KEMET CORP (Form: 10-K, Received: 05/25/2016 06:02:11)

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United States

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________________________

FORM 10-K



(Mark One)
ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2016
Or
o		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 (State or other jurisdiction of incorporation or organization)		57-0923789 (I.R.S. Employer Identification No.)

2835 Kemet Way, Simpsonville, South Carolina (Address of principal executive offices)		29681 (Zip Code)

Registrant's telephone number, including area code: (864) 963-6300

Securities registered pursuant to Section 12(b) of the Act:

(Title of each class) (Name of Exchange on which registered)

Common Stock, par value $0.01 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 o No ý

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 o No ý

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 ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):



Large accelerated filer o	Accelerated filer ý	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

The aggregate market value of voting common stock held by non-affiliates of the registrant as of September 30, 2015 computed by reference to the closing sale price of the registrant's common stock was approximately $81,863,979 .

The number of shares of each class of common stock, $0.01 par value, outstanding as of May 23, 2016 was 46,235,675 .

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held July 28, 2016 are incorporated by reference into Part III of this report.

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Index



ITEM 1.	BUSINESS	4
ITEM 1A.	RISK FACTORS	11
ITEM 1B.	UNRESOLVED STAFF COMMENTS	19
ITEM 2.	PROPERTIES	19
ITEM 3.	LEGAL PROCEEDINGS	20
ITEM 4.	MINE SAFETY DISCLOSURES	21
ITEM 4A.	EXECUTIVE OFFICERS OF THE REGISTRANT	21
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	24
ITEM 6.	SELECTED FINANCIAL DATA	27
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	54
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	54
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	54
ITEM 9A.	CONTROLS AND PROCEDURES	55
ITEM 9B.	OTHER INFORMATION	55
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	56
ITEM 11.	EXECUTIVE COMPENSATION	56
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	56
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	56
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	56
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	57
SIGNATURES		121

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PART I

ITEM 1. BUSINESS

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:



Business Group	Fiscal Year	Business
Solid Capacitors Business Group ("Solid Capacitors")	2007	Tantalum Business Unit of EPCOS AG
Film and Electrolytic Business Group ("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 ("KEMET Foil"))
Solid Capacitors	2012	Niotan Incorporated (renamed KEMET Blue Powder Corporation ("Blue Powder"))
Corporate	2013	34% economic interest in NEC TOKIN Corporation ("NEC TOKIN")
Corporate	2016	IntelliData, Inc. ("IntelliData")

Through the above acquisitions and organic growth we have expanded our product base to include multilayer ceramic, solid & electrolytic aluminum and film capacitors.

In fiscal year 2013, our subsidiary, KEMET Electronics Corporation ("KEC") acquired a 34% economic interest in NEC TOKIN as calculated based on the number of common shares held by KEC, directly and indirectly, in proportion to the aggregate number of common and preferred shares of NEC TOKIN outstanding as of such date . The Company accounts for its investment in NEC TOKIN using the equity method for a non-consolidated variable interest entity since KEC does not have the power to direct significant activities of NEC TOKIN.

General

We compete in the passive electronic component industry, specifically multilayer ceramic, tantalum, film and aluminum (solid & electrolytic) capacitors. Product offerings include surface mount, 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).

Our product line consists of many distinct part configurations distinguished by various attributes, such as dielectric (or insulating) material, configuration, encapsulation, capacitance (at various tolerances), voltage, performance characteristics and packaging. Most of our customers have multiple capacitance requirements, often within each of their products. Our broad product offering allows us to meet the majority of those needs independent of application and end use.

We believe the long-term demand for the various types of capacitors we offer will grow on a regional and global basis due to a variety of factors, including increasing demand for and complexity of electronic products, growing demand for technology in emerging markets and the ongoing development of new solutions for energy generation and conservation. Our customer base includes most of the world's major electronics original equipment manufacturers ("OEMs") (including Alcatel-Lucent USA, Inc., Bosch Group, Cisco Systems, Inc., Continental AG, Dell Inc., HP Inc., International Business Machines Corporation, Motorola Solutions, L.M. Ericsson, Siemens AG and TRW Automotive), electronics manufacturing services providers ("EMSs") (including Celestica Inc., Flextronics International LTD, Jabil Circuit, Inc. and Sanmina-SCI Corporation) and distributors (including TTI, Inc., Arrow Electronics, Inc. and Avnet, Inc.).

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Solid Capacitors products are commonly used in conjunction with integrated circuits, and the same circuit may, and frequently does, 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 while solid aluminum capacitors can be more effective in special applications. 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. Capacitors account for the largest market within the passive component product grouping.

Our Industry

We compete with others that manufacture and distribute capacitors 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, there is ongoing pressure on average unit selling prices for capacitors. To help mitigate this effect, KEMET as well as many of our larger competitors have relocated their manufacturing operations to low cost regions and locations in closer proximity to our respective customers.

According to a March 2016 report entitled "Passive Electronic Components: World Market Outlook: 2016-2021" by Paumanok Publications, Inc. ("Paumanok"), a market research firm concentrating on the passive components industry, the global capacitor market in fiscal year 2016 (fiscal year ending March 2016 ) was estimated to be $18.8 billion in revenues and 1.87 trillion units. According to the Paumanok report, the global capacitor market is expected to improve substantially and achieve revenue and unit volume increases of 13% and 16%, respectively, by fiscal year 2021 . According to Paumanok, the forecast of the capacitor industry for fiscal year 2016 and the expected growth to fiscal year 2021 are as follows (amounts in billions):



	Fiscal Year 2016		Fiscal Year 2021
Tantalum	$	1.6	$	1.9
Ceramic	10.3		11.3
Aluminum	3.6		3.8
Paper and plastic film	1.7		2.4
Other	0.6		0.7
	$	17.8	$	20.1

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, though cyclical, continues 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:


•	the development of new products and applications, such as alternative and renewable energy systems, hybrid transportation systems, electronic controls for engines and industrial machinery, smart phones and mobile personal computing devices;


•	the “internet-of-things” products;


•	the next generation of automotive electronics to support advance driver assistance systems, as well as the connected car;


•	the increase in the electronic content of existing products, such as home appliances, medical equipment and automobiles;


•	consumer desire for mobility and connectivity; and


•	the enhanced functionality, complexity and convergence of electronic devices that use state-of-the-art microprocessors.

Markets and Customers

Our products are sold to a variety of OEMs in a broad range of industries including the computer, communications, automotive, military, consumer, industrial and aerospace industries. We also sell products to EMS providers, which also serve OEMs in these industries. Electronics distributors are an important channel of distribution in the electronics industry and represent the largest channel through which we sell our capacitors. One electronics distributor accounted for over 10% of our net sales in fiscal years 2016 , 2015 and 2014 . If our relationship with this customer were to terminate, we would need to

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determine alternative means of delivering our products to the end-customers served by them. Our top 50 customers accounted for 86.3% of our net sales during fiscal year 2016 .

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, netbooks), 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
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.

It is impracticable to report revenues from external customers for each of the above noted products primarily because approximately 42% of our external sales were to electronics distributors for fiscal year 2016 .

KEMET in the United States

Our corporate headquarters is located near Greenville, South Carolina.

Commodity manufacturing previously located in the United States has been substantially relocated to our lower-cost manufacturing facilities in Mexico, China and Europe. 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.

On June 13, 2011, we completed the acquisition of KEMET Foil, a Tennessee based manufacturer of etched foils utilized as a core component in the manufacture of electrolytic capacitors. On February 21, 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. Blue Powder's principal operating location is in Carson City, Nevada.

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. One of the strengths of KEMET Mexico is that it is a local operation, including local management and workers. These facilities are responsible for maintaining KEMET's tradition of excellence in quality, service, and delivery, while driving costs down. The

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facilities in Victoria and Matamoros are focused primarily on tantalum capacitors, while the facilities in Monterrey are focused on ceramic capacitors.

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 and Electrolytic products in China. The vision for KEMET China is to be a local operation, 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 in Asia.

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 the United Kingdom, Italy, Germany and Sweden. 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 three geographic regions: North America and South America ("Americas"), Europe, the Middle East and Africa ("EMEA") and Asia and the Pacific Rim ("APAC"). Each region's sales staff is organized into three areas supported by regional offices. We also have independent sales representatives located in seven countries worldwide including: Brazil, Israel, Canada, and the United States.

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 all of 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.

Electronics distributors are an important distribution channel in the electronics industry and accounted for 42% , 45% , and 45% of our net sales in fiscal years 2016 , 2015 and 2014 , 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 2016 and 2015 , net sales by region were as follows (dollars in millions):



	Fiscal Year 2016					Fiscal Year 2015
	Net Sales		% of Total			Net Sales		% of Total
Americas	$	225.7	31	%	Americas	$	260.0	32	%
APAC	275.8		37	%	APAC	281.8		34	%
EMEA	233.3		32	%	EMEA	281.4		34	%
Total	$	734.8			Total	$	823.2

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. While sales in the Americas are the lowest of the three regions, the Americas remains 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.

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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 is characterized by, among other factors, a long-term trend toward lower prices, low transportation costs, and few import barriers. Competitive factors influencing the market for our products include: product quality, customer service, technical innovation, pricing, and timely delivery. We believe we compete favorably on the basis of each of these factors.

Our major global competitors include AVX Corporation, Panasonic Corporation, Littelfuse, Inc., Murata Manufacturing Co., Ltd., Samsung, Taiyo Yuden Co., Ltd., TDK-EPC Corporation, WIMA GmbH & Co., KG and Vishay Intertechnology, Inc. ("Vishay").

Raw Materials

The principal raw materials used in the manufacture of our products are tantalum powder, tantalum ore, palladium, aluminum and silver. 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 and Mozambique. 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. A majority of our tantalum needs are now met through our direct sourcing of conflict free tantalum ore or tantalum scrap reclaim, which is then processed into the intermediate product potassium heptafluorotantalate (commonly known as K-salt) at our own facility in Mexico, before final processing into tantalum powder at Blue Powder. 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.

Palladium is a precious metal used in the manufacture of multilayer ceramic capacitors ("MLCC") and is mined primarily in Russia and South Africa. We continue to pursue ways to reduce palladium usage in ceramic capacitors to minimize the price risk. The amount of palladium we require has generally been available in sufficient quantities; however, the price of palladium is driven by the market which has shown significant price fluctuations. For instance, in fiscal year 2016 the price of palladium fluctuated between $470 and $802 per troy ounce. Price increases and the possibility of our inability to pass such increases on to our customers could have an adverse effect on profitability.

Silver and aluminum have generally been available in sufficient quantities, and we believe there are a sufficient number of 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, 2016 , we held the following number of patents and trademarks:

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" and "KEMET Charged". 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.

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Research and Development

Research and development expenses were $25.0 million , $25.8 million and $24.5 million for fiscal years 2016 , 2015 and 2014 , respectively. These amounts include expenditures for product development and the design and development of machinery and equipment for new processes and cost reduction efforts. We continue to invest in new technology to improve product performance and production efficiencies.

Segment Reporting

We are organized into two business groups: Solid Capacitors and Film and Electrolytic. Each business group 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 business groups. See Note 6 , " Segment and Geographic Information " to our consolidated financial statements.

Solid Capacitors Business Group

Solid Capacitors operates nine capacitor manufacturing sites in the United States, Mexico and China and a product innovation center in the United States and 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 over 6,270 employees worldwide. For fiscal years 2016 , 2015 and 2014 , Solid Capacitors had consolidated net sales of $556.3 million , $621.3 million and $626.5 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 surface mount tantalum and aluminum polymer capacitors. On February 21, 2012, we acquired Blue Powder which we believe is the largest production facility for tantalum powder in the western hemisphere. The Company continues to review its cost structure and may take actions to improve the cost structure if the anticipated result is advantageous.

Tantalum's broad product portfolio, industry leading process and materials technology, global manufacturing base and on-time delivery capabilities 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.

Our ceramic product line offers an extensive line of multilayer ceramic capacitors in a variety of sizes and configurations. We are one of the two leading ceramic capacitor manufacturers headquartered in the United States and among the ten largest manufacturers worldwide.

Ceramic's high temperature and capacitance stable product lines provide us with what we believe to be a significant advantage over many of our competitors, especially in high reliability markets, such as medical, industrial, defense and aerospace. Our other significant end-markets include computing, telecommunications, automotive and general industries.

Film and Electrolytic Business Group

Our Film and Electrolytic Business Group produces film, paper and wet aluminum electrolytic capacitors. In addition, the business group designs and produce EMI filters. For applications requiring high power and high voltages, film capacitors are more suitable. For applications requiring high energy at a reasonable price, aluminum electrolytic capacitors are preferred. 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 direct current film and one of the leaders in wet aluminum electrolytic capacitors. In addition, we produce capacitor grade aluminum foils utilized as a core component in the manufacture of electrolytic capacitors. For fiscal years 2016 , 2015 and 2014 , our Film and Electrolytic Business Group had consolidated net sales of $178.5 million , $201.9 million and $207.2 million , respectively. One of the primary drivers of the decreases in sales from fiscal year 2014 to fiscal year 2016 is the reduction of the USD to EURO exchange rate from a weighted average value of 1.34 to 1.10.

Our Film and Electrolytic Business Group primarily serves the industrial and automotive markets. We believe our Film and Electrolytic Business Group'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 ten film and electrolytic manufacturing sites throughout Europe and Asia and maintain product innovation centers in the United Kingdom, Italy, Germany and Sweden. Our Film and Electrolytic Business Group employs approximately 2,090 employees worldwide.

As part of our restructuring efforts for Film and Electrolytic, we have been executing our plan to reduce the number of operations and headcount. The restructuring plan is now substantially complete even though the full effects of these actions

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have not been reflected in the income statement yet and a few actions are still being completed. During fiscal year 2016, three operations were ceased and we reduced headcount by approximately 160 employees. The total closing, severance, and startup expenses incurred in fiscal year 2016 were approximately $3.0 million. These actions resulted in approximately a $4.0 million reduction in our operating costs in fiscal year 2016. We expect an additional $4.6 million of savings in fiscal year 2017 as a result of our plan, followed by another $1.8 million in fiscal year 2018.

Environmental and Regulatory Compliance

We are subject to various North American, European, and Asian federal, 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 manufacturing electronic components. Based on the annual costs incurred over the past several years, we do not believe compliance with these laws and regulations will have a material adverse effect on our capital expenditures, earnings, or competitive position. We believe, however, it is reasonably likely the trend in environmental litigation, laws, and regulations will continue to be 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, we have adopted the Electronic Industry Citizenship Coalition ("EICC") Code of Conduct. The EICC 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, workers are treated with respect and dignity, manufacturing processes are environmentally sustainable and materials are sourced responsibly.

Policies, programs, and procedures implemented throughout KEMET ensure compliance with legal and regulatory requirements, the content of the EICC Code of Conduct, and customer contractual requirements related to social and environmental responsibility.

We fully support the position of the EICC, the Global e-Sustainability Initiative ("GeSI"), the Electronic Components Industry Association ("ECIA") 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 or adjoining countries, in line with full compliance to the EICC Code of Conduct. Our tantalum supply base has been and continues to be validated as being sourced conflict free. All of our tantalum raw material providers have been validated as compliant to the EICC/GeSI Conflict Free Smelter Program ("CFSP") program. This policy and validation requirement has been implemented for all conflict minerals. We intend to discontinue doing business with any supplier found to be purchasing materials which directly or indirectly finance or benefit armed groups in the Democratic Republic of Congo or adjoining countries. We will continue to work through the EICC, GeSI, ECIA and TIC towards the goal of greater transparency in the supply chain.

Summary of Activities to Develop a Transparent Supply Chain

We are actively involved in developing a transparent supply chain through our membership in the EICC/GeSI Conflict-Free Sourcing Initiative. We were a member of the EICC/GeSI working group that developed the CFSP assessment protocols and participated in the pilot implementation phase of the Organization for Economic Cooperation and Development 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 conflict minerals reporting template. We will rely on the EICC/GeSI Conflict-Free Smelter Program 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 and will comply with all reporting requirements.

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, 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 embody the key expectations of how our employees should approach the work they do every day: One KEMET, Unparalleled Customer Experience, Ethics and Integrity, Talent Oriented, No Politics, The Math Must Work and Speed. The Global Code of Conduct and Mission, Vision and Values are applicable to all employees, officers, and directors of the Company. The Code of Conduct, Mission, Vision and Values and any amendments thereto are available at http://www.kemet.com .

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Employees

We have approximately 8,800 employees as of March 31, 2016 in the following locations:



Mexico	4,950
Asia	1,825
Europe	1,450
United States	575

The number of employees represented by labor organizations at KEMET locations in each of the following countries is as follows:



Mexico	3,350
Italy	250
Macedonia	25
Bulgaria	125
Indonesia	325
Finland	175
Sweden	100

In fiscal year 2016 , we did not experience any major work stoppages. 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" and other similar expressions or 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 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 our 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) 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; (ii) continued net losses could impact our ability to realize current operating plans and could materially adversely affect our liquidity and our ability to continue to operate; (iii) adverse economic conditions could cause the write down of long-lived assets or goodwill; (iv) an increase in the cost or a decrease in the availability of our principal or single-sourced purchased materials; (v) changes in the competitive environment; (vi) uncertainty of the timing of customer product qualifications in heavily regulated industries; (vii) economic, political, or regulatory changes in the countries in which we operate; (viii) difficulties, delays or unexpected costs in completing the restructuring plans;

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(ix) equity method investment in NEC TOKIN exposes us to a variety of risks; (x) acquisitions and other strategic transactions expose us to a variety of risks; (xi) possible acquisition of NEC TOKIN may not achieve all of the anticipated results; (xii) our business could be negatively impacted by increased regulatory scrutiny and litigation; (xiii) inability to attract, train and retain effective employees and management; (xiv) inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xv) exposure to claims alleging product defects; (xvi) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xvii) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xviii) volatility of financial and credit markets affecting our access to capital; (xix) the need to reduce the total costs of our products to remain competitive; (xx) potential limitation on the use of net operating losses to offset possible future taxable income; (xxi) restrictions in our debt agreements that limit our flexibility in operating our business; (xxii) failure of our information technology systems to function properly or our failure to control unauthorized access to our systems may cause business disruptions; (xxiii) additional exercise of the warrant by K Equity which could potentially result in the existence of a significant stockholder who could seek to influence our corporate decisions; and (xxiv) fluctuation in distributor sales could adversely affect our results of operations.

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 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.

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.

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 and complying with any applicable financial covenants under our debt agreements. 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.

Continued net losses could impact our ability to realize current operating plans and could materially adversely affect our liquidity and our ability to continue to operate.

Our liquidity and ability to realize our current operating plans is dependent on an improvement in operating results. If cash generated from operating, investing and financing activities is insufficient to pay for operating requirements and to cover payment obligations under debt instruments, planned operating and capital expenditures may need to be reduced, or the debt instruments may need to be amended or refinanced. There can be no assurances we would be able to secure such amendments or refinancing on satisfactory terms.

However, to provide financial flexibility, if necessary we could explore the sale of certain non-core assets. There can be no assurances we would be successful in this strategic initiative. Our ability to realize current operating plans is also dependent upon meeting our payment obligations and complying with any applicable financial covenants under our debt agreements.

Adverse economic conditions could cause the write down of long-lived assets or goodwill.

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. In the event the test shows the carrying value of certain long-lived assets is impaired, we would be required to take an impairment charge to earnings under U.S. generally accepted accounting principles. However, such a charge would have no direct effect on our cash. If the economic conditions decline we could incur impairment charges in the future.

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 test shows the carrying value of goodwill is impaired, we would

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be required to take an impairment charge to earnings under U.S. generally accepted accounting principles. However, such a charge would have no direct effect on our cash. If the economic conditions decline we could incur additional charges in the future.

An increase in the cost or decrease in the availability of our principal or single-sourced purchased materials could adversely affect profitability.

Palladium is a precious metal used in the manufacture of multilayer ceramic capacitors and is mined primarily in Russia and South Africa. We continue to pursue ways to reduce palladium usage in ceramic capacitors in order to minimize the price risk. The amount of palladium we require has generally been available in sufficient quantities; however, the price of palladium is subject to significant price fluctuations driven by market demand. For instance, in fiscal year 2016 the price of palladium fluctuated between $470 and $802 per troy ounce. Price increases and the possibility of our inability to pass such increases on to our customers could have an adverse effect on 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 globalized 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.

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We may experience difficulties, delays or unexpected costs in completing our restructuring plan and may not realize all of the expected benefits from our restructuring plan.

During fiscal year 2016 , we continued our restructuring plan for Film and Electrolytic and took actions to reduce headcount by a total of approximately 160 employees and we expect to further reduce headcount in fiscal year 2017 by an additional 35 employees.

Solid Capacitors took actions to reduce headcount by approximately 230 in fiscal year 2016. The full benefits of this restructuring activity are expected to be realized in fiscal year 2017. We may not realize, in full or in part, the anticipated benefits of the restructuring plan 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 party to collective bargaining agreements in certain jurisdictions in which we operate which could potentially prevent or delay execution of parts of our restructuring plan.

The financial performance of our equity method investment in NEC TOKIN could adversely impact our results of operations .

On February 1, 2013, we closed on KEC's investment in a 34% economic interest in NEC TOKIN with the purchase of 51% of the common stock in NEC TOKIN. The 34% economic interest is calculated based on the number of common shares held by KEC, directly and indirectly, in proportion to the aggregate number of common and preferred shares of NEC TOKIN outstanding as of such date . These businesses are subject to laws, regulations or market conditions, or have risks inherent in their operations, that could adversely affect their performance. We do not have the power to direct significant activities of our equity method investments and therefore the performance of the investment may be negatively impacted. The interests of our partners may differ from the Company's, and they may cause such entities to take actions which are not in the Company's best interest. Any of these factors could adversely impact our results of operations and the value of our investment. In fiscal years 2016 , 2015 and 2014 we incurred a loss on our equity investment in NEC TOKIN of $16.4 million , $2.2 million and $7.1 million , respectively.

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 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, the diversion of management's attention, and may cause our stock price to decline.

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.

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 may not realize the anticipated synergies and revenue expansion expected to result from completing the acquisition of NEC TOKIN and we may experience difficulties in integrating NEC TOKIN’s business which may adversely affect our financial performance.

There can be no assurance we will complete the acquisition of the remaining shares of common stock and preferred stock of NEC TOKIN. KEC’s first and second call options to purchase additional capital stock of NEC TOKIN expired on April 30, 2015 and as a result KEC does not currently have the right to purchase the remaining capital stock of NEC TOKIN. There can be no assurance KEC will be able to negotiate new terms to purchase the additional capital stock of NEC TOKIN. From April 1, 2015 through May 31, 2018, NEC Corporation (“NEC”) of Japan may require KEC to purchase all outstanding capital stock of NEC TOKIN from its stockholders, primarily NEC (the “Put Option”), provided KEC’s payment of the Put Option price is permitted under the 10.5% Senior Notes and Loan and Security Agreement.

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Even if we do complete the acquisition, there can be no assurance we will realize the anticipated operating synergies, tax benefits and revenue expansion from the acquisition of NEC TOKIN or we will not experience difficulties in integrating the operations of NEC TOKIN with our operations. For example, the integration of NEC TOKIN will require the experience and expertise of certain of our key managers and key managers of NEC TOKIN. There can be no assurance, however, that these managers will remain with us for the time period necessary to successfully integrate the operations of NEC TOKIN with our operations. In addition, the acquisition of NEC TOKIN may present significant challenges for our management due to the increased time and resources required to properly integrate our management, employees, information systems, accounting controls, personnel and administrative functions with those of NEC TOKIN and to manage the combined company on a going forward basis. There can be no assurance we will be able to successfully integrate and streamline overlapping functions or, if successfully accomplished, that such integration will not be more costly to accomplish than presently contemplated or that we will not encounter difficulties in managing the combined company due to its increased size and scope. 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.

Furthermore, there can be no assurance that, as a combined company, we will continue to maintain all of the supplier and customer relationships we and NEC TOKIN enjoyed as separate companies. As a combined company, we may encounter difficulties managing relationships with our suppliers and our customers due to our increased size and scope and to the increased number of relationships we will have with suppliers and customers.

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. Beginning in March 2014, NEC TOKIN and certain of its subsidiaries have received inquiries, requests for information and other communications from government authorities in China, the United States, the European Commission, Japan, South Korea, Taiwan, Singapore and Brazil concerning alleged anti-competitive activities within the capacitor industry, and NEC TOKIN has subsequently received significant fines from the United States Department of Justice and the Taiwan Fair Trade Commission arising out of their respective investigations. Given our leading position within several segments of the capacitor industry and our substantial investment in NEC TOKIN, these investigations have exposed us to civil litigation costs and could interfere with our ability to meet certain business objectives. Further, the Company received a request for information from the European Commission in connection with its investigation of NEC TOKIN as the regulators evaluate any potential liability to which shareholders of NEC TOKIN may be subject.

In addition, in connection with the antitrust litigation and settlement proceedings involving NEC TOKIN as described in Note 5 to the consolidated financial statements; the line item " Net income (loss) from NEC TOKIN on our Consolidated Statement of Operations reflects our 34% economic interest in NEC TOKIN's litigation and settlement expenses.

Various purported antitrust class actions as described in "Item 3. Legal Proceedings", have been filed in United States district courts (the "U.S. Complaints") and Canada (the "Canadian Complaints") alleging collusion and restraint of trade in capacitors by the named defendants, including KEMET Corporation, KEC and NEC TOKIN.

The Company has not recorded any accrual concerning the U.S. Complaints and the Canadian Complaints.

The impact of these and other investigations could have a material adverse effect on our financial position, liquidity and results of operations.

Our inability to attract, train and retain effective employees and management could harm our business.

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.

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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 open up new business opportunities in other areas of application. We believe successful innovation is critical for maintaining profitability in order 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 commodity 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 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 federal, 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 disclose annually 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 Commission 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, will 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

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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 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 in order 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.

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.

We must consistently reduce the total costs of our products to remain competitive.

Our industry is intensely competitive and prices for existing commodity 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. 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.

We do not believe we have experienced an ownership change to date. However, the Section 382 rules are complex and there is no assurance our view is correct. For example, the issuance of a warrant (the "Platinum Warrant") in May 2009 to K Financing, LLC ("K Financing"), in connection with the entry into a credit facility (the "Platinum Credit Facility") with K Financing, may be deemed to have resulted in an "ownership change" for purposes of Section 382 of the Code. If such an ownership change is deemed to have occurred, the amount of our post-ownership change taxable income that could be offset by our pre-ownership change net operating loss carryforwards would be severely limited. While we believe the issuance of the Platinum Warrant did not result in an ownership change for purposes of Section 382 of the Code, there is no assurance our view will be unchallenged.

Even if we have not experienced an ownership change to date, we could experience an ownership change in the near future if there are certain significant purchases of our common stock or other events outside our control.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

The agreement governing our revolving credit facility and the indenture governing the notes and certain of our other debt agreements contain various covenants that, subject to exceptions, 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 this covenant is dependent on our future performance, which may be subject to many factors, some of which are beyond our control.

Failure of our information technology systems to function properly may cause business disruptions.

As a global company we depend on our information technology systems to support our business. Any inability to successfully manage the procurement, development, implementation, execution or maintenance of our information systems, including matters related to 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.

In the ordinary course of business, we collect and store sensitive data and information, including our proprietary and regulated business information, as well as personally identifiable information about our employees, in addition to other information upon which our business processes rely. Our information systems, like those of other companies, are susceptible to malicious damage, intrusions and outages due to, among other events, viruses, breaches of security, natural disasters, power loss or telecommunications failures. We have taken steps to maintain adequate data security and address these risks and uncertainties by implementing security technologies, internal controls, network and data center resiliency and recovery processes. However, any operational failure could lead to the loss or disclosure of confidential and other important information which could have the following implications: loss of intellectual property, significant remediation costs, disruption to key business operations and diversion of management’s attention and key informational technology resources.

K Equity may obtain significant influence over all matters submitted to a stockholder vote if they exercise Platinum Warrant and retain ownership of the shares, which may limit the ability of other shareholders to influence corporate activities and may adversely affect the market price of our common stock.

As part of the consideration for entering into the Platinum Credit Facility on May 5, 2009, K Financing received the Platinum Warrant to purchase up to 26,848,484 shares of our common stock (subject to certain adjustments), representing 49.9% of our outstanding common stock at the time of issuance on a post-exercise basis. This Platinum Warrant was subsequently transferred to K Equity, LLC ("K Equity"), an affiliate of K Financing. As of March 31, 2016 , 8,416,815 shares remain subject to the Platinum Warrant. To the extent K Equity exercises the remainder of the Platinum Warrant in whole or in

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part but does not sell all or a significant part of the shares it acquires upon exercise, K Equity may own up to 15.4% of our outstanding common stock. As a result, K Equity may have substantial influence over the outcome of votes on all matters requiring approval by our stockholders, including the election of directors, the adoption of amendments to our restated certificate of incorporation and by-laws and approval of significant corporate transactions. This concentration of stock ownership may make it difficult for stockholders to replace management. In addition, this significant concentration of stock ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. This concentration of control could be disadvantageous to other stockholders with interests different from those of our officers, directors and principal stockholders, and the trading price of shares of our common stock could be adversely affected.

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 fiscal years 2016 , 2015 and 2014 . 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.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

We are headquartered in Simpsonville, South Carolina, and have 19 manufacturing plants located in North America, Europe and Asia. Our manufacturing and research facilities include approximately 3.3 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.

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The following table provides certain information regarding our principal facilities:



Location	Square Footage (in thousands)	Type of Interest	Description of Use
Simpsonville, South Carolina U.S.A.	372	Owned	Headquarters, Innovation Center, Advanced Tantalum Manufacturing
Solid Capacitor Business Group
Matamoros, Mexico(1)	384	(1)	(1)
Monterrey, Mexico(2)	532	Owned	Manufacturing
Suzhou, China(2)	353	Leased	Manufacturing
Ciudad Victoria, Mexico	265	Owned	Manufacturing
Carson City, Nevada U.S.A.	87	Owned	Manufacturing
Film and Electrolytic Business Group
Evora, Portugal	233	Owned	Manufacturing
Skopje, Macedonia	126	Owned	Manufacturing
Granna, Sweden	132	Owned	Manufacturing
Suomussalmi, Finland	93	Leased	Manufacturing
Batam, Indonesia	86	Owned	Manufacturing
Knoxville, Tennessee U.S.A.	78	Owned	Manufacturing
Kyustendil, Bulgaria	83	Owned	Manufacturing
Landsberg, Germany	81	Leased	Innovation Center
Pontecchio, Italy	226	Owned	Manufacturing and Innovation Center
Weymouth, United Kingdom	96	Leased	Innovation Center
Anting, China	38	Owned	Manufacturing
Farjestaden, Sweden	28	Leased	Manufacturing and Innovation Center

_______________________________________________________________________________


1.	Includes two manufacturing facilities, one owned and one leased facility. The leased facility processes raw materials.


2.	Includes two manufacturing facilities.

ITEM 3. LEGAL PROCEEDINGS.

We or our subsidiaries are at any one time parties to a number of lawsuits arising out of their respective operations, including workers' compensation or work place 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.

As previously reported, KEMET Corporation and KEC, along with more than 20 other capacitor manufacturers and subsidiaries, are 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. Complaint”). The complaint alleges a violation of Section 1 of the Sherman Act, for which it seeks injunctive and equitable relief and money damages. On March 30, 2016, KEMET Corporation and KEC filed a motion for summary judgement with the District Court; response and reply briefs concerning the motion have not yet been filed.

In addition, as previously reported, KEMET Corporation and KEC, along with certain other capacitor manufacturers and subsidiaries, were named as defendants in several additional suits that were filed in Canada (collectively, the “Canadian Complaints”): Badashmin 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

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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; and McPherson v Panasonic Corporation et al. , filed on November 6, 2014 in the Court of Queen’s Bench, Province of Manitoba. The Canadian Complaints generally allege the same unlawful acts as in the U.S. 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.

Except for certain attorneys’ fees, the Company has not recorded any accrual concerning the U.S. Complaint and the Canadian Complaints.

Beginning in March 2014, NEC TOKIN and certain of its subsidiaries have received inquiries, requests for information and other communications from government authorities in China, the United States, the European Commission, Japan, South Korea, Taiwan, Singapore and Brazil concerning alleged anti-competitive activities within the capacitor industry. In connection with the European Commission ("EC") investigation, EC regulators are evaluating any potential liability to which shareholders of NEC TOKIN, including KEC, may be subject. See Note 5 , "Investment in NEC TOKIN".

ITEM 4. MINE SAFTETY DISCLOSURES.

Not applicable.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

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 is as listed below. There are no family relationships among our executive officers and directors.



Name	Age	Position	Years with Company
Per-Olof Lööf	65	Chief Executive Officer and Director	11
William M. Lowe, Jr.	62	Executive Vice President and Chief Financial Officer	8
Charles C. Meeks, Jr.	54	Executive Vice President, Solid Capacitor Business Group	32
R. James Assaf	56	Senior Vice President, General Counsel and Secretary	8
Susan B. Barkal	53	Senior Vice President Quality, Chief Compliance Officer and Chief of Staff	16
Dr. Phillip M. Lessner	57	Senior Vice President and Chief Technology Officer	20
Claudio Lollini	36	Senior Vice President of Global Sales and Marketing	11
Stefano Vetralla	53	Senior Vice President and Chief Human Resources Officer	8
Robert S. Willoughby	55	Senior Vice President, Global Supply Chain	30
Andreas Meier	48	Senior Vice President, Film and Electrolytic Business Group	18
Michael L. Raynor	50	Vice President and Corporate Controller	8
Richard J. Vatinelle	52	Vice President and Treasurer	3

_______________________________________________________________________________

Executive Officers

Per-Olof Lööf, Chief Executive Officer and Director, was named such in April 2005. Mr. Lööf was previously the Managing Partner of QuanStar Group, LLC, a management consulting firm and had served in such capacity since December 2003. Prior thereto, he served as Chief Executive Officer of Sensormatic Electronics Corporation and in various management roles with Andersen Consulting, Digital Equipment Corporation, AT&T and NCR. Mr. Lööf also serves on several charity boards including Boca Raton Regional Hospital and the International Centre for Missing & Exploited Children. He received a "civilekonom examen" degree in economics and business administration from the Stockholm School of Economics.

William M. Lowe, Jr., Executive Vice President and Chief Financial Officer, was named such in July 2008. Mr. Lowe was previously 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 is a Certified Public Accountant in the state of Ohio.

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Charles C. Meeks, Jr ., Executive Vice President, Solid Capacitor Business Group, was named such in May 2013. 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 Business Group. He was named Vice President, Ceramic Business Group in June 2005, Senior Vice President, Ceramic Business Group in October 2007, Senior Vice President, Ceramic and Film and Electrolytic Business Group in March 2010 and Executive Vice President Ceramic and Film and Electrolytic Business Group in May 2011 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.

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 & Acquisitions. Prior to Sensormatic, Mr. Assaf served as an Associate Attorney with the international law firm Squire Sanders & 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.

Susan B. Barkal , Senior Vice President Quality, Chief Compliance Officer and Chief of Staff, was named such in February 2014. 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 prior to her appointment to her current position. Ms. Barkal holds a Bachelor of Science 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.

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 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 Bachelor of Engineering in Chemical Engineering from Cooper Union.

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 - Great China. Mr. Lollini was appointed Director of Product Management for Film & 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 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-Global Supply Chain, was named such in May 2016. 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. He holds a Bachelor of Science degree in Industrial Engineering from Clemson University and is a 2007 graduate of the KEMET Leadership Forum.

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Other Key Employees

Andreas Meier , Senior Vice President-Film and Electrolytic Business Group, 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 Electrolytic Business Group 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 & 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.

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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 NYSE under the ticker symbol "KEM" (NYSE: KEM). We had 112 stockholders of record as of May 17, 2015. The following table represents the high and low sale prices of our common stock for the periods indicated:



	Fiscal Year 2016				Fiscal Year 2015
Quarter	High		Low		High		Low
First	$	4.57	$	2.88	$	6.07	$	4.51
Second	2.80		1.56		6.13		3.94
Third	2.97		1.87		4.80		3.92
Fourth	2.41		1.30		4.58		3.75

Dividend Policy

We have not declared or paid any cash dividends on our common stock since our initial public offering in October 1992. We do not anticipate paying dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board and will depend upon, among other factors, the capital requirements, operating results, and our financial condition. In addition, we are restricted from paying cash dividends under the terms of the 10.5% Senior Notes Indenture. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

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PERFORMANCE GRAPH

The following graph compares our cumulative total stockholder return for the past five fiscal years, beginning on March 31, 2011, with the Russell 3000 and a peer group (the "Peer Group") comprised of certain companies which manufacture capacitors and with which we generally compete. The Peer Group is comprised of AVX Corporation, Littelfuse, Inc. and Vishay Intertechnology, Inc.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among KEMET Corporation, the Russell 3000 Index,

and a Peer Group

_______________________________________________________________________________


*	$100 invested on 3/31/11 in stock or index, including reinvestment of dividends.

Fiscal year ending March 31.

RETURNS

Years Ending March 31,



	2011	2012	2013	2014	2015	2016
KEMET Corporation	100.00	63.12	42.14	39.18	27.92	13.01
Russell 3000	100.00	105.07	117.85	141.70	156.24	152.57
Peer Group	100.00	88.86	92.09	116.20	124.21	144.80

Unregistered Sales of Equity Securities

We did not sell any of our equity securities during fiscal year 2016 that were not registered under the Securities Act of 1933, as amended (the "Securities Act").

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Repurchase of Equity Securities

The following table provides information relating to our purchase of shares of our common stock during the quarter ended March 31, 2016 (amounts in thousands, except per share price):



Periods	(a) Total Number of Shares Purchased (1)	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Programs	(d) Maximum Number of Shares that may yet be Purchased Under the Programs
January 1 to January 31, 2016	21	$	1.49	—	—
February 1 to February 29, 2016	—	—		—	—
March 1 to March 31, 2016	—	—		—	—
Total for Quarter Ended March 31, 2016	21	$	1.49

(1) Represents shares withheld by the Company upon vesting of restricted stock to pay taxes due. The Company does not currently have a publicly announced share repurchase plan or program.

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, 2016 :



	(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	4,747,780	(1	)	$	8.66	1,095,932
Equity compensation plans not approved by stockholders	—			—		—
Total	4,747,780			$	8.66	1,095,932


(1)	Includes 1,275,387 shares subject to outstanding LTIP Awards (time-based), 705,500 shares subject to outstanding LTIP Awards (performance-based) and 1,430,021 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.

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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 "Income Statement Data," "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,
	2016			2015			2014			2013			2012(1)
Income Statement Data:
Net sales	$	734,823		$	823,192		$	833,666		$	823,903		$	924,052
Operating income (loss)	32,326			22,378			(18,211		)	(35,080		)	28,083
Interest income	(14		)	(15		)	(195		)	(139		)	(175		)
Interest expense	39,605			40,701			40,962			41,331			28,567
Income (loss) from continuing operations	(53,629		)	(19,522		)	(64,869		)	(78,512		)	(2,350		)
Income (loss) from discontinued operations, net of income tax expense (benefit)	—			5,379			(3,634		)	(3,670		)	9,042
Net income (loss)	(53,629		)	(14,143		)	(68,503		)	(82,182		)	6,692
Per Share Data:
Net income (loss) per basic share:
Income (loss) from continuing operations	$	(1.17	)	$	(0.43	)	$	(1.44	)	$	(1.75	)	$	(0.05	)
Income (loss) from discontinued operations, net of income tax expense (benefit)	$	—		$	0.12		$	(0.08	)	$	(0.08	)	$	0.21
Net income (loss)	$	(1.17	)	$	(0.31	)	$	(1.52	)	$	(1.83	)	$	0.16
Net income (loss) per diluted share:
Income (loss) from continuing operations	$	(1.17	)	$	(0.43	)	$	(1.44	)	$	(1.75	)	$	(0.04	)
Income (loss) from discontinued operations, net of income tax expense (benefit)	$	—		$	0.12		$	(0.08	)	$	(0.08	)	$	0.17
Net income (loss)	$	(1.17	)	$	(0.31	)	$	(1.52	)	$	(1.83	)	0.13
Balance Sheet Data:
Total assets (3)	$	702,544		$	746,693		$	841,608		$	909,857		$	977,855
Working capital	228,793			228,478			227,070			257,801			392,274
Long-term debt, less current portion(2)	388,597			390,409			391,292			372,707			345,380
Other non-current obligations	74,892			57,131			55,864			69,022			101,229
Stockholders' equity	112,481			164,682			221,884			276,916			358,996
Other Data:
Cash flow provided by (used in) operating activities	$	32,365		$	24,402		$	(6,746	)	$	(22,827	)	$	80,730
Capital expenditures	20,469			22,232			32,147			46,174			49,314
Research and development	24,955			25,802			24,466			26,876			27,765

_______________________________________________________________________________


(1)	In fiscal year 2012, the Company acquired KEMET Foil on June 13, 2011 and Blue Powder on February 21, 2012.

(2)

In fiscal years 2013 and 2012, the Company issued $15.0 million and $110.0 million, respectively of 10.5% Senior Notes. In fiscal year 2013, the Company received a $24.0 million advance payment from an original equipment manufacturer and in fiscal year 2015 this advance payment was repaid in full. In fiscal years 2016 , 2015 and 2014, the Company had $33.9 million , $33.5 million and $18.4 million, respectively, outstanding under a Loan and Security Agreement (the "Loan and Security Agreement") with Bank of America, N.A.


(3)	Fiscal years 2012 through 2015 have been restated due to the retroactive adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2015-17, Balance Sheet Classification of Deferred Taxes.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis provides information that we believe is useful in understanding our operating results, cash flows, and financial condition for the three fiscal years ended March 31, 2016 , 2015 , and 2014 . 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 Alcatel-Lucent USA, Inc., Bosch Group, Cisco Systems, Inc., Continental AG, Dell Inc., HP Inc., International Business Machines Corporation, Motorola Solutions, L.M. Ericsson, Siemens AG and TRW Automotive), EMSs (including Celestica Inc., Flextronics International LTD, Jabil Circuit, Inc. and Sanmina-SCI Corporation) and distributors (including TTI, Inc., Arrow Electronics, Inc. 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 private label partnership with NEC 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. 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 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 2016 . No single end-use customer accounted for more than 6% of our net sales in fiscal year 2016 . 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. As discussed below, our private label partnership with NEC 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 2016 and 2015 , respectively, specialty products accounted for 41.3% and 40.5% of our revenue. By allocating an increasing portion of our management resources and research and development ("R&D") investment (particularly through our partnership with NEC TOKIN as discussed below) 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.

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Low-Cost and Strategic Locations

We believe our plants in China, Mexico, Bulgaria and Macedonia have some of the lowest cost production facilities in the industry. Many of our key customers have relocated their production facilities to Asia, particularly China. We believe our manufacturing facilities in China are in close proximity to the large and growing Chinese market. In addition, we have the ability to increase capacity and change product mix to meet our customers' needs.

