caused by windstorm and earth movement, such insurance would not cover all possible losses. In addition, our existing disaster recovery and business continuity plans (including those relating to our information technology systems) may not be fully responsive to, or minimize losses associated with, catastrophic events.
Our business, results of operations and financial condition may be adversely affected by the outbreak of the novel coronavirus (COVID-19) and the responses thereto taken by various governmental authorities throughout the world.

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The novel strain of the coronavirus (COVID-19) identified in China in late 2019 has spread throughout the world and in response governmental authorities have ordered mandatory shut-downs of non-essential business, quarantines, travel-bans and shelter-in-place orders. The spread of COVID-19 and the governmental responses to it have negatively impacted our business by, among other things, forcing us to temporarily suspend our manufacturing operations at certain locations and forcing our non-manufacturing employees to work remotely. As of March 31, 2020, the spread of COVID-19 and governmental responses did not have a significant impact on our results of operations and financial condition.
We are modifying our business practices in response to COVID-19 to ensure the health and safety of our employees; however we may in the future be forced to temporarily shut down one or more of our facilities if any of our workers test positive for COVID-19 or any of our facilities or the services provided at those facilities are not deemed to be “essential” under applicable government shut-down orders or are otherwise not considered exempt from government-imposed shut-down orders for any reason. In addition, governmental guidelines in response to COVID-19 may limit our workforce to a certain number of employees per shift or cause us to modify our operations in other ways that could be disruptive to our business. Any such temporary shut-down, limitation on our workforce, or other government-imposed modification of our operations could have a significant impact on the production of our products. Additionally, COVID-19 may cause some of our suppliers to fail to deliver the quantities of supplies we need or fail to deliver such supplies in a timely manner. The failure to receive any such supplies could inhibit our ability to run our manufacturing operations and otherwise operate our business. Additionally, our ability to transport our products could be impaired by disruptions in our global transportation network resulting from the COVID-19 pandemic. Finally, the continued spread of COVID-19 has led to increased volatility in the global capital markets. Such volatility increases the cost of, and decreases access to, capital. If the Company needs to access the capital markets to fund its operations, such capital could be prohibitively expensive which could cause the Company to pursue alternative sources of funding for its operations and working capital.
As a result of COVID-19, our employees, contractors, and consultants are working remotely and it is possible that this could have a negative impact on the execution of our business plans and operations. If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees ability to work remotely, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The increase in remote working may also result in consumer privacy, IT security, and fraud concerns, as well as increase our exposure to potential wage and hours issues.
The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the outbreak and the effectiveness of actions globally to contain or mitigate its effects. The effects of COVID-19 have led to a global economic slowdown and while we expect this matter to negatively impact our results of operations, cash flows, and financial condition in the future, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time. As of March 31, 2020, the effects of COVID-19 have not had a significant impact on the Company's liquidity. The Company will continue to take appropriate steps to mitigate the impact of COVID-19 on the Company's operations, liquidity, and financial condition.
Our stock price can be volatile.
The market price for our common stock has been volatile historically. Our stock price may be significantly affected by factors including those described elsewhere in "Part 1, Item 1A. Risk Factors," as well as the following:
general market and economic conditions;
quarterly fluctuations in our operating results compared to market expectations;
investors' perceptions of the electronic component industry;
changes in financial estimates by us or securities analysts and recommendations by securities analysts;
the composition of our stockholders, particularly the presence of "short sellers" trading our stock; and
a decline in our credit rating.
ITEM 1B.    UNRESOLVED STAFF COMMENTS.
None.

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ITEM 2.    PROPERTIES.
We are headquartered in Fort Lauderdale, Florida, and, as of March 31, 2020, we had 21 manufacturing plants located in North America, Europe and Asia. Our manufacturing and research facilities include approximately 4.7 million square feet of floor space and use proprietary manufacturing processes and equipment.
Our facilities in Mexico operate under the Maquiladora program. In general, a company that operates under this program is afforded certain duty and tax preferences and incentives on products brought into the United States. Our manufacturing standards, including compliance with worker safety laws and regulations, are essentially identical in North America, Europe and Asia. Our operations in Mexico, Europe and Asia, similar to our United States operations, have won numerous quality, environmental and safety awards.
We believe substantially all of our property and equipment is in good condition, and overall we have sufficient capacity to meet our current and projected manufacturing and distribution needs.    The following table provides certain information regarding our principal facilities:
Location
 
Square
Footage
(in thousands)
 
Type of
Interest
 
Description of Use
Fort Lauderdale, Florida, U.S.A
 
61

 
Leased
 
Headquarters
Solid Capacitor Reportable Segment
 
 
 
 
 
 
Simpsonville, South Carolina, U.S.A.
 
