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May 28, 2020, 5:03 p.m. EDT

10-K: KEMET CORP

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(EDGAR Online via COMTEX) -- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis provide information that we believe is useful in understanding our operating results, cash flows, and financial condition for the three fiscal years ended March 31, 2020, 2019, and 2018. The discussion should be read in conjunction with, and is qualified in its entirety by reference to, the consolidated financial statements and related notes appearing elsewhere in this report. The discussions in this document contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. Our actual future results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the Item 1A, "Risk Factors" and, from time to time, in our other filings with the Securities and Exchange Commission. Our Competitive Strengths We believe that our Company benefits from the following competitive strengths: Strong Customer Relationships We have a large and diverse customer base. We believe that our emphasis on quality control and our performance history establishes loyalty with OEMs, EMSs and distributors. Our customer base includes most of the world's major electronics OEMs (including Bosch Group, Cisco Systems, Inc., Continental AG, Delphi Technologies PLC, Dell Inc., Apple Inc., Google LLC, Tesla Inc., and ABB Group), EMSs (including Celestica Inc., Flextronics International LTD, Jabil Circuit, Inc., and Sanmina-SCI Corporation) and distributors (including TTI, Inc., Arrow Electronics, Inc., Satori Electric Co., and Avnet, Inc.). Our strong, extensive and efficient worldwide distribution network is one of our differentiating factors. We believe our ability to provide innovative and flexible service offerings, superior customer support and focus on speed-to-market results in a more rewarding customer experience, earning us a high degree of customer loyalty. Breadth of Our Diversified Product Offering and Markets We believe that we have the most complete line of primary capacitor types spanning a full spectrum of dielectric materials including tantalum, multilayer ceramic, solid and electrolytic aluminum and film capacitors. As discussed below, our acquisition of (and previous private label partnership with) TOKIN, has expanded our product offerings and markets. As a result, we believe we can satisfy virtually all of our customers' capacitance needs, thereby strengthening our position as their supplier of choice. In addition, through our acquisition of TOKIN, we have products to assist in the management of electronic noise within a device and in communications between devices, as well as products that can sense and respond to human activity, physical vibration, and electric current. We sell our products into a wide range of end-markets, including computing, industrial, telecommunications, transportation, consumer, defense and healthcare across all geographical regions. No single end market industry accounted for more than 30% of net sales; although, one customer, an electronics distributor, accounted for more than 10% of our net sales in fiscal year 2020. No single end-use direct customer accounted for more than 5% of our net sales in fiscal year 2020. We believe that well-balanced product, geographic and customer diversification helps us mitigate some of the negative financial impact through economic cycles. Leading Market Positions and Operating Scale Based on net sales, we believe that we are the largest manufacturer of tantalum capacitors in the world and one of the largest manufacturers of direct current film capacitors in the world and have a substantial market position in the specialty ceramic and custom wet aluminum electrolytic markets. We believe KEMET's polymer tantalum sales lead the industry with an estimated market share of approximately 50%. As discussed below, our acquisition of (and previous private label partnership with) TOKIN allows us to achieve true scale in operations to manage raw materials sourcing as well as maximize efficiencies. We believe that our leading market positions and operating scale allow us to realize production efficiencies, leverage economies of scale and capitalize on growth opportunities in the global capacitor market. Strong Presence in Specialty Products We engage in design collaboration with our customers in order to meet their specific needs and provide them with customized products satisfying their engineering specifications. Whether at the concept or design stage, KEMET provides engineering tools and samples to our customers to enable them to make the best product selections. KEMET's Field Application Engineers (experts in electrical circuits) and Technical Product Managers (experts in product applications) assist our Sales team as they navigate the product selection process with our customers. During fiscal years 2020 and 2019, respectively, specialty products accounted for 42.1% and 39.4% of our revenue. By allocating an increasing portion of our management resources and research and development ("R&D") investment particularly through our acquisition of (and previous partnership with) TOKIN to specialty products, we have established ourselves as one of the leading innovators in this

fast growing, emerging segment of the market, including healthcare, renewable energy, telecommunication infrastructure and oil and gas. Low-Cost and Strategic Locations

Further Expand Our Broad Capacitance Capabilities We identify ourselves as the "Electronic Components" company and strive to be the supplier of choice for all our customers' capacitance needs across the full spectrum of dielectric materials including tantalum, multilayer ceramic, solid and electrolytic aluminum, film and paper. While we believe we have the most complete line of capacitor technologies across these primary capacitor types, we intend to continue to research and pursue additional capacitance technologies and solutions to maximize the breadth of our product offerings. As discussed below through our acquisition of TOKIN, we have further expanded our product offerings to electric double layer capacitors, electro-magnetic devices, sensors, and actuators. This expansion of product offerings is a continuation of our focus on the higher margin specialty segments of the market. Promote the KEMET Brand Globally







        COVID-19
        On March 11, 2020, the World Health Organization characterized the outbreak of a
        novel strain of coronavirus, known as COVID-19, as a global pandemic and
        recommended containment and mitigation measures. There have been extraordinary
        and wide-ranging actions taken by international, federal, state and local public
        health and governmental authorities to contain and combat the spread of COVID-19
        across the world, including quarantines, "stay-at-home" orders, travel-bans, and
        similar mandates for many individuals to substantially restrict daily activities
        and for many non-essential businesses to curtail or cease normal operations.
        Every region is experiencing the severity of COVID-19 differently. As a result,
        we're monitoring and complying with local, state, and federal government
        requirements and mandated orders regarding our manufacturing, sales, and
        corporate
        


facilities. As of March 31, 2020, our manufacturing facilities in the North America, Asia, and Europe, excluding our facility in Italy, were operational with increased safety and health protocols applicable to all employees. Our plants in China (Suzhou, Anting, and Xiamen) were closed for a short period of time during the month of February, but did not experience any major shut-downs. Our plant in Pontecchio, Italy was shut-down in March in response to the Italian Prime Minister's shut-down of all business activities in the country except for those activities essential to the health and safety of the country. This government mandated stoppage impacted our ability to produce and deliver film capacitors. Our plant in Pontecchio, Italy reopened and resumed operations on April 4, 2020.

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.

Off-Balance Sheet Arrangements

May 28, 2020

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