Our Brand

Founded by Union Carbide in 1919 as KEMET Laboratories, we believe that we have established a reputation as a high quality, efficient and affordable partner that sets our customers' needs as the top priority. This has allowed us to successfully attract loyal clientele and enabled us to expand our operations and market share over the past few years. We believe our commitment to addressing the needs of the industry in which we operate has differentiated us from our competitors. In addition to our traditional reputation of being the "Easy-To-Buy-From" company by providing excellent customer service and on-time delivery, we have now evolved to being the “Easy-To-Design-In” company with the addition of technical resources like KEMET’s online Engineering Center and capacitor selection simulation tools.

Our People

We believe that we have successfully developed a unique corporate culture based on innovation, customer focus and commitment. We have a strong, highly experienced and committed team in each of our markets. Many of our professionals have developed unparalleled experience in building leadership positions in new markets, as well as successfully integrating acquisitions. Our 14 member executive management team has an average of 18 years of experience with us and an average of 26 years of experience in the manufacturing industry.

Business Strategy

Our strategy is to use our position as a leading, high-quality manufacturer of capacitors to capitalize on the increasingly demanding requirements of our customers. Key elements of our strategy include:

One KEMET Campaign.

We continue to focus on improving our commercial and technological capabilities through various initiatives that all fall under our One KEMET campaign. The One KEMET campaign aims to ensure that we, as a company, are focused on the same goals and working with the same processes and systems to ensure consistent quality and service that allow us to provide our customers with the technologies they require at a competitive "total cost of ownership." This effort was launched to ensure that, as we continue to grow, we not only remain grounded in our core principles but that we also use those principles, operating procedures and systems as the foundation from which to expand. These initiatives include our Lean and Six Sigma culture evolution, our global customer accounts management program and our evolution toward a philosophy of being "easy to design-in."

Develop Our Significant Customer Relationships and Industry Presence.

We continue to focus on our responsiveness to our customers' needs and requirements by making order entry and fulfillment easier, faster, more flexible and more reliable for our customers. This will be accomplished by focusing on building products around customers' needs and by giving decision-making authority to customer-facing personnel and by providing purpose-built systems and processes.

Leverage Our Technological Competence and Expand Our Leadership in Specialty Products

We continue to leverage our technological competence and partnership with NEC TOKIN by introducing new products in a timely and cost-efficient manner. This allows us to generate an increasing portion of our sales from new and customized solutions that meet our customers' varied and evolving capacitor needs as well as improves our financial performance. We believe that by continuing to build on our strength in the higher growth and higher margin specialty segments of the capacitor market, we will be well-positioned to achieve our long-term growth objectives while also improving our profitability. During fiscal year 2016 , we introduced 23,294 new products of which 889 were first to market, and specialty products accounted for 41.3% of our revenue over this period.

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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. As discussed below, through our partnership with NEC TOKIN we have further expanded our product offerings to other electro-magnetic, electro-mechanical and access devices. 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 in order to maximize the breadth of our product offerings.

Selectively Target Complementary Acquisitions and Equity Investments

As strategic opportunities are identified, we will evaluate and possibly pursue them if they would enable us to enhance our competitive position and expand our market presence. Our strategy is to acquire complementary capacitor and other related businesses allowing us to leverage our business model, potentially including those involved in other passive components that are synergistic with our customers' technologies and our current product offerings. For example, in fiscal year 2012, we acquired KEMET Foil and Blue Powder which has allowed us to vertically integrate certain manufacturing processes within Film and Electrolytic and Solid Capacitors, respectively. In addition, on February 1, 2013, KEC, a wholly owned subsidiary of the Company, acquired a 34% economic interest in NEC TOKIN, a manufacturer of tantalum capacitors and electro-magnetic, electro-mechanical and access devices.

Promote the KEMET Brand Globally

We are focused on promoting the KEMET brand globally by highlighting the high-quality and high reliability of our products and our superior customer service. We will continue to market our products to new and existing customers around the world in order to expand our business. We continue to be recognized by our customers as a leading global supplier. For example, in calendar year 2015, we received the “Asia Supplier Excellence Award” and "Global Operations Excellence Award" from TTI, Inc. and the “Excellence in Sustainability” award from Cisco Systems, Inc.

Global Sales & Marketing Strategy

Our motto "Think Global, Act Local" describes our approach to sales and marketing. Each of our three sales regions (Americas, EMEA and APAC) have account managers, field application engineers and strategic marketing managers. In addition, we also have local customer and quality-control support in each region. This organizational structure allows us to respond to the needs of our customers on a timely basis and in their native language. The regions are managed locally and report to a senior manager who is on the KEMET Leadership Team. Furthermore, this organizational structure ensures the efficient communication of our global goals and strategies and allows us to serve the language, cultural and other region-specific needs of our customers.

Partnership with NEC TOKIN

Through our cross licensing agreement and Amended and Restated Private Label Agreement with NEC TOKIN, we have expanded product offerings and markets for both KEMET and NEC TOKIN. KEMET’s strong presence in the western hemisphere and the excellent NEC TOKIN position in Japan and Asia significantly enhances the customer reach for both companies. Through this partnership, we can achieve true scale in operations allowing us to manage raw materials sourcing as well as maximize efficiencies and best practices in manufacturing and product development. We believe that the international management team of KEMET and NEC TOKIN allows us to be more sensitive and aware of region-specific business needs compared to our competitors. Combining our R&D capabilities and university relationships will allow us to be on the forefront of new developments and technological advancements in the capacitor industry. Leveraging R&D investment in both Japan and the U.S. enables KEMET to diversify beyond capacitors in the passives market as a result of the NEC TOKIN partnership.

Recent Developments and Trends

Equity Investment

On March 12, 2012, KEC, a wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement with NEC TOKIN, a manufacturer of tantalum capacitors, electro-magnetic, electro-mechanical and access devices, to acquire 51% of the common stock of NEC TOKIN (which represented a 34% economic interest, as calculated based on the number of common shares held by KEC, directly and indirectly, in proportion to the aggregate number of outstanding common and convertible preferred shares of NEC TOKIN as of such date) from NEC. The transaction closed on February 1, 2013, at which time KEC paid a purchase price of $50.0 million for new shares of common stock of NEC TOKIN.

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Concurrent with KEC’s execution of the Stock Purchase Agreement, KEC was granted First and Second Call Options (as defined in Note 5 , " Investment in NEC TOKIN ") to purchase additional capital stock of NEC TOKIN, which expired on April 30, 2015 without being exercised. In addition, NEC was granted a Put Option, pursuant to which from April 1, 2015 through May 31, 2018, NEC may require KEC to purchase all outstanding capital stock of NEC TOKIN from its stockholders, primarily NEC, provided that KEC's payment of the Put Option price is permitted under the 10.5% Senior Notes and Loan and Security Agreement.

The Company and NEC have had continued discussions regarding the terms of any potential acquisitions of NEC TOKIN. See Note 5 , “ Investment in NEC TOKIN ” for further discussion of the NEC TOKIN Equity Investment.

In the fiscal year ended March 31, 2016 , we incurred a net loss from NEC TOKIN of $16.4 million primarily due to NEC TOKIN's additional accrual of $51.6 million for antitrust fines and civil litigation as described in Note 5 , “Investment in NEC TOKIN”, which resulted in additional expense to KEMET of $17.5 million related to our 34% economic interest. The civil fines were accrued during the quarter ended March 31, 2016 .

In addition, the Company has marked KEC’s options to fair value and in the fiscal year ended March 31, 2016 recognized a $26.3 million loss, which was included on the line item “Change in value of NEC TOKIN options” in the Consolidated Statement of Operations. The line item “"Other non-current obligations” on the Consolidated Balance Sheets includes $20.6 million as of March 31, 2016 related to the Put Option.

Restructuring

In the fiscal year ended March 31, 2016 we incurred $4.2 million in restructuring charges including $1.8 million related to personnel reduction costs and $2.4 million of manufacturing relocation costs.

Subsequent Event

Revolving Line of Credit and Debt Repurchase

On May 2, 2016, the Loan and Security Agreement, as defined herein, was amended and, as a result, the revolving credit facility has increased to $65.0 million. In addition, on May 10, 2016, the company repurchased and retired $2.0 million of our 10.5% Senior Notes.

Off-Balance Sheet Arrangements

As of March 31, 2016 , other than operating lease commitments as described in Note 16 , " Commitments and Contingencies ", we are not a party to any material off-balance sheet financing arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

Our accounting policies are summarized in Note 1, " Organization and Significant Accounting Policies " to the consolidated financial statements. The following identifies a number of policies which require significant judgments and estimates, or are otherwise deemed critical to our financial statements.

Our estimates and assumptions are based on historical data and other assumptions that we believe are reasonable. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, they affect the reported amounts of revenues and expenses during the reporting period.

Our judgments are based on our assessment as to the effect certain estimates, assumptions, or future trends or events may have on the financial condition and results of operations reported in the consolidated financial statements. Readers should understand that actual future results could differ from these estimates, assumptions, and judgments.

A quantitative sensitivity analysis is provided where that information is reasonably available, can be reliably estimated and provides material information to investors. The amounts used to assess sensitivity (i.e., 1%, 10%, etc.) are included to allow readers of this Annual Report on Form 10-K to understand a general cause and effect of changes in the estimates and do not represent our predictions of variability. For all of these estimates, it should be noted that future events rarely develop exactly as forecast, and estimates require regular review and adjustment. We believe the following critical accounting policies contain the most significant judgments and estimates used in the preparation of the consolidated financial statements:

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REVENUE RECOGNITION. We ship products to customers based upon firm orders and revenue is recognized when the sales process is complete. This occurs when products are shipped to the customer in accordance with the terms of an agreement of sale, there is a fixed or determinable selling price, title and risk of loss have been transferred and collectability is reasonably assured. Based on product availability, customer requirements and customer consent, KEMET may ship products earlier than the initial planned ship date. Shipping and handling costs are included in cost of sales.

A portion of sales is related to products designed to meet customer specific requirements. These products typically have stricter tolerances making them useful to the specific customer requesting the product and to customers with similar or less stringent requirements. We recognize revenue when title to the products transfers to the customer.

A portion of sales is made to distributors under agreements allowing certain rights of return and price protection on unsold merchandise held by distributors. Our distributor policy includes inventory price protection and SFSD programs common in the industry. The price protection policy protects the value of the distributors' inventory in the event we reduce our published selling price to distributors. This program allows the distributor to debit us for the difference between our list price and the lower authorized price for specific parts. We establish price protection reserves on specific parts residing in distributors' inventories in the period that the price protection is formally authorized by KEMET.

KEMET's SFSD program provides authorized distributors with the flexibility to meet marketplace prices by allowing them, upon a case-by-case pre-approved basis, to adjust their purchased inventory cost to correspond with current market demand. Requests for SFSD adjustments are considered on an individual basis, require a pre-approved cost adjustment quote from their local KEMET sales representative and apply only to a specific customer, part, a specified special price amount, a specified quantity, and is only valid for a specific period of time. To estimate potential SFSD adjustments corresponding with current period sales, KEMET records a sales reserve based on historical SFSD credits, distributor inventory levels, and certain accounting assumptions, all of which are reviewed quarterly. We believe this methodology enables us to make reliable estimates of future adjustments under the SFSD program. If the historical SFSD run rates used in our calculation were changed by 1% in fiscal year 2016 , net sales would be impacted by $0.8 million.

The establishment of these reserves is recognized as a component of the line item "Net sales" on the Consolidated Statements of Operations, while the associated reserves are included in the line item "Accounts receivable" on the Consolidated Balance Sheets. Estimates used in determining sales allowances are subject to various factors. This includes, but is not limited to, changes in economic conditions, pricing changes, product demand, inventory levels in the supply chain, the effects of technological change, and other variables that might result in changes to our estimates.

INVENTORIES. Inventories are valued at the lower of cost or market. For most of the inventory, cost is determined under the first-in, first-out method. For tool crib, a component of our raw material inventory, cost is determined under the average cost method. The valuation of inventories requires us to make estimates. We also must assess the prices at which we believe the finished goods inventory can be sold compared to its cost. A sharp decrease in demand could adversely impact earnings as the reserve estimates could increase.

PENSION AND POST-RETIREMENT BENEFITS. Our management, with the assistance of actuarial firms, performs actuarial valuations of the fair values of our pension and post-retirement plans' benefit obligations. We make certain assumptions that have a significant effect on the calculated fair value of the obligations such as the:


•	discount rate—used to arrive at the net present value of the obligation;


•	salary increases—used to calculate the impact future pay increases will have on post-retirement obligations; and

We understand that these assumptions directly impact the actuarial valuation of the obligations recorded on the Consolidated Balance Sheets and the income or expense that flows through the Consolidated Statements of Operations.

We base our assumptions on either historical or market data that we consider reasonable. Variations in these assumptions could have a significant effect on the amounts reported in Consolidated Balance Sheets and the Consolidated Statements of Operations. The most critical assumption relates to the discount rate. A 25 basis point increase or decrease in the weighted average discount rate would result in changes to the projected benefit obligation of $(1.9) million and $2.2 million, respectively.

GOODWILL AND LONG-LIVED ASSETS. Goodwill, which represents the excess of purchase price over fair value of net assets acquired, and intangible assets with indefinite useful lives are tested for impairment at least on an annual basis. We perform our impairment test during the fourth quarter of each fiscal year and when otherwise warranted.

We evaluate our goodwill on a reporting unit basis. This requires us to estimate the fair value of the reporting units based on the future net cash flows expected to be generated. The impairment test involves a comparison of the fair value of

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each reporting unit, with the corresponding carrying amounts. If the reporting unit's carrying amount exceeds its fair value, then an indication exists that the reporting unit's goodwill may be impaired. The impairment to be recognized is measured by the amount by which the carrying value of the reporting unit's goodwill being measured exceeds its implied fair value. The implied fair value of goodwill is the excess of the fair value of the reporting unit over the sum of the amounts assigned to identified net assets. As a result, the implied fair value of goodwill is generally the residual amount that results from subtracting the value of net assets including all tangible assets and identified intangible assets from the fair value of the reporting unit's fair value. We determine the fair value of our reporting units using an income-based, discounted cash flow ("DCF") analysis, and market-based approaches (Guideline Publicly Traded Company Method and Guideline Transaction Method) which examine transactions in the marketplace involving the sale of the stocks of similar publicly-owned companies, or the sale of entire companies engaged in operations similar to KEMET. In addition to the above described reporting unit valuation techniques, our goodwill impairment assessment also considers our aggregate fair value based upon the value of our outstanding shares of common stock.

Our goodwill balance of $40.3 million is comprised of $35.6 million related to Blue Powder, which is within the Tantalum product line of the Solid Capacitors Business Group, and $4.7 million related to IntelliData (see Note 8, "Acquisitions" ) which is a corporate asset. As part of our annual impairment testing, we determine the fair value of the relevant reporting unit(s) using an income-based, discounted cash flow ("DCF") analysis for Blue Powder, and an internal rate of return analysis for IntelliData. Recognizing that Blue Powder is now fully integrated and reliant on other facilities within the Tantalum product line, we have updated the reporting unit used this year to evaluate Blue Powder’s goodwill at the Tantalum product line level.

Significant assumptions used in the DCF analysis are:


•	the discount rate based on the weighted average cost of capital (“WACC”),


•	estimated sales growth rates, and


•	the estimated market price and production cost for tantalum products

Our WACC is determined through market comparisons combined with small stock and equity risk premiums. Tantalum’s sales growth rates are estimated through KEMET’s three-year strategic plan.

Long-lived assets and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset or group of assets may not be recoverable. A long-lived asset classified as held for sale is initially measured and reported at the lower of its carrying amount or fair value less cost to sell.

Long-lived assets to be disposed of other than by sale are classified as held and used until the long-lived asset is disposed of.

Tests for the recoverability of a long-lived asset to be held and used are performed by comparing the carrying amount of the long-lived asset to the sum of the estimated future undiscounted cash flows expected to be generated by the asset. In estimating the future undiscounted cash flows, we use future projections of cash flows directly associated with, and which are expected to arise as a direct result of, the use and eventual disposition of the assets. These assumptions include, among other estimates, periods of operation and projections of sales and cost of sales. Changes in any of these estimates could have a material effect on the estimated future undiscounted cash flows expected to be generated by the asset. If it is determined that the book value of a long-lived asset is not recoverable, an impairment loss would be calculated equal to the excess of the carrying amount of the long-lived asset over its fair value. The fair value is calculated as the discounted cash flows of the underlying assets.

The decline in KEMET’s stock price is also a potential indication the carrying amount of certain long-lived asset groups might not be fully recoverable. Therefore, the Company tested long-lived assets for each of our reporting units for impairment as of March 31, 2016 and concluded that they were not impaired. The Company will monitor the Film and Electrolytic long-lived assets in future periods as material changes in certain assumptions could have a material effect on the estimated future undiscounted cash flows expected to be generated by the assets. This, in turn, could result in Film and Electrolytic not passing step 1 of the impairment test which would require the Company to perform a discounted cash flow analysis to determine the impairment amount (if any).

We evaluate the value of our other indefinite-lived intangible assets (trademarks) using an income-based, relief from royalty analysis.

The Company completed its impairment test on goodwill and intangible assets with indefinite useful lives as of January 1, 2016 and concluded that goodwill and indefinite-lived assets were not impaired nor were they at risk of failing step one of the impairment test as the fair value of each of the assets exceeds the carrying value by more than 10%. A one percent

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increase or decrease in the discount rate used in the goodwill and indefinite-lived assets valuation would have resulted in changes in fair value in the following amounts, and would not have resulted in an impairment change:



			Discount Rate Sensitivity, in millions
	Fair Value in Excess of Carrying Value, %		+1%			-1%
Goodwill - Blue Powder	18	%	$	(21.3	)	$	25.8
Trademarks	870	%	(6.1		)	7.4
Goodwill - IntelliData	33	%	(1.0		)	1.3

INCOME TAXES. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates. Valuation allowances are recognized to reduce deferred tax assets to the amount that is more likely than not to be realized.

We believe that it is more likely than not that a portion of the deferred tax assets in various jurisdictions will not be realized, based on the scheduled reversal of deferred tax liabilities, the recent history of cumulative losses, and the insufficient evidence of projected future taxable income to overcome the loss history. We have provided a valuation allowance related to any benefits from income taxes resulting from the application of a statutory tax rate to the deferred tax assets. We continue to have net deferred tax assets (future tax benefits) in several jurisdictions which we expect to realize, assuming, based on certain estimates and assumptions, sufficient taxable income can be generated to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we may be required to reduce the value of the deferred tax assets resulting in additional tax expense.

The accounting rules require that we recognize in our financial statements, the impact of a tax position, if that position is "more likely than not" of being sustained on audit, based on the technical merits of the position. Any accruals for estimated interest and penalties would be recorded as a component of income tax expense.

To the extent that the provision for income taxes changed by 1% of loss before income taxes, consolidated net loss would change by $0.3 million in fiscal year 2016 .

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Results of Operations

Historically, revenues and earnings may or may not be representative of future operating results due to various economic and other factors. The following table sets forth the Consolidated Statements of Operations for the periods indicated (amounts in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
Net sales	$	734,823		$	823,192		$	833,666
Operating costs and expenses:
Cost of sales	571,543			663,683			712,925
Selling, general and administrative expenses	101,446			98,533			95,856
Research and development	24,955			25,802			24,466
Restructuring charges	4,178			13,017			14,122
Write down of long-lived assets	—			—			4,476
Net loss on sales and disposals of assets	375			(221		)	32
Operating (loss) income	32,326			22,378			(18,211		)
Interest income	(14		)	(15		)	(195		)
Interest expense	39,605			40,701			40,962
Change in value of NEC TOKIN options	26,300			(2,100		)	(3,111		)
Other (income) expense, net	(2,348		)	(4,082		)	430
Income (loss) from continuing operations before income taxes and equity income (loss) from NEC TOKIN	(31,217		)	(12,126		)	(56,297		)
Income tax expense (benefit)	6,006			5,227			1,482
Income (loss) from continuing operations before equity income (loss) from NEC TOKIN	(37,223		)	(17,353		)	(57,779		)
Equity income (loss) from NEC TOKIN	(16,406		)	(2,169		)	(7,090		)
Income (loss) from continuing operations	(53,629		)	(19,522		)	(64,869		)
Income (loss) from discontinued operations, net of income tax expense (benefit) of $0, $1,976, and $(98), respectively	—			5,379			(3,634		)
Net income (loss)	$	(53,629	)	$	(14,143	)	$	(68,503	)

Consolidated Comparison of Fiscal Year 2016 to Fiscal Year 2015

Net sales:

Net sales of $734.8 million in fiscal year 2016 decreased 10.7% from $823.2 million in fiscal year 2015 . Solid Capacitor and Film and Electrolytic sales decreased by $65.0 million and $23.4 million , respectively. The overall Solid Capacitors net sales decrease was primarily driven by a decrease in net sales to the Americas and EMEA distribution channel, typical market price erosion and changes in product line mix. In addition, Solid Capacitor net sales were unfavorably impacted by $12.0 million from foreign currency exchange primarily due to the change in the value of the Euro compared to the U.S. dollar for the fiscal year 2016 as compared to fiscal year 2015 . The overall Film and Electrolytic net sales included a $18.9 million unfavorable impact from foreign currency exchange primarily due to the change in the value of the Euro compared to the U.S. dollar. Excluding the foreign exchange impact, Film and Electrolytic net sales decreased by $4.4 million primarily driven by decreased net sales in the APAC and Americas regions partially offset by the marginally improved net sales in the EMEA region.

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In fiscal years 2016 and 2015 , net sales by region were as follows (dollars in millions):



	Fiscal Year 2016					Fiscal Year 2015
	Net Sales		% of Total			Net Sales		% of Total
Americas	$	225.7	31	%	Americas	$	260.0	32	%
APAC	275.8		37	%	APAC	281.8		34	%
EMEA	233.3		32	%	EMEA	281.4		34	%
Total	$	734.8			Total	$	823.2

In fiscal years 2016 and 2015 , the percentages of net sales by channel to total net sales were as follows:



	Fiscal Year 2016					Fiscal Year 2015
	Net Sales		% of Total			Net Sales		% of Total
Distributors	$	308.1	42	%	Distributors	$	366.3	45	%
EMS	155.5		21	%	EMS	151.2		18	%
OEM	271.2		37	%	OEM	305.7		37	%
Total	$	734.8			Total	$	823.2

Gross margin:

Gross margin for the fiscal year ended March 31, 2016 of $163.3 million ( 22.2% of net sales) increased $3.8 million or 2.4% from $159.5 million ( 19.4% of net sales) in the prior fiscal year. Despite the decrease in net sales, gross margin as a percentage of net sales improved 280 basis points. This improvement was driven by cost reductions achieved through headcount reductions, manufacturing relocations previously completed as part of our restructuring plans, cost reduction activities, vertical integration, the favorable foreign currency impact to manufacturing costs, and manufacturing process improvements as a result of our partnership with NEC TOKIN.

Selling, general and administrative expenses ("SG&A"):

SG&A expenses of $101.4 million ( 13.8% of net sales) for fiscal year 2016 increased $2.9 million or 3.0% compared to $98.5 million ( 12.0% of net sales) for fiscal year 2015 . The increase consists primarily of the following items: a $2.5 million increase in consulting and contractor expenses; a $2.4 million increase in ERP integration and technology transition costs; a $2.3 million increase in legal expenses, which were primarily related to ongoing antitrust lawsuits; and a $0.4 million increase in non-income-related taxes. Partially offsetting these increases was a $1.2 million decrease in software expenses; a $1.1 million decrease in professional fees; a $1.1 million decrease in payroll, commissions, and related expenses and benefits; a $0.9 million decrease related to the change in the allocation of IT and other costs between SG&A and cost of goods sold following an internal usage study; and a $0.4 million decrease in director fees.

Research and development:

R&D expenses of $25.0 million ( 3.4% of net sales) for fiscal year 2016 decreased $0.8 million or 3.3% compared to $25.8 million ( 3.1% of net sales) for fiscal year 2015 .

Restructuring charges:

Restructuring charges of $4.2 million in fiscal year 2016 decreased $8.8 million or 67.9% from $13.0 million in fiscal year 2015 .

Restructuring charges in the fiscal year ended March 31, 2016 included $1.8 million of personnel reduction costs and $2.4 million of relocation costs. The personnel reduction costs were due to the following: $0.9 million for headcount reductions in Matamoros, Mexico related to the relocation of certain Solid Capacitor manufacturing from Matamoros, Mexico to Victoria, Mexico, $0.6 million related to a headcount reduction in Suzhou, China for the Film & Electrolytic production line transfer from Suzhou, China to Anting, China, $0.5 million related to the consolidation of certain Solid Capacitor manufacturing in Victoria, Mexico, $0.5 million for headcount reductions related to the outsourcing of the Company's information technology function and overhead reductions in North America and Europe, and $0.3 million for headcount reductions in Europe (primarily Landsberg, Germany). These personnel reduction costs were partially offset by a $1.0 million credit to expense in Italy due to the partial reversal of a severance accrual. The Company originally recorded the accrual in the third quarter of fiscal year 2015 corresponding with a plan to reduce headcount by 50 employees. Under the plan, 24 employees were terminated. However, due

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to unexpected workforce attrition combined with achieving other cost reduction goals, the Company decided not to complete the remaining headcount reduction. Consequently, the Company reversed the remaining accrual during the second quarter of fiscal year 2016.

The $2.4 million relocation costs include $1.1 million for the Landsberg, Germany shut-down including relocating equipment to Pontecchio, Italy and Skopje, Macedonia; $0.4 million for the relocation of certain Solid Capacitor manufacturing equipment in Victoria, Mexico; $0.4 million for the exit of Film & Electrolytic manufacturing from Suzhou, China; and $0.5 million for other costs related to shut-downs in Europe, North America, and Asia.

Restructuring charges in the fiscal year ended March 31, 2015 included $10.3 million related to personnel reduction costs which is primarily comprised of the following: $4.1 million related to headcount reductions in Europe (primarily Landsberg, Germany) as the Company relocates production to lower cost regions; $3.2 million is related to a headcount reduction of 50 employees due to the consolidation of manufacturing facilities in Italy; $1.9 million related to the reduction of certain Solid Capacitor production workforce from Matamoros, Mexico to Victoria, Mexico; and $1.1 million related to headcount reductions taken as the Company began to outsource its information technology function.

In addition to these personnel reduction costs, the Company incurred manufacturing relocation costs of $2.7 million comprised of the following: $1.4 million for the exit of solid capacitors in Evora, Portugal and the relocation of certain Solid Capacitors manufacturing operations from Evora, Portugal to Victoria, Mexico; $0.4 million for the Landsberg, Germany shut-down including relocating equipment to Pontecchio, Italy; $0.3 million for the relocation of certain Film & Electrolytic lines from Monterrey, Mexico and Skopje, Macedonia to Suzhou China and $0.5 million for other costs related to shut-downs in Europe and Asia.

Operating income (loss):

Operating income for fiscal year 2016 of $32.3 million improved $9.9 million compared to operating income of $22.4 million in fiscal year 2015 . The improvement was primarily due to a $8.8 million decrease in restructuring charges, a $3.8 million increase in gross margin, and a $0.8 million decrease in R&D expenses. These improvements were partially offset by a $2.9 million increase in SG&A expenses and a $0.6 million unfavorable change in gains or losses on disposals of fixed assets.

Non-operating (income) expense, net:

Non-operating (income) expense, net was a net expense of $63.5 million in fiscal year 2016 compared to a net expense of $34.5 million in fiscal year 2015 . The $29.0 million increase is primarily attributable to a $26.3 million decrease in the value of the NEC TOKIN options recognized in fiscal year 2016 , the change in value is primarily attributable to the expiration of KEMET's call option and resulting from the NEC TOKIN antitrust and civil litigation, compared to a $2.1 million increase in fiscal year 2015 . In addition, we incurred a $3.0 million foreign exchange gain in fiscal year 2016 compared to a $4.2 million foreign exchange gain in fiscal year 2015 , and a $1.0 million gain from the extinguishment of an advance payment from an OEM debt in fiscal year 2015. Partially offsetting these unfavorable items was $1.1 million in professional fees related to financing activities during fiscal year 2015 that did not repeat in fiscal year 2016.

Income taxes:

The income tax expense from continuing operations was $6.0 million in fiscal year 2016 compared to an income tax expense of $5.2 million in fiscal year 2015 . Fiscal year 2016 income tax expense is comprise of $6.4 million and $0.2 million in foreign and state income tax expense, respectively, partially offset by $0.6 million of U.S. income tax benefit. No U.S. federal income tax benefit is recognized for the U.S. taxable loss for fiscal year 2016 due to a valuation allowance provided for U.S. net operating losses.

Equity loss from NEC TOKIN:

In fiscal year 2016 , we incurred an equity loss related to our 34% economic interest in NEC TOKIN of $16.4 million compared to a loss of $2.2 million in fiscal year 2015 . The change is primarily comprised of the following: a $15.7 million increase in accrued antitrust and civil litigation fines and a $2.7 million unfavorable change in the foreign exchange rates. Partially offsetting these unfavorable items were: a $1.7 million improvement in gross margin and a $1.2 million decrease in business restructuring expenses. The improvement in gross margin was driven primarily by sales mix improvement, improvements in manufacturing efficiencies, and a reduction of personnel costs.

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Segment Comparison of Fiscal Year 2016 to Fiscal Year 2015 :

The following table sets forth the operating income (loss) for each of our business segments for the fiscal years 2016 and 2015 . The table also sets forth each of the segments' net sales as a percentage of total net sales and total operating income (loss) as a percentage of total net sales (amounts in thousands, except percentages):



	For the Fiscal Years Ended
	March 31, 2016					March 31, 2015
	Amount			% to Total Sales		Amount			% to Total Sales
Net sales
Solid Capacitors	$	556,303		75.7	%	$	621,275		75.5	%
Film and Electrolytic	178,520			24.3	%	201,917			24.5	%
Total	$	734,823		100.0	%	$	823,192		100.0	%

Operating income (loss)
Solid Capacitors	$	129,909				$	135,946
Film and Electrolytic	(71		)			(16,685		)
Corporate	(97,512		)			(96,883		)
Total	$	32,326		4.4	%	$	22,378		2.7	%

Solid Capacitors

The table below sets forth Net sales, Operating income and Operating income as a percentage of net sales for Solid Capacitors for fiscal years 2016 and 2015 (amounts in thousands, except percentages):



	For the Fiscal Years Ended
	March 31, 2016				March 31, 2015
	Amount		% to Net Sales		Amount		% to Net Sales
Tantalum product line net sales	$	337,392			$	377,893
Ceramic product line net sales	218,911				243,382
Net sales	556,303				621,275
Segment operating income	129,909		23.4	%	135,946		21.9	%

Net sales:

Net sales of $556.3 million in fiscal year 2016 decreased $65.0 million or 10.5% from $621.3 million in fiscal year 2015 . Tantalum product line net sales of $337.4 million in fiscal year 2016 decreased $40.5 million or 10.7% from $377.9 million in fiscal year 2015 . Ceramic product line net sales of $218.9 million in fiscal year 2016 decreased $24.5 million or 10.1% from $243.4 million in fiscal year 2015 . Included in the decrease in net sales was an unfavorable impact of $12.0 million from foreign currency exchange primarily due to the change in the value of the Euro compared to the U.S. dollar.

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The overall Solid Capacitors net sales decrease was primarily driven by a decrease in net sales to the Americas and EMEA distribution channel (as shown in the table below), typical market price erosion and changes in product line mix:



	For the Fiscal Years Ended
	March 31, 2016		March 31, 2015
Solid Capacitor Distributor Sales by Region	Amount		Amount		Change in Sales
Americas	$	99.6	$	121.3	$	(21.7	)
EMEA	65.0		87.7		(22.7		)
APAC	73.1		81.8		(8.7		)
Solid Capacitor distributor net sales	$	237.7	$	290.8	$	(53.1	)

Segment Operating Income:

Segment operating income of $129.9 million for fiscal year 2016 decreased $6.0 million or 4.4% from $135.9 million for fiscal year 2015 ; however operating income as a percentage of net sales improved 150 basis points. The decrease in segment operating income is primarily attributable to the following: a decrease in gross margin of $6.5 million and a $1.1 million increase in SG&A expenses. Despite the decrease in net sales, our gross margin decrease was mitigated by vertical integration, the favorable foreign currency impact to manufacturing costs, and manufacturing process improvements as a result of our partnership with NEC TOKIN. These items were partially offset by a decrease in restructuring charges of $1.4 million , a $0.1 million decrease loss on disposal of assets and a $0.1 million decrease in R&D expenses.

Film and Electrolytic

The table below sets forth Net sales, Operating loss and Operating loss as a percentage of net sales for Film and Electrolytic for the fiscal years 2016 and 2015 (amounts in thousands, except percentages):



	For the Fiscal Years Ended
	March 31, 2016					March 31, 2015
	Amount			% to Net Sales		Amount			% to Net Sales
Net sales	$	178,520				$	201,917
Segment operating loss	(71		)	—	%	(16,685		)	(8.3	)%

Net sales:

Net sales of $178.5 million in fiscal year 2016 decreased $23.4 million or 11.6% from $201.9 million in fiscal year 2015 . Capacitor unit sales volume for fiscal year 2016 decreased 5.7% compared to fiscal year 2015 . The decrease in net sales included an $18.9 million unfavorable impact from foreign currency exchange primarily due to the change in the value of the Euro compared to the U.S. dollar. In addition to the foreign exchange impact, net sales decreased by $4.4 million primarily driven by decreased net sales in the APAC and Americas regions partially offset by the marginal improvement in net sales in the EMEA region.

Segment Operating loss:

Segment operating loss of $0.1 million in fiscal year 2016 improved $16.6 million from $16.7 million of segment operating loss in fiscal year 2015 and operating income as a percentage of net sales improved 820 basis points. The improvement was attributable to a $10.2 million improvement in gross margin, a $6.5 million decrease in restructuring charges, a $0.4 million decrease in SG&A expenses, and a $0.2 million decrease in R&D expenses. The improvement in gross margin is mainly driven by the headcount reductions and manufacturing relocations previously completed as part of our restructuring plan and cost reduction actions across all plants. The improvements were partially offset by a $0.7 million decrease in the gain on disposals of fixed assets for fiscal year 2016 compared to fiscal year 2015 .

Consolidated Comparison of Fiscal Year 2015 to Fiscal Year 2014

Net sales:

Net sales of $823.2 million for fiscal year 2015 decreased 1.3% from $833.7 million for fiscal year 2014 . Film and Electrolytic and Solid Capacitor sales decreased by $5.3 million and $5.2 million , respectively. Capacitor unit sales volumes decreased 0.9% for fiscal year 2015 as compared to fiscal year 2014 . Average selling prices for capacitors decreased 0.4% for

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fiscal year 2015 compared to fiscal year 2014 due to an unfavorable $9.3 million impact on net sales related to foreign exchange and an unfavorable product mix shift in Film and Electrolytic. These unfavorable impacts on average selling prices were partially offset by an increase in sales of higher priced specialty products within Solid Capacitors.

In fiscal years 2015 and 2014 , net sales by region were as follows (dollars in millions):



	Fiscal Year 2015					Fiscal Year 2014
	Net Sales		% of Total			Net Sales		% of Total
Americas	$	260.0	32	%	Americas	$	262.9	31	%
APAC	281.8		34	%	APAC	282.3		34	%
EMEA	281.4		34	%	EMEA	288.5		35	%
Total	$	823.2			Total	$	833.7

In fiscal years 2015 and 2014 , the percentages of net sales by channel to total net sales were as follows:



	Fiscal Year 2015					Fiscal Year 2014
	Net Sales		% of Total			Net Sales		% of Total
Distributors	$	366.3	45	%	Distributors	$	377.0	45	%
EMS	151.2		18	%	EMS	139.4		17	%
OEM	305.7		37	%	OEM	317.3		38	%
Total	$	823.2			Total	$	833.7

Gross margin:

Gross margin for the fiscal year ended March 31, 2015 of $159.5 million ( 19.4% of net sales) increased $38.8 million or 32.1% from $120.7 million ( 14.5% of net sales) in the prior fiscal year. The primary contributor to the gross margin improvement was a $36.9 million gross margin increase in Solid Capacitors for the fiscal year 2015 compared to fiscal year 2014 corresponding with further cost savings from vertical integration, an increase in average selling prices, and sales of higher margin specialty products. The improvement in Solid Capacitors' gross margin was supplemented by a $1.9 million increase in Film and Electrolytic gross margin for the fiscal year 2015 compared to fiscal year 2014 and is primarily attributable to cost reduction activities.

Selling, general and administrative expenses ("SG&A"):

SG&A expenses of $98.5 million ( 12.0% of net sales) for fiscal year 2015 increased $2.7 million or 2.8% compared to $95.9 million ( 11.5% of net sales) for fiscal year 2014 . The increase consisted primarily of the following items: a $4.7 million increase in payroll expenses primarily due to an increase in bonus and incentive compensation, a $0.8 million increase in professional fees, a $0.8 million increase in software expense, and a $0.7 million increase in legal fees. Partially offsetting these increases was a $1.2 million decrease in depreciation expense, a $0.9 million decrease in office and equipment rent expense, a $0.6 million decrease in ERP integration and technology transition costs, a $0.5 million decrease in charitable contributions, a $0.5 million decrease in consulting and contractor expenses, $0.5 million decrease in non-income-related taxes, and a $0.4 million decrease in travel expenses.

Restructuring charges:

Restructuring charges of $13.0 million in fiscal year 2015 decreased $1.1 million or 7.8% from $14.1 million in fiscal year 2014 .

Restructuring charges in the fiscal year ended March 31, 2015 included $10.3 million related to personnel reduction costs which were primarily comprised of the following: $4.1 million related to headcount reductions in Europe (primarily Landsberg, Germany) as the Company relocates production to lower cost regions; $3.2 million is related to a headcount reduction of 50 non-manufacturing labor employees; $1.9 million related to the reduction of certain Solid Capacitor production workforce from Matamoros, Mexico to Victoria, Mexico; and $1.1 million related to headcount reductions taken as the Company begins to outsource its information technology function.

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from Monterrey, Mexico and Skopje, Macedonia to Suzhou China; and $0.5 million for other cost related to shut-downs in Europe and Asia.

Restructuring charges in the fiscal year ended March 31, 2014 included personnel reduction costs of $10.6 million and manufacturing relocation costs of $3.6 million . The personnel reduction costs are comprised of the following: $1.9 million related to the closure of a portion of our innovation center in the U.S.; $1.2 million related to the reduction of the Solid Capacitor production workforce in Mexico; $1.1 million related to the Company’s initiative to reduce overhead; $0.5 million in termination benefits associated with converting the Weymouth, United Kingdom manufacturing facility into a technology center; $4.5 million related to headcount reductions of 126 employees in Evora, Portugal due to the relocation of certain Solid Capacitors manufacturing operations to Mexico; $0.9 million related to a headcount reduction of 31 employees due to the consolidation of manufacturing facilities in Italy; and $0.4 million related to a temporary "lay-off" plan in Italy.

Research and development:

R&D expenses of $25.8 million ( 3.1% of net sales) for fiscal year 2015 increased $1.3 million or 5.5% compared to $24.5 million ( 2.9% of net sales) for fiscal year 2014 . The increase is primarily a result of additional product testing and an increase in headcount.

Write down of long-lived assets:

In fiscal year 2013 , the Company initiated a restructuring plan for its Evora, Portugal manufacturing operations. As a part of ongoing restructuring activities, the Company has relocated certain Solid Capacitor manufacturing operations from the Evora, Portugal facility to a manufacturing facility in Mexico and the remaining Solid Capacitor equipment in Portugal was disposed. In fiscal year 2014 , Solid Capacitors incurred a $3.9 million impairment charge due to a decrease in forecasted revenues because production was relocated to Mexico sooner than originally planned. The Company used an income approach to estimate the fair value of the assets to be disposed. In addition, during fiscal year 2014 , Film and Electrolytic incurred impairment charges totaling $0.6 million related to manufacturing equipment in a facility in Italy.

Operating income:

Operating income for fiscal year 2015 of $22.4 million improved $40.6 million compared to an operating loss of $18.2 million in fiscal year 2014 . The improvement was primarily due to a $38.8 million increase in gross margin, a $4.5 million decrease in write down of long-lived assets, and a $1.1 million decrease in restructuring charges. These improvements were partially offset by a $2.7 million increase in SG&A expenses and a $1.3 million increase in R&D expenses.

Non-operating (income) expense, net:

Non-operating (income) expense, net was a net expense of $34.5 million in fiscal year 2015 compared to a net expense of $38.1 million in fiscal year 2014 . The $3.6 million improvement is primarily attributable to a $4.2 million foreign exchange gain in fiscal year 2015 compared to a $0.3 million foreign exchange gain in fiscal year 2014 , a $1.0 million gain from the extinguishment of an advance payment from an OEM debt in fiscal year 2015 , and during fiscal year 2014 we incurred a $1.4 million charge related to the write off of a long-term note receivable. Partially offsetting these improvements was $1.1 million in professional fees related to financing activities and a $2.1 million increase in the value of the NEC TOKIN options recognized in fiscal year 2015 compared to a $3.1 million increase in fiscal year 2014 .

Income taxes:

The income tax expense from continuing operations was $5.2 million in fiscal year 2015 compared to an income tax expense of $1.5 million in fiscal year 2014 . The fiscal year 2015 income tax expense was comprised of an income tax expense resulting from operations in certain foreign jurisdictions totaling $5.0 million , $0.3 million income tax expense allocated from outside of continuing operations to continuing operations, and $0.1 million of state income tax benefit. No U.S. federal income tax benefit was recognized for the U.S. taxable loss for fiscal year 2015 due to a valuation allowance provided for U.S. net operating losses.

Equity loss from NEC TOKIN:

In fiscal year 2015 , we incurred an equity loss related to our 34% economic interest in NEC TOKIN of $2.2 million compared to a loss of $7.1 million in fiscal year 2014 due primarily to a $5.4 million improvement in operating income and a $2.5 million equity adjustment primarily for the deferred tax impact related to the sale of land in fiscal year 2014 and step up basis adjustments. The improvement in operating income was primarily driven by sales mix improvement, improvements in manufacturing efficiencies, and a reduction of personnel costs. Partially offsetting these favorable items was a net $1.7 million accrual related to estimated antitrust investigation fines (net of KEMET's portion of a $25 million indemnity asset to be

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received from NEC, of which KEMET's portion is $8.5 million) and a $1.4 million increase in income tax expenses which primarily relates to additional income tax expense and penalty incurred in Vietnam.