382

 
Owned
 
Innovation Center, Advanced Tantalum Manufacturing
Matamoros, Mexico 
 
286

 
Owned
 
Manufacturing
Monterrey, Mexico (1)
 
532

 
Owned
 
Manufacturing
Suzhou, China (1)
 
353

 
Leased
 
Manufacturing
Ciudad Victoria, Mexico
 
265

 
Owned
 
Manufacturing
Nyuzen, Toyama, Japan 
 
209

 
Owned
 
Manufacturing and Innovation Center
Chachoengsao, Thailand 
 
171

 
Owned
 
Manufacturing
Film and Electrolytic Reportable Segment
 
 
 
 
 
 
Evora, Portugal
 
233

 
Owned
 
Manufacturing and Innovation Center
Skopje, Macedonia
 
126

 
Owned
 
Manufacturing
Suomussalmi, Finland
 
56

 
Leased
 
Manufacturing
Batam, Indonesia
 
68

 
Owned
 
Manufacturing
Kyustendil, Bulgaria (2)
 
86

 
(2) 
 
(2) 
Pontecchio, Italy
 
226

 
Owned
 
Manufacturing and Innovation Center
Anting, China (3)
 
73

 
(3) 
 
(3) 
Farjestaden, Sweden
 
28

 
Leased
 
Manufacturing and Innovation Center
Electro-Magnetic, Sensors and Actuators Reportable Segment
 
 
 
 
 
 
Shiroishi, Miyagi, Japan
 
524

 
Owned
 
Manufacturing
Sendai, Miyagi, Japan
 
378

 
Owned
 
Manufacturing and Innovation Center
Bien Hoa City, Dong Nai Province, Vietnam
 
174

 
Owned
 
Manufacturing
Xiamen, China
 
432

 
Owned
 
Manufacturing
______________________________________________________________________________
(1) Includes two manufacturing facilities.
(2) Includes one owned manufacturing facility and one leased warehouse facility.
(3) Includes one owned manufacturing facility and one leased manufacturing facility.
ITEM 3.    LEGAL PROCEEDINGS.
We or our subsidiaries may at any one time be parties to lawsuits arising out of our respective operations, including workers’ compensation or workplace safety cases, some of which involve claims of substantial damages. Although there can be no assurance, based upon information known to us, we do not believe that any liability which might result from an adverse determination of such lawsuits would have a material adverse effect on our financial condition or results of operations.