Segment Comparison of Fiscal Year 2015 to Fiscal Year 2014 :

The following table sets forth the operating income (loss) for each of our business segments for the fiscal years 2015 and 2014 . The table also sets forth each of the segments' net sales as a percentage of total net sales and the operating income (loss) components as a percentage of total net sales (amounts in thousands, except percentages):



	For the Fiscal Years Ended
	March 31, 2015					Fiscal Year 2014
	Amount			% to Total Sales		Amount			% to Total Sales
Net sales
Solid Capacitors	$	621,275		75.5	%	$	626,494		75.1	%
Film and Electrolytic	201,917			24.5	%	207,172			24.9	%
Total	$	823,192		100.0	%	$	833,666		100.0	%

Operating income (loss)
Solid Capacitors	$	135,946				$	91,848
Film and Electrolytic	(16,685		)			(17,587		)
Corporate	(96,883		)			(92,472		)
Total	$	22,378		2.7	%	$	(18,211	)	(2.2	)%

Solid Capacitors

The table sets forth Net sales, Operating income and Operating income as a percentage of net sales for Solid Capacitors for the fiscal years 2015 and 2014 (amounts in thousands, except percentages):



	For the Fiscal Years Ended
	March 31, 2015				March 31, 2014
	Amount		% to Net Sales		Amount		% to Net Sales
Tantalum product line net sales	$	377,893			$	390,422
Ceramic product line net sales	243,382				236,072
Net sales	621,275				626,494
Segment operating income	135,946		21.9	%	91,848		14.7	%

Net sales:

Net sales of $621.3 million in fiscal year 2015 decreased $5.2 million or 0.8% from $626.5 million in fiscal year 2014 . Tantalum product line net sales of $377.9 million in fiscal year 2015 decreased $12.5 million or 3.2% from $390.4 million in fiscal year 2014 primarily due to unfavorable foreign exchange as well as a shift away from sales of lower margin commercial products. Ceramic product line net sales of $243.4 million in fiscal year 2015 increased $7.3 million or 3.1% from $236.1 million in fiscal year 2014 primarily due to growth in specialty products across all regions. Unit sales volume for fiscal year 2015 decreased 1.3% compared to fiscal year 2014 . The average selling price in fiscal year 2015 increased 0.4% compared to fiscal year 2014 primarily driven by an increase in higher priced specialty products.

Segment operating income :

Segment operating income of $135.9 million for fiscal year 2015 improved $44.1 million or 48.0% from $91.8 million for fiscal year 2014 . The increase in segment operating income was primarily attributable to the following: an increase in gross margin of $36.9 million , a decrease in restructuring charges of $4.8 million , a $3.9 million decrease in write down of long-lived assets, and a $0.6 million decrease in SG&A expenses. The improvement in gross margin was mainly driven by continued improvement seen in vertical integration, an increase in sales of higher margin specialty products, and lower manufacturing costs as a result of restructuring efforts which moved production from Evora, Portugal to our Mexico facilities. These

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improvements were partially offset by a $0.7 million increase in R&D expenses and a $0.6 million loss on disposals of fixed assets for fiscal year 2015 compared to a gain on disposals of fixed assets of $0.7 million in fiscal year 2014 .

Film and Electrolytic

The table sets forth Net sales, Operating income (loss) and Operating income (loss) as a percentage of net sales for Film and Electrolytic for the fiscal years 2015 and 2014 (amounts in thousands, except percentages):



	For the Fiscal Years Ended
	March 31, 2015					March 31, 2014
	Amount			% to Net Sales		Amount			% to Net Sales
Net sales	$	201,917				$	207,172
Segment operating (loss) income	(16,685		)	(8.3	)%	(17,587		)	(8.5	)%

Net sales:

Net sales of $201.9 million in fiscal year 2015 decreased $5.3 million or 2.5% from $207.2 million in fiscal year 2014 . Capacitor unit sales volume for fiscal year 2015 increased 11.7% compared to fiscal year 2014 driven by an overall increase in customer demand across all regions. This increase was offset by a $6.0 million unfavorable impact related to foreign exchange (primarily the decrease in the euro) and an 8.9% decrease in average selling prices at comparable exchange rates for fiscal year 2015 as compared to fiscal year 2014 due to an unfavorable shift in product line mix.

Segment operating loss :

Segment operating loss of $16.7 million in fiscal year 2015 improved $0.9 million or 5.1% , from $17.6 million of segment operating loss in fiscal year 2014 . The improvement was attributable to a $1.9 million increase in gross margin, a $0.6 million decrease in write down of long-lived assets, and a $1.0 million gain on disposals of fixed assets for fiscal year 2015 compared to a loss on disposals of fixed assets of $0.8 million in fiscal year 2014 . The improvement in gross margin was due to realized cost reductions achieved through our restructuring and cost reduction efforts. The improvements were partially offset by a $2.6 million increase in restructuring charges, a $0.6 million increase in SG&A expenses, and a $0.2 million increase in R&D expenses.

Liquidity and Capital Resources

Our liquidity needs arise from working capital requirements, acquisitions, capital expenditures, principal and interest payments on debt, and costs associated with the implementation of our restructuring plan. Historically, these cash needs have been met by cash flows from operations, borrowings under credit agreements and existing cash and cash equivalents balances.

Issuance of 10.5% Senior Notes

On May 5, 2010, we completed the issuance of our 10.5% Senior Notes with an aggregate principal amount of $230.0 million which resulted in net proceeds to the Company of $222.2 million. The Company used a portion of the proceeds to repay all of its outstanding indebtedness under the Company's credit facility with K Financing, LLC, the Company's €60 million credit facility and €35 million credit facility with UniCredit Corporate Banking S.p.A. ("UniCredit") and the Company's term loan with a subsidiary of Vishay and used a portion of the remaining proceeds to fund a previously announced tender offer to purchase $40.5 million in aggregate principal amount of the Company's 2.25% Convertible Senior Notes (the "Convertible Notes") and to pay costs incurred in connection with the issuance, the tender offer and the foregoing repayments.

The 10.5% Senior Notes were issued pursuant to a 10.5% Senior Notes Indenture, dated as of May 5, 2010, by and among us, our domestic restricted subsidiaries (the "Guarantor Subsidiaries") and Wilmington Trust Company, as trustee (the "Trustee"). The 10.5% Senior Notes will mature on May 1, 2018, and bear interest at a stated rate of 10.5% per annum, payable semi-annually in cash in arrears on May 1 and November 1 of each year, beginning on November 1, 2010. The 10.5% Senior Notes are our senior obligations and are guaranteed by each of the Guarantor Subsidiaries and secured by a first priority lien on 51% of the capital stock of certain of our foreign restricted subsidiaries.

The terms of the 10.5% Senior Notes Indenture, among other things, limit our ability and the ability of our restricted subsidiaries to (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, our capital stock or repurchase our capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create liens or use assets as security in other transactions; (vi) enter into sale and leaseback transactions; (vii) merge, consolidate or transfer or dispose of substantially all assets; (viii) engage in certain transactions with affiliates; and

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(ix) designate subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of important limitations and exceptions that are described in the 10.5% Senior Notes Indenture.

At any time, at its option, the Company may redeem the 10.5% Senior Notes, in whole or in part, at the redemption price of 100% of the Principal amount. The Company may also at any time and from time to time purchase its 10.5% Senior Notes in the open market, subject to compliance with the Indenture.

Upon the occurrence of a change of control triggering event specified in the 10.5% Senior Notes Indenture, we must offer to purchase the 10.5% Senior Notes at a redemption price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase.

The 10.5% Senior Notes Indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include nonpayment, breach of covenants in the 10.5% Senior Notes Indenture, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and insolvency. The 10.5% Senior Notes Indenture also provides for events of default with respect to the collateral, which include default in the performance of (or repudiation, disaffirmation or judgment of unenforceability or assertion of unenforceability) by us or a Guarantor with respect to the provision of security documents under the 10.5% Senior Notes Indenture. These events of default are subject to a number of important qualifications, limitations and exceptions that are described in the 10.5% Senior Notes Indenture. Generally, if an event of default occurs, the Trustee or holders of at least 25% in principal amount of the then outstanding 10.5% Senior Notes may declare the principal of and accrued but unpaid interest, including additional interest, on all the 10.5% Senior Notes to be due and payable.

On March 27, 2012 and April 3, 2012, the Company completed the sale of $110.0 million and $15.0 million aggregate principal amount of its 10.5% Senior Notes due 2018, respectively, at an issue price of 105.5% of the principal amount plus accrued interest from November 1, 2011. The issuance resulted in a debt premium of $6.1 million which is being amortized over the term of the 10.5% Senior Notes. The Senior Notes were issued as additional notes under the indenture, dated May 5, 2010, as amended, among the Company, the Guarantor Subsidiaries party thereto and Wilmington Trust Company, as trustee.

The Company may from time to time seek to retire or purchase our outstanding 10.5% Senior notes through cash purchases, in open market purchases, privately negotiated transactions or otherwise. Repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The Board of Directors has authorized a debt repurchase plan, initially up to $20 million over the course of fiscal year 2017. There can be no assurance regarding the timing or price of debt repurchases, if any.

Revolving Line of Credit

On September 30, 2010, KEMET Electronics Corporation ("KEC") and KEMET Electronics Marketing (S) Pte Ltd. ("KEMET Singapore") (each a "Borrower" and, collectively, the "Borrowers") entered into a Loan and Security Agreement (the "Loan and Security Agreement"), with Bank of America, N.A, as the administrative agent and the initial lender. A portion of the U.S. facility and the Singapore facility can be used to issue letters of credit. On December 19, 2014, the Loan and Security Agreement was amended and as a result the expiration was extended to December 19, 2019. On May 2, 2016, the Loan and Security Agreement was further amended. Under the terms of the amended Loan and Security Agreement, the revolving credit facility has increased to $65.0 million, which is bifurcated into a U.S. facility (for which KEC is the Borrower) and a Singapore facility (for which KEMET Singapore is the Borrower). The amendment contains an accordion feature permitting the U.S. Borrowers to increase commitments under the facility by an aggregate principal amount up to $15.0 million (for a total facility of $75.0 million), subject to terms and documentation acceptable to the Agent and/or the Lenders. In addition, KEMET Foil, Blue Powder and The Forest Electric Company were included as Borrowers under the U.S. facility. The principal features of the Loan and Security Agreement as amended are reflected in the description below.

The size of the U.S. facility and Singapore facility can fluctuate as long as the Singapore facility does not exceed $30.0 million and the total facility does not exceed $65.0 million.

Borrowings under the U.S. and Singapore facilities are subject to a borrowing base consisting of:

•

in the case of the U.S. facility, (A) 85% of KEC's accounts receivable that satisfy certain eligibility criteria plus (B) the lesser of (i) $6.0 million and (ii) (a) on or prior to agent’s receipt of an updated inventory appraisal and agent’s approval thereof, 40% of the value of Eligible Inventory (as defined in the agreement) and (b) upon agent’s receipt of an updated inventory appraisal, 85% of the net orderly liquidation value of the Eligible Inventory (as defined in the agreement) plus (C) the lesser of $5.1 million and 80% of the net orderly liquidation percentage of the appraised value of equipment that satisfies certain eligibility criteria, as reduced on the first day of each fiscal quarter occurring after

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April 30, 2014 in an amount equal to one-twentieth (1/20) of such appraised value less (D) certain reserves, including certain reserves imposed by the administrative agent in its permitted discretion; and


•	in the case of the Singapore facility, (A) 85% of KEMET Singapore's accounts receivable that satisfy certain eligibility criteria as further specified in the Loan and Security Agreement less (B) certain reserves, including certain reserves imposed by the administrative agent in its permitted discretion.

Interest is payable on borrowings monthly at a rate equal to the London Interbank Offer Rate ("LIBOR") or the base rate, plus an applicable margin, as selected by the Borrower. Depending upon the fixed charge coverage ratio of KEMET Corporation and its subsidiaries on a consolidated basis as of the latest test date, the applicable margin under the U.S. facility varies between 2.00% and 2.50% for LIBOR advances and 1.00% and 1.50% for base rate advances, and under the Singapore facility varies between 2.25% and 2.75% for LIBOR advances and 1.25% and 1.75% for base rate advances.

The base rate is subject to a floor that is 100 basis points above LIBOR.

An unused line fee is payable monthly in an amount equal to a per annum rate equal to (a) 0.50%, if the average daily balance of revolver loans and stated amount of letters of credit was 50% or less of the revolver commitments during the preceding calendar month, or (b) 0.375%, if the average daily balance of revolver loans and stated amount of letters of credit was more than 50% of the Revolver Commitment during the preceding calendar month. A customary fee is also payable to the administrative agent on a quarterly basis.

KEC's ability to draw funds under the U.S. facility and KEMET Singapore's ability to draw funds under the Singapore facility are conditioned upon, among other matters:


•	the absence of the existence of a Material Adverse Effect (as defined in the Loan and Security Agreement);


•	the absence of the existence of a default or an event of default under the Loan and Security Agreement; and


•	the representations and warranties made by KEC and KEMET Singapore in the Loan and Security Agreement continuing to be correct in all material respects.

KEMET and the Guarantor Subsidiaries guarantee the U.S. facility obligations and the U.S. facility obligations are secured by a lien on substantially all of the assets of KEC and the Guarantor Subsidiaries (other than assets that secure the 10.5% Senior Notes due 2018). The collection accounts of the Borrowers and Guarantor Subsidiaries are subject to a daily sweep into a concentration account and the concentration account will become subject to full cash dominion in favor of the administrative agent (i) upon an event of default, (ii) if for five consecutive business days, aggregate availability of all facilities has been less than the greater of (A) 12.5% of the aggregate revolver commitments at such time and (B) $7.5 million, or (iii) if for five consecutive business days, availability of the U.S. facility has been less than $3.75 million (each such event, a "Cash Dominion Trigger Event").

KEC and the Guarantor Subsidiaries guarantee the Singapore facility obligations. In addition to the assets that secure the U.S. facility, the Singapore obligations are also secured by a pledge of 100% of the stock of KEMET Singapore and a security interest in substantially all of KEMET Singapore's assets. KEMET Singapore's bank accounts are maintained at Bank of America and upon a Cash Dominion Trigger Event will become subject to full cash dominion in favor of the administrative agent.

A fixed charge coverage ratio of at least 1.0 :1.0 must be maintained as of the last day of each fiscal quarter ending immediately prior to or during any period in which any of the following occurs and is continuing until none of the following occurs for a period of at least forty-five consecutive days: (i) an event of default, (ii) aggregate availability of all facilities has been less than the greater of (A) 12.5% of the aggregate revolver commitments at such time and (B) $7.5 million, or (iii) availability of the U.S. facility has been less than $3.75 million. The fixed charge coverage ratio tests the EBITDA and fixed charges of KEMET and its subsidiaries on a consolidated basis.

In addition, the Loan and Security Agreement includes various covenants that, subject to exceptions, limit the ability of KEMET and its direct and indirect subsidiaries to, among other things: incur additional indebtedness; create liens on assets; 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 its lines of business.

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The Company had the following activity for the twelve month period ended March 31, 2016 and resulting balances under the revolving line of credit (amounts in millions, excluding percentages):



	March 31, 2015		Twelve Month Period Ended March 31, 2016				March 31, 2016
	Outstanding Borrowings		Additional Borrowings		Repayments		Outstanding Borrowings		Rate (1) (2)		Due Date
U.S. Facility	$	21,481	$	8,000	$	9,600	$	19,881	4.750	%	December 19, 2019
Singapore Facility
Singapore Borrowing 1 (3)	12,000		—		—		12,000		3.250	%	August 22, 2016
Singapore Borrowing 2 (3)	—		2,000		—		2,000		3.250	%	July 11, 2016
Total Facilities	$	33,481	$	10,000	$	9,600	$	33,881

______________________________________________________________________________

(1) For U.S. borrowings, Base Rate plus 1.5% , as defined in the Loan and Security Agreement.

(2) For Singapore borrowings, LIBOR plus a spread of 2.50% as of March 31, 2016 .

(3) The Company has the intent and ability to extend the due date on the Singapore borrowings beyond one year.

These were the only borrowings under the revolving line of credit, and the Company's available borrowing capacity under the Loan and Security Agreement was $25.6 million as of March 31, 2016 . The borrowing capacity has increased from the prior year due to an improvement in the fixed charged coverage ratio and an increase in the eligible account receivable collateral.

Short-term Liquidity

Cash and cash equivalents totaled $65.0 million as of March 31, 2016 , representing an increase of $8.6 million as compared to $56.4 million as of March 31, 2015 . Our net working capital (current assets less current liabilities) remained essentially flat with the balance as of March 31, 2016 of $228.8 million compared to $228.5 million of net working capital as of March 31, 2015 . Cash and cash equivalents held by our foreign subsidiaries totaled $28.2 million and $22.6 million at March 31, 2016 and March 31, 2015 , respectively. Our operating income outside the U.S. is no longer deemed to be permanently reinvested in foreign jurisdictions. As a result, we set up a deferred tax liability on the undistributed foreign earnings which was offset by a reduction to the the valuation allowance for deferred tax assets. However, we currently do not intend nor foresee a need to repatriate cash and cash equivalents held by foreign subsidiaries. If these funds are needed in the U.S. for our operations, we may be required to accrue U.S. withholding taxes on the distributed foreign earnings.

We have taken steps to improve our operating results by decreasing global headcount and vertically integrating our supply chain. Based on our current operating plans, we believe that existing cash and cash equivalents, cash provided by operations and cash from the revolving line of credit will continue to be sufficient to fund our operating requirements for the next twelve months, including $38.4 million in interest payments, expected capital expenditures in the range of $20.0 million to $25.0 million, payments of $1.0 million related to restructuring liabilities, and $2.0 million for repurchase of our 10.5% Senior Notes.

Our cash and cash equivalents increased by $8.6 million during the year ended March 31, 2016 , decreased $1.6 million during the year ended March 31, 2015 and decreased $38.0 million during the year ended March 31, 2014 as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
Net cash provided by (used in) operating activities	$	32,365		$	24,402		$	(6,746	)
Net cash provided by (used in) investing activities	(20,588		)	3,629			(25,253		)
Net cash provided by (used in) financing activities	(3,803		)	(26,868		)	(6,877		)
Effect of foreign currency fluctuations on cash	668			(2,730		)	827
Net increase (decrease) in cash and cash equivalents	$	8,642		$	(1,567	)	$	(38,049	)

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Fiscal Year 2016 compared to Fiscal Year 2015

Operations

In fiscal year 2016 , cash provided by operating activities totaled $32.4 million , representing an $8.0 million improvement compared to cash provided by operating activities of $24.4 million in fiscal year 2015 . The improvement for fiscal year 2016 compared to fiscal year 2015 relates to a $11.5 million improvement in cash flows related to operations (change in net loss adjusted for the change in: net cash provided by operating activities of discontinued operations, gain on sale of discontinued operations, gain on early extinguishment of debt, equity loss from NEC TOKIN, change in value of NEC TOKIN options, depreciation and amortization, deferred income taxes, net (gain) loss on sales and disposals of assets, amortization of debt discount and debt issuance costs, stock-based compensation, non-cash pension and other post-retirement benefits, write down of receivables, and other non-cash changes to net loss).

We used $5.6 million through changes in assets and liabilities in fiscal year 2016 as compared to using $2.0 million through changes in assets and liabilities in fiscal year 2015 .

In fiscal year 2016 , the cash usage of $5.6 million was primarily related to a decrease in other operating liabilities of $13.8 million (primarily related to a decrease in accrued salaries, wages and benefits), a decrease in accounts payable of $6.0 million , an increase in accounts receivable of $2.3 million , and a decrease in accrued income taxes of $0.4 million . This was partially offset by a decrease in prepaid expenses and other assets of $13.6 million (primarily related to a decrease in value-added-tax receivable), and a reduction in inventory of $3.3 million achieved through cost reductions and yield improvements.

In fiscal year 2015 , the cash use of $2.0 million was primarily related to an increase in prepaid expenses and other assets of $8.4 million , a decrease in other operating liabilities of $7.3 million , a decrease in accounts payable of $2.9 million , and a decrease in accrued income taxes of $0.2 million . This was partially offset by a reduction in inventory of $8.6 million achieved through cost reduction and yield improvements and a reduction in accounts receivable of $8.2 million .

Investing

Cash used in investing activities was $20.6 million in fiscal year 2016 compared to cash provided by investing activities of $3.6 million in fiscal year 2015 . Cash provided by investing activities in fiscal year 2015 was achieved due to the release of restricted cash due to the repayment of an advance payment from an OEM which provided cash of $11.5 million , the sale of discontinued operations provided $9.6 million and proceeds from the sale of assets of $4.8 million , whereas in fiscal year 2016 cash provided from these items was $1.8 million , none and $1.0 million , respectively.

Cash used for investing activities in fiscal year 2016 included capital expenditures of $20.5 million , and acquisition payments net of cash received related to Intellidata used cash of $2.9 million . Capital expenditures were primarily related to expanding capacity at our manufacturing facilities in Suzhou, China; Pontecchio, Italy; Gränna, Sweden; Matamoros, Mexico; and Evora, Portugal as well as information technology projects in Simpsonville, South Carolina.

Cash used for investing activities in fiscal year 2015 included capital expenditures of $22.2 million , primarily related to expanding capacity at our manufacturing facilities in Europe and Asia.

Financing

Cash used in financing activities of $3.8 million in fiscal year 2016 decreased $23.1 million from cash used in financing activities of $26.9 million in fiscal year 2015 .

In fiscal year 2016 , we used $3.0 million for deferred acquisition payments related to the Intellidata acquisition, $0.5 million for payments of long term debt, and $0.4 million for net payments on the revolving line of credit.

In fiscal year 2015 , we used $19.5 million for deferred acquisition payments related to the KEMET Foil and Blue Powder acquisitions and $21.7 million for debt payments. This was partially offset by $15.0 million in net proceeds from the revolving line of credit.

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Commitments

At March 31, 2016 , we had contractual obligations in the form of non-cancelable operating leases and debt, including interest payments (see Note 2 , " Debt " and Note 16 , " Commitments and Contingencies " to our consolidated financial statements), European social security, pension benefits, other post-retirement benefits, inventory purchase obligations, fixed asset purchase obligations, acquisition related obligations, and construction obligations as follows (amounts in thousands):



	Payment Due by Period
Contractual obligations	Total		Year 1		Years 2 - 3		Years 4 - 5		More than 5 years
Debt obligations	$	388,881	$	2,000	$	353,000	$	33,881	$	—
Interest obligations	83,119		38,449		43,553		1,117		—
Operating lease obligations	10,809		3,653		4,831		1,124		1,201
Pension and other post-retirement benefits (1)	19,375		1,710		3,243		3,552		10,870
Employee separation liability	9,352		285		740		797		7,530
Restructuring liability	976		946		30		—		—
Purchase commitments	2,827		1,876		951		—		—
Capital lease obligations	1,258		614		561		72		11
Total	$	516,597	$	49,533	$	406,909	$	40,543	$	19,612

_______________________________________________________________________________


(1)	Reflects expected benefit payments through 2023.

Derivative Investments

Certain operating expenses at the Company's Mexican facilities are paid in Mexican pesos or Japanese yen, and certain sales are made in euros. In order to hedge these forecasted cash flows, the Company purchases foreign exchange contracts to buy Mexican pesos, buy Japanese yen, or sell euros for periods and amounts consistent with the underlying cash flow exposures. At March 31, 2016 , the Company had outstanding forward exchange contracts with maturities of less than twelve months to purchase Mexican pesos with notional amounts of $37.7 million . The fair value of these contracts at March 31, 2016 totaled $0.4 million and was recorded as a derivative liability on the Consolidated Balance Sheets under the line item "Accrued Expenses". See Note 13 , " Derivatives " for further discussion of derivative financial instruments.

Uncertain Income Tax Positions

We have recognized a liability for our unrecognized uncertain income tax positions of approximately $7.1 million as of March 31, 2016 . The ultimate resolution and timing of payment for remaining matters continues to be uncertain and are, therefore, excluded from the above table.

Non-GAAP Financial Measures

To complement our consolidated statements of operations and cash flows, we use non-GAAP financial measures of Adjusted gross margin, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted EBITDA. We believe that Adjusted gross margin, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted EBITDA are complements to U.S. GAAP amounts and such measures are useful to investors. The presentation of these non-GAAP measures is not meant to be considered in isolation or as an alternative to net income (loss) as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of liquidity.

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The following table provides a reconciliation from U.S. GAAP Gross margin to Non-U.S. GAAP Adjusted gross margin (amounts in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014

Net sales	$	734,823		$	823,192		$	833,666
Gross Margin	163,280			159,509			120,741
Gross margin as a % of net sales	22.2		%	19.4		%	14.5		%
Non-U.S. GAAP-adjustments:
Plant shut-down costs	372			889			2,668
Plant start-up costs	861			4,556			3,336
Stock-based compensation expense	1,418			1,576			1,006
Adjusted gross margin	$	165,931		$	166,530		$	127,751
Adjusted gross margin as a % of net sales	22.6		%	20.2		%	15.3		%

Adjusted operating income (loss) is calculated as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016		2015			2014
Operating income (loss)	$	32,326	$	22,378		$	(18,211	)
Adjustments:
ERP integration costs/IT transition costs	5,677		3,248			3,880
Stock-based compensation	4,774		4,512			2,909
Restructuring charges	4,178		13,017			14,122
Legal expenses related to antitrust class actions	3,041		844			—
NEC TOKIN investment related expenses	900		1,778			2,299
Plant start-up costs	861		4,556			3,336
Net (gain) loss on sales and disposals of assets	375		(221		)	32
Plant shut-down costs	372		889			2,668
Pension plan adjustment	312		—			—
Write down of long-lived assets	—		—			4,476
Inventory write downs	—		—			3,886
Infrastructure tax	—		—			1,079
Adjusted operating income (loss)	$	52,816	$	51,001		$	20,476

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Adjusted net income (loss) is calculated as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
Net income (loss)	$	(53,629	)	$	(14,143	)	$	(68,503	)
Adjustments:
Change in value of NEC TOKIN options	26,300			(2,100		)	(3,111		)
Equity (gain) loss from NEC TOKIN	16,406			2,169			7,090
Restructuring charges	4,178			13,017			14,122
ERP integration costs/IT transition costs	5,677			3,248			3,880
Stock-based compensation	4,774			4,512			2,909
Legal expenses related to antitrust class actions	3,041			844			—
Net foreign exchange (gain) loss	(3,036		)	(4,249		)	(304		)
NEC TOKIN investment related expenses	900			1,778			2,299
Income tax effect on pension curtailment	875			—			—
Plant start-up costs	861			4,556			3,336
Amortization included in interest expense	859			1,814			3,596
Net (gain) loss on sales and disposals of assets	375			(221		)	32
Plant shut-down costs	372			889			2,668
Pension plan adjustment	312			—			—
Income tax effect of non-GAAP adjustments (1)	652			84			(301		)
(Income) loss from discontinued operations	—			(5,379		)	3,634
(Gain) loss on early extinguishment of debt	—			(1,003		)	—
Professional fees related to financing activities	—			1,142			—
Write down of long-lived assets	—			—			4,476
Inventory write downs	—			—			3,886
Long-term receivable write down	—			—			1,444
Infrastructure tax	—			—			1,079
Adjusted net income (loss)	$	8,917		$	6,958		$	(17,768	)

(1) Fiscal year 2014 has been adjusted to reflect the income tax adjustment related to the recognition of KEMET's portion of NEC TOKIN's AOCI activity.

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Adjusted EBITDA is calculated as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
Net income (loss)	$	(53,629	)	$	(14,143	)	$	(68,503	)
Adjustments:
Income tax expense (benefit)	6,006			5,227			1,482
Interest expense, net	39,591			40,686			40,767
Depreciation and amortization	39,016			40,768			49,527
Change in value of NEC TOKIN options	26,300			(2,100		)	(3,111		)
Equity (gain) loss from NEC TOKIN	16,406			2,169			7,090
ERP integration costs/IT transition costs	5,677			3,248			3,880
Stock-based compensation	4,774			4,512			2,909
Restructuring charges	4,178			13,017			14,122
Legal expenses related to antitrust class actions	3,041			844			—
Net foreign exchange (gain) loss	(3,036		)	(4,249		)	(304		)
NEC TOKIN investment related expenses	900			1,778			2,299
Plant start-up costs	861			4,556			3,336
Net (gain) loss on sales and disposals of assets	375			(221		)	32
Plant shut-down costs	372			889			2,668
Pension plan adjustment	312			—			—
(Income) loss from discontinued operations	—			(5,379		)	3,634
(Gain) loss on early extinguishment of debt	—			(1,003		)	—
Professional fees related to financing activities	—			1,142			—
Write down of long-lived assets	—			—			4,476
Inventory write downs	—			—			3,886
Long-term receivable write down	—			—			1,444
Infrastructure tax	—			—			1,079
							—
Adjusted EBITDA	$	91,144		$	91,741		$	70,713

Adjusted gross margin represents net sales less cost of sales excluding adjustments which are outlined in the quantitative reconciliation provided above. Management uses Adjusted gross margin to facilitate our analysis and understanding of our business operations and believes that Adjusted gross margin is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company. Adjusted gross margin should not be considered as an alternative to gross margin or any other performance measure derived in accordance with U.S. GAAP.

Adjusted operating income (loss) represents operating income (loss), excluding adjustments which are outlined in the quantitative reconciliation provided above. We use Adjusted operating income (loss) to facilitate our analysis and understanding of our business operations and believe that Adjusted operating income (loss) is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company. Adjusted operating income (loss) should not be considered as an alternative to operating income (loss) or any other performance measure derived in accordance with U.S. GAAP.

Adjusted net income (loss) represents net income (loss), excluding adjustments which are outlined in the quantitative reconciliation provided above. We use Adjusted net income (loss) to evaluate the Company's operating performance and believe that Adjusted net income (loss) is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company. Adjusted net income (loss) should not be considered as an alternative to net income (loss), operating income (loss) or any other performance measures derived in accordance with U.S. GAAP.

Adjusted EBITDA represents net income (loss) before income tax expense, interest expense, net, and depreciation and amortization, excluding adjustments which are outlined in the quantitative reconciliation provided above. We present Adjusted EBITDA as a supplemental measure of our performance and ability to service debt. We also present Adjusted EBITDA because

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we believe such measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

We believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because cash expenditures on interest are, by definition, available to pay interest and tax expense is inversely correlated to interest expense because tax expense goes down as deductible interest expense goes up; depreciation and amortization are non-cash charges. The other items excluded from Adjusted EBITDA are excluded in order to better reflect our continuing operations.

In evaluating Adjusted EBITDA, one should be aware that in the future we may incur expenses similar to the adjustments noted above. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these types of adjustments. Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income (loss), operating income (loss) or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.

Our Adjusted EBITDA measure has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:


•	it does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;


•	it does not reflect changes in, or cash requirements for, our working capital needs;


•	it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;


•	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and our Adjusted EBITDA measure does not reflect any cash requirements for such replacements;


•	it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;


•	it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;


•	it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and


•	other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally.

Recent Accounting Pronouncements

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation. This guidance changes several aspects of the accounting for share-based payment award transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits and Deficiencies, (2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow Classification. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016. Early application is permitted, KEMET adopted ASU No. 2016-09 as of April 1, 2016. This new guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The ASU requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than short-term leases). The guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. Early application is permitted. We are currently in the process of assessing the impact the adoption of this guidance will have on our consolidated financial statements.

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would present deferred taxes as a net current asset or liability and a net noncurrent asset or liability. The new accounting guidance simplifies financial reporting by reducing the presentation of deferred taxes into a single line and reduces complexities in determining when the recognized deferred tax amounts are expected to be recovered or settled. The balance sheet as of March 31, 2015 has been adjusted to reflect retrospective application of the new accounting guidance as follows:



	As Previously Reported	Retrospective Adjustment		As Adjusted
Assets
Deferred income taxes (current)	10,762	(10,762	)	—
Total current assets	371,327	(10,762	)	360,565
Deferred income taxes (non-current)	5,111	4,663		9,774
Total assets	752,792	(6,099	)	746,693
Income taxes payable and deferred income taxes (current)	1,017	(133	)	884
Total current liabilities	132,220	(133	)	132,087
Deferred income taxes (non-current)	8,350	(5,966	)	2,384
Total liabilities and stockholders' equity	752,792	(6,099	)	746,693

In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The ASU requires that an acquirer recognize adjustments to provisional amounts recognized in a business combination in the reporting period in which the adjustment amounts are determined. It also requires disclosure of the adjustment recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 eliminates the requirement to retrospectively revise comparative information for prior periods. ASU 2015-16 is effective for interim and annual reporting periods beginning April 1, 2016. Early application is permitted. The Company will apply the new standard to measurement period adjustments related to future business acquisitions.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. The ASU requires an entity that uses first-in, first-out or average cost to measure its inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 will be effective for interim and annual reporting periods beginning April 1, 2017. Early application is permitted. The Company is currently evaluating the impact of the adoption of ASU 2015-11 on its operating results and financial position.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The ASU specifies that debt issuance costs related to a note shall be reported in the balance sheet as a direct reduction from the face amount of the note. The ASU is effective for the Company for interim and annual periods beginning after April 1, 2016. Early adoption is permitted. The ASU will require the Company to reclassify its capitalized debt issuance costs currently recorded as assets on the consolidated condensed balance sheets. The ASU will have no effect on the Company's results of operations or liquidity.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern. The new guidance is effective for the Company's fiscal year that begins on April 1, 2017 and interim periods within that fiscal year and requires management to assess if there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim period. If conditions or events give rise to substantial doubt, disclosures are required. This new guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes existing accounting standards for revenue recognition and creates a single framework. The new guidance is effective for the Company's fiscal year that begins on April 1, 2018 and interim periods within that fiscal year and requires either a retrospective or a modified retrospective approach to adoption. The Company is currently evaluating the potential impact on its Consolidated Financial Statements and related disclosures, as well as the available transition methods. Early adoption is permitted, but not before Company's fiscal year that begins on April 1, 2017 (the original effective date of the ASU). We are currently in the process of assessing the impact the adoption of this guidance will have on our consolidated financial statements.

There are currently no other accounting standards that have been issued that will have a significant impact on the Company’s financial position, results of operations or cash flows upon adoption.

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Effect of Inflation

Inflation generally affects us by increasing the cost of labor, equipment, and raw materials. We do not believe that inflation has had any material effect on our business over the past three fiscal years except for the following discussion in Commodity Price Risk.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

We are exposed to interest rate risk through our revolving line of credit, which had an outstanding balance as of March 31, 2016 , of $33.9 million . This debt has a variable interest rate and a 1% change in the interest rate would yield a $0.3 million change in interest expense.

Foreign Currency Exchange Rate Risk

Given our international operations and sales, we are exposed to movements in foreign exchange rates. Of these, the most significant are currently the euro and the Mexican peso. A portion of our sales to our customers and operating costs in Europe are denominated in euro creating an exposure to foreign currency exchange rates. Also, a portion of our costs in our operations in Mexico are denominated in Mexican pesos, creating an exposure to foreign currency exchange rates. Additionally, certain of our non-U.S. subsidiaries make sales denominated in U.S. dollars which expose them to foreign currency transaction gains and losses. Historically, in order to minimize our exposure, we periodically entered into forward foreign exchange contracts in which the future cash flows were hedged against the U.S. dollar (see Note 13 , "Derivatives" to the consolidated financial statements).

A 10 percent increase or decrease in foreign exchange rates would have resulted in changes in net income (loss) of $16.5 million and $(18.5) million, respectively.

Commodity Price Risk

As a result of our tantalum vertical integration efforts which began in fiscal year 2012, we have reduced our exposure to price volatility and supply uncertainty in the tantalum supply chain. A majority of our tantalum needs are now met through our direct sourcing of conflict free tantalum ore or tantalum scrap reclaim, which is then processed into the intermediate product potassium heptafluorotantalate (commonly known as K-salt) at our own facility in Mexico, before final processing into tantalum powder at Blue Powder. 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 be unable to pass all such price increases on to our customers.

Palladium is a precious metal used in the manufacture of multilayer ceramic capacitors and is mined primarily in Russia and South Africa. We continue to pursue ways to reduce palladium usage in ceramic capacitors in order to minimize the price risk. The amount of palladium that we require has generally been available in sufficient quantities; however the price of palladium is driven by the market which has shown significant price fluctuations. For instance, in fiscal year 2016 the price of palladium fluctuated between $470 and $802 per troy ounce. Price increases and the possibility of our inability to pass such increases on to our customers could have an adverse effect on profitability.

Silver and aluminum have generally been available in sufficient quantities, and we believe there are a sufficient number of 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, however, could have an adverse effect on our profitability.

To evaluate the impact of price changes in precious metals on net income (loss) we used the following assumptions: the selling prices of our products would not be impacted, all the precious metals change in the same direction at the same time and we do not have commitment contracts in place. Under these assumptions, a 10 percent increase or decrease in the cost of precious metals would result in approximately $11.3 million of increase or decrease to our net income (loss). We believe we have partially mitigated this risk through our vertical integration efforts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this item is submitted as a separate section of this Form 10-K. See Item 15.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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ITEM 9A. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

As of March 31, 2016 , an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act). Internal control over financial reporting is a process, designed by, or under the supervision of, an entity's principal executive and principal financial officers, and effected by an entity's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and the dispositions of the assets of the entity; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with authorizations of the management and directors of the entity; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity's assets that could have a material effect on its consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, the Company's management conducted an assessment of the effectiveness of its internal control over financial reporting based on the criteria set forth in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

Based on that assessment, as of March 31, 2016 , the Company's management concluded that its internal control over financial reporting was effective. Ernst & Young LLP, our independent registered public accounting firm has issued an attestation report on the Company's internal control over financial reporting, which is on page 62 of this annual report on Form 10-K.

Changes in Internal Control over Financial Reporting

There was no change in the Company's internal control over financial reporting during the fiscal quarter ended March 31, 2016 , that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Other than the information under "Executive Officers" and "Other Key Employees" under Part I, Item 4A, the other information required by Item 10 is incorporated by reference from the Company's definitive proxy statement for its annual stockholders meeting to be held on July 28, 2016 under the headings "Nominees for Board of Directors," "Continuing Directors," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Information about the Board of Directors."

ITEM 11. EXECUTIVE COMPENSATION.

The information required by Item 11 is incorporated by reference from the Company's definitive proxy statement for its annual stockholders' meeting to be held on July 28, 2016 under the headings "Compensation Discussion and Analysis," "Summary Compensation Table," "Grants of Plan-Based Awards Table," "Outstanding Equity Awards at Fiscal Year-End Table," "Option Exercises and Stock Vested Table," "Nonqualified Deferred Compensation Table," "Potential Payments Upon Termination or Change in Control Table," "Director Compensation Table," "Report of the Compensation Committee," and "Compensation Committee Interlocks and Insider Participation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by Item 12 is incorporated by reference from the Company's definitive proxy statement for its annual stockholders' meeting to be held on July 28, 2016 under the heading "Security Ownership", and from "Equity Compensation Plan Disclosure" in Item 5 hereof.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by Item 13 is incorporated by reference from the Company's definitive proxy statement for its annual stockholders' meeting to be held on July 28, 2016 under the headings "Review, Approval or Ratification of Transactions with Related Persons" and "Information about the Board of Directors."

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by Item 14 is incorporated by reference from the Company's definitive proxy statement for its annual stockholders' meeting to be held on July 28, 2016 under the heading "Audit and Non-Audit Fees."

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.


(a)	(1) Financial Statements

The following financial statements are filed as a part of this report:



Report of Independent Registered Public Accounting Firm	61
Report of Independent Registered Public Accounting Firm	62
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2016 and 2015	63
Consolidated Statements of Operations for the years ended March 31, 2016, 2015 and 2014	64
Consolidated Statements of Comprehensive Income (Loss) for the years ended March 31, 2016, 2015 and 2014	65
Consolidated Statements of Changes in Stockholders' Equity for the years ended March 31, 2016, 2015 and 2014	66
Consolidated Statements of Cash Flows for the years ended March 31, 2016, 2015 and 2014	67
Notes to Consolidated Financial Statements	69


(a)	(2) Financial Statement Schedules

Financial statement schedules are omitted because they are not applicable or because the required information is included in the consolidated financial statements or notes thereto.


(a)	(3) List of Exhibits

The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the SEC:



2.1			Stock Purchase Agreement, dated as of February 2, 2012, by and among KEMET Corporation, Niotan Incorporated and Niotan Investment Holdings LLC (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on February 2, 2012)

2.2			Stock Purchase Agreement, dated as of March 12, 2012, by and among KEMET Electronics Corporation, NEC Corporation and NEC TOKIN Corporation (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on March 15, 2012)

2.3			Amendment No. 1 to the Stock Purchase Agreement dated as of December 12, 2012, by and among KEMET Electronics Corporation, NEC Corporation and NEC TOKIN Corporation (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on December 14, 2012)

3.1			Second Restated Certificate of Incorporation of the Company, as amended to date (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q (File No. 1-15491) for the quarter ended June 30, 2011)

3.2			Amended and Restated By-laws of KEMET Corporation, effective June 5, 2008 (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on June 5, 2008)

4.1			Indenture, dated May 5, 2010, by and among the Company, certain subsidiary guarantors named therein and Wilmington Trust Company, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on May 5, 2010)

4.2			Registration Rights Agreement, dated May 5, 2010, by and among the Company, certain subsidiary guarantors named therein and the initial purchasers named therein (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on May 5, 2010)

4.3			Supplemental Indenture, dated as of August 10, 2011, among KEMET Foil Manufacturing LLC (f/k/a Cornell Dubilier Foil, LLC), KEMET Corporation, the other Guarantors named therein and Wilmington Trust Company, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q (File No. 1-15491) for the quarter ended September 30, 2011)

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4.4			Registration Rights Agreement, dated March 27, 2012, among KEMET Corporation, the guarantors named therein and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., as initial purchasers (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on March 28, 2012)

4.5			Registration Rights Agreement, dated as of April 3, 2012, among KEMET Corporation, the guarantors named therein and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., as initial purchasers (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on April 4, 2012)

4.6			Supplemental Indenture, dated April 17, 2012, among KEMET Corporation, the guarantors named therein and Wilmington Trust Company, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on April 18, 2012)

4.7			Form of 10 1/2% Senior Note due 2018 (included in Exhibit 4.1)

10.1			Registration Agreement, dated as of December 21, 1990, by and among the Company and each of the investors and executives listed on the schedule of investors and executives attached thereto (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1 (Reg. No. 33-48056))

10.2			Form of Amendment No. 1 to Registration Agreement, dated as of April 28, 1994 (incorporated by reference to Exhibit 10.3.1 to the Company's Registration Statement on Form S-1 (Reg. No. 33-61898))

10.3			1995 Executive Stock Option Plan by and between the Company and each of the executives listed on the schedule attached thereto (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K (File No. 1-15491) for the year ended March 31, 1996)*

10.4			Executive Bonus Plan by and between the Company and each of the executives listed on the schedule attached thereto (incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K (File No. 1-15491) for the year ended March 31, 1996)*

10.5			1992 Key Employee Stock Option Plan (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K (File No. 1-15491) for the year ended March 31, 2009)*

10.6			Amendment No. 1 to KEMET Corporation 1992 Key Employee Stock Option Plan effective October 23, 2000 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (File No. 1-15491) for the quarter ended December 31, 2000)*

10.7			2004 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (Reg. No. 333-123308))*

10.8			Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on April 23, 2009)*

10.9			Warrant to Purchase Common Stock, dated June 30, 2009, issued by the Company to K Financing, LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on June 30, 2009)

10.10			Investor Rights Agreement, dated June 30, 2009, between the Company and K Financing, LLC (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on June 30, 2009)

10.11			Purchase Agreement, dated April 21, 2010, by and among the Company, certain subsidiary guarantors named therein and Banc of America Securities LLC, as representative of the several initial purchasers (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on April 22, 2010)

10.12			Second Amended and Restated KEMET Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-K (File No. 1-15491) for the year ended March 31, 2009)*

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10.13			Loan and Security Agreement, dated as of September 30, 2010, by and among KEMET Electronics Corporation, KEMET Electronics Marketing (S) Pte Ltd., and Bank of America, N.A., as agent and Banc of America Securities LLC, as lead arranger and bookrunner (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on October 5, 2010)

10.14			KEMET Executive Secured Benefit Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (File No. 1-15491) for the quarter ended December 31, 2010)*

10.15			Form of Change in Control Severance Compensation Agreement, entered into with executive officers of the Company*

10.16			Option Agreement, dated as of March 12, 2012, by and among NEC Corporation and KEMET Electronics Corporation (incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on March 15, 2012)

10.17			Stockholders' Agreement, dated as of March 12, 2012, by and among KEMET Electronics Corporation, NEC Corporation and NEC TOKIN Corporation (incorporated by reference to Exhibit 99.4 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on March 15, 2012)

10.18			Form of Restricted Stock Unit Grant Agreement for Employees (incorporated by reference to Exhibit 10.61 to the Company's Annual Report on Form 10-K (File No. 1-15491) for the year ended March 31, 2012)*

10.19			Form of Restricted Stock Unit Grant Agreement for Directors (incorporated by reference to Exhibit 10.62 to the Company's Annual Report on Form 10-K (File No. 1-15491) for the year ended March 31, 2012)*

10.20			Amendment No. 1 to Loan and Security Agreement, Waiver and Consent, dated as of March 19, 2012, by and among KEMET Electronics Corporation, KEMET Electronics Marketing (S) Pte Ltd., the financial institutions party thereto as lenders and Bank of America, N.A., as agent (incorporated by reference to Exhibit 10.63 to the Company's Annual Report on Form 10-K (File No. 1-15491) for the year ended March 31, 2012)

10.21			Development and Cross-Licensing Agreement between NEC TOKIN Corporation and KEMET Electronics Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on May 8, 2013)

10.22			Form of Long-Term Incentive Plan Award Agreement*

10.23			Consolidated Amendment to Loan and Security Agreement, dated as of July 8, 2013, by and among KEMET Electronics Corporation, KEMET Foil Manufacturing, LLC, KEMET Blue Powder Corporation, KEMET Electronics Marketing (S) PTE LTD., the financial institutions party thereto as lenders and Bank of America, N.A., as agent (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (File No. 1-15491) filed on August 2, 2013)

10.24			Amendment No. 5 to Loan and Security Agreement, dated April 30, 2014, among KEMET Electronics Corporation and its subsidiaries KEMET Foil Manufacturing, LLC, KEMET Blue Powder Corporation, and KEMET Electronics Marketing (S) PTE LTD., as Borrowers, and Bank of America, N.A., as agent for the Lenders (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on May 5, 2014)

10.25			2014 Amendment and Restatement of the 2014 KEMET Corporation 2011 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 1-15491) filed on July 24, 2014)*

10.26			Amendment No. 1 to Option Agreement, dated as of August 29, 2014, between KEMET Electronics Corporation and NEC Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-15491) filed on September 4, 2014)

10.27			Incentive Award, Severance and Non-Competition Agreement, dated as of December 1, 2014, between KEMET Corporation and William M. Lowe, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-15491) filed on December 5, 2014)*

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10.28			Incentive Award and Non-Competition Agreement, dated as of December 1, 2014, between KEMET Corporation and Charles C. Meeks, Jr. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 1-15491) filed on December 5, 2014)*

10.29			Amendment No. 6 to Loan and Security Agreement, Waiver and Consent dated December 19, 2014, among KEMET Electronics Corporation, KEMET Foil Manufacturing, LLC, KEMET Blue Powder Corporation, The Forest Electric Company and KEMET Electronics Marketing (S) PTE LTD., as Borrowers, the financial institutions party thereto, as Lenders, and Bank of America, N.A., as agent for the Lenders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-15491) filed on December 22, 2014)

10.30			Amendment No. 7 to Loan and Security Agreement, dated March 27, 2015, among KEMET Electronics Corporation, KEMET Foil Manufacturing, LLC, KEMET Blue Powder Corporation, The Forest Electric Company and KEMET Electronics Marketing (S) PTE LTD., as Borrowers, the financial institutions party thereto, as Lenders, and Bank of America, N.A., as agent for the Lenders

10.31			Third Supplemental Indenture dated May 21, 2015, among KEMET Corporation, IntelliData, Inc., the other guarantors named therein and Wilmington Trust Company, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 1-15491) filed on May 26, 2015)

10.32			Amended and Restated Employment Agreement between KEMET Corporation and Per-Olof Lööf, dated June 29, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-15491) filed on July 6, 2015)*

10.33			Amendment No. 8 to Loan and Security Agreement, dated May 2, 2016, among KEMET Electronics Corporation, KEMET Foil Manufacturing, LLC, KEMET Blue Powder Corporation, The Forest Electric Company and KEMET Electronics Marketing (S) PTE LTD., as Borrowers, the financial institutions party thereto, as Lenders, and Bank of America, N.A., as agent for the Lenders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-15491) filed on May 5, 2016)

21.1			Subsidiaries of KEMET Corporation

23.1			Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP

23.2			Consent of Paumanok Publications, Inc.

31.1			Certification of the Chief Executive Officer Pursuant to Section 302

31.2			Certification of the Chief Financial Officer Pursuant to Section 302

32.1			Certification of the Chief Executive Officer Pursuant to Section 906

32.2			Certification of the Chief Financial Officer Pursuant to Section 906

99.1			NEC TOKIN Financial Statements as of March 31, 2016 and March 21, 2015 and for NEC TOKIN’s fiscal years ended March 31, 2016, 2015 and 2014

101			The following financial information from KEMET Corporation's Annual Report on Form 10-K for the year ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2016, and March 31, 2015, (ii) Consolidated Statements of Income for the years ended March 31, 2016, 2015 and 2014, (iii) Consolidated Statements of Comprehensive Income for the years ended March 31, 2016, 2015 and 2014, (iv) Consolidated Statements of Changes in Stockholders' Equity for the years ended March 31, 2016, 2015 and 2014, (v) Consolidated Statements of Cash Flows for the years ended March 31, 2016, 2015 and 2014 and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text

_______________________________________________________________________________


*	Exhibit is a management contract or a compensatory plan or arrangement.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of KEMET Corporation

We have audited the accompanying consolidated balance sheets of KEMET Corporation and subsidiaries as of March 31, 2016 and 2015 , and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows for the three years in the period ended March 31, 2016 . These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of KEMET Corporation and subsidiaries at March 31, 2016 and 2015 , and the consolidated results of their operations and their cash flows for the three years ended March 31, 2016 , in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), KEMET Corporation's internal control over financial reporting as of March 31, 2016 , based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 24, 2016 expressed an unqualified opinion thereon.



		/s/ Ernst & Young LLP

Greenville, South Carolina

May 24, 2016

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of KEMET Corporation

We have audited KEMET Corporation and subsidiaries' internal control over financial reporting as of March 31, 2016 , based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). KEMET Corporation and subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements' Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

In our opinion, KEMET Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016 , based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of KEMET Corporation and subsidiaries as of March 31, 2016 and 2015 , and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity and cash flows for each of the three years in the period ended March 31, 2016 of KEMET Corporation and subsidiaries and our report dated May 24, 2016 expressed an unqualified opinion thereon.



		/s/ Ernst & Young LLP

Greenville, South Carolina

May 24, 2016

KEMET CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands except per share data)



	March 31,
	2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	65,004		$	56,362
Accounts receivable, net	93,168			90,857
Inventories, net	168,879			171,843
Prepaid and other current assets	25,496			41,503
Total current assets	352,547			360,565
Property, plant and equipment, net	241,839			249,641
Goodwill	40,294			35,584
Intangible assets, net	33,301			33,282
Investment in NEC TOKIN	20,334			45,016
Deferred income taxes	8,397			9,774
Other assets	5,832			12,831
Total assets	$	702,544		$	746,693
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	2,000		$	962
Accounts payable	70,981			69,785
Accrued expenses	50,320			60,456
Income taxes payable	453			884
Total current liabilities	123,754			132,087
Long-term debt	388,597			390,409
Other non-current obligations	74,892			57,131
Deferred income taxes	2,820			2,384
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.01, authorized 10,000 shares, none issued	—			—
Common stock, par value $0.01, authorized 175,000 shares, issued 46,508 shares at March 31, 2016 and 2015	465			465
Additional paid-in capital	452,821			461,191
Retained deficit	(299,510		)	(245,881		)
Accumulated other comprehensive income (loss)	(31,425		)	(28,796		)
Treasury stock, at cost (611 and 1,056 shares at March 31, 2016 and 2015, respectively)	(9,870		)	(22,297		)
Total stockholders' equity	112,481			164,682
Total liabilities and stockholders' equity	$	702,544		$	746,693

See accompanying notes to consolidated financial statements.

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KEMET CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Amounts in thousands except per share data)



	Fiscal Years Ended March 31,
	2016			2015			2014
Net sales	$	734,823		$	823,192		$	833,666
Operating costs and expenses:
Cost of sales	571,543			663,683			712,925
Selling, general and administrative expenses	101,446			98,533			95,856
Research and development	24,955			25,802			24,466
Restructuring charges	4,178			13,017			14,122
Write down of long-lived assets	—			—			4,476
Net (gain) loss on sales and disposals of assets	375			(221		)	32
Total operating costs and expenses	702,497			800,814			851,877
Operating income (loss)	32,326			22,378			(18,211		)
Other (income) expense:
Interest income	(14		)	(15		)	(195		)
Interest expense	39,605			40,701			40,962
Change in value of NEC TOKIN options	26,300			(2,100		)	(3,111		)
Non-operating (income) expense, net	(2,348		)	(4,082		)	430
Income (loss) from continuing operations before income taxes and equity income (loss) from NEC TOKIN	(31,217		)	(12,126		)	(56,297		)
Income tax expense (benefit)	6,006			5,227			1,482
Income (loss) from continuing operations before equity income (loss) from NEC TOKIN	(37,223		)	(17,353		)	(57,779		)
Equity income (loss) from NEC TOKIN	(16,406		)	(2,169		)	(7,090		)
Income (loss) from continuing operations	(53,629		)	(19,522		)	(64,869		)
Income (loss) from discontinued operations, net of income tax expense (benefit) of $0, $1,976, and $(98), respectively	—			5,379			(3,634		)
Net income (loss)	$	(53,629	)	$	(14,143	)	$	(68,503	)
Net income (loss) per basic share:
Income (loss) from continuing operations	$	(1.17	)	$	(0.43	)	$	(1.44	)
Income (loss) from discontinued operations, net of income tax expense (benefit)	$	—		$	0.12		$	(0.08	)
Net income (loss)	$	(1.17	)	$	(0.31	)	$	(1.52	)
Net income (loss) per diluted share:
Income (loss) from continuing operations	$	(1.17	)	$	(0.43	)	$	(1.44	)
Income (loss) from discontinued operations, net of income tax expense (benefit)	$	—		$	0.12		$	(0.08	)
Net income (loss)	$	(1.17	)	$	(0.31	)	$	(1.52	)
Weighted-average shares outstanding:
Basic	46,004			45,381			45,102
Diluted	46,004			45,381			45,102

See accompanying notes to consolidated financial statements.

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KEMET CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Amounts in thousands)



	Fiscal Years Ended March 31,
	2016			2015			2014
Net income (loss)	$	(53,629	)	$	(14,143	)	$	(68,503	)
Other comprehensive income (loss):
Foreign currency translation gains (losses), net of tax	1,860			(35,467		)	9,797
Defined benefit pension plans, net of tax impact	5,202			(12,977		)	276
Defined benefit post-retirement plan adjustments	(45		)	(305		)	(354		)
Equity interest in investee's other comprehensive income (loss)	(8,276		)	766			771
Foreign exchange contracts	(1,370		)	1,003			—
Other comprehensive income (loss)	(2,629		)	(46,980		)	10,490
Total comprehensive income (loss)	$	(56,258	)	$	(61,123	)	$	(58,013	)

See accompanying notes to consolidated financial statements.

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KEMET CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity

(Amounts in thousands)



	Shares Outstanding	Common Stock		Additional Paid-In Capital			Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders' Equity
Balance at March 31, 2013	44,989	$	465	$	467,096		$	(163,235	)	$	7,694		$	(35,104	)	$	276,916
Net income (loss)	—	—		—			(68,503		)	—			—			(68,503		)
Other comprehensive income (loss)	—	—		—			—			10,490			—			10,490
Issuance of restricted shares	129	—		(3,164		)	—			—			2,986			(178		)
Stock-based compensation	—	—		2,909			—			—			—			2,909
Exercise of stock options	89	—		(1,814		)	—			—			2,064			250
Balance at March 31, 2014	45,207	465		465,027			(231,738		)	18,184			(30,054		)	221,884
Net income (loss)	—	—		—			(14,143		)	—			—			(14,143		)
Other comprehensive income (loss)	—	—		—			—			(46,980		)	—			(46,980		)
Issuance of restricted shares	239	—		(8,238		)	—			—			7,623			(615		)
Stock-based compensation	—	—		4,512			—			—			—			4,512
Exercise of stock options	6	—		(110		)	—			—			134			24
Balance at March 31, 2015	45,452	465		461,191			(245,881		)	(28,796		)	(22,297		)	164,682
Net income (loss)	—	—		—			(53,629		)	—			—			(53,629		)
Other comprehensive income (loss)	—	—		—			—			(2,629		)	—			(2,629		)
Issuance of restricted shares	445	—		(13,144		)	—			—			12,427			(717		)
Stock-based compensation	—	—		4,774			—			—			—			4,774
Exercise of stock options	—	—		—			—			—			—			—
Balance at March 31, 2016	45,897	$	465	$	452,821		$	(299,510	)	$	(31,425	)	$	(9,870	)	$	112,481

See accompanying notes to consolidated financial statements.

Table of Contents

KEMET CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)



	Fiscal Years Ended March 31,
	2016			2015			2014
Sources (uses) of cash and cash equivalents
Operating activities:
Net income (loss)	$	(53,629	)	$	(14,143	)	$	(68,503	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Gain on sale of discontinued operations	—			(5,644		)	—
Net cash provided by (used in) operating activities of discontinued operations	—			(679		)	336
Depreciation and amortization	39,016			40,768			49,527
Non-cash debt and financing costs	859			2,032			3,596
Gain on early extinguishment of debt	—			(1,003		)	—
Equity (income) loss from NEC TOKIN	16,406			2,169			7,090
Change in value of NEC TOKIN options	26,300			(2,100		)	(3,111		)
Net (gain) loss on sales and disposals of assets	375			(221		)	32
Stock-based compensation expense	4,774			4,512			2,909
Non-cash pension and other post-retirement benefits	3,013			2,742			2,642
Deferred income taxes	495			(2,084		)	(6,369		)
Write down of long-lived assets	—			—			4,476
Write down of receivables	24			52			1,484
Other, net	306			(7		)	(521		)
Changes in assets and liabilities:
Accounts receivable	(2,346		)	8,220			(4,618		)
Inventories	3,338			8,559			14,891
Prepaid expenses and other assets	13,588			(8,404		)	3,748
Accounts payable	(5,982		)	(2,879		)	(2,070		)
Accrued income taxes	(382		)	(232		)	252
Other operating liabilities	(13,790		)	(7,256		)	(12,537		)
Net cash provided by (used in) operating activities	32,365			24,402			(6,746		)
Investing activities:
Capital expenditures	(20,469		)	(22,232		)	(32,147		)
Change in restricted cash	1,802			11,509			4,047
Acquisitions, net of cash received	(2,892		)	—			—
Proceeds from sale of discontinued operations	—			9,564			—
Proceeds from sale of assets	971			4,788			2,847
Net cash provided by (used in) investing activities	(20,588		)	3,629			(25,253		)

Table of Contents

Consolidated Statements of Cash Flows (Continued)



	Fiscal Years Ended March 31,
	2016			2015			2014
Financing activities:
Proceeds from revolving line of credit	$	10,000		$	42,340		$	21,000
Payments of revolving line of credit	(9,600		)	(27,342		)	(2,551		)
Deferred acquisition payments	(3,000		)	(19,527		)	(21,977		)
Payment of long-term debt	(481		)	(21,733		)	(3,599		)
Proceeds from exercise of stock options	—			24			250
Purchase of treasury stock	(722		)	(630		)	—
Net cash provided by (used in) financing activities	(3,803		)	(26,868		)	(6,877		)
Net increase (decrease) in cash and cash equivalents	7,974			1,163			(38,876		)
Effect of foreign currency fluctuations on cash	668			(2,730		)	827
Cash and cash equivalents at beginning of fiscal year	56,362			57,929			95,978
Cash and cash equivalents at end of fiscal year	$	65,004		$	56,362		$	57,929
Supplemental Cash Flow Statement Information:
Interest paid, net of capitalized interest	$	39,091		$	39,008		$	38,809
Income taxes paid	$	4,892		$	6,611		$	5,521

See accompanying notes to consolidated financial statements.

Table of Contents

KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1 : Organization and Significant Accounting Policies

Nature of Business and Organization

KEMET Corporation, which together with its subsidiaries is referred to herein as "KEMET" or the "Company" is a leading manufacturer of tantalum capacitors, multilayer ceramic capacitors, film capacitors, electrolytic capacitors, paper capacitors and solid aluminum capacitors. The Company is headquartered in Simpsonville, South Carolina, which is part of the greater Greenville metropolitan area, and has manufacturing plants and distribution centers located in the United States, Mexico, Europe and Asia. Additionally, the Company has wholly-owned foreign subsidiaries which primarily provide sales support for KEMET's products in foreign markets.

KEMET is organized into two business groups: the Solid Capacitor Business Group ("Solid Capacitors") and the Film and Electrolytic Business Group ("Film and Electrolytic"). Each business group is responsible for the operations of certain manufacturing sites as well as related research and development efforts.

Basis of Presentation

Certain amounts for fiscal years 2015 and 2014 have been reclassified to conform to the fiscal year 2016 presentation of the line item "Change in the value of NEC TOKIN options" instead of including the activity within the line item "Non-operating (income) expense, net on the Consolidated Statement of Operations. In addition, certain amounts for fiscal years 2015 and 2014 have been reclassified within the operating section of the Consolidated Statement of Cash Flows to conform to the fiscal year 2016 presentation and the condensed consolidating balance sheet for fiscal year 2015 has been revised to conform with the fiscal year 2016 presentation.

Principles of Consolidation

The accompanying consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investment in entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise control, are accounted for using the equity method and are included as investments in equity interests on the consolidated balance sheets.

Cash Equivalents

Cash equivalents of $0.7 million at March 31, 2016 and 2015 consist of money market accounts with an original term of three months or less. The Company considers all liquid debt instruments with original maturities of three months or less to be cash equivalents.

Restricted Cash

A guarantee was issued by a European bank on behalf of the Company in August 2006 in conjunction with the establishment of a Value-Added Tax registration in The Netherlands. The bank guarantee was in the amount of €1.5 million ( $1.7 million ). An interest-bearing deposit was placed with a European bank for €1.7 million ( $1.8 million ). The deposit was in KEMET's name and KEMET received all interest earned by this deposit. However, the deposit was pledged to the European bank, and the bank could use the money should a valid claim be made. The bank guarantee was discharged by the beneficiary in February 2016 and, subsequently, the €1.7 million ( $1.8 million ) was re-classified and is included in the line item "Cash and cash equivalents" on the Consolidated Balance Sheets at March 31, 2016 . The Company no longer has any restricted cash.

Inventories

Inventories are stated at the lower of cost or market. The carrying value of inventory is reviewed and adjusted based on slow moving and obsolete items, historical shipments, customer forecasts and backlog and technology developments. Inventory costs include material, labor and manufacturing overhead and most inventory costs are determined by the "first-in, first-out" ("FIFO") method. For tool crib, a component of the Company's raw material inventory, cost is determined under the average cost method. The Company has consigned inventory at certain customer locations totaling $8.5 million and $10.8 million at March 31, 2016 and 2015 , respectively.

Table of Contents

KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Organization and Significant Accounting Policies (Continued)

Property, Plant and Equipment

Property and equipment are carried at cost. Depreciation is calculated principally using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful lives of the assets or the terms of the respective leases. Maintenance costs are expensed; expenditures for renewals and improvements are generally capitalized. Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed and any gain or loss is recognized. A long-lived asset classified as held for sale is initially measured and reported at the lower of its carrying amount or fair value less cost to sell. Long-lived assets to be disposed of other than by sale are classified as held and used until the long-lived asset is disposed of. Depreciation expense, including amortization of capital leases, was $36.9 million , $38.7 million and $47.5 million for the fiscal years ended March 31, 2016 , 2015 and 2014 , respectively.

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Reviews are regularly performed to determine whether facts and circumstances exist which indicate the carrying amount of assets may not be recoverable. The Company assesses the recoverability of its assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. If it is determined that the book value of a long-lived asset or asset group is not recoverable, an impairment loss would be calculated equal to the excess of the carrying amount of the long-lived asset over its fair value. The fair value is calculated as the discounted cash flows of the underlying assets or appraisal values. The Company has to make certain assumptions as to the future cash flows to be generated by the underlying assets. Those assumptions include the amount of volume increases, average selling price decreases, anticipated cost reductions, and the estimated remaining useful life of the equipment. Future changes in assumptions may negatively impact future valuations. Fair market value is based on the undiscounted cash flows that the assets will generate over their remaining useful lives or other valuation techniques. In future tests for recoverability, adverse changes in undiscounted cash flow assumptions could result in an impairment of certain long-lived assets that would require a non-cash charge to the Consolidated Statements of Operations and may have a material effect on the Company's financial condition and operating results. See Note 9 " Impairment Charges" for further discussion of property, plant and equipment impairment charges.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets with indefinite useful lives are not amortized but are subject to annual impairment tests during the fourth quarter of each fiscal year and when otherwise warranted. The Company evaluates its goodwill on a reporting unit basis which requires the Company to estimate the fair value of the reporting units based on the future net cash flows expected to be generated. The impairment test involves a comparison of the fair value of each reporting unit, with the corresponding carrying amounts. If the reporting unit's carrying amount exceeds its fair value, then an indication exists that the reporting unit's goodwill and intangible asset with indefinite useful lives may be impaired. The impairment to be recognized is measured by the amount by which the carrying value of the reporting unit's goodwill being measured exceeds its implied fair value. The implied fair value of goodwill is the excess of the fair value of the reporting unit over the sum of the amounts assigned to identified net assets. As a result, the implied fair value of goodwill is generally the residual amount that results from subtracting the value of net assets including all tangible assets and identified intangible assets from the fair value of the reporting unit's fair value. The Company determined the fair value of its reporting units using an income-based, discounted cash flow ("DCF") analysis, and market-based approaches (Guideline Publicly Traded Company Method and Guideline Transaction Method) which examine transactions in the marketplace involving the sale of the stocks of similar publicly owned companies, or the sale of entire companies engaged in operations similar to KEMET. The Company evaluates the value of its other indefinite-lived intangible assets (trademarks) using an income-based, relief from royalty analysis. In addition to the previously described reporting unit valuation techniques, the Company's goodwill and intangible assets with indefinite useful lives impairment assessment also considers the Company's aggregate fair value based upon the value of the Company's outstanding shares of common stock.

The impairment review of goodwill and intangible assets with indefinite useful lives are subjective and involve the use of estimates and assumptions in order to calculate the impairment charges. Estimates of business enterprise fair value use discounted cash flow and other fair value appraisal models and involve making assumptions for future sales trends, market conditions, growth rates, cost reduction initiatives and cash flows for the next several years. Future changes in assumptions may negatively impact future valuations.

Table of Contents

KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Organization and Significant Accounting Policies (Continued)

Equity Method Investment

Investments and ownership interests are accounted for under the equity method of accounting if the Company has the ability to exercise significant influence, but not control, over the entity. Investments accounted for under the equity method are initially recorded at cost, and the difference between the basis of the Company's investment and the underlying equity in the net assets of NEC TOKIN at the investment date, is amortized over the lives of the related assets that gave rise to the difference. The Company's share of earnings or losses under the equity method investments and basis difference amortization is reported in the consolidated statements of operations as "Equity income (loss) from NEC TOKIN." The Company reviews its investments and ownership interests accounted for under the equity method of accounting for impairment whenever events or changes in circumstances indicate a loss in the value of the investment may be other than temporary.

Deferred Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.

Stock-based Compensation

Stock-based compensation for stock options is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model takes into account volatility in the price of the Company's stock, the risk-free interest rate, the estimated life of the equity-based award, the closing market price of the Company's stock on the grant date and the exercise price. The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management judgment. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those options expected to vest. Stock-based compensation cost for restricted stock is measured based on the closing fair market value of the Company's common stock on the date of grant. The Company recognizes stock-based compensation cost for arrangements with cliff vesting as expense ratably on a straight-line basis over the requisite service period. The Company recognizes stock-based compensation cost for arrangements with graded vesting as expense on an accelerated basis over the requisite service period.

Concentrations of Credit and Other Risks

The Company sells to customers globally. Credit evaluations of its customers' financial condition are performed periodically, and the Company generally does not require collateral from its customers. One customer, TTI, Inc., an electronics distributor, accounted for $99.3 million , $124.4 million and $128.4 million of the Company's net sales in fiscal years ended March 31, 2016 , 2015 , and 2014 , respectively. There were no customers' accounts receivable balances exceeding 10% of gross accounts receivable at March 31, 2016 or March 31, 2015 .

Consistent with industry practice, the Company utilizes electronics distributors for a large percentage of its sales. Electronics distributors are an effective means to distribute the products to end-users. For fiscal years ended March 31, 2016 , 2015 , and 2014 , net sales to electronics distributors accounted for 42% , 45% and 45% , respectively, of the Company's total net sales.

Foreign Subsidiaries

Financial statements of certain of the Company's foreign subsidiaries are prepared using the U.S. dollar as their functional currency. Translation of these foreign operations, as well as gains and losses from non-U.S. dollar foreign currency transactions, such as those resulting from the settlement of foreign receivables or payables, are reported in the Consolidated Statements of Operations.

Translation of other foreign operations to U.S. dollars occurs using the current exchange rate for balance sheet accounts and an average exchange rate for results of operations. Such translation gains or losses are recognized as a component of equity in accumulated other comprehensive income ("AOCI").

Table of Contents

KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Organization and Significant Accounting Policies (Continued)

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (losses), currency translation gains (losses), defined benefit plan adjustments including those adjustments which result from changes in net prior service credit and actuarial gains (losses), equity interest in investee's other comprehensive income (loss), and gains (losses) on derivatives held as cash flow hedges, and is presented in the Consolidated Statements of Comprehensive Income (Loss).

The following summary sets forth the components of accumulated other comprehensive income (loss) contained in the stockholders' equity section of the Consolidated Balance Sheets (amounts in thousands):



	Foreign Currency Translation Gains (Losses)			Defined Benefit Post-retirement Plan Adjustments			Defined Benefit Pension Plans (3)			Ownership Share of Equity Method Investees’ Other Comprehensive Income (Loss)			Foreign Exchange Contracts			Net Accumulated Other Comprehensive Income (Loss)
Balance at March 31, 2014	$	23,335		$	1,464		$	(7,386	)	$	771		$	—		$	18,184
Other comprehensive income (loss) before reclassifications (1)	(35,467		)	(119		)	(13,404		)	766			1,003			(47,221		)
Amounts reclassified in (out) of AOCI (1)	—			(186		)	427			—			—			241
Other comprehensive income (loss)	(35,467		)	(305		)	(12,977		)	766			1,003			(46,980		)
Balance at March 31, 2015	(12,132		)	1,159			(20,363		)	1,537			1,003			(28,796		)
Other comprehensive income (loss) before reclassifications (2)	1,860			146			3,865			(8,276		)	2,618			213
Amounts reclassified in (out) of AOCI (2)	—			(191		)	1,337			—			(3,988		)	(2,842		)
Other comprehensive income (loss)	1,860			(45		)	5,202			(8,276		)	(1,370		)	(2,629		)
Balance at March 31, 2016	$	(10,272	)	$	1,114		$	(15,161	)	$	(6,739	)	$	(367	)	$	(31,425	)

_______________________________________________________________________________


(1)	Activity within foreign currency translation gains and defined benefit pension plans are net of a tax benefit of $0.3 million and $0.1 million , respectively.


(2)	Activity within foreign currency translation losses and defined benefit pension plans are net of a tax expense of zero and $0.3 million , respectively.


(3)	Balance is net of a tax benefit of $2.0 million , $2.3 million , and $2.2 million as of March 31, 2016 , March 31, 2015 , and March 31, 2014 , respectively.

Stock Warrant

Concurrent with the consummation of a credit facility in May 2009, the Company issued K Financing, LLC ("K Financing") a warrant (the "Platinum Warrant") to purchase up to 26,848,484 shares of the Company's common stock, subject to certain adjustments, representing approximately 49.9% of the Company's outstanding common stock at the time of issuance on a post-exercise basis. The Platinum Warrant was subsequently transferred to K Equity, LLC ("K Equity"). The Platinum Warrant is exercisable at a purchase price of $1.05 per share. The Platinum Warrant may be exercised in exchange for cash, by means of net settlement of a corresponding portion of amounts owed by the Company under the Revised Amended and Restated Platinum Credit Facility, by cashless exercise to the extent of appreciation in the value of the Company's common stock above the exercise price of the Platinum Warrant, or by combination of the preceding alternatives.

Warrants may be classified as assets or liabilities (derivative accounting), temporary equity, or permanent equity, depending on the terms of the specific warrant agreement. The Platinum Warrant issued to K Financing under the Platinum Credit Facility (as defined below) does not meet the definition of a derivative as it is indexed to the Company's own stock, as such, the Platinum Warrant is classified as a component of equity.

There were 8,416,815 shares subject to the Platinum Warrant as of March 31, 2016 . The Platinum Warrant expires on June 30, 2019.

Table of Contents

KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Organization and Significant Accounting Policies (Continued)

Fair Value Measurement

The Company utilizes three levels of inputs to measure the fair value of (a) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company's consolidated financial statements on a recurring basis (at least annually) and (b) all financial assets and liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The first two inputs are considered observable and the last is considered unobservable. The levels of inputs are as follows:


•	Level 1—Quoted prices in active markets for identical assets or liabilities.


•	Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


•	Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities are measured at fair value on a recurring basis as of March 31, 2016 and 2015 are as follows (amounts in thousands):



	Carrying Value March 31, 2016			Fair Value March 31, 2016			Fair Value Measurement Using
	Carrying Value March 31, 2016			Fair Value March 31, 2016			Level 1			Level 2 (2)			Level 3
Assets and Liabilities:
Money markets (1)	$	738		$	738		$	738		$	—		$	—
Total debt	(390,597		)	(284,261		)	(254,713		)	(29,548		)	—
NEC TOKIN options, net (3)	(20,600		)	(20,600		)	—			—			(20,600		)

	Carrying Value March 31, 2015			Fair Value March 31, 2015			Fair Value Measurement Using
	Carrying Value March 31, 2015			Fair Value March 31, 2015			Level 1			Level 2 (2)			Level 3
Assets and Liabilities:
Money markets (1)	$	738		$	738		$	738		$	—		$	—
Total debt	(391,371		)	(391,283		)	(362,988		)	(28,295		)	—
NEC TOKIN options, net (3)	5,700			5,700			—			—			5,700

_______________________________________________________________________________


(1)	Included in the line item "Cash and cash equivalents" on the Consolidated Balance Sheets.


(2)	The valuation approach used to calculate fair value was a discounted cash flow based on the borrowing rate for each respective debt facility.

(3)

See Note 5 , "Investment in NEC TOKIN," for a description of the NEC TOKIN options. The value of the options is interrelated and depends on the enterprise value of NEC TOKIN Corporation and its EBITDA over the duration of the instruments. Therefore, the options have been valued using option pricing methods in a Monte Carlo simulation. Changes to the Monte Carlo simulation inputs could have a material effect on the value of the NEC TOKIN options.

Table of Contents

KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Organization and Significant Accounting Policies (Continued)

The table below summarizes NEC TOKIN options valuation activity using significant unobservable inputs (Level 3) (amounts in thousand):



March 31, 2014	$	3,600
Change in value of NEC TOKIN options	2,100
March 31, 2015	$	5,700
Change in value of NEC TOKIN options	(26,300		)
March 31, 2016	$	(20,600	)

Revenue Recognition

The Company ships products to customers based upon firm orders and revenue is recognized when the sales process is complete. This occurs when products are shipped to the customer in accordance with the terms of an agreement of sale, there is a fixed or determinable selling price, title and risk of loss have been transferred and collectability is reasonably assured. Based on product availability, customer requirements and customer consent, KEMET may ship products earlier than the initial planned ship date. Shipping and handling costs are included in cost of sales.

A portion of sales is related to products designed to meet customer specific requirements. These products typically have stricter tolerances making them useful to the specific customer requesting the product and to customers with similar or less stringent requirements. The Company recognizes revenue when title to the products transfers to the customer.

A portion of sales is made to distributors under agreements allowing certain rights of return and price protection on unsold merchandise held by distributors. The Company's distributor policy includes inventory price protection and "ship-from-stock and debit" ("SFSD") programs common in the industry.

Most of the Company's distributors have the right to return to KEMET a certain portion of the purchased inventory, which, in general, does not exceed 6% of their purchases from the previous fiscal quarter. KEMET estimates future returns based on historical patterns of the distributors and records an allowance on the Consolidated Balance Sheets. The Company also offers volume-based rebates on a case-by-case basis to certain customers in each of the Company's sales channels.

The establishment of sales allowances is recognized as a component of the line item "Net sales" on the Consolidated Statements of Operations, while the associated reserves are included in the line item "Accounts receivable, net" on the Consolidated Balance Sheets. Estimates used in determining sales allowances are subject to various factors. This includes, but is not limited to, changes in economic conditions, pricing changes, product demand, inventory levels in the supply chain, the effects of technological change, and other variables that might result in changes to the Company's estimates.

The Company provides a limited warranty to customers that the Company's products meet certain specifications. The warranty period is generally limited to one year , and the Company's liability under the warranty is generally limited to a replacement of the product or refund of the purchase price of the product. Warranty costs were less than 1% of net sales for the fiscal years ended March 31, 2016 , 2015 and 2014 . The Company recognizes warranty costs when losses are both probable and reasonably estimable.

Allowance for Doubtful Accounts

The Company evaluates the collectability of trade receivables through the analysis of customer accounts. When the Company becomes aware that a specific customer has filed for bankruptcy, has begun closing or liquidation proceedings, has become insolvent or is in financial distress, the Company records a specific allowance for the doubtful account to reduce the related receivable to the amount the Company believes is collectible. If circumstances related to specific customers change, the

Table of Contents

KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Organization and Significant Accounting Policies (Continued)

Company's estimates of the recoverability of receivables could be adjusted. Accounts are written off after all means of collection, including legal action, have been exhausted.

Shipping and Handling Costs

The Company's shipping and handling costs are reflected in the line item "Cost of sales" on the Consolidated Statements of Operations. Shipping and handling costs were $16.1 million , $17.9 million , and $19.9 million in the fiscal years ended March 31, 2016 , 2015 and 2014 , respectively.

Income (Loss) per Share

Basic income (loss) per share is computed using the weighted-average number of shares outstanding. Diluted income (loss) per share is computed using the weighted-average number of shares outstanding adjusted for the incremental shares attributed to the Platinum Warrant, outstanding options to purchase common stock if such effects are dilutive.

Environmental Cost

The Company recognizes liabilities for environmental remediation when it is probable that a liability has been incurred and can be reasonably estimated. The Company determines its liability on a site-by-site basis, and it is not discounted or reduced for anticipated recoveries from insurance carriers. In the event of anticipated insurance recoveries, such amounts would be presented on a gross basis in other current or non-current assets, as appropriate. Expenditures that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized.

Derivative Financial Instruments

Derivative financial instruments have been utilized by the Company to reduce exposures to volatility of foreign currencies impacting the sales and costs of its products.

The Company accounts for derivatives and hedging activities in accordance with Accounting Standards Codification 815 ("ASC 815"), "Derivatives and Hedging." See Note 13 for further discussion of derivative financial instruments.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make a number of estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, they affect the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include impairment of property and equipment, intangibles and goodwill; allowances for doubtful accounts, price protection and customers' returns, and deferred income taxes; and assets and obligations related to employee benefits. Actual results could differ from these estimates and assumptions.

Impact of Recently Issued Accounting Standards

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, Compensation-Stock Compensation. This guidance changes several aspects of the accounting for share-based payment award transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits and Deficiencies, (2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow Classification. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016. Early application is permitted, KEMET adopted ASU No. 2016-09 as of April 1, 2016. This new guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Organization and Significant Accounting Policies (Continued)

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes . The Company has adopted the provisions of ASU No. 2015-17 which requires deferred tax liabilities and assets be classified as either a noncurrent asset or noncurrent liability in the accompanying balance sheet. Prior to the issuance of this ASU, an entity would present deferred taxes as a net current asset or liability and a net noncurrent asset or liability. The new accounting guidance simplifies financial reporting by reducing the presentation of deferred taxes into a single line and reduces complexities in determining when the recognized deferred tax amounts are expected to be recovered or settled. The balance sheet as of March 31, 2015 has been adjusted to reflect retrospective application of the new accounting guidance as follows:



	As Previously Reported	Retrospective Adjustment		As Adjusted
Assets
Deferred income taxes (current)	10,762	(10,762	)	—
Total current assets	371,327	(10,762	)	360,565
Deferred income taxes (non-current)	5,111	4,663		9,774
Total assets	752,792	(6,099	)	746,693
Income taxes payable and deferred income taxes (current)	1,017	(133	)	884
Total current liabilities	132,220	(133	)	132,087
Deferred income taxes (non-current)	8,350	(5,966	)	2,384
Total liabilities and stockholders' equity	752,792	(6,099	)	746,693

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The ASU specifies that debt issuance costs related to a note shall be reported in the balance sheet as a direct reduction from the face amount of the note. The ASU is effective for the Company for interim and annual periods beginning April 1, 2016. Early adoption is permitted. The ASU will require the Company to reclassify its capitalized debt issuance costs currently recorded as assets on the consolidated condensed balance sheets. The ASU will have no effect on the Company's results of operations or liquidity.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Organization and Significant Accounting Policies (Continued)

modified retrospective approach to adoption. The Company is currently evaluating the potential impact on its Consolidated Financial Statements and related disclosures, as well as the available transition methods. Early adoption is permitted, but not before Company's fiscal year that begins on April 1, 2017 (the original effective date of the ASU). We are currently in the process of assessing the impact the adoption of this guidance will have on our consolidated financial statements.

There are currently no other accounting standards that have been issued that may have a significant impact on the Company's Consolidated Financial Statements.

Note 2 : Debt

A summary of debt is as follows (amounts in thousands):



	March 31,
	2016			2015
10.5% Senior Notes, net of premium of $1,716 and $2,461 as of March 31, 2016 and 2015, respectively	$	356,716		$	357,461
Revolving line of credit	33,881			33,481
Other	—			429
Total debt	390,597			391,371
Current maturities	(2,000		)	(962		)
Total long-term debt	$	388,597		$	390,409

The line item "Interest expense" on the Consolidated Statements of Operations for the fiscal years 2016 , 2015 and 2014 , respectively, is as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
Contractual interest expense	$	39,087		$	38,953		$	38,918
Capitalized interest	(509		)	(237		)	(1,552		)
Amortization of debt issuance costs	1,392			1,480			1,704
Amortization of debt (premium) discount	(745		)	(407		)	105
Imputed interest on acquisition related obligations	212			741			1,787
Interest expense on capital leases	168			171			—
Total interest expense	$	39,605		$	40,701		$	40,962

Revolving Line of Credit

On September 30, 2010, KEMET Electronics Corporation ("KEC") and KEMET Electronics Marketing (S) Pte Ltd. ("KEMET Singapore") (each a "Borrower" and, collectively, the "Borrowers") entered into a Loan and Security Agreement (the "Loan and Security Agreement"), with Bank of America, N.A, as the administrative agent and the initial lender. The Loan and Security Agreement provides a $50.0 million revolving line of credit, which is bifurcated into a U.S. facility (for which KEC is the Borrower) and a Singapore facility (for which KEMET Singapore is the Borrower). A portion of the U.S. facility and the Singapore facility can be used to issue letters of credit. On December 19, 2014, the Loan and Security Agreement was amended and as a result the expiration was extended to December 19, 2019. Under the terms of amended Loan and Security Agreement, the revolving credit facility has increased to $60.0 million , bifurcated into a U.S. facility (for which KEC is the Borrower) and a Singapore facility (for which KEMET Singapore is the Borrower). The amendment contains an accordion feature permitting the U.S. Borrowers to increase commitments under the facility by an aggregate principal amount up to $15.0 million (for a total facility of $75.0 million ), subject to terms and documentation acceptable to the Agent and/or the Lenders. In addition, KEMET Foil Manufacturing, LLC ("KEMET Foil"), KEMET Blue Powder Corporation (“KEMET Blue Powder”) and The Forest Electric Company were included as Borrowers under the U.S. facility. The principal features of the Loan and Security Agreement as amended are reflected in the description below.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 2: Debt (continued)

The size of the U.S. facility and Singapore facility can fluctuate as long as the Singapore facility does not exceed $30.0 million and the total facility does not exceed $60.0 million .

Borrowings under the U.S. and Singapore facilities are subject to a borrowing base consisting of:

•


•	in the case of the Singapore facility, (A) 85% of KEMET Singapore's accounts receivable that satisfy certain eligibility criteria as further specified in the Loan and Security Agreement, less (B) certain reserves, including certain reserves imposed by the administrative agent in its permitted discretion.

The base rate is subject to a floor that is 100 basis points above LIBOR.

An unused line fee is payable monthly in an amount equal to a per annum rate equal to (a) 0.50% , if the average daily balance of revolver loans and stated amount of letters of credit was 50% or less of the revolver commitments during the preceding calendar month, or (b) 0.375% , if the average daily balance of revolver loans and stated amount of letters of credit was more than 50% of the Revolver Commitment during the preceding calendar month. A customary fee is also payable to the administrative agent on a quarterly basis.

KEC's ability to draw funds under the U.S. facility and KEMET Singapore's ability to draw funds under the Singapore facility are conditioned upon, among other matters:


•	the absence of the existence of a Material Adverse Effect (as defined in the Loan and Security Agreement);


•	the absence of the existence of a default or an event of default under the Loan and Security Agreement; and


•	the representations and warranties made by KEC and KEMET Singapore in the Loan and Security Agreement continuing to be correct in all material respects.

KEMET and the Company's 100% owned domestic subsidiaries ("Guarantor Subsidiaries") guarantee the U.S. facility obligations and the U.S. facility obligations are secured by a lien on substantially all of the assets of KEC and the Guarantor Subsidiaries (other than assets that secure the 10.5% Senior Notes due 2018). The collection accounts of the Borrowers and Guarantor Subsidiaries are subject to a daily sweep into a concentration account and the concentration account will become subject to full cash dominion in favor of the administrative agent (i) upon an event of default, (ii) if for five consecutive business days, aggregate availability of all facilities has been less than the greater of (A) 12.5% of the aggregate revolver commitments at such time and (B) $7.5 million , or (iii) if for five consecutive business days, availability of the U.S. facility has been less than $3.75 million (each such event, a "Cash Dominion Trigger Event").