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As previously reported, KEMET and KEC, along with more than 20 other capacitor manufacturers and subsidiaries were named as defendants in a purported antitrust class action complaint, In re: Capacitors Antitrust Litigation, No. 3:14-cv-03264-JD, filed on December 4, 2014 with the United States District Court, Northern District of California (the “U.S. Class Action Complaint”). The complaint alleged a violation of Section 1 of the Sherman Act, for which it sought injunctive and equitable relief and money damages. On November 8, 2019 KEMET and KEC entered into a settlement agreement (the “Settlement Agreement”) with the plaintiffs in the U.S. Class Action Complaint by which, in consideration for the release of KEMET, KEC, and their affiliates from all claims relating in any way to the conduct alleged in the U.S. Class Action Complaint and from claims which could have been asserted in the U.S. Class Action Complaint to the extent they relate to the sale of capacitors in the United States, KEMET agreed to pay an aggregate of $62.0 million to the settlement class of plaintiffs. The Settlement Agreement is subject to court approval. Pursuant to the terms of the Settlement Agreement, KEMET paid $10.0 million into an escrow account on December 6, 2019. The remaining amount will be paid by KEMET within 12 months of the date of the Settlement Agreement. Under the terms of the Settlement Agreement KEMET and KEC did not admit to any violation of any statute or law or any liability or wrongdoing.
In addition, as previously reported, KEMET and KEC, along with certain other capacitor manufacturers and subsidiaries (including TOKIN, as described below), were named as defendants in several additional suits that were filed in Canada (collectively, the “Canadian Complaints”): Badamshin v. Panasonic Corporation, et al., filed August 6, 2014 in the Superior Court, Province of Quebec, District of Montreal; Herard v. Panasonic Corporation, et al., filed August 6, 2014 in the Superior Court, Province of Quebec, District of Montreal; Cygnus Electronics Corporation v. Panasonic Corporation, et al., filed August 6, 2014 in the Superior Court of Justice, Province of Ontario; LeClaire v. Panasonic Corporation, et al., filed August 6, 2014 in the Superior Court, Province of Quebec, District of Montreal; Taylor v Panasonic Corporation, et al., filed August 11, 2014 in the Superior Court of Justice, Province of Ontario; Ramsay v. Panasonic Corporation, et al., filed August 14, 2014 in the Supreme Court, Province of British Columbia; Martin v. Panasonic Corporation, et al., filed September 25, 2014 in the Superior Court, Province of Quebec, District of Montreal; Parikh v. Panasonic Corporation, et al., filed October 3, 2014 in the Superior Court of Justice, Province of Ontario; Fraser v. Panasonic Corporation, et al., filed October 3, 2014 in the Court of Queen’s Bench, Province of Saskatchewan; Pickering v. Panasonic Corporation, et al., filed October 6, 2014 in the Supreme Court, Province of British Columbia; McPherson v Panasonic Corporation et al., filed on November 6, 2014 in the Court of Queen’s Bench, Province of Manitoba; and Allott v AVX Corporation, et al., filed on May 13, 2016 in the Superior Court of Justice, Province of Ontario. The Canadian Complaints generally allege the same unlawful acts as in the U.S. Class Action Complaint, assert claims under Canada’s Competition Act as well as various civil and common law causes of action, and seek injunctive and equitable relief and money damages.
On December 6, 2018 the claims against KEMET and KEC in Leclaire were dismissed. In addition, Parikh and Taylor have been stayed in favor of Cygnus, and Badamshin, Martin and Herard have been stayed in favor of LeClaire. Further, on November 18, 2018, the Ontario Supreme Court of Justice temporarily stayed Cygnus pending the outcome of a matter on appeal concerning class certification, and the Ramsay plaintiffs voluntarily suspended that proceeding until class certification for Cygnus has been determined.
TOKIN-Specific Legal Proceedings
As previously reported, on September 2, 2015, the United States Department of Justice announced a plea agreement with TOKIN in which TOKIN agreed to plead guilty to a one-count felony charge of unreasonable restraint of interstate and foreign trade and commerce in violation of Section 1 of the Sherman Act, and to pay a criminal fine of $13.8 million. The plea agreement was approved by the United States District Court, Northern District of California, on January 21, 2016. The fine is payable over 5 years in six installments of $2.3 million each, plus accrued interest. TOKIN has paid the first five installments, with the final payment due January 21, 2021.
As previously reported, on December 21, 2015, the Taiwan Fair Trade Commission (“TFTC”) notified TOKIN of its decision to impose an administrative fine on TOKIN of NTD 609.1 million (approximately $20.2 million) for violation of the Taiwan Fair Trade Act. TOKIN filed its appeal of the TFTC's decision with the Taipei High Administrative Court on January 15, 2016. On August 23, 2018, the Taipei High Administrative Court issued its judgment dismissing TFTC's fine decision, against which TFTC submitted its petition for appeal to the Taiwan Administrative Supreme Court. On December 31, 2019, the Taiwan Administrative Supreme Court granted judgment in favor of the TFTC appeal, but directed the TFTC to recalculate the fine, in part by excluding the revenues of TOKIN’s subsidiaries which had been included in the calculations of the original fine. The TFTC’s revised fine determination is expected during the summer 2020. On March 17, 2020, the TFTC refunded to TOKIN the NTD 243.6 million (approximately $8.1 million) which TOKIN had paid under the original fine; subject to any rights of appeal, TOKIN remains liable for full payment of the revised fine.
As previously reported, on March 21, 2018, the European Commission announced a decision by which TOKIN was fined EUR 8.8 million (approximately $10.3 million) directly and EUR 5.0 million (approximately $5.9 million) jointly and

26






severally with NEC Corporation, for violation of the competition laws of the European Union. Payment of the fines were made on June 28, 2018. On June 4, 2018, TOKIN filed an appeal with the General Court of the European Union, seeking annulment and/or reduction of the fines.