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 2: Debt (continued)

A fixed charge coverage ratio of at least 1.0 :1.0 must be maintained as of the last day of each fiscal quarter ending immediately prior to or during any period in which any of the following occurs and is continuing until none of the following occurs for a period of at least forty-five consecutive days: (i) an event of default, (ii) aggregate availability of all facilities has been less than the greater of (A) 12.5% of the aggregate revolver commitments at such time and (B) $7.5 million , or (iii) availability of the U.S. facility has been less than $3.75 million . The fixed charge coverage ratio tests the EBITDA and fixed charges of KEMET and its subsidiaries on a consolidated basis.

Debt issuance costs related to the Loan and Security Agreement, net of amortization, were $0.2 million and $0.3 million as of March 31, 2016 and 2015 , respectively; these costs will be amortized over the term of the Loan and Security Agreement.

The Company had the following activity for the twelve month period ended March 31, 2016 and resulting balances under the revolving line of credit (amounts in thousands, excluding percentages):



	March 31, 2015		Twelve Month Period Ended March 31, 2016				March 31, 2016
	Outstanding Borrowings		Additional Borrowings		Repayments		Outstanding Borrowings		Rate (1) (2)		Due Date
U.S. Facility	$	21,481	$	8,000	$	9,600	$	19,881	4.750	%	December 19, 2019
Singapore Facility
Singapore Borrowing 1 (3)	12,000		—		—		12,000		3.250	%	August 22, 2016
Singapore Borrowing 2 (3)	—		2,000		—		2,000		3.250	%	July 11, 2016
Total Facilities	$	33,481	$	10,000	$	9,600	$	33,881

______________________________________________________________________________

(1) For U.S. borrowings, Base Rate plus 1.5% , as defined in the Loan and Security Agreement.

(2) For Singapore borrowings, LIBOR, plus a spread of 2.50% as of March 31, 2016 .

(3) The Company has the intent and ability to extend the due date on the Singapore borrowings beyond one year.

These were the only borrowings under the revolving line of credit, and the Company's available borrowing capacity under the Loan and Security Agreement was $25.6 million as of March 31, 2016 . The borrowing capacity has increased from the prior year due to an improvement in the fixed charged coverage ratio and and increase in the eligible account receivable collateral.

10.5% Senior Notes

On May 5, 2010, the Company issued 10.5% Senior Notes with an aggregate principal amount of $230.0 million which resulted in net proceeds to the Company of $222.2 million .

The 10.5% Senior Notes were issued pursuant to an Indenture (the " 10.5% Senior Notes Indenture"), dated as of May 5, 2010, as amended, by and among the Company, Guarantor Subsidiaries and Wilmington Trust Company, as trustee (the "Trustee"). The 10.5% Senior Notes will mature on May 1, 2018, and bear interest at a stated rate of 10.5% per annum, payable semi-annually in cash in arrears on May 1 and November 1 of each year, beginning on November 1, 2010. The 10.5% Senior

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 2: Debt (continued)

Notes are senior obligations of the Company and will be guaranteed by each of the Guarantor Subsidiaries and secured by a first priority lien on 51% of the capital stock of certain of the Company's foreign restricted subsidiaries.

The terms of the 10.5% Senior Notes Indenture, among other things, limit the ability of the Company and its restricted subsidiaries to (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, their capital stock or repurchase their capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create liens or use assets as security in other transactions; (vi) enter into sale and leaseback transactions; (vii) merge, consolidate or transfer or dispose of substantially all of their assets; (viii) engage in certain transactions with affiliates; and (ix) designate their subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of important limitations and exceptions that are described in the 10.5% Senior Notes Indenture. The Company is in compliance with these debt covenants.

At any time, at its option, the Company may redeem the 10.5% Senior Notes, in whole or in part, at the redemption price of 100% of the Principal amount. The Company may also at any time and from time to time purchase 10.5% Senior Notes in the open market, subject to compliance with the Indenture.

Upon the occurrence of a change of control triggering event specified in the 10.5% Senior Notes Indenture, the Company must offer to purchase the 10.5% Senior Notes at a redemption price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase.

The 10.5% Senior Notes Indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include nonpayment, breach of covenants in the 10.5% Senior Notes Indenture, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and insolvency. The 10.5% Senior Notes Indenture also provides for events of default with respect to the collateral, which include default in the performance of (or repudiation, disaffirmation or judgment of unenforceability or assertion of unenforceability) by the Company or a Guarantor with respect to the provision of security documents under the 10.5% Senior Notes Indenture. These events of default are subject to a number of important qualifications, limitations and exceptions that are described in the 10.5% Senior Notes Indenture. Generally, if an event of default occurs, the Trustee or holders of at least 25% in principal amount of the then outstanding 10.5% Senior Notes may declare the principal of and accrued but unpaid interest, including additional interest, on all the 10.5% Senior Notes to be due and payable.

On March 27, 2012 and April 3, 2012, the Company completed the issuance of $110.0 million and $15.0 million aggregate principal amount of its 10.5% Senior Notes due May 1, 2018, respectively, at an issue price of 105.5% of the principal amount plus accrued interest from November 1, 2011. The issuance resulted in a debt premium of $6.1 million which will be amortized over the term of the 10.5% Senior Notes. The Senior Notes were issued as additional notes under the indenture, dated May 5, 2010, among the Company, the Guarantor Subsidiaries party thereto and Wilmington Trust Company, as trustee.

In total, debt issuance costs related to the 10.5% Senior Notes, net of amortization, were $2.8 million and $4.1 million as of March 31, 2016 and 2015 ; these costs will be amortized over the term of the 10.5% Senior Notes. The Company had interest payable related to the 10.5% Senior Notes included in the line item "Accrued expenses" on its Consolidated Balance Sheets of $15.5 million at March 31, 2016 and 2015 . The effective interest rate for the Senior Notes was 10.3% for the years ended March 31, 2016 and 2015 .

The following table highlights the Company's annual cash maturities of debt (amounts in thousands):



	Annual Maturities of Debt Fiscal Years Ended March 31,
	2017		2018		2019		2020		2021		Thereafter
10.5% Senior Notes	$	2,000	$	—	$	353,000	$	—	$	—	$	—
Revolving line of credit	—		—		—		33,881		—		—
	$	2,000	$	—	$	353,000	$	33,881	$	—	$	—

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 3 : Restructuring

In the second quarter of fiscal year 2010, the Company initiated the first phase of a plan to restructure the Film and Electrolytic Business Group ("Film and Electrolytic") and to reduce overhead within the Company. Since that time, the restructuring plan has been expanded to all business groups and includes implementing programs to make the Company more competitive by removing excess capacity, relocating production to lower cost locations, and eliminating unnecessary costs throughout the Company.

A summary of the expenses aggregated on the Consolidated Statements of Operations line item "Restructuring charges" in the fiscal years ended March 31, 2016 , 2015 and 2014 , is as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016		2015		2014
Manufacturing and sales office relocation costs	$	2,375	$	2,672	$	3,555
Personnel reduction costs	1,803		10,345		10,567
Restructuring charges	$	4,178	$	13,017	$	14,122

Fiscal Year Ended March 31, 2016

The Company incurred $4.2 million in restructuring charges in the fiscal year ended March 31, 2016 including $1.8 million of personnel reduction costs and $2.4 million of relocation costs.

The personnel reduction costs correspond with the following: $0.9 million for headcount reductions in Matamoros, Mexico related to the relocation of certain Solid Capacitor manufacturing from Matamoros, Mexico to Victoria, Mexico, $0.6 million related to a headcount reduction in Suzhou, China for the Film & Electrolytic production line transfer from Suzhou, China to Anting, China, $0.5 million related to the consolidation of certain Solid Capacitor manufacturing in Victoria, Mexico, $0.5 million for headcount reductions related to the outsourcing of the Company's information technology function and overhead reductions in North America and Europe, and $0.3 million for headcount reductions in Europe (primarily Landsberg, Germany). These personnel reduction costs were partially offset by a $1.0 million credit to expense in Italy due to the partial reversal of a severance accrual. The Company originally recorded the accrual in the third quarter of fiscal year 2015 corresponding with a plan to reduce headcount by 50 employees. Under the plan, 24 employees were terminated. However, due to unexpected workforce attrition combined with achieving other cost reduction goals, the Company decided not to complete the remaining headcount reduction. Consequently, the Company reversed the remaining accrual during the second quarter of fiscal year 2016.

Fiscal Year Ended March 31, 2015

The Company incurred $13.0 million in restructuring charges in the fiscal year ended March 31, 2015 including $10.3 million related to personnel reduction costs which is primarily comprised of the following: $4.1 million related to headcount reductions in Europe (primarily Landsberg, Germany) as the Company relocates production to lower cost regions; $3.2 million is related to a headcount reduction of 50 employees due to the consolidation of manufacturing facilities in Italy; $1.9 million related to the reduction of certain Solid Capacitor production workforce from Matamoros, Mexico to Victoria, Mexico; and $1.1 million related to headcount reductions taken as the Company begins to outsource its information technology function.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 3: Restructuring (Continued)

Fiscal Year Ended March 31, 2014

The Company incurred $14.1 million in restructuring charges in the fiscal year ended March 31, 2014 including personnel reduction costs of $10.6 million and manufacturing relocation costs of $3.6 million . The personnel reduction costs are comprised of the following: $1.9 million related to the closure of a portion of our innovation center in the U.S.; $1.2 million related to the reduction of the Solid Capacitor production workforce in Mexico; $1.1 million related to the Company’s initiative to reduce overhead; $0.5 million in termination benefits associated with converting the Weymouth, United Kingdom manufacturing facility into a technology center; $4.5 million related to headcount reductions of 126 employees in Evora, Portugal due to the relocation of certain Solid Capacitors manufacturing operations to Mexico; $0.9 million is related to a headcount reduction of 31 employees due to the consolidation of manufacturing facilities in Italy and $0.4 million related to an additional Cassia Integrazione Guadagni Straordinaria (“CIGS”) plan in Italy.

The additional expense related to CIGS is as a result of an agreement with the labor union which allowed the Company to place up to 170 workers, on a rotation basis, on the CIGS plan to save labor costs. CIGS is a temporary plan to save labor costs whereby a company may temporarily “lay off” employees while the government continues to pay their wages for a maximum of 12 months during the program. The employees who are in CIGS are not working, but are still employed by the Company. Only employees that are not classified as management or executive level personnel can participate in the CIGS program and upon termination of the plan, the affected employees return to work.

In addition to these personnel reduction costs, the Company incurred manufacturing relocation costs of $3.6 million due to the consolidation of Film and Electrolytic manufacturing facilities within Italy and relocation of Film and Electrolytic manufacturing equipment to Evora, Portugal and Skopje, Macedonia and Solid Capacitors manufacturing equipment to Mexico.

A reconciliation of the beginning and ending liability balances for restructuring charges included in the line items "Accrued expenses" and "Other non-current obligations" on the Consolidated Balance Sheets were as follows (amounts in thousands):



	Personnel Reductions			Manufacturing and Sales Office Relocation Costs
Balance at March 31, 2013	$	13,509		$	567
Costs charged to expense	10,567			3,555
Costs paid or settled	(18,235		)	(4,122		)
Change in foreign exchange	376			—
Balance at March 31, 2014	6,217			—
Costs charged to expense	10,345			2,672
Costs paid or settled	(7,995		)	(2,672		)
Change in foreign exchange	(1,328		)	—
Balance at March 31, 2015	7,239			—
Costs charged to expense	1,803			2,375
Costs paid or settled	(8,273		)	(2,375		)
Change in foreign exchange	207			—
Balance at March 31, 2016	$	976		$	—

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 4 : Goodwill and Intangible Assets

The following table highlights the Company's intangible assets (amounts in thousands):



	March 31, 2016				March 31, 2015
	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Indefinite Lived Intangible Assets:
Trademarks	$	7,207	$	—	$	7,207	$	—
Amortizing Intangibles:
Purchased technology, customer relationships and patents (3 - 18 years)	43,089		16,995		40,489		14,414
	$	50,296	$	16,995	$	47,696	$	14,414

For fiscal years ended March 31, 2016 , 2015 and 2014 amortization related to intangibles was $2.2 million , $2.1 million and $2.1 million , respectively. The weighted-average useful life of amortized intangibles was 16.6 years in the fiscal years ended March 31, 2016 and 16 years in the fiscal year ended March 31, 2015 . The weighted-average period prior to the next renewal for patents was 1.5 years and 2.5 years in the fiscal years ended March 31, 2016 and March 31, 2015 , respectively. Estimated amortization of intangible assets for each of the next five fiscal years is $2.2 million and, thereafter, amortization will total $15.1 million .

For fiscal year 2016 , the Company completed its impairment test on goodwill and intangible assets with indefinite useful lives as of January 1, 2016 and concluded that goodwill and indefinite-lived assets were not impaired.

The changes in the carrying amount of goodwill for the years ended March 31, 2016 and 2015 are as follows (amounts in thousands):



	Fiscal Year 2016							Fiscal Year 2015
	Solid Capacitors		Film and Electrolytic			Corporate (1)		Solid Capacitors		Film and Electrolytic
Gross balance at beginning of fiscal year
Goodwill	$	35,584	$	1,092		$	—	$	35,584	$	1,092
Accumulated impairment losses	—		(1,092		)	—		—		(1,092		)
Net balance at the end of the year	$	35,584	$	—		$	—	$	35,584	$	—

Acquisitions	$	—	$	—		$	4,710	$	—	$	—
Impairment charges	$	—	$	—		$	—	$	—	$	—
Balance at the end of the year
Goodwill	$	35,584	$	1,092		$	4,710	$	35,584	$	1,092
Accumulated impairment losses	—		(1,092		)	—		—		(1,092		)
Balance at the end of the year, net	$	35,584	$	—		$	4,710	$	35,584	$	—

(1) Corporate goodwill established as a result of the IntelliData acquisition on April 1, 2015.

Note 5 : Investment in NEC TOKIN

On March 12, 2012, KEC, a wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with NEC TOKIN Corporation ("NEC TOKIN"), a manufacturer of tantalum capacitors, electro-magnetic, electro-mechanical and access devices, to acquire 51% of the common stock of NEC TOKIN (which represented a 34% economic interest, as calculated based on the number of common shares held by KEC, directly and indirectly, in proportion to the aggregate number of outstanding common and convertible preferred shares of NEC TOKIN as of such date) (the "Initial Purchase") from NEC Corporation ("NEC") of Japan. The transaction closed on February 1, 2013, at which time KEC paid a purchase price of $50.0 million for new shares of common stock of NEC TOKIN (the "Initial Closing"). The

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Investment in NEC TOKIN (Continued)

Company accounts for its investment in NEC TOKIN using the equity method for a non-consolidated variable interest entity since KEC does not have the power to direct significant activities of NEC TOKIN. The Company believes that the NEC TOKIN convertible preferred stock represents in-substance common stock of NEC TOKIN and, as a result, its method of calculating KEC’s economic basis in NEC TOKIN is the appropriate basis on which to recognize its share of the earnings or loss of NEC TOKIN.

In connection with KEC's execution of the Stock Purchase Agreement, KEC entered into a Stockholders' Agreement (the "Stockholders' Agreement") with NEC TOKIN and NEC, which provides for restrictions on transfers of NEC TOKIN's capital stock, certain tag-along and first refusal rights on transfer, restrictions on NEC's ability to convert the preferred stock of NEC TOKIN held by it, certain management services to be provided to NEC TOKIN by KEC (or an affiliate of KEC) and certain board representation rights. KEC holds four of seven NEC TOKIN director positions. However, NEC has significant board rights.

Concurrent with execution of the Stock Purchase Agreement and the Stockholders' Agreement, KEC entered into an Option Agreement (the “Option Agreement”) with NEC, which was amended on August 29, 2014, whereby KEC had the right to purchase additional shares of NEC TOKIN common stock from NEC TOKIN for a purchase price of $50.0 million resulting in an economic interest of approximately 49% while maintaining ownership of 51% of NEC TOKIN's common stock (the "First Call Option") by providing notice of the First Call Option between the Initial Closing and April 30, 2015. Upon providing such First Call Option notice, but not before April 1, 2015, KEC could also have exercised a second option to purchase all outstanding capital stock of NEC TOKIN from its stockholders, primarily NEC, for a purchase price based on the greater of six times LTM EBITDA (as defined in the Option Agreement) less the previous payments and certain other adjustments, or the outstanding amount of NEC TOKIN's debt obligation to NEC (the "Second Call Option") by providing notice of the Second Call Option by May 31, 2018. The First and Second Call Options expired on April 30, 2015 without being exercised.

From April 1, 2015 through May 31, 2018, NEC may require KEC to purchase all outstanding capital stock of NEC TOKIN from its stockholders, primarily NEC (the "Put Option"), provided that KEC's payment of the Put Option price is permitted under the 10.5% Senior Notes and Loan and Security Agreement. However, in the event that KEC issues new debt securities principally to refinance its outstanding 10.5% senior notes due 2018 and its currently outstanding credit agreement, including amounts to pay related fees and expenses and to use for general corporate purposes (“Refinancing Notes”), prior to NEC’s delivery of its notification of exercise of the Put Option, then the earliest date NEC may exercise the Put Option is automatically extended to the day immediately following the final scheduled maturity date of such Refinancing Notes, or in the event such Refinancing Notes are redeemed in full prior to such final scheduled maturity date, then on the day immediately following the date of such full redemption, but in any event beginning no later than November 1, 2019. If not previously exercised, the Put Option will expire on October 31, 2023.

The purchase price for the Put Option will be based on the greater of six times LTM EBITDA less previous payments and certain other adjustments, or the outstanding amount of NEC TOKIN's debt obligation to NEC as of the date the Put Option is exercised. The purchase price for the Put Option is reduced by the amount of NEC TOKIN's debt obligation to NEC which KEC will assume. The determination of the purchase price could be modified in the event there is a disagreement between NEC and KEC under the Stockholders' Agreement.

The Company has marked these options to fair value and in the fiscal year ended March 31, 2016 , 2015 and 2014 recognized a $26.3 million loss, $2.1 million gain, and $3.1 million gain respectively, which was included on the line item “Change in value of the NEC TOKIN options” in the Consolidated Statement of Operations. The line item "Other non-current obligations" on the Consolidated Balance Sheets includes $20.6 million as of March 31, 2016 and the line item “Other assets” on the Consolidated Balance Sheets includes $5.7 million as of March 31, 2015 related to the options.

KEC's total investment in NEC TOKIN including the net call forward contract described above on February 1, 2013 was $54.5 million which includes $50.0 million cash consideration plus approximately $4.5 million in transaction expenses (fees for legal, accounting, due diligence, investment banking and other various services necessary to complete the transactions). The Company has made an allocation of the aggregate purchase price, which were based upon estimates that the Company believes are reasonable.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Investment in NEC TOKIN (Continued)

Summarized financial information for NEC TOKIN follows (in thousands):



	March 31, 2016		March 31, 2015
Current assets	$	240,427	$	223,495
Noncurrent assets	260,614		273,785
Current liabilities	179,360		143,523
Noncurrent liabilities	335,500		296,873



	Fiscal Year March 31, 2016			Fiscal Year March 31, 2015			Fiscal Year March 31, 2014
Net sales	$	458,032		$	487,282		$	490,369
Gross profit	98,709			103,773			86,227
Net income (loss)	(42,995		)	(24,091		)	(42,937		)

A reconciliation between NEC TOKIN's net loss and KEMET's equity investment loss follows (in thousands):



	Fiscal Year March 31, 2016			Fiscal Year March 31, 2015			Fiscal Year March 31, 2014
NEC TOKIN net income (loss)	$	(42,995	)	$	(24,091	)	$	(42,937	)
KEMET's equity ownership %	34		%	34		%	34		%
Equity income (loss) from NEC TOKIN before Adjustments	$	(14,618	)	$	(8,191	)	$	(14,599	)

Adjustments:
Amortization and depreciation	(1,625		)	(2,270		)	(1,390		)
Gain on sale of long-lived assets adjustment	—			—			(5,998		)
Loss on impairment of long-lived assets adjustment	—			—			14,643
Inventory valuation adjustment	—			—			254
Indemnity asset	—			8,500			—
Inventory profit elimination	(163		)	(208		)	—
Equity income (loss) from NEC TOKIN	$	(16,406	)	$	(2,169	)	$	(7,090	)

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Investment in NEC TOKIN (Continued)

A reconciliation between NEC TOKIN's net assets and KEMET's equity investment balance follows (amounts in thousands):



	March 31, 2016			March 31, 2015
Investment in NEC TOKIN	$	20,334		$	45,016
Purchase price accounting basis adjustment:
Property, plant and equipment (1)	3,365			3,334
Technology (1)	(10,134		)	(10,889		)
Long-term debt (1)	(1,975		)	(2,707		)
Goodwill	(7,555		)	(7,082		)
Indemnity asset for legal investigation	(8,500		)	(8,500		)
Inventory profit elimination (2)	371			208
Other	(604		)	(39		)
KEMET's 34% interest of NEC TOKIN's equity	$	(4,698	)	$	19,341

(1) Depreciated or amortized over the estimated lives.

(2) Adjusted each period for any activity.

As of March 31, 2016 , KEC’s maximum loss exposure as a result of its investments in NEC TOKIN is limited to the aggregate of the carrying value of the investment, any accounts receivable balance due from NEC TOKIN and obligations in the Put Option.

Summarized transactions between KEC and NEC TOKIN are as follows (amounts in thousands):



	Twelve Month Periods Ended March 31,
	2016		2015		2014
KEC's sales to NEC TOKIN	$	21,061	$	13,500	$	6,040
NEC TOKIN's sales to KEMET	5,912		3,605		1,789



	March 31, 2016		March 31, 2015
Accounts receivable	$	5,220	$	3,344
Accounts payable	1,019		765
Management service agreement receivable (1)	748		572

(1) In accordance with the Stockholders’ Agreement, KEC entered into a management services agreement with NEC TOKIN to provide services for which KEC is being reimbursed.

Beginning in March 2014, NEC TOKIN and certain of its subsidiaries received inquiries, requests for information and other communications from government authorities in China, the United States, the European Commission, Japan, South Korea, Taiwan, Singapore and Brazil concerning alleged anti-competitive activities within the capacitor industry.

On September 2, 2015, the United States Department of Justice announced a plea agreement with NEC TOKIN in which NEC 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 five years in six installments of $2.3 million each, plus accrued interest. The first payment was made in February 2016.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Investment in NEC TOKIN (Continued)

On December 9, 2015, the Taiwan Fair Trade Commission (“TFTC”) publicly announced that NEC TOKIN would be fined 1,218.2 million New Taiwan dollars ("NTD") (approximately U.S. $37.7 million ) for violations of the Taiwan Fair Trade Act. Subsequently, the TFTC indicated the fine would be reduced to NTD609.1 million (approximately U.S. $18.9 million ). In February, 2016, NEC TOKIN commenced an administrative suit in Taiwan, challenging the validity of the amount of the fine.

On March 29, 2016, the Japan Fair Trade Commission published an order by which NEC TOKIN was fined ¥127.2 million (approximately U.S. $1.1 million ) for violation of the Japanese Antimonopoly Act. Payment of the fine is due by October 31, 2016.

The remaining governmental investigations are continuing at various stages.

On May 2, 2016, NEC TOKIN reached a preliminary settlement in two antitrust suits pending in the United States District Court, Northern District of California as In re: Capacitors Antitrust Litigation , No. 3:14-cv-03264-JD (the “Class Action Suits”). Pursuant to the terms of the settlement, in consideration of the release of NEC TOKIN and its subsidiaries (including NEC TOKIN America, Inc.) from claims asserted in the Class Action Suits, NEC TOKIN will pay an aggregate $37.3 million to a settlement class of direct purchasers of capacitors and a settlement class of indirect purchasers of capacitors. Payments will be made in installments, with the initial installment being due shortly after the execution of the definitive settlement agreement, subsequent payments due each year thereafter for three years, and a final, fifth payment due by December 31, 2019.

Pursuant to the Stock Purchase Agreement, NEC is required to indemnify NEC TOKIN and/or KEC for any breaches by NEC TOKIN or NEC of certain representations, warranties and covenants in the Stock Purchase Agreement. NEC’s aggregate liability for indemnification claims is limited to $25.0 million . Accordingly, KEMET, under equity method accounting, has established an indemnity asset in the amount of $8.5 million (based upon our 34% economic interest in NEC TOKIN). However, pursuant to the Stock Purchase Agreement, claims arising out of fraud or criminal conduct are not limited by the $25.0 million indemnification cap, and for such claims the claimant retains all remedies available in equity or at law.

In the fiscal year ended March 31, 2016 , KEMET incurred a loss of $17.5 million related to NEC TOKIN's antitrust and civil litigation, based upon its 34% economic interest in NEC TOKIN, which is included in the line item "Equity income (loss) from NEC TOKIN" on the Condensed Consolidated Statements of Operations.

As of March 31, 2016 , NEC TOKIN's accrual for antitrust and civil litigation totaled $84.0 million . This amount includes the best estimate of losses which may result from the ongoing antitrust investigations and civil litigation. However, the actual outcomes could differ from what has been accrued.

Note 6 : Segment and Geographic Information

The Company is organized into two business groups: Solid Capacitors and Film and Electrolytic based primarily on product lines. Each business group is responsible for their respective manufacturing operations and research and development efforts. All research and development expenses are direct costs to the respective business group.

Solid Capacitors

Operating in nine manufacturing sites in the United States, Mexico and China, 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 and has a product innovation center in the United States.

Film and Electrolytic

Film and Electrolytic operates ten manufacturing sites throughout Europe, Asia and the United States and produces film, paper, and electrolytic capacitors which are sold globally. In addition, the business group has product innovation centers in the United Kingdom, Italy, Germany and Sweden.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Segment and Geographic Information (Continued)

The following tables summarize information about each segment's net sales, operating income (loss), depreciation and amortization, capital expenditures and total assets (amounts in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
Net sales:
Solid Capacitors	$	556,303		$	621,275		$	626,494
Film and Electrolytic	178,520			201,917			207,172
	$	734,823		$	823,192		$	833,666
Operating income (loss) (1)(2)(3):
Solid Capacitors	$	129,909		$	135,946		$	91,848
Film and Electrolytic	(71		)	(16,685		)	(17,587		)
Corporate	(97,512		)	(96,883		)	(92,472		)
	$	32,326		$	22,378		$	(18,211	)
Depreciation and amortization:
Solid Capacitors	$	21,318		$	21,202		$	28,081
Film and Electrolytic	11,984			13,886			14,557
Corporate	5,714			5,680			6,889
	$	39,016		$	40,768		$	49,527
Capital expenditures:
Solid Capacitors	$	10,098		$	12,552		$	10,498
Film and Electrolytic	5,902			7,752			14,494
Corporate	4,469			1,928			7,155
	$	20,469		$	22,232		$	32,147

_______________________________________________________________________________


(1)	Restructuring charges included in Operating income (loss) were as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016		2015		2014
Total restructuring:
Solid Capacitors	$	1,916	$	3,297	$	8,108
Film and Electrolytic	1,714		8,221		5,657
Corporate	548		1,499		357
	$	4,178	$	13,017	$	14,122


(2)	Impairment charges and write downs included in Operating income (loss) were as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016		2015		2014
Impairment and write down of long-lived assets:
Solid Capacitors	$	—	$	—	$	3,920
Film and Electrolytic	—		—		556
	$	—	$	—	$	4,476

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Segment and Geographic Information (Continued)

(3) (Gain) loss on sales and disposals of assets included in Operating income (loss) were as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
(Gain) loss on sales and disposals of assets:
Solid Capacitors	$	536		$	606		$	(705	)
Film and Electrolytic	(270		)	(1,008		)	767
Corporate	109			181			(30		)
	$	375		$	(221	)	$	32

_______________________________________________________________________________



	March 31,
	2016		2015
Total assets:
Solid Capacitors	$	426,751	$	447,540
Film and Electrolytic	235,493		235,044
Corporate	40,300		64,109
	$	702,544	$	746,693

The following highlights net sales by geographic location (amounts in thousands):



	Fiscal Years Ended March 31,(1)
	2016		2015		2014
United States	$	201,878	$	238,840	$	245,032
Hong Kong	133,117		131,109		135,570
Germany	83,589		107,859		105,261
Europe (2)	57,362		58,879		70,895
China	65,043		65,289		67,460
Asia Pacific (2)	61,414		62,864		51,467
United Kingdom	28,083		32,127		36,085
Netherlands	31,218		38,853		33,581
Singapore	16,260		22,516		27,777
Italy	14,391		19,013		20,249
Hungary	17,766		22,745		18,332
Mexico	23,041		21,164		17,886
Other Countries (2)	1,661		1,934		4,071
	$	734,823	$	823,192	$	833,666

_______________________________________________________________________________

(1)

Revenues are attributed to countries or regions based on the location of the customer. Net Sales to one customer exceeded 10% of total net sales as follows: $99.3 million , $124.4 million and $128.4 million in fiscal years 2016 , 2015 and 2014 , respectively. Solid Capacitor sales to one customer over 10% were $85.3 million , $109.1 million and $115.5 million in fiscal years 2016 , 2015 and 2014 , respectively. Film and Electrolytic sales to one customer over 10% were $14.0 million , $15.3 million and $12.9 million in fiscal years 2016 , 2015 and 2014 , respectively.


(2)	Excluding the specific countries listed in this table, no country included in this caption exceeded 3% of consolidated net sales for fiscal years 2016 , 2015 and 2014 .

_______________________________________________________________________________

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Segment and Geographic Information (Continued)

The following geographic information includes Property, plant and equipment, net, based on physical location (amounts in thousands):



	March 31,
	2016		2015
United States	$	54,658	$	59,754
Mexico	61,859		66,120
Italy	44,699		44,595
China	26,705		29,871
Portugal	23,449		17,352
Macedonia	14,131		13,726
Indonesia	4,556		5,335
Finland	989		1,439
Other (1)	10,793		11,449
	$	241,839	$	249,641


(1)	Excluding the specific countries listed in this table, no country included in this caption exceeded 3% of consolidated Property, plant and equipment net for fiscal years 2016 , 2015 and 2014 .

Note 7 . Discontinued Operations

The Film and Electrolytic business group ("Film and Electrolytic”) completed the sale of its machinery division in April 2014, which resulted in a gain of $5.6 million on the sale of the business (after income tax expense) offset by a loss from machinery operations of $0.3 million during the fiscal year ended March 31, 2015 resulting in net income from discontinued operations of $5.4 million .

Net sales and net operating loss from the Company’s discontinued operation for years ended March 31, 2016 , 2015 and 2014 were as follows (in thousands):



	Fiscal Years Ended March 31,
	2016		2015			2014
Net sales	$	—	$	104		$	11,489
Operating income (loss)	—		(265		)	(3,730		)

Note 8 : Acquisitions

IntelliData

On April 1, 2015, KEMET purchased 100% of the stock of IntelliData, Inc. "IntelliData", a Greenwood Village, Colorado-based developer of digital solutions supporting discovery, decision support, and the sales and marketing of electronic components. IntelliData had been a key vendor of KEMET for over 15 years and had provided critical software and support to allow the Company's sales team and customers to use real-time part number search and competitor cross references based on complex capacitor-specific specifications. The primary reason for the purchase of IntelliData was to gain more control over the direction of future iterations of the software and its functionality and to protect this critical link in the sales process from any potential unfavorable changes in IntelliData's business model in the future. The purchase price was $6.0 million plus an additional $0.1 million per a post-acquisition amendment for a total purchase price of $6.1 million , as amended. KEMET paid $3.0 million at closing, $0.1 million on June 3, 2015, and $3.0 million on January 4, 2016 per the amended agreement. The Company recorded goodwill of $4.7 million and amortizable intangibles of $1.8 million . The allocation of the purchase price to specific assets and liabilities was based on the relative fair value of all assets and liabilities. Factors contributing to the purchase price, which resulted in the goodwill, include the knowledge and expertise of the trained workforce as well as various trademarks. Pro forma results are not presented as the acquisition was not material to the consolidated financial statements.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 8: Acquisitions (Continued)

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



	Fair Value
Cash	$	233
Accounts receivable	10
Other current assets	6
Property, plant and equipment	3
Goodwill	4,710
Intangible assets	1,820
Current liabilities	(9		)
Deferred income taxes	(648		)
Total net assets acquired	$	6,125

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

The useful life of 10 years is based on IntelliData's history with the first major iteration of the underlying technology, including its reliability, performance, and ongoing maintenance requirements. In determining the value of the developed technology, the Company considered any remaining value of the first major iteration of the technology as well as the value of the substantial development work that had already gone into the second major iteration of the technology as of the acquisition date. The second major iteration of the technology is scheduled to be implemented in the second quarter of fiscal year 2017.

Note 9 : Impairment Charges

During fiscal years 2016 and 2015 the Company incurred no impairment charges. During fiscal year 2014 , the Company incurred impairment charges of $4.5 million . The impairment charges are recorded on the Consolidated Statements of Operations line item “Write down of long-lived assets” in fiscal year 2014 .

In fiscal year 2014, Solid Capacitors incurred $3.9 million ( $0.09 per basic and diluted share) in additional impairment charges related to the relocation of certain Solid Capacitor manufacturing operations from the Evora, Portugal facility to a manufacturing facility in Mexico due to a decrease in forecasted revenues related to the accelerated timing of the relocation to Mexico . In addition, during fiscal year 2014, Film and Electrolytic incurred impairment charges totaling $0.6 million ( $0.01 per basic and diluted share) related to manufacturing equipment in Italy.

Note 10 : Pension and Other Post-retirement Benefit Plans

The Company sponsors nine defined benefit pension plans: six in Europe, one in Singapore and two in Mexico. The Company funds the pension liabilities in accordance with laws and regulations applicable to those plans.

In fiscal year 2016, the Company recognized a curtailment gain of $0.7 million due to headcount reductions in Landsberg, Germany corresponding with the relocation of production to lower cost regions.

In addition, the Company maintains two frozen post-retirement benefit plans: health care and life insurance benefits for certain retired United States employees who reached retirement age while working for the Company. The health care plan is contributory, with participants' contributions adjusted annually. The life insurance plan is non-contributory.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 10: Pension and Other Post-retirement Benefit Plans (Continued)

A summary of the changes in benefit obligations and plan assets is as follows (amounts in thousands):



	Pension						Other Benefits
	2016			2015			2016			2015
Change in Benefit Obligation
Benefit obligation at beginning of the year	$	49,342		$	42,715		$	846		$	785
Service cost	1,507			1,286			—			—
Interest cost	1,347			1,819			19			29
Plan participants' contributions	—			—			464			474
Plan amendments	342			1,006			—			—
Actuarial (gain) loss	(4,922		)	13,673			(146		)	118
Foreign currency exchange rate change	221			(9,988		)	—			—
Gross benefits paid	(1,425		)	(1,111		)	(560		)	(560		)
Curtailments and settlements	(696		)	(58		)	—			—
Benefit obligation at end of year	$	45,716		$	49,342		$	623		$	846
Change in Plan Assets
Fair value of plan assets at beginning of year	$	10,483		$	9,946		$	—		$	—
Actual return on plan assets	(46		)	1,737			—			—
Foreign currency exchange rate changes	(242		)	(1,353		)	—			—
Employer contributions	1,528			1,303			96			86
Settlements	(30		)	(39		)	—			—
Plan participants' contributions	—			—			464			474
Gross benefits paid	(1,425		)	(1,111		)	(560		)	(560		)
Fair value of plan assets at end of year	$	10,268		$	10,483		$	—		$	—
Funded status at end of year
Fair value of plan assets	$	10,268		$	10,483		$	—		$	—
Benefit obligations	(45,716		)	(49,342		)	(623		)	(846		)
Amount recognized at end of year	$	(35,448	)	$	(38,859	)	$	(623	)	$	(846	)

The Company expects to contribute $1.7 million to the pension plans in fiscal year 2017 , which includes direct contributions to be made for funded plans and benefit payments to be made for unfunded plans.

The Company does not prefund its post-retirement health care and life insurance benefit plans. As a result, the Company is responsible annually for the payment of benefits as incurred by the plans. The Company anticipates making payments of $83 thousand during fiscal year 2017 .

Amounts recognized in the Consolidated Balance Sheets consist of the following (amounts in thousands):



	Pension						Other Benefits
	2016			2015			2016			2015
Current liability	$	(833	)	$	(626	)	$	(82	)	$	(97	)
Noncurrent liability	(34,615		)	(38,233		)	(541		)	(749		)
Amount recognized, end of year	$	(35,448	)	$	(38,859	)	$	(623	)	$	(846	)

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 10: Pension and Other Post-retirement Benefit Plans (Continued)

Amounts recognized in Accumulated other comprehensive income (loss) consist of the following (amounts in thousands):



	Pension				Other Benefits
	2016		2015		2016			2015
Net actuarial loss (gain)	$	15,585	$	21,408	$	(1,114	)	$	(1,159	)
Prior service cost	1,582		1,300		—			—
Accumulated other comprehensive (income) loss	$	17,167	$	22,708	$	(1,114	)	$	(1,159	)

Although not reflected in the table above, the tax effect on the balances was $2.0 million and $2.3 million as of March 31, 2016 and 2015 , respectively.

Components of benefit costs (credit) consist of the following (amounts in thousands):



	Pension									Other Benefits
	2016			2015			2014			2016			2015			2014
Net service cost	$	1,507		$	1,286		$	1,308		$	—		$	—		$	—
Interest cost	1,347			1,819			1,734			19			29			23
Expected return on plan assets	(433		)	(499		)	(486		)	—			—			—
Amortization:
Actuarial (gain) loss	704			277			318			(191		)	(187		)	(259		)
Prior service cost	60			17			4			—			—			—
Net periodic benefit cost (credit)	$	3,185		$	2,900		$	2,878		$	(172	)	$	(158	)	$	(236	)

The estimated amounts related to pensions that will be amortized from accumulated other comprehensive income into net periodic benefit costs in fiscal year 2017 are actuarial losses of $460 thousand , and prior service costs of $85 thousand .

The asset allocation for the Company's defined benefit pension plans at March 31, 2016 and the target allocation for 2016 , by asset category, are as follows:



Asset Category	Target Allocation (%)	Plan Assets at March 31, 2016 (%)
Insurance (1)	10	6
International equities	15	15
International bonds	60	63
Other	15	16
Total	100	100

_______________________________________________________________________________


(1)	Comprised of assets held by the defined benefit pension plan in Germany.

The Company's investment strategy for its defined benefit pension plans is to maximize long-term rate of return on plan assets within an acceptable level of risk in order to minimize the cost of providing pension benefits. The investment policy establishes a target allocation range for each asset class and the fund is managed within those ranges. The plans use a number of investment approaches including insurance products, equity and fixed income funds in which the underlying securities are marketable in order to achieve this target allocation. Certain plans invest solely in insurance products. The Company continuously monitors the performance of the overall pension asset portfolio, asset allocation policies, and the performance of individual pension asset managers and makes adjustments and changes, as required. The Company does not manage any assets internally, does not have any passive investments in index funds, and does not directly utilize futures, options, or other derivative instruments or hedging strategies with regard to the pension plans; however, the investment mandate of some pension asset managers allows the use of the foregoing as components of their portfolio management strategies.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 10: Pension and Other Post-retirement Benefit Plans (Continued)

The expected rate of return was determined by modeling the expected long-term rates of return for broad categories of investments held by the plan against a number of various potential economic scenarios.

Other changes in plan assets and benefit obligations recognized in Accumulated other comprehensive income (loss) are as follows (amounts in thousands):



	Pension									Other Benefits
	2016			2015			2014			2016			2015		2014
Current year actuarial (gain) loss	$	(5,125	)	$	12,397		$	(190	)	$	(146	)	$	118	$	95
Amortization of actuarial gain (loss)	(698		)	(258		)	(286		)	191			187		259
Current year prior service cost	342			1,006			285			—			—		—
Amortization of prior service cost	(60		)	(17		)	(4		)	—			—		—
Total recognized in other comprehensive income	$	(5,541	)	$	13,128		$	(195	)	$	45		$	305	$	354
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	(2,356	)	$	16,028		$	2,683		$	(127	)	$	147	$	118

Each of these changes has been factored into the following benefit payments schedule for the next ten fiscal years. The Company expects to have benefit payments in the future as follows (amounts in thousands):



	Expected benefit payments
	2017		2018		2019		2020		2021		2021- 2025
Pension benefits	$	1,627	$	1,438	$	1,654	$	1,725	$	1,699	$	10,651
Other benefits	83		78		73		67		61		219
Total	$	1,710	$	1,516	$	1,727	$	1,792	$	1,760	$	10,870

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 10: Pension and Other Post-retirement Benefit Plans (Continued)

The following weighted-average assumptions were used to determine the projected benefit obligation at the measurement date and the net periodic cost for the pension and post-retirement plan (amounts in thousands except percentages):



	Pension				Other Benefits
	2016		2015		2016			2015
Projected benefit obligation:
Discount rate	3.2	%	2.8	%	2.8		%	2.9		%
Rate of compensation increase	3.4	%	3.5	%	—		%	—		%
Health care cost trend on covered charges	—		—		7.0% decreasing to ultimate trend of 5% in 2021			7.0% decreasing to ultimate trend of 5% in 2019
Net periodic benefit cost:
Discount rate	2.8	%	4.6	%	2.9		%	3.4		%
Rate of compensation increase	3.5	%	3.4	%	—		%	—		%
Expected return on plan assets	4.0	%	4.9	%	—		%	—		%
Health care cost trend on covered charges	—		—		7.0% decreasing to ultimate trend of 5% in 2019			7.0% decreasing to ultimate trend of 5% in 2018
Sensitivity of retiree welfare results
Effect of a one percentage point increase in assumed health care cost trend:
—On total service and interest costs components					$	—		$	—
—On post-retirement benefits obligation					6			18
Effect of a one percentage point decrease in assumed health care cost trend:
—On total service and interest costs components					—			—
—On post-retirement benefits obligation					(6		)	(17		)

The measurement date used to determine pension and post-retirement benefits is March 31.

The Company evaluated input from its third-party actuary to determine the appropriate discount rate. The determination of the discount rate is based on various factors such as the rate on bonds, term of the expected payouts, and long-term inflation factors.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 10: Pension and Other Post-retirement Benefit Plans (Continued)

The following table sets forth by level, within the fair value hierarchy as described in Note 1, the pension plan's assets, required to be carried at fair value on a recurring basis as of March 31, 2016 and March 31, 2015 (amounts in thousands):



	Fair Value March 31, 2016		Fair Value Measurement Using						Fair Value March 31, 2015		Fair Value Measurement Using
	Fair Value March 31, 2016		Level 1		Level 2 (1)		Level 3 (2)		Fair Value March 31, 2015		Level 1		Level 2		Level 3
Cash and cash equivalents	$	129	$	129	$	—	$	—	$	149	$	149	$	—	$	—
Equity securities:
International equities	1,567		—		1,567		—		3,626		—		3,626		—
Fixed income securities:
International bonds	6,469		—		6,469		—		6,132		—		6,132		—
Insurance contracts	611		—		—		611		576		—		—		576
Diversified growth funds	1,492		—		1,492		—		—		—		—		—
	$	10,268	$	129	$	9,528	$	611	$	10,483	$	149	$	9,758	$	576

(1) Level 2 plan assets consist of pooled investment funds which are unquoted and have no restriction on redemption. Fair value was determined using daily, weekly, or monthly trading activity which derives the unit price of the pooled fund.