As previously reported, on November 30, 2018, the Korean Fair Trade Commission (“KFTC”) notified TOKIN of its decision to impose an administrative fine on TOKIN of KRW 8.1 billion (approximately $7.2 million) for violation of South Korea's Monopoly Regulation and Fair Trade Law. TOKIN filed its appeal of the KFTC's decision with the Seoul High Court on December 28, 2018. Payment of the fine is not stayed during appeal; TOKIN paid the full fine amount on February 1, 2019. On December 11, 2019, the Seoul High Court issued its judgment, dismissing TOKIN’s appeal. On December 31, 2019, TOKIN submitted its petition for appeal of the High Court’s decision to the Supreme Court of Korea.

As noted above, TOKIN, along with KEMET and certain of its other subsidiaries, were named as defendants in the Canadian Complaints. On May 30, 2018, TOKIN entered into a definitive settlement agreement with the plaintiffs in the Canadian Complaints Pursuant to the terms of the settlement agreement, in consideration of the release of TOKIN and its subsidiaries (including TOKIN America, Inc.) from claims asserted in the Canadian Complaints, TOKIN paid CAD 2.9 million (approximately $2.2 million) to a settlement class of purchasers of aluminum and tantalum electrolytic capacitors and purchasers of products containing such capacitors. The settlement payment was made on June 27, 2018. On January 20, 2020, the Supreme Court of British Columbia approved the settlement agreement, completing all required approvals.    
As previously reported, on July 2, 2018, TOKIN and TOKIN America Inc. were named as two of 20 defendants in a purported U.S. class action antitrust lawsuit, In re: Inductors Antitrust Litigation, No. 5:18-cv-00198-EJD-NC, filed in the United States District Court, Northern District of California, regarding the sale of inductors brought on behalf of direct product purchasers and indirect product purchasers. The complaint alleged violations of Sections 1 and 3 of the Sherman Act, for which it sought injunctive and equitable relief and money damages. On September 24, 2019, the Court granted the defendants’ motion to dismiss the lawsuit; the plaintiffs were granted leave to amend the complaint. On November 20, 2019, the plaintiffs filed their amended complaint, in which TOKIN and TOKIN America Inc. remained as two of 21 named defendants. On January 15, 2020, TOKIN and TOKIN America filed a motion to dismiss the amended complaint; the plaintiffs’ motion in opposition was filed on March 16.
As of March 31, 2020, the Company's accrual for antitrust and civil litigation claims totaled $77.4 million. This amount includes the best estimate of losses which may result from the ongoing antitrust investigations, civil litigation and claims. However, the actual outcomes could differ from what has been accrued.
ITEM 4.    MINE SAFETY DISCLOSURES.
Not applicable.

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INFORMATION ABOUT OUR EXECUTIVE OFFICERS.
The name, age, business experience, positions and offices held, and period served in such positions or offices for each of the executive officers and certain key employees of the Company are listed below. There are no family relationships among our executive officers and directors or any other arrangement or understanding pursuant to which any person was selected as an officer.
Name
 
Age
 
Position
 
Years with
Company
William M. Lowe, Jr. 
 
67

 
Chief Executive Officer and Director
 
12

Gregory C. Thompson
 
64

 
Executive Vice President and Chief Financial Officer
 
1

Charles C. Meeks, Jr. 
 