(2) Level 3 plan assets are invested in reinsurance contracts whose value is the sum of the actuarial reserve and the profit participation of each contract. The actuarial reserve is the sum of discounted cash flows associated with future benefits and premiums.

The table below sets forth a summary of changes in the fair value of the defined benefit pension plan's Level 3 assets for the fiscal years ended March 31, 2015 and March 31, 2016 (amounts in thousands):



Balance at March 31, 2014	$	706
Actual return on plan assets	39
Employer contributions	366
Settlements	—
Benefits paid	(375		)
Foreign currency exchange rate change	(160		)
Balance at March 31, 2015	$	576
Actual return on plan assets	14
Employer contributions	189
Settlements	—
Benefits paid	(202		)
Foreign currency exchange rate change	34
Balance at March 31, 2016	$	611

The Company also sponsors a deferred compensation plan for highly compensated employees. The plan is non-qualified and allows certain employees to contribute to the plan. Gains net of the Company matches related to the deferred compensation plan were $5 thousand in fiscal year 2016 , $115 thousand in fiscal year 2015 , and $189 thousand in fiscal year 2014 . Total benefits accrued under this plan were $1.5 million and $1.5 million at March 31, 2016 and March 31, 2015 , respectively.

In addition, the Company has a defined contribution retirement plan (the "Savings Plan") in which all United States employees who meet certain eligibility requirements may participate. A participant may direct the Company to contribute amounts, based on a percentage of the participant's compensation, to the Savings Plan through the execution of salary reduction agreements. In addition, the participants may elect to make after-tax contributions. The Company matches contributions to the Savings Plan up to 6% of the employee's salary. The Company made matching contributions of $2.1 million , $2.2 million and $2.2 million in fiscal years 2016 , 2015 , and 2014 , respectively.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11 : Stock-Based Compensation

The Company's stock-based compensation plans are broad-based, long-term retention programs intended to attract and retain talented employees and align stockholder and employee interests.

The major components of stock-based compensation expense are as follows (amounts in thousands):



	Fiscal Year Ended March 31, 2016						Fiscal Year Ended March 31, 2015						Fiscal Year Ended March 31, 2014
	Stock Options		Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs
Cost of sales	$	81	$	617	$	720	$	233	$	269	$	1,075	$	421	$	62	$	523
Selling, general and administrative expenses	78		1,352		1,732		306		787		1,547		413		580		712
Research and development	4		23		167		13		3		279		5		—		193
	$	163	$	1,992	$	2,619	$	552	$	1,059	$	2,901	$	839	$	642	$	1,428

Employee Stock Options

As of March 31, 2016, the 2014 Amendment and Restatement of the KEMET Corporation 2011 Omnibus Equity Incentive Plan (the “2011 Incentive Plan”), approved by the Company’s stockholders in 2014, is the only plan the Company has to issue equity based awards to executives and key employees. Upon adoption of the 2011 Incentive Plan, no further awards were permitted to be granted under the Company’s prior plans, including the 1992 Key Employee Stock Option Plan, the 1995 Executive Stock Option Plan, and the 2004 Long-Term Equity Incentive Plan (collectively, the “Prior Plans”).

The 2011 Incentive Plan authorized the grant of up to 7.4 million shares of the Company's Common Stock, comprised of 6.6 million shares under the 2011 Incentive Plan and 0.8 million shares remaining from the Prior Plans and authorizes the Company to provide equity-based compensation in the form of:


•	stock options, including incentive stock options, entitling the optionee to favorable tax treatment under Section 422 of the Code;


•	stock appreciation rights;


•	restricted stock and restricted stock units;


•	other share-based awards; and,


•	performance awards.

Options issued under these plans vest within one to three years and expire ten years from the grant date. For the stock options granted to the Company's Chief Executive Officer on January 27, 2010, 50% vested on June 30, 2014 and 50% vested on June 30, 2015.

If available, the Company issues shares of Common Stock from treasury stock upon exercise of stock options and vesting of restricted stock units. The Company has no plans to purchase additional shares in conjunction with its employee stock option plans in the near future.

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Notes to Consolidated Financial Statements (Continued)

Note 11: Stock-Based Compensation (Continued)

Employee stock option activity for fiscal year 2016 is as follows:



	Options (in thousands)		Weighted- Average Exercise Price
Outstanding at March 31, 2015	1,451		$	8.49
Granted	—		—
Exercised	—		—
Forfeited	(20	)	5.45
Expired	(177	)	14.96
Outstanding at March 31, 2016	1,254		7.63
Exercisable at March 31, 2016	1,170		$	7.76
Remaining weighted average contractual life of options exercisable (years)			4.9
Remaining weighted average contractual life of options outstanding (years)			5.1

Amounts included in the following table are in thousands, except weighted average fair value and weighted average exercise price:



	Fiscal Years Ended March 31,
	2016		2015		2014
Weighted average grant-date fair value of non-vested shares	$	2.72	$	2.73	$	3.13
Weighted average grant-date fair value of shares
Granted	—		—		2.71
Vested	2.73		3.50		4.55
Forfeited	2.81		3.25		5.47
Total estimated fair value of shares vested	548		1,000		1,100
Intrinsic value
Stock options exercised	—		—		200
Options outstanding	15
Options currently exercisable	15
Total unrecognized compensation cost, net of estimated forfeitures, non-vested options	46
Weighted-average period of recognition for unrecognized compensation cost (in years)	0.6
Weighted average exercise price of stock options expected to vest	5.89

The Company measures the fair value of each employee stock option grant at the date of grant using a Black-Scholes option pricing model. This model requires the input of assumptions regarding a number of complex and subjective variables that will usually have a significant impact on the fair value estimate.

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11: Stock-Based Compensation (Continued)

The following table summarizes the weighted average assumptions used in the Black-Scholes valuation model to value stock option grants:



	Fiscal Years Ended March 31,
	2016	2015	2014
Assumptions:
Expected volatility (1)	N/A	N/A	59.8	%
Risk-free interest rate (2)	N/A	N/A	1.0	%
Expected option lives in years (3)	N/A	N/A	4.0
Dividend yield (4)	N/A	N/A	—

(1) Expected volatility is based on a historical volatility calculation of the Company's stock price.

(2) Risk-free rate is based on the U.S. Treasury yield with a maturity commensurate with the expected term.

(3) Expected term is based on the Company's historical option term which considers the weighted-average vesting, contractual term and vesting schedule.

(4) Dividend yield is based on a set dividend rate of 0.0% as the Company has not paid and does not anticipate paying dividends.

Stock-based compensation expense is calculated based on the number of awards that are ultimately expected to vest, and therefore has been reduced for estimated forfeitures. The Company's estimate of expected forfeitures is based on the Company's actual historical annual forfeiture rate of 2.7% . The estimated forfeiture rate, which is evaluated each balance sheet date throughout the life of the award, provides a time-based adjustment of forfeited shares. The estimated forfeiture rate is reassessed at each balance sheet date and may change based on new facts and circumstances. All option plans provide that options to purchase shares be supported by the Company's authorized but unissued common stock or treasury stock. All restricted stock and performance awards are also supported by the Company's authorized but unissued common stock or treasury stock. The prices of the options granted pursuant to these plans are not less than 100% of the value of the shares on the date of the grant.

Performance Vesting Stock Options

During fiscal year 2006, the Company issued 166,667 performance awards with a weighted-average exercise price of $24.15 to the Chief Executive Officer which entitle him to receive shares of common stock if and when the stock price achieves and maintains certain thresholds. These awards are open ended until they vest and have a ten -year life after vesting or expire on the third year following retirement, whichever comes first. Effective March 4, 2010, 83,333 of these awards were voluntarily relinquished and no concurrent grant, replacement award or other valuable consideration was provided.

Restricted Stock Units ("RSU's")

Restricted stock unit activity for fiscal year 2016 is as follows (amounts in thousands except fair value):



	Shares		Weighted- average Fair Value on Grant Date
Non-vested restricted stock at March 31, 2015	1,000		$	4.57
Granted	748		2.72
Vested	(304	)	4.98
Forfeited	(14	)	5.31
Non-vested restricted stock at March 31, 2016	1,430		$	3.51

The Company grants RSU's to members of the Board of Directors, the Chief Executive Officer and a limited group of executives. In fiscal year 2016 , RSU's granted to the Board of Directors vest in one year , RSU's granted to certain officers vest over 3 years and RSU's granted under the key manager stock program vest approximately 33% per year over three years . Once vested, RSU's are converted into restricted shares of common stock, except for RSU's granted to members of the Board of Directors, who can elect to defer settlement of the RSU's to a later date. Restricted shares cannot be sold until 90 days after the Chief Executive Officer, executive, key manager, or member of the Board of Directors, as applicable, resigns from his or her position, or until the KEMET employee achieves the targeted ownership under the Company's stock ownership guidelines, and

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Notes to Consolidated Financial Statements (Continued)

Note 11: Stock-Based Compensation (Continued)

only to the extent that such ownership exceeds the target. As of March 31, 2016 and 2015 , unrecognized compensation costs related to the unvested restricted stock share based compensation arrangements granted were $3.0 million and $3.1 million , respectively. The expense is being recognized over the respective vesting periods.

Long-term Incentive Plans ("LTIP")

Historically the Board of Directors of the Company has approved annual Long Term Incentive Plans which cover a two year performance period. A portion of the LTIPs awarded restricted stock units which vest over the course of three years from the anniversary of the establishment of the plan and a portion of the award is based upon the achievement of an Adjusted EBITDA range for the two -year period. At the time of the award, the individual plans entitle the participants to receive cash or restricted stock units, or a combination of both. The Company assesses the likelihood of meeting the Adjusted EBITDA financial metric on a quarterly basis and adjusts compensation expense to match expectations. Any related liability (for the cash portion of the LTIP) is reflected in the line item "Accrued expenses" on the Consolidated Balance Sheets and any restricted stock commitment is reflected in the line item "Additional paid-in capital" on the Consolidated Balance Sheets. The performance portion of the 2014/2015 LTIP achieved the lower range which resulted in 80 thousand shares issued in fiscal year 2016 with the remaining 73 thousand shares to be issued in fiscal year 2017 (subject to the respective participant's continued employment with KEMET). The performance portion of the 2015/2016 LTIP achieved the lower range which will result in 207 thousand shares being issued in both fiscal years 2017 and 2018 (subject to the respective participant's continued employment with KEMET). Under the performance component of the 2016/2017 LTIP the Company could issue 426 thousand shares if the two-year Adjusted EBITDA measure is achieved as of March 31, 2017 (potentially more shares could be issued if financial results exceed the two-year Adjusted EBITDA target).

The following is the time-based vesting schedule of RSU under each respective LTIP, subject to the respective participant's continued employment with KEMET (shares in thousands):



	2016/2017 (1)	2015/2016	2014/2015	2013/2014
Time-based award vested fiscal year 2016	—	124	139	90
Potential time-based award vesting fiscal year 2017 (2)	187	111	130	—
Potential time-based award vesting fiscal year 2018 (2)	187	114	—	—
Potential time-based award vesting fiscal year 2019 (2)	193	—	—	—

(1) Potential performance-based award assuming the target is achieved.

(2) Subject to participants' continued employment with KEMET.

In the Operating activities section of the Consolidated Statements of Cash Flows, stock-based compensation expense was treated as an adjustment to net income (loss) for fiscal years 2016 , 2015 and 2014 .

Note 12: Income Taxes

The components of Income (loss) from continuing operations before income taxes and equity loss from NEC TOKIN are as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
Domestic (U.S.)	$	(38,581	)	$	(26,238	)	$	(89,529	)
Foreign (Outside U.S.)	7,364			14,112			33,232
Total	$	(31,217	)	$	(12,126	)	$	(56,297	)

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Notes to Consolidated Financial Statements (Continued)

Note 12: Income Taxes (Continued)

The provision (benefit) for Income tax expense is as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
Current:
Federal	$	—		$	—		$	—
State and local	95			(92		)	35
Foreign	5,416			7,403			7,816
Total current income tax expense from continuing operations	5,511			7,311			7,851
Deferred:
Federal	(647		)	270			(1,694		)
State and local	172			39			406
Foreign	970			(2,393		)	(5,081		)
Deferred tax expense (benefit) from continuing operations	495			(2,084		)	(6,369		)
Provision for income taxes	$	6,006		$	5,227		$	1,482

The Company realized a deferred tax expense (benefit) for fiscal years ended 2016 , 2015 and 2014 of $1.4 million , $(2.1) million and $(2.7) million , respectively, in certain foreign jurisdictions based on changes in judgment about the realizability of deferred tax assets in future years.

Differences between the provision for income taxes on earnings from continuing operations and the amount computed using the U.S. Federal statutory income tax rate are as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016		2015		2014
Amount computed using the statutory rate of 35%	(10,926	)	(4,245	)	(19,704	)
Change in U.S. valuation allowance	4,099		(19,691	)	21,788
Unremitted earnings of foreign subsidiaries	(231	)	18,502		—
Effect of prior year adjustments (1)	(286	)	5,766		(786	)
Effect of business combination	(648	)	—		—
Taxable foreign source income	2,415		4,660		3,392
Call option expiration	7,381		—		—
Other non-deductible expenses	126		217		149
State income taxes, net of federal taxes	267		(53	)	441
Change in foreign operations tax exposure reserves	998		1,119		773
Change in foreign tax law	981		—		—
Change in foreign operations valuation allowance (2)	(200	)	1,378		(2,733	)
Other effect of foreign operations	2,030		(2,426	)	(1,838	)
Provision for income taxes	6,006		5,227		1,482


(1)	The effect of prior year adjustments is offset by a full valuation allowance resulting in no impact on the provision for income taxes.


(2)	The change in foreign operations valuation allowance excludes other comprehensive income and currency translation adjustments of $0.6 million , $(3.4) million , and $1.0 million for fiscal years ended 2016 , 2015 and 2014 , respectively which has no impact on the provision for income taxes.

The foreign jurisdictions having the greatest effect on the provision for income taxes are China and Mexico. The statutory tax rates for China and Mexico are 25% and 30% , respectively. The provision for income taxes for China and Mexico for fiscal years ended 2016 , 2015 and 2014 is $3.2 million , $6.4 million , and $2.2 million , respectively.

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Notes to Consolidated Financial Statements (Continued)

Note 12: Income Taxes (Continued)

The components of deferred tax assets and liabilities are as follows (amounts in thousands):



	March 31,
	2016			2015
Deferred tax assets:
Net operating loss carry forwards	$	173,041		$	162,691
Sales allowances and inventory reserves	16,918			21,696
Medical and employee benefits	11,234			15,982
Tax credits	9,840			10,025
Stock-based compensation	2,576			3,578
Other	2,988			3,411
Total deferred tax assets before valuation allowance	216,597			217,383
Less valuation allowance	(170,917		)	(167,594		)
Total deferred tax assets	45,680			49,789
Deferred tax liabilities:
Unremitted earnings of subsidiaries	(18,271		)	(18,502		)
Depreciation and differences in basis	(11,718		)	(12,166		)
Amortization of intangibles and debt discounts	(7,107		)	(7,261		)
NEC TOKIN put/call option	—			(1,860		)
Non-amortized intangibles	(2,556		)	(2,556		)
Other	(451		)	(54		)
Total deferred tax liabilities	(40,103		)	(42,399		)
Net deferred tax assets	$	5,577		$	7,390

The following table presents the annual activities included in the deferred tax valuation allowance:



	Valuation Allowance for Deferred Tax Assets
Balance at March 31, 2013	$	169,270
Charge to costs and expenses	21,515
Deductions	(1,509		)
Balance at March 31, 2014	189,276
Charge to costs and expenses	(19,900		)
Deductions	(1,782		)
Balance at March 31, 2015	167,594
Charge to costs and expenses	4,072
Deductions	(749		)
Balance at March 31, 2016	$	170,917

In fiscal year 2016 , the valuation allowance increased $3.3 million primarily primarily due to the reversal of the deferred tax liability related to the NT Options offset by the increase in federal net operating loss carryforwards. In fiscal year 2015 , the valuation allowance decreased $21.7 million primarily from the recognition of a deferred tax liability for unremitted earnings of the Company’s foreign subsidiaries and other adjustments relating to prior years, and from currency translation adjustments. In fiscal year 2014 , the valuation allowance increased $20.0 million primarily as a result of the increase in federal net operating loss carryforwards offset by a decrease in net operating loss carryforwards in certain foreign jurisdictions. Deductions in fiscal years 2016 , 2015 and 2014 resulted primarily from expiring net operating loss carryforwards and expiring tax credits in certain U.S. state and foreign jurisdictions.

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Notes to Consolidated Financial Statements (Continued)

Note 12: Income Taxes (Continued)

The change in net deferred income tax asset (liability) for the current year is presented below (amounts in thousands):



Balance at March 31, 2015	$	7,390
Deferred income taxes related to continuing operations	(495		)
Deferred income taxes resulting from business combination	(648		)
Deferred income taxes related to other comprehensive income	915
Foreign currency translation	(1,585		)
Balance at March 31, 2016	$	5,577

As of March 31, 2016 and 2015 , the Company's gross deferred tax assets are reduced by a valuation allowance of $170.9 million and $167.6 million , respectively. A valuation allowance on U.S. deferred tax assets was determined to be necessary based on the existence of significant negative evidence such as a cumulative three -year loss of the U.S. consolidated group. The amount of future income required for the Company to realize its deferred tax assets is $29.0 million . The realization of $1.3 million of deferred tax assets in Italy is dependent on the sale of land and buildings in Italy.

In assessing the realizability of deferred tax assets in foreign jurisdictions, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances as of March 31, 2016 . However, the amount of deferred tax assets considered realizable could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

As of March 31, 2016 , the Company had U.S. federal net operating loss carryforwards of $417.9 million . These U.S. federal net operating losses were incurred from 2004 through 2016 and are available to offset future federal taxable income, if any, through 2036. The Company had state net operating losses of $497.7 million , of which $3.0 million will expire in one year if unused. These state net operating losses are available to offset future state taxable income, if any, through 2036. Foreign subsidiaries, primarily in Finland, Italy, Portugal and Sweden had net operating loss carryforwards totaling $59.6 million . The net operating losses in Portugal and Finland are available to offset future taxable income through 2027 and 2019, respectively. The net operating losses in Italy and Sweden are available indefinitely to offset future taxable income. For the U.S. federal and state jurisdictions there is a greater likelihood of not realizing the future tax benefits of these deferred tax assets, and accordingly, the Company has recorded valuation allowances related to the net deferred tax assets in these jurisdictions. For the foreign jurisdictions with net operating loss carryforwards, a valuation allowance has been recorded where the Company does not expect to fully realize the deferred tax assets in the future.

Utilization of the Company's net operating loss carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the "Code") and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss and tax credit carryforwards before utilization. The issuance of the Platinum Warrant may have given rise to an "ownership change" for purposes of Section 382 of the Code. If such an ownership change were deemed to have occurred, the amount of our taxable income that could be offset by the Company's net operating loss carryovers in taxable years after the ownership change would be severely limited. While the Company believes that the issuance of the Platinum Warrant did not result in an ownership change for purposes of Section 382 of the Code, there is no assurance that the Company's view will be unchallenged. Moreover, a future exercise of part or all of the Platinum Warrant may give rise to an ownership change in the future. Blue Powder was acquired which has substantial federal net operating losses that will now be limited due to the ownership change which occurred.

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Notes to Consolidated Financial Statements (Continued)

Note 12: Income Taxes (Continued)

At March 31, 2016 , the U.S. consolidated group of companies had the following tax credit carryforwards available (amounts in thousands):



	Tax Credits ($)	Fiscal Year of Expiration
U.S. foreign tax credits	5,173	2017
U.S. research credits	1,425	2023
Texas franchise tax credits	3,242	2026

The Company conducts business in Macedonia through a subsidiary that qualifies for a tax holiday. The tax holiday will terminate on January 1, 2023. For calendar years 2014 , 2015 , and 2016 , the statutory rate of 10% was reduced to zero. For the fiscal year ended March 31, 2016 the Company realized no income tax benefit from the tax holiday.

At March 31, 2016 , the Company makes no assertion that unremitted earnings from subsidiaries outside the United States are indefinitely reinvested. This assertion changed during fiscal year 2015 based on an analysis of cash needs in the U.S. related to a planned acquisition and current debt funding. Due to the valuation allowance in the U.S., this assertion did not result in a cash tax impact. The Company has recognized a deferred tax liability relating to its investments in subsidiaries outside the United States.

At March 31, 2016 , the Company had $7.1 million of unrecognized tax benefits. A reconciliation of gross unrecognized tax benefits (excluding interest and penalties) is as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
Beginning of fiscal year	$	6,377		$	5,691		$	5,395
Additions for tax positions of the current year	763			1,115			639
Additions for tax positions of prior years	—			—			19
Reductions for tax positions of prior years	—			(56		)	(28		)
Lapse in statute of limitations	(10		)	(203		)	—
Settlements	(27		)	(170		)	(334		)
End of fiscal year	$	7,103		$	6,377		$	5,691

At March 31, 2016 , $2.5 million of the $7.1 million of unrecognized income tax benefits would affect the Company's effective income tax rate, if recognized. It is reasonably possible that the total unrecognized tax benefit could decrease by $1.8 million in fiscal year 2017 if the advanced pricing arrangement for one of the Company’s foreign subsidiaries is agreed to by the foreign tax authority.

The Company files income tax returns in the U.S. and multiple foreign jurisdictions, including various state and local jurisdictions. The U.S. Internal Revenue Service concluded its examinations of the Company's U.S. federal tax returns for all tax years through 2003. Because of net operating losses, the Company's U.S. federal returns for 2003 and later years will remain subject to examination until the losses are utilized. The Company is subject to income tax examinations for the years 2008 and forward in Mexico and Portugal; and 2010 and forward in China and Italy. The Company records potential interest and penalty expenses related to unrecognized income tax benefits within its global operations in income tax expense. The Company had $0.4 million and $0.3 million of accrued interest and penalties respectively at March 31, 2016 and 2015 , which is included as a component of income tax expense. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

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Notes to Consolidated Financial Statements (Continued)

Note 13 : Derivatives

In fiscal year 2015, the Company began using certain derivative instruments (i.e., foreign exchange contracts) to reduce exposures to the volatility of foreign currencies impacting revenues and the costs of its products.

Certain operating expenses at the Company's Mexican facilities are paid in Mexican pesos. In order to hedge a portion of these forecasted cash flows, the Company purchases foreign exchange contracts, with terms generally less than twelve months, to buy Mexican pesos for periods and amounts consistent with underlying cash flow exposures. These contracts are designated as cash flow hedges at inception and monitored for effectiveness on a routine basis. There were $37.7 million in peso contracts (notional value) outstanding at March 31, 2016 .

Certain expenditures at the Company's Mexican facilities are paid in Japanese yen. In order to hedge a portion of these forecasted cash flows, the Company purchases foreign exchange contracts, with terms generally less than six months, to buy Japanese yen for periods and amounts consistent with underlying cash flow exposures. These contracts are designated as cash flow hedges at inception and monitored for effectiveness on a routine basis. There were no yen contracts outstanding at March 31, 2016 , as the yen hedge program has ended.

Certain sales are made in euros. In order to hedge a portion of these forecasted cash flows, management purchases foreign exchange contracts, with terms generally less than six months, to sell euros for periods and amounts consistent with the related underlying cash flow exposures. These contracts are designated hedges at inception and monitored for effectiveness on a routine basis. There were no euro contracts outstanding at March 31, 2016 , as the euro hedge program has ended.

The Company formally documents all relationships between hedging instruments and hedged items, as well as risk management objectives and strategies for undertaking various hedge transactions.

The Company records and presents the fair values of all of its derivative assets and liabilities in the Consolidated Balance Sheets on a net basis, since they are subject to master netting agreements. However, if the Company were to offset and record the asset and liability balances of its forward foreign currency exchange contracts on a gross basis, the amounts presented in the Consolidated Balance Sheets would be adjusted from the current net presentation to the gross amounts as detailed in the following table. The balance sheet classifications and fair value of derivative instruments as of March 31, 2016 and 2015 are as follows (amounts in thousands):



	Fair Value of Derivative Instruments
	March 31, 2016									March 31, 2015
Balance Sheet Presentation	As Presented (1)			Offset			Gross			As Presented (1)		Offset		Gross
Prepaid and other current assets	$	—		$	523		$	523		$	1,003	$	—	$	1,003
Accrued expenses	(367		)	(523		)	(890		)	—		—		—
	$	(367	)	$	—		$	(367	)	$	1,003	$	—	$	1,003

______________________________________________________________________________

(1) Fair Value measured using Level 2 inputs by adjusting the market spot rate by forward points, based on the date of the contract. The spot rates and forward points used are based on an average rate from an actively traded market.

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Notes to Consolidated Financial Statements (Continued)

Note 13: Derivatives (Continued)

The impact on the Consolidated Statement of Operations for the twelve month period ended March 31, 2016 is as follows (amounts in thousands):



Impact of Foreign Exchange Contracts on Condensed Consolidated Statement of Operations
Statement Caption	Twelve Month Period Ended March 31, 2016
Net Sales	$	(789	)
Operating costs and expenses:
Cost of sales	3,199
Total operating costs and expenses	3,199
Operating income (loss)	$	(3,988	)

Unrealized gains and losses associated with the change in value of these financial instruments are recorded in AOCI. Changes in the derivatives' fair values are deferred and recorded as a component of AOCI until the underlying transaction is settled and recorded to the income statement. When the hedged item affects income, gains or losses are reclassified from AOCI to the Consolidated Statement of Operations as Net sales for foreign exchange contracts to sell euros, and as Cost of sales for foreign exchange contracts to purchase Mexican pesos and Japanese yen. Any ineffectiveness, if material, in the Company's hedging relationships is recognized immediately as a loss, within the same income statement accounts as described above; to date, there has been no ineffectiveness. Changes in derivative balances impact the line items "Prepaid and other assets" and "Accrued Expenses" on the Consolidated Balance Sheets and Statements of Cash Flows.

Note 14 : Supplemental Balance Sheets and Statements of Operations Detail (amounts in thousands)



	March 31,
	2016			2015
Accounts receivable:
Trade	$	116,146		$	115,504
Allowance for doubtful accounts reserve	(1,002		)	(925		)
Ship-from-stock and debit reserve	(17,362		)	(19,360		)
Returns reserves	(3,324		)	(3,190		)
Rebates reserves	(872		)	(780		)
Price protection reserves	(418		)	(270		)
Other	—			(122		)
Accounts receivable, net	$	93,168		$	90,857

The Company has agreements with distributors and certain other customers that, under certain conditions, allow for returns of overstocked inventory, provide protection against price reductions initiated by the Company and grant other sales allowances. Allowances for these commitments are included in the Consolidated Balance Sheets as reductions in trade accounts receivable. The Company adjusts sales based on historical experience.

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Notes to Consolidated Financial Statements (Continued)

Note 14: Supplemental Balance Sheets and Statements of Operations Detail (amounts in thousands) (Continued)

The following table presents the annual activities included in the allowance for these commitments:



Balance at March 31, 2013	$	18,518
Cost charged to expense	89,909
Actual adjustments applied	(83,911		)
Other	144
Balance at March 31, 2014	24,660
Cost charged to expense	91,091
Actual adjustments applied	(90,909		)
Other	(195		)
Balance at March 31, 2015	24,647
Cost charged to expense	95,212
Actual adjustments applied	(96,932		)
Other	51
Balance at March 31, 2016	$	22,978



	March 31,
	2016			2015
Inventories:
Raw materials and supplies	$	80,289		$	83,372
Work in process	46,631			52,759
Finished goods	58,060			53,211
Inventory gross	184,980			189,342
Inventory reserves	(16,101		)	(17,499		)
Inventory, net	$	168,879		$	171,843

The following table presents the annual activities included in the inventory reserves:



Balance at March 31, 2013	$	18,464
Costs charged to expense	11,846
Write-offs	(3,880		)
Other	396
Balance at March 31, 2014	26,826
Costs charged to expense	9,291
Write-offs	(17,520		)
Other	(1,098		)
Balance at March 31, 2015	17,499
Costs charged to expense	5,696
Write-offs	(7,326		)
Other	232
Balance at March 31, 2016	$	16,101

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Notes to Consolidated Financial Statements (Continued)

Note 14: Supplemental Balance Sheets and Statements of Operations Detail (amounts in thousands) (Continued)



	Useful life (years)	March 31,
	Useful life (years)	2016			2015
Property, plant and equipment:
Land and land improvements	20	$	22,380		$	22,017
Buildings	20 - 40	148,805			149,451
Machinery and equipment	10	793,250			798,112
Furniture and fixtures	4 - 10	69,442			60,903
Construction in progress		21,197			21,260
Other		2,103			2,184
Total property and equipment		1,057,177			1,053,927
Accumulated depreciation		(815,338		)	(804,286		)
Property, plant and equipment, net		$	241,839		$	249,641



	March 31,
	2016		2015
Accrued expenses:
Salaries, wages, and related employee costs	$	20,708	$	26,117
Interest	15,683		15,678
Restructuring	946		6,591
Vacation	7,892		6,286
Other	5,091		5,784
Total accrued expenses	$	50,320	$	60,456



	March 31,
	2016		2015
Other non-current obligations:
Pension plans	35,156		38,982
Employee separation liability	9,352		10,638
Deferred compensation	1,544		1,548
Long-term obligation on land purchase	—		1,594
Restructuring	30		648
NEC TOKIN option valuation	20,600		—
Long-term service contracts	2,343		—
Other	5,867		3,721
Total other non-current obligations	$	74,892	$	57,131

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Notes to Consolidated Financial Statements (Continued)

Note 14: Supplemental Balance Sheets and Statements of Operations Detail (amounts in thousands) (Continued)



	Fiscal Years Ended March 31,
	2016			2015			2014
Non-operating (income) expense, net:
Net foreign exchange (gains) losses	(3,036		)	(4,249		)	(304		)
Gain on early extinguishment of debt	—			(1,003		)	—
Offering memorandum fees	—			1,142			—
Other	688			28			734
Total non-operating (income) expense, net	$	(2,348	)	$	(4,082	)	$	430

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Notes to Consolidated Financial Statements (Continued)

Note 15 : Income/Loss Per Share

Basic earnings per share calculation is based on the weighted-average number of common shares outstanding. Diluted earnings per share calculation is based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive shares of common stock include stock options and Platinum Warrant.

The following table presents the basic and diluted weighted-average number of shares of common stock (amounts in thousands, except per share data):



	Fiscal Years Ended March 31,
	2016			2015			2014
Numerator
Income (loss) from continuing operations	$	(53,629	)	$	(19,522	)	$	(64,869	)
Income (loss) from discontinued operations, net of income tax expense (benefit) of $0, $1,976, and $(98), respectively	—			5,379			(3,634		)
Net income (loss)	$	(53,629	)	$	(14,143	)	$	(68,503	)
Denominator:
Weighted-average common shares outstanding:
Basic	46,004			45,381			45,102
Assumed conversion of employee stock options	—			—			—
Assumed conversion of Platinum Warrant	—			—			—
Weighted-average shares outstanding (diluted)	46,004			45,381			45,102
Net income (loss) per basic share:
Income (loss) from continuing operations	$	(1.17	)	$	(0.43	)	$	(1.44	)
Income (loss) from discontinued operations, net of income tax expense (benefit)	$	—		$	0.12		$	(0.08	)
Net income (loss)	$	(1.17	)	$	(0.31	)	$	(1.52	)
Net income (loss) per diluted share:
Income (loss) from continuing operations	$	(1.17	)	$	(0.43	)	$	(1.44	)
Income (loss) from discontinued operations, net of income tax expense (benefit)	$	—		$	0.12		$	(0.08	)
Net income (loss)	$	(1.17	)	$	(0.31	)	$	(1.52	)

Common stock equivalents that could potentially dilute net income per basic share in the future, but were not included in the computation of diluted earnings per share because the impact would have been antidilutive, were as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2016	2015	2014
Assumed conversion of employee stock options	3,329	1,783	1,761
Assumed conversion of Platinum Warrant	4,951	6,287	6,704

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Notes to Consolidated Financial Statements (Continued)

Note 16 : Commitments and Contingencies

The Company's leases are primarily for distribution facilities or sales offices that expire principally between 2016 and 2023. A number of leases require the Company to pay certain executory costs (taxes, insurance, and maintenance) and contain certain renewal and purchase options. Annual rental expenses for operating leases were included in results of operations and were $7.1 million , $7.6 million and $9.9 million in fiscal years 2016 , 2015 , and 2014 , respectively.

Future minimum lease payments over the next five fiscal years and thereafter under non-cancellable operating leases at March 31, 2016 , are as follows (amounts in thousands):



	Fiscal Years Ended March 31,
	2017	2018	2019	2020	2021	Thereafter
Minimum lease payments	3,653	2,922	1,909	628	496	1,201

The Company or its subsidiaries are at any one time parties to a number of lawsuits arising out of their respective operations, including workers' compensation or work place safety cases, some of which involve claims of substantial damages. Although there can be no assurance, based upon information known to the Company, the Company does not believe that any liability which might result from an adverse determination of such lawsuits would have a material adverse effect on the Company's financial condition or results of operations.

Note 17 : Quarterly Results of Operations (Unaudited)

The following table sets forth certain quarterly information for fiscal years 2016 and 2015 . This information, in the opinion of the Company's management, reflects all adjustments (consisting only of normal recurring adjustments) necessary to present fairly this information when read in conjunction with the consolidated financial statements and notes thereto included elsewhere herein (amounts in thousands except per share data):



	Fiscal Year 2016 Quarters Ended
	Jun-30			Sep-30		Dec-31			Mar-31
Net sales	$	187,590		$	186,123	$	177,184		$	183,926
Operating income (loss) (1)	1,243			13,987		8,493			8,603
Income (loss) from continuing operations	(37,050		)	7,194		(8,600		)	(15,173		)
Income (loss) from discontinued operations	—			—		—			—
Net income (loss)	(37,050		)	7,194		(8,600		)	(15,173		)
Net income (loss) per basic share:
Loss from continuing operations	$	(0.81	)	$	0.16	$	(0.19	)	$	(0.33	)
Income (loss) from discontinued operations	$	—		$	—	$	—		$	—
Net income (loss)	$	(0.81	)	$	0.16	$	(0.19	)	$	(0.33	)
Net income (loss) per diluted share:
Income (loss) from continuing operations	$	(0.81	)	$	0.14	$	(0.19	)	$	(0.33	)
Income (loss) from discontinued operations	$	—		$	—	$	—		$	—
Net income (loss)	$	(0.81	)	$	0.14	$	(0.19	)	$	(0.33	)

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Notes to Consolidated Financial Statements (Continued)

Note 17: Quarterly Results of Operations (Unaudited) (Continued)



	Fiscal Year 2015 Quarters Ended
	Jun-30			Sep-30			Dec-31			Mar-31
Net sales	$	212,881		$	215,293		$	201,310		$	193,708
Operating income (loss) (1)	(606		)	12,770			9,302			912
Income (loss) from continuing operations	(10,483		)	7,730			3,078			(19,847		)
Income (loss) from discontinued operations	6,943			(1,400		)	(164		)	—
Net income (loss)	(3,540		)	6,330			2,914			(19,847		)
Net income (loss) per basic share:
Income (loss) from continuing operations	$	(0.23	)	$	0.17		$	0.07		$	(0.44	)
Income (loss) from discontinued operations	$	0.15		$	(0.03	)	$	—		$	—
Net income (loss)	$	(0.08	)	$	0.14		$	0.07		$	(0.44	)
Net income (loss) per diluted share:
Income (loss) from continuing operations	$	(0.23	)	$	0.15		$	0.06		$	(0.44	)
Income (loss) from discontinued operations	$	0.15		$	(0.03	)	$	—		$	—
Net income (loss)	$	(0.08	)	$	0.12		$	0.06		$	(0.44	)

_______________________________________________________________________________

(1)

Operating income (loss) as a percentage of net sales fluctuates from quarter to quarter due to a number of factors, including net sales fluctuations, foreign currency exchange, restructuring charges, product mix, the timing and expense of moving product lines to lower-cost locations, the write-down of long lived assets, the net gain/loss on sales and disposals of assets and the relative mix of sales among distributors, original equipment manufacturers, and electronic manufacturing service providers.

Note 18 : Condensed Consolidating Financial Statements

As discussed in Note 2, "Debt" , the Company's 10.5% Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by certain of the Company's 100% owned domestic subsidiaries ("Guarantor Subsidiaries") and secured by a first priority lien on 51% of the capital stock of certain of the Company's foreign restricted subsidiaries ("Non-Guarantor Subsidiaries"). The Company's Guarantor Subsidiaries are not consistent with the Company's business groups or geographic operations; accordingly, this basis of presentation is not intended to present the Company's financial condition, results of operations or cash flows for any purpose other than to comply with the specific requirements for subsidiary guarantor reporting. We are required to present condensed consolidating financial information in order for the Guarantor Subsidiaries of the Company's public debt to be exempt from reporting under the Securities Exchange Act of 1934, as amended.

Condensed consolidating financial statements for the Company's Guarantor Subsidiaries and Non-Guarantor Subsidiaries are presented in the following tables (amounts in thousands):

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Notes to Consolidated Financial Statements (Continued)

Note 18: Condensed Consolidating Financial Statements (Continued)

Condensed Consolidating Balance Sheet

March 31, 2016



	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Reclassifications and Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	640	$	36,209	$	28,155	$	—		$	65,004
Accounts receivable, net	—		41,025		52,143		—			93,168
Intercompany receivable	30,210		132,523		170,224		(332,957		)	—
Inventories, net	—		113,289		55,590		—			168,879
Prepaid expenses and other	3,325		12,161		12,974		(2,964		)	25,496
Total current assets	34,175		335,207		319,086		(335,921		)	352,547
Property and equipment, net	255		93,936		147,648		—			241,839
Investments in NEC TOKIN	—		20,334		—		—			20,334
Investments in subsidiaries	382,108		429,723		93,359		(905,190		)	—
Goodwill	—		40,294		—		—			40,294
Intangible assets, net	—		27,252		6,049		—			33,301
Deferred income taxes	—		800		7,597		—			8,397
Other assets	2,764		2,452		616		—			5,832
Long-term intercompany receivable	67,500		41,428		1,088		(110,016		)	—
Total assets	$	486,802	$	991,426	$	575,443	$	(1,351,127	)	$	702,544
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	2,000	$	—	$	—	$	—		$	2,000
Accounts payable, trade	20		34,618		36,343		—			70,981
Intercompany payable	280		275,498		57,179		(332,957		)	—
Accrued expenses	17,305		11,807		21,208		—			50,320
Income taxes payable	—		2,983		434		(2,964		)	453
Total current liabilities	19,605		324,906		115,164		(335,921		)	123,754
Long-term debt, less current portion	354,716		19,881		14,000		—			388,597
Other non-current obligations	—		25,797		49,095		—			74,892
Deferred income taxes	—		2,242		578		—			2,820
Long-term intercompany payable	—		67,500		42,516		(110,016		)	—
Stockholders' equity	112,481		551,100		354,090		(905,190		)	112,481
Total liabilities and stockholders' equity	$	486,802	$	991,426	$	575,443	$	(1,351,127	)	$	702,544

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Notes to Consolidated Financial Statements (Continued)

Note 18: Condensed Consolidating Financial Statements (Continued)

Condensed Consolidating Balance Sheet

March 31, 2015



	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Reclassifications and Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	640	$	33,094	$	22,628	$	—		$	56,362
Accounts receivable, net	—		35,535		55,322		—			90,857
Intercompany receivable	321,233		403,557		195,518		(920,308		)	—
Inventories, net	—		119,221		52,622		—			171,843
Prepaid expenses and other	3,191		21,134		20,164		(2,986		)	41,503
Total current assets	325,064		612,541		346,254		(923,294		)	360,565
Property and equipment, net	293		100,844		148,504		—			249,641
Investment in NEC TOKIN	—		45,016		—		—			45,016
Investment in subsidiaries	401,062		423,737		93,359		(918,158		)	—
Goodwill	—		35,584		—		—			35,584
Intangible assets, net	—		26,998		6,284		—			33,282
Restricted cash	—		—		—		—			—
Deferred income taxes	—		971		8,803		—			9,774
Other assets	4,088		7,824		919		—			12,831
Long-term intercompany receivable	63,788		39,151		1,088		(104,027		)	—
Total assets	$	794,295	$	1,292,666	$	605,211	$	(1,945,479	)	$	746,693
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$	500	$	462	$	—		$	962
Accounts payable, trade	47		36,565		33,173		—			69,785
Intercompany payable	254,852		578,318		87,138		(920,308		)	—
Accrued expenses	17,253		16,644		26,559		—			60,456
Income taxes payable	—		2,928		942		(2,986		)	884
Total current liabilities	272,152		634,955		148,274		(923,294		)	132,087
Long-term debt, less current portion	357,461		20,948		12,000		—			390,409
Other non-current obligations	—		2,987		54,144		—			57,131
Deferred income taxes	—		2,241		143		—			2,384
Long-term intercompany payable	—		63,789		40,238		(104,027		)	—
Stockholders' equity	164,682		567,746		350,412		(918,158		)	164,682
Total liabilities and stockholders' equity	$	794,295	$	1,292,666	$	605,211	$	(1,945,479	)	$	746,693

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Notes to Consolidated Financial Statements (Continued)

Note 18: Condensed Consolidating Financial Statements (Continued)

Condensed Consolidating Statements of Operations

Fiscal Year Ended March 31, 2016



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Reclassifications and Eliminations			Consolidated
Net sales	$	—		$	866,163		$	703,690		$	(835,030	)	$	734,823
Operating costs and expenses:
Cost of sales	1,194			708,143			642,362			(780,156		)	571,543
Selling, general and administrative expenses	38,071			74,521			43,728			(54,874		)	101,446
Research and development	79			17,313			7,563			—			24,955
Restructuring charges	—			2,564			1,614			—			4,178
Net (gain) loss on sales and disposals of assets	(7		)	(484		)	866			—			375
Total operating costs and expenses	39,337			802,057			696,133			(835,030		)	702,497
Operating income (loss)	(39,337		)	64,106			7,557			—			32,326
Other (income) expense:
Interest income	—			—			(14		)	—			(14		)
Interest expense	37,856			1,189			560			—			39,605
Change in value of NEC TOKIN options	—			26,300			—			—			26,300
Non-operating (income) expense, net	(36,183		)	34,188			(353		)	—			(2,348		)
Equity in earnings of subsidiaries	12,619			—			—			(12,619		)	—
Income (loss) from continuing operations before income taxes and equity income (loss) from NEC TOKIN	(53,629		)	2,429			7,364			12,619			(31,217		)
Income tax expense (benefit)	—			(269		)	6,275			—			6,006
Income (loss) from continuing operations before equity income (loss) from NEC TOKIN	(53,629		)	2,698			1,089			12,619			(37,223		)
Equity income (loss) from NEC TOKIN	—			(16,406		)	—			—			(16,406		)
Income (loss) from continuing operations	(53,629		)	(13,708		)	1,089			12,619			(53,629		)
Income (loss) from discontinued operations	—			—			—			—			—
Net income (loss)	$	(53,629	)	$	(13,708	)	$	1,089		$	12,619		$	(53,629	)

Condensed Consolidating Statements of Comprehensive Income (Loss)

Fiscal Year Ended March 31, 2016



Other comprehensive income (loss)	$	(49,918	)	$	(24,832	)	$	5,873	$	12,619	$	(56,258	)

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Notes to Consolidated Financial Statements (Continued)

Note 18: Condensed Consolidating Financial Statements (Continued)

Condensed Consolidating Statements of Operations

Fiscal Year Ended March 31, 2015



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Reclassifications and Eliminations			Consolidated
Net sales	$	195		$	978,705		$	773,504		$	(929,212	)	$	823,192
Operating costs and expenses:
Cost of sales	2,468			823,429			707,493			(869,707		)	663,683
Selling, general and administrative expenses	41,783			70,074			46,181			(59,505		)	98,533
Research and development	436			17,588			7,778			—			25,802
Restructuring charges	—			3,310			9,707			—			13,017
Net (gain) loss on sales and disposals of assets	(10		)	181			(392		)	—			(221		)
Total operating costs and expenses	44,677			914,582			770,767			(929,212		)	800,814
Operating income (loss)	(44,482		)	64,123			2,737			—			22,378
Other (income) expense:
Interest income	—			—			(15		)	—			(15		)
Interest expense	38,632			998			1,071			—			40,701
Change in value of NEC TOKIN options	—			(2,100		)	—			—			(2,100		)
Non-operating (income) expense, net	(40,903		)	49,069			(12,248		)	—			(4,082		)
Equity in earnings of subsidiaries	(27,998		)	—			—			27,998			—
Income (loss) from continuing operations before income taxes and equity income (loss) from NEC TOKIN	(14,213		)	16,156			13,929			(27,998		)	(12,126		)
Income tax expense (benefit)	(70		)	576			4,721			—			5,227
Income (loss) from continuing operations before equity income (loss) from NEC TOKIN	(14,143		)	15,580			9,208			(27,998		)	(17,353		)
Equity income (loss) from NEC TOKIN	—			(2,169		)	—			—			(2,169		)
Income (loss) from continuing operations	(14,143		)	13,411			9,208			(27,998		)	(19,522		)
Income (loss) from discontinued operations	—			102			5,277			—			5,379
Net income (loss)	$	(14,143	)	$	13,513		$	14,485		$	(27,998	)	$	(14,143	)

Condensed Consolidating Statements of Comprehensive Income (Loss)

Fiscal Year Ended March 31, 2015



Comprehensive income (loss)	$	(32,103	)	$	19,650	$	(20,672	)	$	(27,998	)	$	(61,123	)

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 18: Condensed Consolidating Financial Statements (Continued)

Condensed Consolidating Statements of Operations

Fiscal Year Ended March 31, 2014



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Reclassifications and Eliminations			Consolidated
Net sales	$	218		$	966,369		$	817,945		$	(950,866	)	$	833,666
Operating costs and expenses:
Cost of sales	1,336			878,308			729,105			(895,824		)	712,925
Selling, general and administrative expenses	41,359			61,896			47,643			(55,042		)	95,856
Research and development	229			16,849			7,388			—			24,466
Restructuring charges	—			2,858			11,264			—			14,122
Write down of long-lived assets	—			1,118			3,358			—			4,476
Net (gain) loss on sales and disposals of assets	—			(625		)	657			—			32
Net (gain) loss on intercompany asset transfer	—			14,564			(14,564		)	—			—
Total operating costs and expenses	42,924			974,968			784,851			(950,866		)	851,877
Operating income (loss)	(42,706		)	(8,599		)	33,094			—			(18,211		)
Other (income) expense:
Interest income	(12		)	(4		)	(179		)	—			(195		)
Interest expense	40,069			1,130			(237		)	—			40,962
Change in value of NEC TOKIN options	—			(3,111		)	—			—			(3,111		)
Other (income) expense, net	(40,642		)	39,852			1,220			—			430
Equity in earnings of subsidiaries	26,332			—			—			(26,332		)	—
Income (loss) from continuing operations before income taxes and equity income (loss) from NEC TOKIN	(68,453		)	(46,466		)	32,290			26,332			(56,297		)
Income tax expense (benefit)	—			(1,302		)	2,784			—			1,482
Income (loss) from continuing operations before equity income (loss) from NEC TOKIN	(68,453		)	(45,164		)	29,506			26,332			(57,779		)
Equity income (loss) from NEC TOKIN	—			(7,090		)	—			—			(7,090		)
Income (loss) from continuing operations	(68,453		)	(52,254		)	29,506			26,332			(64,869		)
Income (loss) from discontinued operations	(50		)	(1,195		)	(2,389		)	—			(3,634		)
Net income (loss)	$	(68,503	)	$	(53,449	)	$	27,117		$	26,332		$	(68,503	)

Condensed Consolidating Statements of Comprehensive Income (Loss)

Fiscal Year Ended March 31, 2014



Comprehensive income (loss)	$	(62,676	)	$	(57,309	)	$	35,640	$	26,332	$	(58,013	)

117

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 18: Condensed Consolidating Financial Statements (Continued)

Condensed Consolidating Statements of Cash Flows

Fiscal Year Ended March 31, 2016



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Reclassifications and Eliminations		Consolidated
Sources (uses) of cash and cash equivalents
Net cash provided by (used in) operating activities	$	3,722		$	15,107		$	13,536		$	—	$	32,365
Investing activities:
Capital expenditures	—			(9,550		)	(10,919		)	—		(20,469		)
Change in restricted cash	—			1,802			—			—		1,802
Proceeds from sale of assets	—			248			723			—		971
Acquisitions, net of cash received	—			(2,892		)	—			—		(2,892		)
Net cash provided by (used in) investing activities	—			(10,392		)	(10,196		)	—		(20,588		)
Financing activities:
Proceeds from revolving line of credit	—			8,000			2,000			—		10,000
Payments of revolving line of credit	—			(9,600		)	—			—		(9,600		)
Deferred acquisition payments	(3,000		)	—			—			—		(3,000		)
Payments of long-term debt	—			—			(481		)	—		(481		)
Proceeds from exercise of stock options	—			—			—			—		—
Purchase of treasury stock	(722		)	—			—			—		(722		)
Net cash provided by (used in) financing activities	(3,722		)	(1,600		)	1,519			—		(3,803		)
Net increase (decrease) in cash and cash equivalents	—			3,115			4,859			—		7,974
Effect of foreign currency fluctuations on cash	—			—			668			—		668
Cash and cash equivalents at beginning of fiscal year	640			33,094			22,628			—		56,362
Cash and cash equivalents at end of fiscal year	$	640		$	36,209		$	28,155		$	—	$	65,004

118

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 18: Condensed Consolidating Financial Statements (Continued)

Condensed Consolidating Statements of Cash Flows

Fiscal Year Ended March 31, 2015



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Reclassifications and Eliminations		Consolidated
Sources (uses) of cash and cash equivalents
Net cash provided by (used in) operating activities	$	39,575		$	(4,085	)	$	(11,088	)	$	—	$	24,402
Investing activities:
Capital expenditures	—			(12,930		)	(9,302		)	—		(22,232		)
Change in restricted cash	—			11,509			—			—		11,509
Proceeds from sale of assets	—			2,403			2,385			—		4,788
Proceeds from sale of discontinued operations	—			—			9,564			—		9,564
Net cash provided by (used in) investing activities	—			982			2,647			—		3,629
Financing activities:
Proceeds from revolving line of credit	—			37,340			5,000			—		42,340
Payments on revolving line of credit	—			(22,342		)	(5,000		)	—		(27,342		)
Deferred acquisition payments	(18,527		)	(1,000		)	—			—		(19,527		)
Payments of long-term debt	(20,417		)	—			(1,316		)	—		(21,733		)
Proceeds from exercise of stock options	24			—			—			—		24
Purchase of treasury stock	(630		)	—			—			—		(630		)
Net cash provided by (used in) financing activities	(39,550		)	13,998			(1,316		)	—		(26,868		)
Net increase (decrease) in cash and cash equivalents	25			10,895			(9,757		)	—		1,163
Effect of foreign currency fluctuations on cash	(1		)	(1		)	(2,728		)	—		(2,730		)
Cash and cash equivalents at beginning of fiscal year	616			22,200			35,113			—		57,929
Cash and cash equivalents at end of fiscal year	$	640		$	33,094		$	22,628		$	—	$	56,362

119

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KEMET CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 18: Condensed Consolidating Financial Statements (Continued)

Condensed Consolidating Statements of Cash Flows

Fiscal Year Ended March 31, 2014



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Reclassifications and Eliminations		Consolidated
Sources (uses) of cash and cash equivalents
Net cash provided by (used in) operating activities	$	7,724		$	(26,984	)	$	12,514		$	—	$	(6,746	)
Investing activities:
Capital expenditures	—			(13,348		)	(18,799		)	—		(32,147		)
Change in restricted cash	—			4,047			—			—		4,047
Proceeds from sale of assets	—			996			1,851			—		2,847
Net cash provided by (used in) investing activities	—			(8,305		)	(16,948		)	—		(25,253		)
Financing activities:
Proceeds from revolving line of credit	—			9,000			12,000			—		21,000
Payments on revolving line of credit	—			(2,551		)	—			—		(2,551		)
Deferred acquisition payments	(20,977		)	(1,000		)	—			—		(21,977		)
Payments of long-term debt	(3,583		)	(16		)	—			—		(3,599		)
Proceeds from exercise of stock options	250			—			—			—		250
Net cash provided by (used in) financing activities	(24,310		)	5,433			12,000			—		(6,877		)
Net increase (decrease) in cash and cash equivalents	(16,586		)	(29,856		)	7,566			—		(38,876		)
Effect of foreign currency fluctuations on cash	—			—			827			—		827
Cash and cash equivalents at beginning of fiscal year	17,202			52,056			26,720			—		95,978
Cash and cash equivalents at end of fiscal year	$	616		$	22,200		$	35,113		$	—	$	57,929

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		KEMET CORPORATION (Registrant)

Date: May 24, 2016		/s/ WILLIAM M. LOWE, JR.
		William M. Lowe, Jr. Executive Vice President and Chief Financial Officer

________________________________________________________________________________________________________________________

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Date: May 24, 2016		/s/ PER-OLOF LÖÖF
		Per-Olof Lööf Chief Executive Officer and Director (Principal Executive Officer)

Date: May 24, 2016		/s/ WILLIAM M. LOWE, JR.
		William M. Lowe, Jr. Executive Vice President and Chief Financial Officer (Principal Accounting and Financial Officer)

Date: May 24, 2016
		Frank G. Brandenberg Chairman and Director

Date: May 24, 2016		/s/ DR. WILFRIED BACKES
		Dr. Wilfried Backes Director

Date: May 24, 2016		/s/ GURMINDER S. BEDI
		Gurminder S. Bedi Director

Date: May 24, 2016		/s/ JOSEPH V. BORRUSO
		Joseph V. Borruso Director

Date: May 24, 2016		/s/ JACOB KOZUBEI
		Jacob Kozubei Director

Date: May 24, 2016		/s/ E. ERWIN MADDREY, II
		E. Erwin Maddrey, II Director

Date: May 24, 2016		/s/ ROBERT G. PAUL
		Robert G. Paul Director

121

Exhibit 10.15

[Current Date]

[Name and Address]

Re: Change in Control Severance Compensation Agreement

Dear _______:

The board of directors (the “Board”) of KEMET Corporation (the “Company”) has determined that it is in the best interests of the Company and its shareholders to assure the continued dedication to the Company of senior management personnel, notwithstanding any possibility, threat or occurrence of a Change in Control of the Company (as defined below). Accordingly, in order to encourage your continued attention and dedication to your assigned duties regardless of any such possibility, threat or occurrence, the Board has authorized the Company to enter into this “Change in Control Severance Compensation Agreement” (the “Agreement”) in order to provide you with certain compensation and other benefits in the event that your employment with the Company is terminated as a result of a Change in Control of the Company.

The terms and conditions of this Agreement are as follows:

1. Term of the Agreement . (A) The Term of this Agreement shall commence on the date first set forth above and shall end on __________; provided, that if a Change in Control of the Company shall have occurred prior to __________, the Term of this Agreement shall end on the date that is the two year anniversary of the Change in Control. In addition, the Term of this Agreement shall automatically end upon the occurrence of any of the following:

(i) Your death or receipt of a Notice of Termination due to Disability;

(ii) Your attainment of your Retirement Date; or

(iii) A determination by the Board that you are no longer eligible to receive the benefits set forth in this Agreement and your receipt of notice of any such determination; provided , that such a determination shall have no effect if made after a Change in Control of the Company or as a result of negotiations occurring in connection with a Change in Control of the Company.

(B) In the event of a Change in Control of the Company, subject to Paragraph 1(A), the Term of this Agreement shall be automatically extended to the earlier of: (i) the date that is two (2) years from the date such Change in Control of the Company occurred; or (ii) the occurrence of an event described in Paragraph 1(A)(i) or 1(A)(ii) above.

2. Change in Control of the Company . For purposes of this Agreement, a “Change in Control of the Company” shall mean any of the following events:

(A) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty-five percent (25%) or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”), or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided ,

however, that for purposes of this subparagraph (A), the following acquisitions shall not constitute a Change in Control of the Company: (1) any acquisition directly from the Company; (2) any acquisition by the Company; (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of subparagraph (C) below;

(B) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided , however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(C) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty-five percent (25%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination;

(D) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

3. Termination of Employment Following Change in Control of the Company .

(A) Termination . If a Change in Control of the Company occurs, you shall be entitled, upon the subsequent termination of your employment with the Company (“Termination”), to the benefits described in Paragraph 4 below, unless such Termination is: (i) by you other than for Good Reason; (ii) by the Company for Cause or because of your Disability; or (iii) because of your death or attainment of your Retirement Date. Any Termination (except a Termination resulting from your death) shall be made by written Notice of Termination from the party initiating such Termination to the other party to this Agreement.

(B) Notice of Termination . A Notice of Termination shall mean a written document stating the specific provision in this Agreement upon which a Termination is based and otherwise setting forth the facts and circumstances which provide the basis for a Termination.

(C) Date of Termination . The Date of Termination shall mean: (i) if the Termination occurs as a result of Disability, thirty (30) days after a Notice of Termination is given; (ii) if the Termination occurs for Good

Reason, the date specified in the Notice of Termination; and (iii) if the Termination occurs for any other reason, the date on which the Notice of Termination is given.

(D) Good Reason . A Termination for Good Reason shall mean a Termination as a result of:

(i) The assignment to you, without your express written consent, of any duties inconsistent with your position, duties, responsibilities and status with the Company immediately prior to a Change in Control of the Company, or a change in your titles or offices (if any) in effect immediately prior to a Change in Control of the Company, or any removal of you from, or any failure to reelect you to, any of such positions, except in connection with your Termination for Cause, death, Disability, or as a result of your attainment of your Retirement Date.

(ii) A reduction by the Company in your base salary as in effect on the date hereof, or as the same may be increased from time to time thereafter;

(iii) The failure of the Company to continue in effect any compensation, welfare or benefit plan in which you are participating at the time of a Change in Control of the Company, without substituting therefor plans providing you with substantially similar benefits at substantially the same cost to you; or the taking of any action by the Company which would adversely affect your participation in or materially reduce your benefits or increase the cost to you under any of such plans or deprive you of any material fringe benefit enjoyed by you at the time of the Change in Control of the Company;

(iv) Any purported Termination for Cause or Disability without grounds therefor; or

(v) The relocation of your primary work location to a location that is more than 20 miles from your primary work location immediately prior to the Change in Control of the Company.

(E) Cause . A Termination for Cause shall mean (i) a Termination as a result of the willful and continued failure by you for a significant period of time substantially to perform your duties with the Company (other than any such failure resulting from your Disability), after a demand for substantial performance is delivered to you in writing by the Board or its designate which specifically identifies the manner in which the Board or its designate believes that you have not substantially performed your duties, or (ii) the willful engaging by you in gross misconduct materially and demonstrably injurious to the Company. No act, or failure to act, on your part shall be considered “willful” unless done, or omitted to be done, by you, not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. The burden for establishing the validity of any termination for Cause shall rest upon the Company. No Termination shall be deemed to be for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board called and held for such purpose (after reasonable notice is provided to you and you are given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, you are guilty of the conduct described in subclauses (i) or (ii) above, and specifying the particulars thereof in detail.

(F) Disability . A Disability shall mean that, as a result of your incapacity due to physical or mental illness, you shall have been unable to perform your duties with the Company for a period of six (6) months, and have no prospect of returning to employment with the Company within an additional six (6) months; provided , that the Company shall have made a reasonable accommodation of any such incapacity pursuant to, and shall otherwise have complied in all respects with, the provisions of the Americans with Disabilities Act of 1990.

(G) Retirement Date . Your “Retirement Date” shall mean the date on which you attain age 70-1/2, or the date you have informed the Company of your intentions to retire after you attain the age of fifty-five (55), but before the attainment of age 70-1/2.

4. Benefits . (A) In the event of your Termination for any reason except those set forth in Paragraphs 3(A)(i), 3(A)(ii) and 3(A)(iii) above, the Company shall pay to you the following amounts in a lump sum payment on the Date of Termination:

(i) An amount that is [twenty-four or eighteen (24 or18)] times the sum of (x) your monthly base salary at the rate in effect at the time a Notice of Termination is given and (y) the monthly amount of your annual target incentive bonus, determined by dividing the annual target incentive bonus by 12 for the year in which the Change of Control occurs.

(ii) The Company shall maintain in full force and effect, for a period of eighteen (18) months following your Date of Termination, all life insurance and medical insurance plans and programs (the “Company Programs”) in which you are entitled to participate immediately prior to the Date of Termination, provided that your continued participation is possible under the terms and provisions of such Company Programs. In the event that your participation in any Company Program is not permitted under the terms and provisions thereof, the Company will use its reasonable best efforts to provide you with, or arrange coverage for you which is substantially similar to (including comparable terms), the coverage that you would have received under the applicable Company Program. Notwithstanding the foregoing, the Company’s obligations under this Paragraph 4(A)(ii) shall terminate with respect to any Company Program on the date that you first become eligible, after your Date of Termination, for the same type of coverage under another employer’s plan.

(iii) The Company shall pay all reasonable legal fees and expenses incurred by you as a result of your Termination (including all such reasonable fees and expenses, if any, incurred in contesting or disputing your Termination or in seeking to obtain or enforce any rights or benefits provided by this Agreement).

(iv) The Company shall pay the costs of reasonable outplacement services until you are employed on a full-time basis, provided that payment by the Company of such costs shall not exceed $15,000.

(B) Accelerated Vesting under Equity Incentive Plans . In the event of your Termination for any reason except those set forth in Paragraphs 3(A)(i), 3(A)(ii) and 3(A)(iii) above, the Company shall pay benefits under certain performance award plans as follows. For any Long-Term Incentive Plan (“LTIP”) performance awards granted under the Company’s 2004 Long Term Equity Incentive Plan or the Company’s 2011 Omnibus Equity Incentive Plan in effect during the Term of this Agreement which have not yet vested or expired as of the date of a Change in Control, in the event of a Change in Control of the Company, the performance award shall automatically become vested and payable in the following manner: (i) for each pending LTIP, the “Measurement Period” shall consist of the period beginning with the first day of such LTIP performance period and ending with the last day of the fiscal year in which such Change in Control occurs; (ii) the actual performance of the Company through the date of the Change in Control shall be compared against the LTIP performance targets for such Measurement Period; (iii) in the event that, for any LTIP target, the Company’s cumulative performance over such Measurement Period equals or exceeds the LTIP performance target for such Measurement Period, you shall be paid the applicable target payment under the LTIP, up to the maximum target amount payable under such LTIP; but (iv) in the event that, for any LTIP target, the Company’s cumulative performance over such Measurement period is less than the LTIP performance target for such Measurement Period, you shall be paid the target amount payable under such LTIP. Payments will be made on a pro-rata basis, based upon the number of fiscal years included in the Measurement Period, divided by the total number of fiscal years included in such LTIP.

(C) No Mitigation Required . You shall not be required to mitigate the amount of any payment provided for in this Paragraph 4 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Paragraph 4 be reduced by any compensation earned by you as a result of employment by another employer after the Date of Termination, or otherwise, except as specifically provided in Paragraph 4(A)(ii).

(D) Code Section 409A Compliance. The intent of the parties is that payments and benefits under this Agreement comply with Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively “ Code Section 409A ”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. To the extent that any provision hereof is modified in order to comply with Code Section 409A, such modification shall be made in good faith and shall, to the maximum extent reasonably possible, maintain the original intent and economic benefit to you and the Company of the applicable provision without violating the provisions of Code Section 409A. In no event whatsoever shall the Company be

liable for any additional tax, interest or penalty that may be imposed on you by Code Section 409A or damages for failing to comply with Code Section 409A.

(i) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.” Notwithstanding anything to the contrary in this Agreement, if you are deemed on the date of termination to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the provision of any benefit that is considered deferred compensation under Code Section 409A payable on account of a “separation from service,” such payment or benefit shall not be made or provided until the date which is the earlier of (I) the expiration of the six (6)-month period measured from the date of your “separation from service,” and (II) the date of your death, to the extent required under Code Section 409A. Upon the expiration of the foregoing delay period, all payments and benefits delayed pursuant to this paragraph (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to you in a lump sum, and all remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. For purposes of Code Section 409A, your right to receive installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.

(E) “ Potential Payment Reduction . Notwithstanding any other provision of this Agreement to the contrary, in the event that any payment that is either received by you or paid by the Company on your behalf or any property, or any other benefit provided to you under this Agreement or under any other plan, arrangement or agreement with the Company or any other person whose payments or benefits are treated as contingent on a change of ownership or control of the Company (or in the ownership of a substantial portion of the assets of the Company) or any person affiliated with the Company or such person (but only if such payment or other benefit is in connection with your employment by the Company) (collectively the “Company Payments”), will be subject to the tax (the “Excise Tax”) imposed by Internal Revenue Code Section 4999 (and any similar tax that may hereafter be imposed by any taxing authority), then you will be entitled to receive either (i) the full amount of the Company Payments, or (ii) a portion of the Company Payments having a value equal to $1 less than three (3) times your “base amount” (as such term is defined in Internal Revenue Code Section 280G(b)(3)(A)), whichever of clauses (i) and (ii), after taking into account applicable federal, state, and local income taxes and the Excise Tax, results in the receipt by you on an after-tax basis, of the greatest portion of the Company Payments. Any determination required under this Section 4(E) shall be made in writing by the independent public accountant of the Company (the “ Accountants ”), whose determination shall be conclusive and binding for all purposes upon you and the Company. For purposes of making any calculation required by this Section 4(E), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good-faith interpretations concerning the application of Internal Revenue Code Sections 280G and 4999. If there is a reduction of the Company Payments pursuant to this Section 4(E), such reduction shall occur in the following order: (A) any cash severance payable by reference to your base salary or target incentive bonus, (B) any other cash amount payable to you, (C) any employee benefit valued as a “parachute payment,” and (D) acceleration of vesting of any outstanding equity award..

5. Miscellaneous .

(A) Limitation of Effect . This Agreement shall have no effect on any termination of your employment prior to a Change in Control of the Company, or upon any termination of your employment at any time as a result of your Disability, attainment of your Retirement Date, or death; and upon the occurrence of any such events, you shall receive only those benefits to which you would have been otherwise entitled prior to a Change in Control of the Company.

(B) Successors . (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would

be required to perform this Agreement if no such succession had taken place. Failure of the Company to obtain such assumption or agreement prior to the effectiveness of any such succession shall be a breach of this Agreement.

(ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amounts would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate.

(C) Notice . Notices provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or mailed by United States registered mail, return receipt requested, postage prepaid, to the respective addresses set forth on the first page of this Agreement, or to such other address as either party may have furnished to the other in writing, except that notices of change of address shall be effective only upon receipt by the other party. All notices to the Company shall be directed to the attention of Richard M. Vosburgh, Vice President & Chief Human Resources Officer.

(D) Modifications . No provision of this Agreement may be modified, waived or discharged unless such modification, waiver, or discharge is agreed to in writing and is signed by you and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

(E) Interpretation . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of South Carolina. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

*********************************************************

If you agree that the foregoing correctly sets forth the agreement between us, then please sign the enclosed copy of this Agreement in the space indicated below and return it to the Company.

Very truly yours,

KEMET Corporation

By:

Name: Stefano Vetralla


Title:	Vice President – Human Resources, Global Operations

Agreed to as of the day and year first written above:

EMPLOYEE

__________________________________________

Dated as of
[Current Date]

Exhibit 10.22

KEMET CORPORATION

FORM OF LONG-TERM INCENTIVE PLAN

AWARD AND RESTRICTED STOCK AGREEMENT

KEMET Corporation (the “Company”) is pleased to advise you that, pursuant to the 2014 Amendment and Restatement of the KEMET Corporation 2011 Omnibus Stock and Incentive Plan (the “Plan”), the Company’s Compensation Committee (the “Committee”) has granted to you this award under the FY20xx/FY20xx Long-Term Incentive Plan (the “LTIP Award”). [Alt. A: Sixty percent (60%) of the value of the LTIP Award is provided by a performance-based Performance Award which, if certain performance measures are met and other conditions satisfied, will provide you with a combination of cash and Restricted Stock Units of the Company. Forty percent (40%) of the value of the LTIP Award is provided by a time-based Restricted Stock Unit Award, by which, upon the vesting and settlement of the underlying Restricted Stock Units, you shall be issued Restricted Stock of the Company.] [Alt. B: Sixty percent (60%) of the value of the LTIP Award is provided by a performance-based Performance Award which, if certain performance measures are met and other conditions satisfied, will be paid to you in cash. Forty percent (40%) of the value of the LTIP Award is provided by a combination of cash and a time-based Restricted Stock Unit Award, by which, upon the vesting and settlement of the underlying Restricted Stock Units, you shall be issued Restricted Stock of the Company.] An illustration of your LTIP Award payouts in the event that the Company meets its performance targets has been provided to you in a separate document.

The LTIP Award is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan (which is incorporated herein by reference). Certain capitalized terms used herein are defined in the Plan. Inconsistencies between this Agreement and the Plan shall be resolved in accordance with the terms of the Plan.

The terms of the LTIP Award may be amended from time to time by the Committee in its discretion in any manner that it deems appropriate; provided that, except as otherwise provided below, no such amendment shall adversely affect in a material manner any of your rights under the LTIP Award without your written consent.

I. Performance Award

1. Grant . Subject to the terms and conditions set forth herein and in the Plan, the Company hereby grants to you a Performance Award to provide you with the amount identified to you separately upon the occurrence of the Company meeting the performance targets set forth in Annex A attached hereto.

2. Amount and Timing . The Performance Award shall be paid based upon the Company’s achievement of certain performance targets for the two-year performance period ending March 31, 20xx (the “Measurement Date”). [Alt. A: The Performance Award shall be paid as follows: fifty percent (50%) in the form of performance-based restricted stock units ("PSUs") and fifty percent (50%) in performance-based cash. Fifty percent (50%) of the PSUs (i.e., 25% of the value of the Performance Award) will vest after the end of the performance period and the remaining fifty percent (50%) of the PSUs will vest one year thereafter, as set forth in Section 4(a) below. The entire cash award will be paid at the end of the performance period.] [Alt. B: The Performance Award shall be paid in performance-based cash. Seventy-five percent (75%) of the award will vest and be paid following the end of the performance period and the remaining twenty-five percent (25%) will vest and be paid one year following the end of the performance period, as set forth in Section 4(a) below.]

3. Performance-based Restricted Stock Units . At any time on or after the date hereof and prior to the Measurement Date, the Committee may, but shall not be required to, substitute performance-based restricted stock units (“PSUs”) for up to 100% of the cash portion of the Performance Award that may be earned hereunder. Notwithstanding anything in this Agreement to the contrary, in the event the Committee makes such a substitution, the PSUs will vest on the same schedule as the cash portion that the Performance Shares replaced. Any such determination will be subject to the sole discretion of the Committee, and communicated to you by any manner deemed appropriate by the Committee. In the event of any such substitution, the Committee shall value any such replacement PSUs at a price per share equal to the closing price of the Common Stock for the trading market on May xx, 20xx, the date of the grant of the Performance Award. Any such decision by the Committee shall also be subject to the Company having available authorized but unissued performance shares under the Plan to satisfy such Performance Award.

4. Exercisability/Vesting and Expiration .

(a) Normal Vesting . [Alt. A: The Performance Award granted hereunder may be exercised only to the extent it has become vested. One hundred percent (100%) of the cash component of the Performance Award, along with fifty percent (50%) of the PSUs, shall vest on the later of (i) the date of the first quarterly Board meeting following the Measurement Date set forth in Section I.2 above, or (ii) one year from the grant date (the “Initial Vesting Date”), if and only if the Company has attained the performance goals set forth in Annex A attached hereto. Subject to attainment of the performance goals, the remaining fifty percent (50%) of the PSUs will vest one year after the Initial Vesting Date.] [Alt. B: The Performance Award granted hereunder will be paid to you only to the extent it has become vested. Seventy-five percent (75%) of the Performance Award shall vest on the later of (i) the date of the first quarterly Board meeting following the Measurement Date set forth in Section I.2 above, or (ii) one year from the grant date (the “Initial Vesting Date”), if and only if the Company has attained the performance goals set forth in Annex A attached hereto. Subject to attainment of the performance goals, the remaining twenty-five (25%) of the Performance Award will vest one year after the Initial Vesting Date.]

(b) Effect on Vesting and Expiration of Employment Termination . Notwithstanding paragraph I.4(a) above, if your employment with the Company terminates prior to a component of the Performance Award becoming vested for any reason, you shall not be entitled to any right to receive such component of the Performance Award. There is no pro-rata vesting of a Performance Award.

(c) Change in Control . Notwithstanding the foregoing paragraph I.4(b), if there is a Change in Control prior to the Measurement Date, then the Performance Award shall become vested and payable, but only on a pro-rata basis in an overall amount that takes into account the time of the Change in Control as compared to the Grant Date and the Measurement Date, and only if the Company has attained the performance targets at the time of the Change in Control (determined on the basis of actual results over the time elapsed from the Grant Date).

5. Payment and Issuance . Payment of the [Alt. A: cash component of the Performance Award and issuance of the PSUs pursuant to the Performance Award] [Alt. B: Performance Award] will be made following the Company’s final determination of its FYxx financial results and the Committee’s approval of Performance Award payouts under the FYxx/FYxx LTIP, but in no event later than the date that is 2.5 months after the end of calendar year in which vesting occurs, or if later, the end of the Company’s tax year in which vesting occurs. [If substituted for cash pursuant to I.3 above,] PSUs will not be exercised for a fraction of a PSU, and components of the Performance Award will be rounded up or down to the nearest whole dollar or whole share, as applicable. The Company, to the extent permitted or required by law, shall have the right to deduct from any payment of any kind (including salary or bonus) otherwise due to you, an amount equal to any federal, state or local taxes of any kind required by law to be withheld with respect to the delivery of any component of the Performance Award. Issuance of the PSUs is subject to execution by you and the Company of a Restricted Stock Unit Grant Agreement concerning such PSUs, which shall detail the number of PSUs issued to you and shall include equivalent provisions to those set forth in Sections II.3 – 21 below, but which Restricted Stock Unit Grant Agreement shall not adjust the timing of settlement from that set forth above.

II. Restricted Stock Unit (RSU) Award and Agreement (time-based vesting).

1. Grant . Subject to the terms and conditions set forth herein, the Company hereby grants to you the Restricted Stock Units. The Restricted Stock Units shall vest and become non-forfeitable in accordance with Section II.2 below.

2. Amount and Timing .

(a). Time-Based Vesting . The Restricted Stock Units shall vest and become non-forfeitable in the amounts as provided in your individual letter and on the dates indicated by the Vesting Dates of Restricted Stock Units on 5/xx/20xx, 5/xx/20xx, 5/xx/20xx.

(b). Forfeiture . You must be employed by the Company as of the date of vesting and must have been continuously employed by the Company from the date of this grant through the vesting date for the Restricted Stock Units to vest. Notwithstanding the foregoing, if you cease to be an employee of the Company due to Cause (as defined in the Plan), then all of the Restricted Stock (received from vested and settled Restricted Stock Units) not yet sold by you or your permitted transferor shall be forfeited immediately upon such cessation.

3. Settlement . No shares of Restricted Stock will be issued before the Restricted Stock Units vest in accordance with Section II.2 above. Within thirty (30) days after the date on which the Restricted Stock Units vest at the earlier of the vesting schedule provided in Section II.2 above or as vesting may be provided by employment agreement or otherwise, the Company will issue to you or your legal guardian or representative (if applicable) one share of Restricted Stock for each vested Restricted Stock

Unit. The issuance of shares of Restricted Stock may be in certificated form or in book entry form, in the Company’s sole discretion, in either case without restrictive legend or notation (except to the extent necessary or appropriate under applicable securities laws). The Restricted Stock Units shall not be settled in cash.

4. Payment and Withholding of Taxes .

(a) Net Settlement . You are responsible for the payment of all taxes on the LTIP Award. The Company will withhold Restricted Stock acquired upon the vesting and settlement of the Restricted Stock Units to satisfy, in whole or in part, the amount the Company is required to withhold for taxes in connection with vesting and settlement. The fair market value of the Restricted Stock to be withheld or delivered will be the Fair Market Value as of the date the amount of tax to be withheld is determined.

(b) Company Requirement . The Company, to the extent permitted or required by law, shall have the right to deduct from any payment of any kind (including salary or bonus) otherwise due to you, an amount equal to any federal, state or local taxes of any kind required by law to be withheld with respect to the delivery of any component of the LTIP Award under this Agreement. You shall have full responsibility, and, subject to Section II.4(a), the Company shall have no responsibility (except as may be imposed by applicable law), for satisfying any liability for any federal, state or local income or other taxes required by law to be paid with respect to the Restricted Stock Units, including upon the receipt, vesting or settlement of the Restricted Stock Units. You should seek your own tax counsel regarding the taxation of the Restricted Stock Units. Subject to Section II.4(a), the Company, to the extent permitted or required by law, shall have the right to deduct from any payment of any kind otherwise due to you, an amount equal to any federal, state or local taxes of any kind required by law to be withheld with respect to the delivery of shares of Restricted Stock after settlement of the Restricted Stock Units awarded under this Agreement.

5. Transfer of Units Award . Neither this Units Award nor your rights under such award are assignable or transferable except by will or the laws of descent and distribution, or with the Committee’s consent in accordance with Section 12.3 of the Plan.

6. Restrictions on Sale .

(a) Compliance with Equity Ownership Guidelines . Notwithstanding anything else contained in this Agreement or the Plan, you agree not to sell, transfer, assign or otherwise dispose of any Restricted Stock issued from Unit Awards hereunder, and agree to place the same restrictions on any permitted transferee hereunder, until such time as the Company has determined, in its sole discretion and by written notice to you, that you have attained the targeted minimum ownership interest under Company equity ownership guidelines applicable to you, and only to the extent that such disposition does not cause you to fail to continue to comply with such ownership guidelines, unless the prior sale is approved in advance by the Committee. Upon written notice from the Company confirming that you are in compliance with the Company’s equity ownership guidelines, subject to Section II.10 below, you may dispose of your Restricted Stock issued from Unit Awards hereunder in excess of targeted minimum ownership requirements if they have vested in accordance with applicable law.

(b) Holding Period . Except as provided in Section II.6(a) above, you are prohibited from selling, transferring, assigning or otherwise disposing of any Restricted Stock as long as you remain as an employee of the Company. Following the termination of your services as an employee, you may, 90 days following the date of your termination, dispose of your Restricted Stock in accordance with applicable law.

(c) Merrill Lynch Brokerage Account . As a participant in the Long Term Incentive Plan, you will be required to set up a Merrill Lynch Brokerage account through KEMET’s Benefits On-Line System. All vested shares must remain in this account until either (a) termination from KEMET as provided in I.6(b) above, or if in excess of targeted minimum ownership requirements as provided in I.6(a) above.

(d) Change in Control . The restrictions on sale set forth in Sections II.6(a) and (b) above shall lapse in the event of a Change in Control.

7. Rights as a Stockholder . You shall have no voting or other rights as a stockholder of the Company until certificates are issued or a book entry representing such shares has been made and such shares have been deposited with the appropriate registered book entry custodian.

8. Change in Capitalization . In the event of a dividend or distribution paid in shares of Common Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 12.2 of the Plan that occurs prior to settlement, appropriate adjustment shall be made to the Restricted Stock Units so that they represent the right to receive upon settlement any and all new, substituted or additional securities or other property (other than cash dividends) to which you would be entitled if you had owned, at the time of such change in capital structure, the shares of Restricted Stock issuable upon settlement of the Restricted Stock Units.

9. Limitation on Obligations . Except as provided in Section II.8 above, the Company’s obligation with respect to the Restricted Stock Units is limited solely to the delivery to you of shares of Restricted Stock upon settlement, and in no way shall the Company become obligated to pay cash or other assets in respect of such obligation. In addition, the Company shall not be liable to you for damages relating to any delay in issuing the shares or share certificates or any loss of the certificates.

10. Securities Laws and Trading Policy . Upon the vesting or settlement of any Restricted Stock Units, the Company may require you to make or enter into such written representations, warranties and agreements as the Compensation Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. The granting of the Restricted Stock Units shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required. You agree to comply with all applicable requirements of the Company’s Statement of Policy to Directors, Officers and Key Employees Concerning Securities Trading and Disclosure of Confidential Information.

11. Conformity with Plan . The grant of Restricted Stock Units is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan. Inconsistencies between this Agreement and the Plan shall be resolved in accordance with the terms of the Plan. By executing and returning the enclosed copy of this Agreement, you acknowledge your receipt of this Agreement and the Plan and agree to be bound by all of the terms of this Agreement and the Plan.

12. Rights of Participants . Nothing in this Agreement shall interfere with or limit in any way the right of the Company or its stockholders to terminate your duties as an employee at any time (with or without Cause), nor confer upon you any right to continue as an employee of the Company for any period of time, or to continue your present (or any other) rate of compensation. Any such termination prior to the vesting of the Restricted Stock Units shall result in the forfeiture of such Restricted Stock Units.

13. Remedies . The parties hereto shall be entitled to enforce their rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto acknowledge and agree that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that any party hereto may, in its sole discretion, apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief (without posting bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement.

14. Successors and Assigns . Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto whether so expressed or not.

15. Severability . Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

16. Counterparts . This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same Agreement.

17. Descriptive Headings . The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

18. Governing Law . THE VALIDITY, CONSTRUCTION, INTERPRETATION, ADMINISTRATION AND EFFECT OF THE PLAN, AND OF ITS RULES AND REGULATIONS, AND RIGHTS RELATING TO THE PLAN AND TO THIS AGREEMENT, SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS, BUT NOT THE CHOICE OF LAW RULES, OF THE STATE OF DELAWARE.

19. 409A . Notwithstanding anything in this Agreement to the contrary, this LTIP Award is intended to satisfy the “short-term deferral” exception to Section 409A and shall be interpreted and administered to further such intent. If for any reason it is determined that an LTIP Award or portion of LTIP Award is subject to the requirements of Section 409A, then as to that LTIP Award or portion of LTIP Award only. If the vesting of the balance, or some lesser portion of the balance, of the applicable sub-Award is accelerated in connection with your termination of service (provided that such termination is a “separation from service” within the meaning of Section 409A, as determined by the Company), other than due to death, and if (x) you are a “specified employee” within the meaning of Section 409A at the time of such Termination of Service, and (y) the payment of such accelerated applicable sub-

Award will result in the imposition of additional tax under Section 409A if paid to you on or within the six (6) month period following your termination of service, then the payment of such applicable sub-Award will not be made until the date six (6) months and one (1) day following the date of your termination of service, unless you die following your termination of service, in which case, the applicable sub-Award will be paid in Restricted Stock as soon as practicable following your death. It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the Restricted Stock Units provided under this Agreement or Restricted Stock issuable thereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. For purposes of this Agreement, “Section 409A” means Section 409A of the Code, and any Treasury Regulations and Internal Revenue Service guidance thereunder, as each may be amended from time to time.

20. Notices . All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally or mailed by certified or registered mail, return receipt requested and postage prepaid, to the recipient. Such notices, demands and other communications shall be sent to you at the address appearing on the signature page to this Agreement and to the Company at KEMET Corporation, 101 NE 3 ^rd Avenue #1700, Fort Lauderdale, FL 33301, Attn: Stefano Vetralla, Senior Vice President - Chief Human Resources Officer, or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.

21. Data Protection . By Accepting this Agreement, you are consenting to the holding, processing and transfer of personal data by or to the Company, any subsidiary or affiliate, any third party broker, registrar or administrator or any future purchaser of the Company or relevant subsidiary or affiliate employing you for all purposes relating to the operation of the Plan and this Award and this consent shall include transferring or processing personal data outside the United States or European Economic Area (as defined by the Data Protection Act 1998) or other jurisdiction to which you or the Company or other party named above might be subject.

22. Entire Agreement . This Agreement and the terms of the Plan constitute the entire understanding between you and the Company, and supersede all other agreements, whether written or oral, with respect to your acquisition of the Restricted Stock Units.

* * * * *

Acceptance of FYxx/FYxx Long Term Incentive

Award and Restricted Stock Unit Grant Agreement

23. On–Line Acceptance . This Agreement is not effective until you confirm your understanding and acceptance of the agreements contained in this Agreement as follows: by clicking the “Accept Now” link on the Equity Plan page of your Merrill Lynch Benefits Online account, you

acknowledge having read this Agreement and the Plan and agree to be bound by all provisions set forth herein and in the Plan.

By accepting your award(s), you agree to the terms of the stock agreement(s) applicable to your award(s) and acknowledge receipt by access to the 2014 Amendment and Restatement of the KEMET Corporation 2011 Omnibus Stock and Incentive Plan. These documents are also accessible via the Merrill Lynch Web site by selecting the Individual Plan Information tab -] Communications Center -] Plan Documents for KEMET Corporation.

Very truly yours,

KEMET Corporation

Name: Stefano Vetralla Title: Senior Vice President -

Chief Human Resources Officer

ANNEX A

FYxx/FYxx LTIP PERFORMANCE MEASURES

Exhibit 10.30

AMENDMENT NO. 7 TO LOAN AND SECURITY AGREEMENT, WAIVER AND CONSENT

THIS AMENDMENT NO. 7 TO LOAN AND SECURITY AGREEMENT, WAIVER AND CONSENT (this “ Amendment ”) is made as of March 27, 2015 (the “ Sixth Amendment Effective Date ”) by and among KEMET ELECTRONICS CORPORATION, a Delaware corporation (“ KEC ”), KEMET FOIL MANUFACTURING, LLC, a Delaware limited liability company (“ KEMET Foil ”), KEMET BLUE POWDER CORPORATION, a Nevada corporation (“ KEMET Blue ”), THE FOREST ELECTRIC COMPANY, an Illinois corporation (“ FELCO ”; and together with KEC, KEMET Foil and KEMET Blue, collectively, the “ U.S. Borrowers ”), KEMET ELECTRONICS MARKETING (S) PTE LTD., a Singapore corporation (“ Singapore Borrower ” and, together with U.S. Borrowers, collectively, “ Borrowers ”), the financial institutions party hereto as lenders (collectively, “ Lenders ”) and BANK OF AMERICA, N.A., a national banking association, as agent for the Lenders (“ Agent ”).