58

 
Executive Vice President, Solid Capacitors–Tantalum
 
36

Shigenori (Sean) Oyama
 
63

 
Executive Vice President and President–TOKIN Corporation
 
38

R. James Assaf
 
60

 
Senior Vice President, General Counsel and Secretary
 
12

Claudio Lollini
 
40

 
Senior Vice President of Global Sales and Marketing
 
15

Stefano Vetralla
 
57

 
Senior Vice President and Chief Human Resources Officer
 
12

Robert S. Willoughby
 
59

 
Senior Vice President, Solid Capacitors–Ceramics
 
34

Susan B. Barkal
 
57

 
Senior Vice President Quality and Global Supply Chain, Chief Compliance Officer and Chief of Staff
 
20

Fumihiro Katakura
 
60

 
Senior Vice President, Magnetics, Sensors and Actuators
 
11

Dr. Phillip M. Lessner
 
61

 
Senior Vice President and Chief Technology Officer
 
24

Andreas Meier
 
52

 
Senior Vice President, Film and Electrolytic
 
22

Michael L. Raynor
 
54

 
Vice President and Corporate Controller
 
13

Richard J. Vatinelle
 
56

 
Vice President and Treasurer
 
7

Executive Officers
William M. Lowe, Jr., Chief Executive Officer and Director, was named such in December 2018. Mr. Lowe joined KEMET in July 2008 as its Executive Vice President and Chief Financial Officer. Before joining KEMET, Mr. Lowe was the Vice President, Chief Operating Officer, and Chief Financial Officer of Unifi, Inc., a producer and processor of textured synthetic yarns from January 2004 to October 2007. Prior to holding that position, he was Executive Vice President and Chief Financial Officer for Metaldyne, an automotive components manufacturer. He also held various financial management positions with ArvinMeritor, Inc., a premier global supplier of integrated automotive components. He received his B.S. degree in business administration with a major in accounting from Tri-State University and was certified as a Certified Public Accountant in the state of Ohio (current license status inactive).
Gregory C. Thompson, Executive Vice President and Chief Financial Officer, joined KEMET in such capacity in December 2018. Earlier that month, Mr. Thompson joined KEMET as its Executive Vice President–Finance. Mr. Thompson previously served as Executive Vice President of Axiall Corporation, a Delaware corporation, from July 2015 until October 2016 and Chief Financial Officer from February 2008 until October 2016. Before beginning at Axiall in 2008, Mr. Thompson served as the Senior Vice President and Chief Financial Officer of Invacare Corporation, a medical equipment manufacturer. Prior thereto, he served in various financial management positions with Sensormatic Electronics Corporation, Wang Laboratories, Inc. and PriceWaterhouse. He is a Certified Public Accountant and is a Member of the American Institute of Certified Public Accountants. He holds a Bachelor of Science degree in Accounting from Virginia Tech.
Charles C. Meeks, Jr., Executive Vice President, Solid Capacitors–Tantalum, was named such in July 2017. He joined KEMET in December 1983 in the position of Process Engineer, and has held various positions of increased responsibility including the positions of Plant Manager and Director of Operations, Ceramic Product Line. He was named Vice President, Ceramic Product Line in June 2005, Senior Vice President, Ceramic Product Line in October 2007, Senior Vice President, Ceramic and Film and Electrolytics in March 2010, Executive Vice President Ceramic and Film and Electrolytics in May 2011, and Executive Vice President, Solid Capacitors in July 2017 prior to his appointment to his current position. In addition, since January 2000, Mr. Meeks has served as President of Top Notch Inc., a private company that offers stress management therapy services. Mr. Meeks received a Masters of Business Administration degree and a Bachelor of Science degree in Ceramic Engineering from Clemson University.
Shigenori (Sean) Oyama, Executive Vice President and President–TOKIN Corporation, was named such in December 2019. Prior to his current position, Mr. Oyama was appointed Executive Vice President, Magnetics, Sensors and Actuators in

28






July 2017 after the Company's acquisition of TOKIN. Mr. Oyama joined TOKIN in 1982. He moved to California in 1989 and held various management roles in Field Application Engineering, Sales and Marketing at TOKIN America Inc. Mr. Oyama returned to TOKIN Japan and was appointed General Manager of Product Marketing for Energy Devices in 2003, General Manager and Vice President for the EMC Division in 2005, Senior Vice President of all Business Groups in 2010, followed by his appointment to President of TOKIN in 2012. Mr. Oyama holds a B.S. degree in Electrical Engineering from Tohoku University.
R. James Assaf, Senior Vice President, General Counsel and Secretary, was named such in February 2014. Mr. Assaf joined KEMET as Vice President, General Counsel in March 2008, and was appointed Vice President, General Counsel and Secretary in July 2008 prior to his appointment to his current position. Before joining KEMET, Mr. Assaf served as General Manager for InkSure Inc., a start-up seller of product authentication solutions. He had also previously held several positions with Sensormatic Electronics Corporation, including Associate General Counsel and Director of Business Development, Mergers and Acquisitions. Prior to Sensormatic, Mr. Assaf served as an Associate Attorney with the international law firm Squire Sanders and Dempsey. Mr. Assaf received his Bachelor of Arts degree from Kenyon College and his Juris Doctor degree from Case Western Reserve University School of Law.
Claudio Lollini, Senior Vice President of Global Sales and Marketing, was named such in July 2015. He joined KEMET in October 2007 through the Company’s acquisition of Arcotronics Italia S.p.A., where he served as Manager, Sales–Greater China. Mr. Lollini was appointed Director of Product Management for Film and Electrolytic in January 2009, Director of Sales Taiwan in June 2012, and Vice President, Sales-Asia Pacific in May 2013 prior to his appointment to his current position. Mr. Lollini holds a Bachelor of Science degree in Engineering Management from the University of Bologna and a Master of Business Administration from the Kellogg School of Management and is a 2011 graduate of the KEMET Leadership Forum.
Stefano Vetralla, Senior Vice President and Chief Human Resources Officer, was named such in July 2015. He joined KEMET in May 2008 as Director-HR, Film and Electrolytic Business Group. Mr. Vetralla was appointed Director-HR, Global Sales and Film and Electrolytic Business Group in January 2011; Senior Director HR, Global Sales and Film and Electrolytic Business Group in January 2012; Senior Director-HR, Field in September 2012; Vice President-Global HR Operations in September 2013; and Vice President-Global HR and Chief Human Resources Officer in May 2014 prior to his current appointment. Prior to KEMET, he held Human Resources positions of increasing responsibility in international corporations including Hewlett-Packard Company, 3Com Corporation and Telindus/Belgacom. Mr. Vetralla holds a Law Degree from the State University of Milan and is a 2011 graduate of the KEMET Leadership Forum.
Robert S. Willoughby, Senior Vice President, Solid Capacitors–Ceramics, was named such in July 2017. He joined KEMET in December 1985 and has held positions of increasing responsibility within Diagnostic, Quality, New Product and Process Engineering. Mr. Willoughby served as Director-Ceramic Operations from July 2007 until March 2010; served as Vice President of Operations-Film and Electrolytic Business Unit from March 2010 until May 2013; served as Vice President, Film and Electrolytic Business Group from May 2013 through December 2014; and served as Senior Vice President-Film and Electrolytic Business Group from January 2015 through April 2016. Mr. Willoughby was named Senior Vice President–Global Supply Chain in May 2016, prior to his appointment to his current position. He holds a Bachelor of Science degree in Industrial Engineering from Clemson University and is a 2007 graduate of the KEMET Leadership Forum.
Other Key Employees
Susan B. Barkal, Senior Vice President Quality and Global Supply Chain, Chief Compliance Officer and Chief of Staff, was named such in December 2019. Ms. Barkal joined KEMET in November 1999 and has served as Quality Manager for the Tantalum Business Group (now a part of Solid Capacitors), Technical Product Manager for all Tantalum product lines and Director of Tantalum Product Management. Ms. Barkal was appointed Vice President of Quality and Chief Compliance Officer in December 2008 and Senior Vice President Quality, Chief Compliance Officer and Chief of Staff in February 2014 prior to her appointment to her current position. Ms. Barkal holds a B.S. degree in Chemical Engineering from Clarkson University, a Master of Science degree in Mechanical Engineering from California Polytechnic University and is a 2007 graduate of the KEMET Leadership Forum.
Fumiro Katakura, Senior Vice President, Magnetics, Sensors & Actuators, was named such in December 2019. Prior to his current position, Mr. Katakura was appointed Vice President–Global Supply Chain in July 2017 after the Company’s acquisition of TOKIN. Mr. Katakura joined NEC Corporation in April 1982 and held various management roles there prior to his appointment as Head of Corporate Strategy for NEC-TOKIN Corporation in 2011. Mr. Katakura holds a Bachelor of Arts degree in Politics from Keio University.
Dr. Philip M. Lessner, Senior Vice President and Chief Technology Officer, was named such in February 2014. He joined KEMET in March 1996 as a Technical Associate in the Tantalum Technology Group. He has held several positions of

29






increasing responsibility in the Technology and Product Management areas including Senior Technical Associate, Director Tantalum Technology, Director Technical Marketing Services and Vice President Tantalum Technology. Dr. Lessner was named Vice President, Chief Technology Officer and Chief Scientist in December 2006, Senior Vice President, Chief Technology Officer and Chief Scientist in May 2011 and Senior Vice President and Chief Technology and Marketing Officer in November 2012 prior to his appointment to his current position. Dr. Lessner received a PhD in Chemical Engineering from the University of California, Berkeley and a B.S. in Chemical Engineering from Cooper Union.
Andreas Meier, Senior Vice President-Film and Electrolytic, was named such in May 2016. Mr. Meier joined KEMET in January 1998 and has held several positions of increasing responsibility in the Sales and Product Management areas. Mr. Meier was named Vice President-Product Management, Film and Electrolytics in January 2010 and Vice President, Sales-EMEA in December, 2012 prior to his appointment to his current position. Mr. Meier holds a degree in Electronic Engineering from the University of Paderborn in Germany.
Michael L. Raynor, Vice President and Corporate Controller, was named such in November 2012. Mr. Raynor joined the Company in July 2007 as the Assistant Corporate Controller; in November of 2008 Mr. Raynor was named Director of Financial Planning and Analysis prior to his appointment to his current position. Prior to joining KEMET, Mr. Raynor held various controller level positions with distribution and manufacturing companies. Mr. Raynor received a Bachelor of Arts degree in Economics and a Masters of Accounting from the University of North Carolina at Chapel Hill, is a Certified Public Accountant in the state of North Carolina and is a 2015 graduate of the KEMET Leadership Forum.
Richard J. Vatinelle, Vice President and Treasurer, was named such in March 2014. Mr. Vatinelle joined the Company in November 2012 as Controller-Tantalum Business Group. Prior to joining KEMET, Mr. Vatinelle served for two years as Regional Controller-Latin America for Leo Pharma A/S, a global manufacturer of pharmaceutical products. From 2007 to 2009 he served as Director of Finance, Policies and Reporting, for Stiefel Laboratories, a pharmaceutical company specialized in dermatology. Mr. Vatinelle’s career in finance includes eight years with Conagra Foods Inc., where he held various international finance roles, and eleven years with Banque Sudameris, an international banking group where he began his career. Mr. Vatinelle holds a Bachelor of Science degree in Finance and International Management from Georgetown University and is a 2015 graduate of the KEMET Leadership Forum.



30






PART II
ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market for Common Stock of the Company
Our common stock trades on the New York Stock Exchange under the ticker symbol “KEM.” We had 64 stockholders of record as of May 26, 2020.
Dividend Policy
Between the date of our initial public offering in October 1992 and until fiscal year 2019, we had not declared or paid any cash dividends on our common stock. Beginning in the third quarter of fiscal year 2019, we announced our intention to pay regular quarterly cash dividends to holders of our common stock. Cash dividends of $0.05 per share were paid to holders of our common stock during the third and fourth quarters of fiscal year 2019 and the first and second quarters of fiscal year 2020.
On November 11, 2019, the Company entered into the Agreement pursuant to which Yageo will acquire all of the Company's outstanding shares of common stock. The Agreement restricts our ability to continue making dividend payments during the pendency of the Merger.
In addition, under the terms of the Revolving Line of Credit (as hereinafter defined), we are restricted from paying cash dividends in an amount greater than $15.0 million in the aggregate per year.

31






PERFORMANCE GRAPH
The following graph compares our cumulative total stockholder return for the past five fiscal years, beginning on March 31, 2015, with the Russell 3000 index and a peer group (the “Peer Group”) comprised of certain companies which we consider to be peers because they either manufacture capacitors or other electronic components, or compete in the same market segments in which we compete. The graph assumes that $100 was invested on March 31, 2015 in each of our common stock, the Russell 300 index, and the Peer Group. The graph also assumes that all dividends, if paid, were reinvested.

chart-557aecc18bbd58efb2c.jpg
RETURNS
Years Ending March 31,
 
 
2015
 
2016
 
2017
 
2018
 
2019
 
2020
KEMET Corporation
 
$
100.00

 
$
46.62

 
$
289.86

 
$
437.92

 
$
411.99

 
$
589.94

Russell 3000
 
100.00

 
97.65

 
113.00

 
126.23

 
134.70

 
120.10

New Peer Group (1)
 
100.00

 
84.80

 
102.79

 
115.73

 
121.76

 
133.39

Old Peer Group (2)
 
100.00

 
104.65

 
139.08

 
172.82

 
161.29

 
147.52

______________________________________________________________________________
(1) The new peer group consists of the following companies: Vishay Intertechnology, Inc., TDK-EPC Corporation, Murata Manufacturing Co, Ltd., and Taiyo Yuden Co, Ltd. Our board of directors uses this peer group to benchmark our performance. The peer group is weighted by market capitalization.
(2) The old peer group consists of the following companies: Vishay Intertechnology, Inc., AVX Corporation, and Littelfuse, Inc. AVX Corporation has been excluded from the new peer group as this entity has been recently acquired. Littelfuse Inc. has been excluded from the new peer group as this entity is no longer considered a main competitor by the Solid Capacitors reportable segment.

Unregistered Sales of Equity Securities
We did not sell any of our equity securities during fiscal year 2020 that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).

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Repurchase of Equity Securities
There were no repurchases of the Company's equity securities during the quarter ended March 31, 2020.
Equity Compensation Plan Disclosure
The following table summarizes equity compensation plans approved by stockholders and equity compensation plans that were not approved by stockholders as of March 31, 2020:
 
 
(a)
 
(b)
 
(c)
Plan category
 
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants,
and rights
 
Weighted-average
exercise
price of
outstanding
options,
warrants,
and rights
 
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
Equity compensation plans approved by stockholders
 
1,971,775(1)

 
$
7.04

 
3,889,781

Equity compensation plans not approved by stockholders
 

 

 

Total
 
1,971,775

 
$
7.04

 
3,889,781

______________________________________________________________________________
(1) Includes 336,688 shares subject to outstanding LTIP Awards (time-based), 294,687 shares subject to outstanding LTIP Awards (performance-based) and 1,248,450 outstanding non-vested restricted shares of Common Stock; the weighted-average exercise price does not take into account these shares as they have no exercise price.

33






ITEM 6.    SELECTED FINANCIAL DATA.
The following table summarizes our selected historical consolidated financial information for each of the last five years. The selected financial information under the captions “Summary of Operations,” “Per Share Data,” “Balance Sheet Data,” and “Other Data” shown below has been derived from our audited Consolidated Financial Statements. This table should be read in conjunction with other consolidated financial information of KEMET, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements, included elsewhere herein. The data set forth below may not be indicative of our future financial condition or results of operations (see Item 1A, “Risk Factors”) (amounts in thousands except per share amounts):
 
 
Fiscal Years Ended March 31,
 
 
2020
 
2019
 
2018
 
2017
 
2016
Summary of Operations:
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
1,260,554

 
$
1,382,818

 
$
1,200,181

 
$
757,338

 
$
734,823

Operating income
 
147,866

 
200,849

 
112,852

 
34,968

 
33,833

Interest income
 
(3,325
)
 
(2,035
)
 
(809
)
 
(24
)
 
(14
)
Interest expense
 
11,021

 
21,239

 
32,882

 
39,755

 
39,605

Net income (loss)
 
41,381

 
206,587

 
254,127

 
47,157

 
(53,629
)
Per Share Data:
 
 
 
 
 
 
 
 
 
 
Net income (loss) per basic share
 
$
0.71

 
$
3.57

 
$
4.81

 
$
1.01

 
$
(1.17
)
Net income (loss) per diluted share
 
0.70

 
3.50

 
4.33

 
0.85

 
(1.17
)
Dividends declared per share
 
0.10

 
0.10

 

 

 

Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,393,097

 
$
1,318,095

 
$
1,222,923

 
$
739,439

 
$
699,780

Working capital
 
343,783

 
363,580

 
391,295

 
248,252

 
228,793

Long-term debt, less current portion
 
235,673