W I T N E S S E T H:

WHEREAS, Borrowers, Lenders and Agent have entered into a Loan and Security Agreement, dated as of September 30, 2010 (as amended, restated, renewed, extended, substituted, modified and otherwise supplemented from time to time, the “ Loan Agreement ”), and certain other Loan Documents (as defined in the Loan Agreement);

WHEREAS, Borrowers have advised Agent and the Lenders that KEC desires to purchase all of the outstanding shares of the capital stock of IntelliData Inc., a Colorado corporation (“ IntelliData ”), as described in the Stock Purchase Agreement, dated as of March 10, 2015, in the form of Exhibit A attached hereto (together with all schedules and exhibits thereto, the “ Stock Purchase Agreement ”), all as more fully set forth in the Stock Purchase Agreement (the “ IntelliData Acquisition Transaction ”);

WHEREAS, Borrowers have requested that Agent and Lenders consent to and waive any provisions of the Loan Agreement that may prohibit or be violated by the IntelliData Acquisition Transaction;

WHEREAS, Borrowers have requested that Agent and Lenders agree to amend certain provisions of the Loan Agreement, and Agent and Lenders are willing to do so, subject to the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

SECTION 1. DEFINITIONS.

Capitalized terms used and not defined in this Amendment shall have the respective meanings given them in the Loan Agreement.

SECTION 2. ACKNOWLEDGMENTS.

2.1 Acknowledgment of Obligations . Each Borrower hereby acknowledges, confirms and agrees that as of the Seventh Amendment Effective Date, U.S. Borrowers are indebted to Agent and Lenders

in respect of the Revolver Loans in the principal amount of $ $21,481,295.73 and $0 in respect of LC Obligations, and Singapore Borrower is indebted to Agent and Lenders in respect of the Revolver Loans in the principal amount of $12,000,000. All such amounts, together with interest accrued and accruing thereon, and fees, costs, expenses and other charges now or hereafter payable by each Borrower to Agent and Lenders, are unconditionally owing by such Borrower to Agent and Lenders in accordance with the terms of the Loan Documents, without offset, defense or counterclaim of any kind, nature or description whatsoever.

2.2 Acknowledgment of Security Interests . Each Borrower hereby acknowledges, confirms and agrees that Agent, for the benefit of Secured Parties, has and shall continue to have valid, enforceable and perfected first priority Liens, subject to Permitted Liens, upon and security interests in the Collateral of such Borrower heretofore granted to Agent, for the benefit of Secured Parties, pursuant to the Loan Documents or otherwise granted to or held by Agent, for the benefit of Secured Parties, and upon and in which Agent, for the benefit of Secured Parties, presently has perfected first priority Liens and security interests.

2.3 Binding Effect of Documents . Each Borrower hereby acknowledges, confirms and agrees that: (a) each of the Loan Documents to which it is a party has been duly executed and delivered, and each is in full force and effect as of the date hereof, (b) the agreements and obligations of such Borrower contained in the Loan Documents and in this Amendment constitute the legal, valid and binding obligations of such Borrower, enforceable against it in accordance with their respective terms, and such Borrower has no valid defense to the enforcement of such obligations, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the rights of creditors generally and to the effect of general principles of equity whether applied by a court of law or equity, and (c) Agent and Lenders are and shall be entitled to the rights, remedies and benefits provided for in the Loan Documents and applicable law.

SECTION 3. AMENDMENTS. Effective as of the date hereof:

3.1 Section 1.1 of the Loan Agreement is hereby amended to insert the following new defined term in the appropriate alphabetical order:

“ Seventh Amendment Effective Date : March 27, 2015.”

3.2 The definition of “Fixed Charge Coverage Ratio” set forth in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

“ Fixed Charge Coverage Ratio : at any time, the ratio, determined on a consolidated basis for Parent and its Subsidiaries for the most recently ended period of four Fiscal Quarters, of (a) EBITDA for such period minus unfinanced Capital Expenditures minus cash taxes paid, in each case during such period, to (b) Fixed Charges for such period. For the purposes of determining the Applicable Margin and the covenants set forth in Sections 10.2.1 (Permitted Debt), 10.2.4 (Distributions; Upstream Payments), 10.2.5 (Restricted Investments), 10.2.8 (Restrictions on Payment of Certain Debt), and 10.3.1 (Fixed Charge Coverage Ratio), the Fixed Charge Coverage Ratio shall be calculated as of the most recent period for which financial statements were, or were required to be, delivered hereunder.”

SECTION 4. WAIVER AND CONSENT IN RESPECT OF THE INTELLIDATA ACQUISITION TRANSACTION.

4.1 Borrowers and the other Obligors have requested that Agent and the Lenders consent to and waive the application of any provisions of the Loan Agreement that may prohibit or be violated by the

IntelliData Acquisition Transaction, including, without limitation, Section 10.2.5 of the Loan Agreement, to the extent applicable, and each other provision of the Loan Agreement and each other Loan Document that may prohibit or be violated by the IntelliData Acquisition Transaction and consent to the IntelliData Acquisition Transaction.

4.2 Subject to the terms and conditions set forth herein, Agent and the Required Lenders hereby (i) waive the application of Section 10.2.5 of the Loan Agreement, to the extent applicable, and each other provision of the Loan Agreement and each other Loan Document that may prohibit or be violated by the IntelliData Acquisition Transaction and (ii) consent solely to permit the IntelliData Acquisition Transaction, in accordance with the terms of the Stock Purchase Agreement.

SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS.

Each Borrower hereby represents, warrants and covenants with and to Agent and Lenders as follows:

5.1 Authorization .

(a) Each Obligor has the corporate or limited liability company power and authority to execute, deliver and perform this Amendment and, in the case of the Borrowers, to obtain the extensions and increases of credit under the Loan Agreement as amended by this Amendment (the “ Amended Loan Agreement ”).

(b) No consent or authorization of, filing with, notice to or other act by, or in respect of, any Governmental Authority or any other Person is required to be obtained by the Loan Parties in connection with this Amendment, except consents, authorizations, filings, acts and notices which have been obtained, taken or made and are in full force and effect.

(c) This Amendment has been duly executed and delivered on behalf of each Obligor that is a party hereto. This Amendment and the Amended Loan Agreement constitute the legal, valid and binding obligations of the Borrowers and the other Loan Parties and are enforceable against the Borrowers and the other Loan Parties in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

5.2 Representations in Loan Documents . Each of the representations and warranties made by or on behalf of such Borrower to Agent and Lenders in any of the Loan Documents was true and correct in all material respects when made (except for those representations and warranties that were already qualified by concepts of materiality or by express thresholds, which representations and warranties shall be true and correct in all respects) and is true and correct in all material respects on and as of the date of this Amendment with the same full force and effect as if each of such representations and warranties had been made by or on behalf of such Borrower on the date hereof and in this Amendment (other than such representations and warranties that relate solely to a specific prior date).

5.3 Binding Effect of Documents . This Amendment and the other Loan Documents have been duly executed and delivered to the Lender by such Borrower and are in full force and effect, as modified hereby.

5.4 No Conflict, Etc . The execution, delivery and performance of this Amendment by such Borrower will not violate or cause a default under any Applicable Law or Material Contract of such Borrower

and will not result in, or require, the creation or imposition of any Lien on any of its properties or revenues, other than Permitted Liens.

5.5 No Default or Event of Default . No Default or Event of Default exists immediately prior to the execution of this Amendment and no Default or Event of Default will exist immediately after the execution of this Amendment and the other documents, instruments and agreements executed and delivered in connection herewith.

5.6 Additional Events of Default . Any misrepresentation by such Borrower, or any failure of such Borrower to comply with the covenants, conditions and agreements contained in any Loan Document, herein or in any other document, instrument or agreement at any time executed and/or delivered by such Borrower with, to or in favor of Agent and/or Lenders shall, subject to the terms and provisions of the Loan Agreement and the other Loan Documents, constitute an Event of Default hereunder, under the Loan Agreement and the other Loan Documents.

SECTION 6. CONDITION PRECEDENT; CONDITION SUBSEQUENT.

6.1 The effectiveness of the terms and provisions of this Amendment shall be subject to the receipt by Agent of this Amendment, in form and substance satisfactory to Agent in its sole discretion, duly authorized, executed and delivered by each Borrower, Lenders and Agent.

6.2 Promptly after the Amendment No. 7 Effective Date, in accordance with Section 10.1.9 of the Loan Agreement, Borrowers shall cause IntelliData to guaranty the Obligations in a manner reasonably satisfactory to Agent, and to execute and deliver such documents, instruments and agreements and to take such other actions as Agent shall require to evidence and perfect a Lien in favor of Agent (for the benefit of Secured Parties) on all assets of IntelliData which are of a type constituting Collateral, in form and substance reasonably satisfactory to Agent.

SECTION 7. PROVISIONS OF GENERAL APPLICATION.

7.1 Effect of this Amendment . Except as modified pursuant hereto, and pursuant to the other documents, instruments and agreements executed and delivered in connection herewith, no other changes or modifications to the Loan Documents are intended or implied and in all other respects the Loan Documents are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent of conflict between the terms of this Amendment and the other Loan Documents, the terms of this Amendment shall control. Any Loan Document amended hereby shall be read and construed with this Amendment as one agreement.

7.2 Costs and Expenses . Borrowers absolutely and unconditionally agree to pay to Agent, on demand by Agent at any time and as often as the occasion therefor may require, whether or not all or any of the transactions contemplated by this Amendment are consummated: all reasonable fees and disbursements of any counsel to Agent in connection with the preparation, negotiation, execution, or delivery of this Amendment and any agreements delivered in connection with the transactions contemplated hereby and all reasonable out-of-pocket expenses which shall at any time be incurred or sustained by Agent or its directors, officers, employees or agents as a consequence of or in any way in connection with the preparation, negotiation, execution, or delivery of this Amendment and any agreements prepared, negotiated, executed or delivered in connection with the transactions contemplated hereby.

7.3 No Third Party Beneficiaries . The terms and provisions of this Amendment shall be for the benefit of the parties hereto and their respective successors and assigns; no other person, firm, entity or corporation shall have any right, benefit or interest under this Amendment.

7.4 Further Assurances . The parties hereto shall execute and deliver such additional documents and take such additional action as may be reasonably necessary or desirable to effectuate the provisions and purposes of this Amendment.

7.5 Binding Effect . This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns.

7.6 Merger . This Amendment sets forth the entire agreement and understanding of the parties with respect to the matters set forth herein. This Amendment cannot be changed, modified, amended or terminated except in a writing executed by the party to be charged.

7.7 Survival of Representations and Warranties . All representations and warranties made in this Amendment or any other document furnished in connection with this Amendment shall survive the execution and delivery of this Amendment and the other documents, and no investigation by Agent or any closing shall affect the representations and warranties or the right of Agent to rely upon them.

7.8 Severability . Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment.

7.9 Reviewed by Attorneys . Each Borrower represents and warrants to Agent and Lenders that it (a) understands fully the terms of this Amendment and the consequences of the execution and delivery of this Amendment, (b) has been afforded an opportunity to have this Amendment reviewed by, and to discuss this Amendment and each document executed in connection herewith with, such attorneys and other persons as such Borrower may wish, and (c) has entered into this Amendment and executed and delivered all documents in connection herewith of its own free will and accord and without threat, duress or other coercion of any kind by any Person. The parties hereto acknowledge and agree that neither this Amendment nor the other documents executed pursuant hereto shall be construed more favorably in favor of one than the other based upon which party drafted the same, it being acknowledged that all parties hereto contributed substantially to the negotiation and preparation of this Amendment and the other documents executed pursuant hereto or in connection herewith.

7.10 Governing Law; Consent to Jurisdiction and Venue .

(a) THIS AMENDMENT, UNLESS OTHERWISE SPECIFIED, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES (BUT GIVING EFFECT TO FEDERAL LAWS RELATING TO NATIONAL BANKS).

(b) EACH BORROWER HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT SITTING IN OR WITH JURISDICTION OVER THE STATE OF NEW YORK, IN ANY PROCEEDING OR DISPUTE RELATING IN ANY WAY HERETO, AND AGREES THAT ANY SUCH PROCEEDING SHALL BE BROUGHT BY IT SOLELY IN ANY SUCH COURT. EACH BORROWER IRREVOCABLY WAIVES ALL CLAIMS, OBJECTIONS AND DEFENSES THAT IT MAY HAVE REGARDING SUCH COURT’S PERSONAL OR SUBJECT MATTER JURISDICTION, VENUE OR INCONVENIENT FORUM. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR

NOTICES IN SECTION 14.3.1 OF THE LOAN AGREEMENT. Nothing herein shall limit the right of Agent or any Lender to bring proceedings against any Obligor in any other court, nor limit the right of any party to serve process in any other manner permitted by Applicable Law. Nothing in this Amendment shall be deemed to preclude enforcement by Agent of any judgment or order obtained in any forum or jurisdiction.

7.11 Waivers . TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER WAIVES (A) THE RIGHT TO TRIAL BY JURY (WHICH AGENT AND EACH LENDER HEREBY ALSO WAIVES) IN ANY PROCEEDING OR DISPUTE OF ANY KIND RELATING IN ANY WAY HERETO; (B) PRESENTMENT, DEMAND, PROTEST, NOTICE OF PRESENTMENT, DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY COMMERCIAL PAPER, ACCOUNTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY AGENT ON WHICH A BORROWER MAY IN ANY WAY BE LIABLE, AND HEREBY RATIFIES ANYTHING AGENT MAY DO IN THIS REGARD; (C) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF ANY COLLATERAL; (D) ANY BOND OR SECURITY THAT MIGHT BE REQUIRED BY A COURT PRIOR TO ALLOWING AGENT TO EXERCISE ANY RIGHTS OR REMEDIES; (E) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; (F) ANY CLAIM AGAINST AGENT OR ANY LENDER, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES) IN ANY WAY RELATING TO ANY ENFORCEMENT ACTION, OBLIGATIONS, LOAN DOCUMENTS OR TRANSACTIONS RELATING THERETO; AND (G) NOTICE OF ACCEPTANCE HEREOF. Each Borrower acknowledges that the foregoing waivers are a material inducement to Agent and Lenders entering into this Amendment and that Agent and Lenders are relying upon the foregoing in their dealings with Borrowers. Each Borrower has reviewed the foregoing waivers with its legal counsel and has knowingly and voluntarily waived its jury trial and other rights following consultation with legal counsel. In the event of litigation, this Amendment may be filed as a written consent to a trial by the court.

7.12 Counterparts . This Amendment may be executed in one or more counterparts, each of which shall constitute but one and the same Amendment. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. Delivery of an executed counterpart of this Amendment electronically or by facsimile shall be effective as delivery of an original executed counterpart of this Amendment.

[Signature page follows]

IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first written above.

KEMET ELECTRONICS CORPORATION

By: /s/ CHARLES C. MEEKS, JR.

Name: Charles C. Meeks, Jr.

Title: Executive Vice President, Solid Capacitor Business Group

KEMET ELECTRONICS MARKETING (S) PTE LTD.

By: /s/ ZHU YING

Name: Zhu Ying

Title: Director and Financial Controller

KEMET FOIL MANUFACTURING, LLC

By: /s/ STEVEN R. LANE

Name: Steven R. Lane

Title: Manager

KEMET BLUE POWDER CORPORATION

By: /s/ CHARLES C. MEEKS, JR.

Name: Charles C. Meeks, Jr.

Title: President

THE FOREST ELECTRIC COMPANY

By: /s/ CHARLES C. MEEKS, JR.

Name: Charles C. Meeks, Jr.

Title: President

[Signatures Continued on Next Page]

Amendment No. 7, Waiver and Consent

[Signatures Continued from Previous Page]

BANK OF AMERICA, N.A. , as Agent and sole Lender

By: /s/ ANDREW A. DOHERTY

Name: Andrew A. Doherty

Title: Senior Vice President

Amendment No. 7, Waiver and Consent

Exhibit 21.1

List of Subsidiaries as of March 31, 2016



Name of Subsidiary		Country of Incorporation
KEMET Electronics Corporation		United States (Delaware)
KEMET Blue Powder Corporation		United States (Nevada)
KEMET Foil Manufacturing, LLC		United States (Delaware)
KEMET Services Corporation		United States (Delaware)
KRC Trade Corporation		United States (Delaware)
The Forest Electric Company		United States (Illinois)
IntelliData Inc.		United States (Colorado)
KEMET Electronics Bulgaria EAD		Bulgaria
KEMET Electronics Services EOOD		Bulgaria
KEMET Electronics Oy		Finland
KEMET Electronics SAS		France
KEMET Electronics GmbH		Germany
KEMET Electronics Asia Limited		Hong Kong
KEMET Electronics Greater China Limited		Hong Kong
P.T. KEMET Electronics Indonesia		Indonesia
KEMET Electronics Italia S.r.l.		Italy
KEMET Electronics S.p.A.		Italy
KEMET Electronics Japan Co., Ltd.		Japan
NEC TOKIN Corporation		Japan
KEMET Electronics Macedonia DOOEL Skopje		Macedonia
KEMET Electronics (Malaysia) Sdn. Bhd.		Malaysia
KEMET de Mexico, S.A. de C.V.		Mexico
KEMET Electronics (Suzhou) Co., Ltd.		People’s Republic of China
Shanghai Arcotronics Components & Machineries Co., Ltd.		People’s Republic of China
KEMET Electronics Portugal, S.A.		Portugal
Evox Rifa Pte Ltd.		Singapore
KEMET Electronics Asia Pacific Pte Ltd.		Singapore
KEMET Electronics Marketing (S) Pte Ltd.		Singapore
Seoryong Singapore Pte. Ltd.		Singapore
KEMET Electronics AB		Sweden
KEMET Electronics, S.A.		Switzerland
KEMET Electronics Limited		United Kingdom

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:


(1)	Registration Statement (Form S-8 No. 333-123308)


(2)	Registration Statement (Form S-8 No. 33-96226)


(3)	Registration Statement (Form S-8 No. 333-67849)


(4)	Registration Statement (Form S-8 No. 333-176317)


(5)	Registration Statement (Form S-8 No. 333-197782)

of our reports dated May 24, 2016 , with respect to the consolidated financial statements of KEMET Corporation and subsidiaries and the effectiveness of internal control over financial reporting of KEMET Corporation and subsidiaries, included in this Annual Report (Form 10-K) of KEMET Corporation and subsidiaries for the year ended March 31, 2016 .

/s/ Ernst & Young LLP

Greenville, South Carolina

May 24, 2016

Exhibit 23.2

CONSENT OF PAUMANOK PUBLICATIONS, INC.

Date: May 23, 2016

We hereby irrevocably consent to the use of our company’s name, all references to reports conducted by us and the other information and data related thereto in the Form 10-K for the fiscal year ended March 31, 2016 filed with the Securities and Exchange Commission by KEMET Corporation.



PAUMANOK PUBLICATIONS, INC.

By:	/s/ DENNIS M. ZOGBI
	Name:	Dennis M. Zogbi
	Title:	Chief Executive Officer

Exhibit 23.3

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statement (Form S-8 No. 333-123308)

(2) Registration Statement (Form S-8 No. 33-96226)

(3) Registration Statement (Form S-8 No. 333-67849)

(4) Registration Statement (Form S-8 No. 333-176317)

(5) Registration Statement (Form S-8 No. 333-197782)

of our report dated May 23, 2016 with respect to the consolidated financial statements of NEC Tokin Corporation and subsidiaries, included in this Annual Report (Form 10-K) of KEMET Corporation and subsidiaries for the year ended March 31, 2016 .

/S/ Ernst & Young ShinNihon LLC

Tokyo, Japan

May 23, 2016

Exhibit 31.1

I, Per-Olof Lööf, certify that:


1.	I have reviewed this annual report on Form 10-K of KEMET Corporation;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 24, 2016



	/s/ PER-OLOF LÖÖF
	Per-Olof Lööf Chief Executive Officer and Director

Exhibit 31.2

I, William M. Lowe, Jr., certify that:


1.	I have reviewed this annual report on Form 10-K of KEMET Corporation;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 24, 2016



	/s/ WILLIAM M. LOWE, JR.
	William M. Lowe, Jr. Executive Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Per-Olof Lööf, hereby certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to my knowledge:

The accompanying Annual Report on Form 10-K for the year ended March 31, 2016 , fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of KEMET Corporation.



	Date: May 24, 2016
	/s/ PER-OLOF LÖÖF
	Per-Olof Lööf Chief Executive Officer and Director

The foregoing certifications are being furnished solely pursuant to 18 U.S.C. Section 1350 and are not being filed as part of this report or as a separate disclosure document.

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, William M. Lowe, Jr., hereby certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to my knowledge:

The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of KEMET Corporation.



	Date: May 24, 2016
	/s/ WILLIAM M. LOWE, JR.
	William M. Lowe, Jr. Executive Vice President and Chief Financial Officer

The foregoing certifications are being furnished solely pursuant to 18 U.S.C. Section 1350 and are not being filed as part of this report or as a separate disclosure document.

Exhibit 99.1

NEC TOKIN CORPORATION

Consolidated Financial Statements

As of March 31, 2016 and 2015 and for fiscal years ended March 31, 2016 , 2015 and 2014

(With Report of Independent Auditors)

NEC TOKIN CORPORATION

Table of Contents

Page

Report of Independent Auditors 1

Consolidated Balance Sheets 2

Consolidated Statements of Operations 4

Consolidated Statements of Changes in Shareholders’ Equity 5

Consolidated Statements of Cash Flows 7

Notes to Consolidated Financial Statements 8

Report of Independent Auditors

The Board of Directors and Management of NEC TOKIN Corporation:

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of NEC TOKIN Corporation and subsidiaries, which comprise the consolidated balance sheets as of March 31, 2016 and 2015, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity with accounting principles generally accepted in Japan; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of NEC TOKIN Corporation and subsidiaries as of March 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan, which differ in certain respects from accounting principles generally accepted in the United States (see Note 13 to the consolidated financial statements).

We have also recomputed the translation of the consolidated financial statements as of and for the year ended March 31, 2016 into United States dollars. In our opinion, the consolidated financial statements expressed in Japanese yen have been translated into United States dollars on the basis described in Note 1.

Report on comparative financial statements

We have not audited the accompanying consolidated statements of operations, changes in shareholders’ equity and cash flows of NEC TOKIN Corporation and subsidiaries for the year ended March 31, 2014, and the related notes to the consolidated financial statements for such period in accordance with auditing standards generally accepted in the United States and, accordingly, we express no opinion on them.

/S/ Ernst & Young ShinNihon LLC

Tokyo, Japan

May 18, 2016

NEC TOKIN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2016 AND 2015



	Millions of Yen				Thousands of U.S. Dollars (note 1)
	March 31, 2016		March 31, 2015		March 31, 2016
Assets
Current assets:
Cash on hand and in banks (note 11)	11,733		12,211		103,211
Accounts and notes receivable	8,453		7,702		74,358
Inventories (note 3)	5,809		5,855		51,100
Deferred income taxes (note 5)	80		70		704
Other current assets	916		739		8,057
Allowance for doubtful accounts	(28	)	(22	)	(247	)
Total current assets	26,963		26,555		237,183
Property, plant and equipment (note 7):
Land	3,995		4,138		35,143
Buildings and structures	30,510		31,532		268,385
Machinery, equipment and vehicles	48,296		50,020		424,842
Construction in progress	410		431		3,606
Other	10,222		10,649		89,919
Total	93,433		96,770		821,895
Less: Accumulated depreciation	(69,543	)	(69,319	)	(611,744	)
Property, plant and equipment, net	23,890		27,451		210,151
Investments and other non-current assets:
Investments in affiliates	1,436		1,441		12,632
Investments in securities	345		339		3,035
Software, net	436		614		3,835
Deferred income taxes (note 5)	186		217		1,636
Other assets	1,101		875		9,685
Allowance for doubtful accounts	(2	)	(2	)	(17	)
Total investments and other non-current assets	3,502		3,484		30,806
Total assets	54,355		57,490		478,140

See accompanying notes to the consolidated financial statements.

NEC TOKIN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

MARCH 31, 2016 AND 2015



	Millions of Yen				Thousands of U.S. Dollars (note 1)
	March 31, 2016		March 31, 2015		March 31, 2016
Liabilities and shareholders’ equity
Current liabilities:
Accounts and notes payable	5,835		5,664		51,328
Other payable	1,153		282		10,143
Short-term borrowings	913		2,512		8,031
Current installments of long-term debt	711		841		6,254
Provision for bonuses	933		955		8,207
Accrued expenses	1,805		2,209		15,878
Income taxes payable (note 5)	205		251		1,803
Estimated liabilities for antitrust claims and settlements (note 12)	7,902		3,587		69,511
Other current liabilities	475		480		4,179
Total current liabilities	19,932		16,781		175,334
Long-term liabilities:
Long-term debt, excluding current installments (note 4)	26,869		26,162		236,357
Liability for retirement benefits (note 6)	5,782		4,584		50,862
Deferred income taxes (note 5)	1,596		1,655		14,039
Other non-current liabilities	2,074		1,106		18,244
Total long-term liabilities	36,321		33,507		319,502
Total liabilities	56,253		50,288		494,836
Shareholders’ equity:
Capital stock
Common stock, no par value (1,100,000 thousand shares authorized and 541,869 thousand shares issued and outstanding)	34,281		34,281		301,557
Convertible preferred stock, no par value (300,000 thousand shares authorized, 270,934 thousand shares issued and outstanding) (note 1)	—		—		—
Capital surplus	—		32,354		—
Accumulated deficit	(36,848	)	(63,897	)	(324,138	)
Accumulated other comprehensive income	669		4,464		5,885
Total shareholders’ equity	(1,898	)	7,202		(16,696	)
Total liabilities and shareholders’ equity	54,355		57,490		478,140

See accompanying notes to the consolidated financial statements.

NEC TOKIN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FISCAL YEARS ENDED MARCH 31, 2016, 2015 AND 2014



	Millions of Yen						Thousands of U.S. Dollars (note 1)
	Year ended March 31, 2016		Year ended March 31, 2015		(Unaudited) Year ended March 31, 2014		Year ended March 31, 2016

Net sales	55,321		53,572		50,766		486,638
Cost of sales	(43,514	)	(42,552	)	(42,472	)	(382,776	)
Gross profit	11,807		11,020		8,294		103,862
Selling, general and administrative expenses (note 8)	(9,265	)	(9,536	)	(9,966	)	(81,501	)
Operating income (loss)	2,542		1,484		(1,672	)	22,361
Other income (expenses):
Interest income	48		31		27		422
Interest expense	(310	)	(327	)	(337	)	(2,727	)
Foreign currency exchange gain (loss)	(141	)	812		752		(1,240	)
Equity income (losses) from investments in affiliates	25		80		(3	)	220
Loss on impairment of long-lived assets (note 7)	(38	)	(25	)	(4,225	)	(334	)
Compensation for damage to customers	(6	)	(36	)	(6	)	(53	)
Gain (loss) on sale of long-lived assets (note 9)	(1	)	15		2,146		(9	)
Gain on sale of business (note 9)	—		554		—		—
Gain on transfer of plan assets (note 9)	—		371		—		—
Compensation received for damage	342		186		—		3,008
Costs for legal counsel	(1,356	)	(1,314	)	—		(11,928	)
Costs for antitrust claims and settlements (note 12)	(6,147	)	(3,587	)	—		(54,073	)
Restructuring charges (note 9)	—		(424	)	—		—
Other	14		(33	)	(388	)	124
Other income (expenses), net	(7,570	)	(3,697	)	(2,034	)	(66,590	)
Loss before income taxes	(5,028	)	(2,213	)	(3,706	)	(44,229	)
Income tax (expense) benefit (note 5):
Current	(337	)	(564	)	(535	)	(2,965	)
Deferred	60		(200	)	564		528
Total (provision for) benefit from income taxes	(277	)	(764	)	29		(2,437	)
Net loss	(5,305	)	(2,977	)	(3,677	)	(46,666	)

	Yen		Yen		Yen		U.S. Dollars (note 1)
Net loss per share (note 10)	(9.79)		(5.49)		(6.79)		(0.09)

See accompanying notes to the consolidated financial statements.

NEC TOKIN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FISCAL YEARS ENDED MARCH 31, 2016 , 2015 AND 2014



	Millions of Yen
							Accumulated other comprehensive income (loss)
	Common stock	Convertible preferred stock	Capital surplus		Accumulated deficit		Unrealized gain on securities		Pension liabilities adjustment		Foreign currency translation adjustments		Total Shareholders’ equity
Balance at April 1, 2013 (Unaudited - note 1)	34,281	—	32,354		(57,243	)	22		—		1,082		10,496
Net loss (Unaudited - note 1)	—	—	—		(3,677	)	—		—		—		(3,677	)
Other comprehensive income (loss) (Unaudited – note 1)	—	—	—		—		9		(1,039	)	377		(653	)
Balance at March 31, 2014 (Unaudited - note 1)	34,281	—	32,354		(60,920	)	31		(1,039	)	1,459		6,166
Balance at April 1, 2014	34,281	—	32,354		(60,920	)	31		(1,039	)	1,459		6,166
Net loss	—	—	—		(2,977	)	—		—		—		(2,977	)
Other comprehensive income	—	—	—		—		79		1,005		2,929		4,013
Balance at March 31, 2015	34,281	—	32,354		(63,897	)	110		(34	)	4,388		7,202
Balance at April 1, 2015	34,281	—	32,354		(63,897	)	110		(34	)	4,388		7,202
Net loss	—	—	—		(5,305	)	—		—		—		(5,305	)
Transfer between capital surplus and accumulated deficit	—	—	(32,354	)	32,354		—		—		—		—
Other comprehensive loss	—	—	—		—		(54	)	(1,080	)	(2,661	)	(3,795	)
Balance at March 31, 2016	34,281	—	—		(36,848	)	56		(1,114	)	1,727		(1,898	)



	Thousands of U.S. Dollars (note 1)
							Accumulated other comprehensive income (loss)
	Common stock	Convertible preferred stock	Capital surplus		Accumulated deficit		Unrealized gain on securities		Pension liabilities adjustment		Foreign currency translation adjustments		Total Shareholders’ equity
Balance at April 1, 2015	301,557	—	284,606		(562,078	)	968		(299	)	38,599		63,353
Net loss	—	—	—		(46,666	)	—		—		—		(46,666	)
Transfer between capital surplus and accumulated deficit	—	—	(284,606	)	284,606		—		—		—		—
Other comprehensive loss	—	—	—		—		(475	)	(9,500	)	(23,408	)	(33,383	)
Balance at March 31, 2016	301,557	—	—		(324,138	)	493		(9,799	)	15,191		(16,696	)

See accompanying notes to the consolidated financial statements.

NEC TOKIN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEARS ENDED MARCH 31, 2016, 2015 AND 2014



	Millions of Yen						Thousands of U.S. Dollars (note 1)
	Year ended March 31, 2016		Year ended March 31, 2015		(Unaudited) Year ended March 31, 2014		Year ended March 31, 2016
Cash flows from operating activities:
Loss before income taxes	(5,028	)	(2,213	)	(3,706	)	(44,229	)
Adjustments to reconcile loss before income taxes to net cash provided by operating activities:
Depreciation and amortization	5,752		5,204		5,646		50,598
Loss on impairment of long-lived assets	38		25		4,225		334
Equity (income) losses from investments in affiliates	(25	)	(80	)	3		(220	)
Foreign currency exchange (gain) loss	185		(659	)	(283	)	1,627
(Gain) loss on sale of long-lived assets	1		(15	)	(2,146	)	9
Gain on sale of businesses	—		(554	)	—		—
Income taxes paid	(354	)	(656	)	(510	)	(3,114	)
Changes in operating assets and liabilities:							—
Accounts and notes receivable, net	(1,051	)	(141	)	(199	)	(9,245	)
Inventories	(283	)	(330	)	999		(2,489	)
Accounts and notes payable	461		(32	)	167		4,055
Liability for retirement benefits	133		(948	)	671		1,170
Accrued expenses	(343	)	305		295		(3,017	)
Other payable	1,421		8		3		12,500
Estimated liabilities for antitrust claims and settlements	4,315		3,587		—		37,957
Other current liabilities	145		(104	)	509		1,276
Other, net	(299	)	196		295		(2,631	)
Net cash provided by operating activities	5,068		3,593		5,969		44,581
Cash flows from investing activities:
Purchases of property, plant and equipment	(3,259	)	(3,714	)	(4,263	)	(28,668	)
Proceeds from sales of property, plant and equipment	2		26		2,171		18
Purchase of software	(429	)	(162	)	(281	)	(3,774	)
Proceeds from sales of securities	3		—		2		26
Deposits made to time deposit accounts	(3	)	(77	)	(49	)	(26	)
Withdrawals from time deposits	2		135		20		18
Proceeds from sales of businesses	—		1,075		—		—
Other, net	(63	)	2		—		(555	)
Net cash used in investing activities	(3,747	)	(2,715	)	(2,400	)	(32,961	)
Cash flows from financing activities:
Increase in short-term borrowings, net	350		350		—		3,079
Repayments of short-term borrowings	(1,884	)	—		—		(16,573	)
Proceeds from issuance of long-term debt	1,534		—		759		13,494
Repayments of long-term debt	(847	)	(1,269	)	(245	)	(7,451	)
Repayment of capital lease obligation	(74	)	(103	)	(103	)	(651	)
Net cash (used in) provided by financing activities	(921	)	(1,022	)	411		(8,102	)
Effect of exchange rate changes on cash and cash equivalents	(878	)	1,092		75		(7,723	)
Net increase (decrease) in cash and cash equivalents	(478	)	948		4,055		(4,205	)
Cash and cash equivalents at beginning of period	12,211		11,263		7,208		107,416
Cash and cash equivalents at end of period (note 11)	11,733		12,211		11,263		103,211

See accompanying notes to the consolidated financial statements.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

1. Nature of Business and Basis of Presenting Consolidated Financial Statements

Nature of the Business:

NEC TOKIN Corporation (“the Company”) was established in Japan in 1938 and is engaged in production and distribution of tantalum capacitors, proadlizer, miniature relays, transmitting communication devices, IC cards and IC tags, magnetic devices, piezoelectric devices and sensors.

On March 12, 2012, the Company entered into a stock purchase agreement (“Stock Purchase Agreement”) with NEC Corporation (“NEC”) and KEMET Electronics Corporation (“KEC”), a wholly-owned subsidiary of KEMET Corporation (“KEMET”) based in the United States of America (“U.S.”), to issue 276.4 million new shares of common stock and KEC acquired 51% of the common stock of the Company (which represents a 34% economic interest, as calculated based on the number of common shares held by KEC, directly and indirectly, in proportion to the aggregate number of common and preferred shares of the Company as of such date) in exchange for cash consideration of 50 million U.S. dollars. The transaction was completed on February 1, 2013.

As part of this Stock Purchase Agreement, the Company issued 270.9 million new non-voting convertible preferred stocks to NEC and NEC Capital Solutions Limited (“NECAP”) for no cash consideration.

In connection with the Stock Purchase Agreement, the Company entered into a Stockholders' Agreement with KEC and NEC, which restricts transfers of the Company's capital stock, provides certain tag-along and first refusal rights on transfer for KEC, restricts NEC's ability to convert the preferred stock of the Company, assigns certain management services to be provided by KEC and receives certain board representation rights. The Stockholders' Agreement also refers to an existing loan from NEC to the Company, which matures on May 31, 2018 .

Concurrent with execution of the Stock Purchase Agreement and the Stockholders' Agreement, KEC entered into an option arrangement (the “Option Agreement”) with NEC, which was amended on August 29, 2014, whereby KEC has the right to purchase additional shares of the Company’s common stock from the Company for a purchase price of $50.0 million resulting in an economic interest of approximately 49% while maintaining ownership of 51% of the Company's common stock (the "First Call Option") by providing notice of the First Call Option between February 1, 2013 and April 30, 2015. Upon providing such First Call Option notice, but not before April 1, 2015, KEC could also have exercised a second option (the “Second Call Option”) to purchase all outstanding capital stock of the company from its stockholders, primarily NEC, for a purchase price based on a formula specified in the Option Agreement. Subsequent to March 31, 2015 the First and Second Call Options expired on April 30, 2015 without being exercised. From April 1, 2015 through May 31, 2018, NEC may require KEC to purchase all outstanding capital stock of the Company from its stockholders, primarily NEC (the "Put Option"). However, in the event that KEC issues new debt securities principally to refinance its outstanding 10.5% senior notes due 2018 and its currently outstanding credit agreement, including amounts to pay related fees and expenses and to use for general corporate purposes (“Refinancing Notes”), prior to NEC’s delivery of its notification of exercise of the Put Option, then the earliest date NEC may exercise the Put Option is automatically extended to the day immediately following the final scheduled maturity date of such Refinancing Notes, or in the event such Refinancing Notes are redeemed in full prior to such final scheduled maturity date, then on the day immediately following the date of such full redemption, but in any event beginning no later than November 1, 2019. If not previously exercised, the Put Option will expire on October 31, 2023.

Basis for Presenting Consolidated Financial Statements:

The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Company Act of Japan and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”).

The accompanying consolidated financial statements have been reorganized and translated into English (with some expanded descriptions and the added inclusion of consolidated statements of cash flows) from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not considered necessary for fair presentation, is not presented in the accompanying consolidated financial statements.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

Currency translation into U.S. dollar

The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts for the year ended March 31, 2016 are included solely for the convenience of readers and have been made at the rate of 113.68 yen to 1 U.S. dollar, the approximate rate of exchange rate at March 31, 2016. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate. Additionally, they are not intended to be computed or presented in accordance with generally accepted accounting principles in the United States for the translation of foreign currencies.

2. Summary of Significant Accounting Policies

(1) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its 13 subsidiaries (collectively, “the Group”). All significant intercompany balances and transactions have been eliminated in consolidation. The Company accounts for investments over which it has significant influence but not a controlling financial interest using the equity method of accounting. Such investments include 3 affiliated companies.

(2) Business Combination

In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No. 21, “Accounting Standard for Business Combinations”. Major accounting changes under the revised accounting standard are as follows: (1) The revised standard requires accounting for business combinations only by the purchase method. As a result, the pooling of interests method is no longer allowed. (2) The previous accounting standard accounts for research and development costs to be charged to income as incurred. Under the revised standard, in-process research and development (IPR&D) acquired in a business combination is capitalized as an intangible asset. (3) The previous accounting standard accounts for a bargain purchase gain (negative goodwill) to be systematically amortized over a period not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchase gain in profit or loss immediately on the acquisition date after reassessing and confirming that all of the assets acquired and all of the liabilities assumed have been identified after a review of the procedures used in the purchase allocation. This standard was applicable to business combinations undertaken on or after April 1, 2010. The Company adopted this accounting standard effective from April 1, 2010.

In addition, Accounting Standard for Business Combinations (ASBJ Statement No.21, September 13, 2013), Accounting Standard for Consolidated Financial Statements (ASBJ Statement No.22, September 13, 2013) and the Revised Accounting Standard for Business Divestitures (ASBJ Statement No.7, September 13, 2013) have been adopted from the year ended March 31, 2016.

(3) Cash Equivalents

Cash equivalents are short-term investments that are readily convertible into cash and exposed to insignificant risk of changes in value. Cash equivalents include time deposits, all of which mature or become due within three months of the date of acquisition. Refer to note 11 for reconciliation between “Cash on hand and in banks” as presented on the consolidated balance sheets and “Cash and cash equivalents” as presented on the statements of cash flows.

(4) Valuation of Inventories

Inventories are stated at the lower of cost or market, determined by the first-in, first-out method.

(5) Method of Depreciation and Amortization

(a) Property, plant and equipment

Property, plant and equipment are stated at acquisition cost. Depreciation is computed by using the straight line method based on the following estimated useful lives:

Buildings and structures 5 to 38 years

Machinery, equipment and vehicles 4 to 10 years

(b) Intangible assets

Intangible assets are being amortized using the straight line method and the range of useful lives for the Company’s intangible assets, software for internal use, ranged from 3 to 5 years.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

(6) Impairment of Long-lived Assets

Accounting Standards for Impairment of Long-lived Assets require that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the book value of an asset or asset group may not be recoverable. The impairment losses are recognized when the book value of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continuing use and eventual disposition of the asset or asset group. The impairment losses are measured as the amount by which the book value of the asset exceeds its recoverable amount, which is the higher of the value in use or the net realizable value. Restoration of previously recognized impairment losses is prohibited.

(7) Investments in Securities

Marketable available-for-sale securities are reported at fair value with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity.

Non-marketable available-for-sale securities are stated at cost determined by the moving-average cost method. For other than temporary declines in fair value, non-marketable available-for-sale securities are reduced to net realizable value by a charge to income.

Declines in fair value of available-for-sale securities are analyzed to determine if the decline is temporary or “other than temporary”. When other than temporary declines occur, the investment is reduced to its fair value and the amount of the reduction is reported as a loss. Any subsequent increases in other than temporary declines in fair value will not be realized until the securities are sold.

(8) Derivative Financial Instruments

Derivative financial instruments, other than those which meet the hedge criteria, are measured at fair value. Gain or loss on such derivative instruments is recognized in earnings.

(9) Hedge Accounting

(a) Method of hedge accounting

Receivables and payables denominated in foreign currencies hedged with foreign exchange forward contracts to fix the future cash flows can be translated using the forward rate. Under this method, an entity can omit evaluation of hedge effectiveness and fair value measurement of the hedging instrument. In addition, the exchange differences arising from the change in the spot rates between the transaction date and the date of the forward contract will be allocated to the period in which the forward contract was made. The remaining exchange differences arising from the difference between the spot rate and the forward rate at the date of the forward contract will be allocated to the period of the settlement.

(b) Hedging instruments and hedged items

Hedging instruments are foreign currency forward contracts. Hedged items are those that have risk of losses due to fluctuation in foreign currency exchange rates, and that fluctuation is avoided by fixing cash flow.

The objective of hedging policy is to manage the hedged items exposure to fluctuations in interest rates and foreign currency exchange rates on assets and liabilities.

(d) Method of assessing hedging instruments’ effectiveness

Hedging instruments’ effectiveness is assessed by comparing accumulated cash flow fluctuations from the hedged item and the hedging instrument during a contract period. However, an assessment of effectiveness will be omitted, if the principal terms of the hedging instruments and the hedged items, such as related notional amount and contract terms, are identical and the variability in cash flows is completely offset in a contract period.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

(10) Method of Accounting for Significant Allowances and Accruals

(a) Allowance for doubtful accounts

The allowance for doubtful accounts is provided against potential losses on collections at an amount determined using a historical bad debt loss ratio with the addition of an amount individually estimated on the collectability of receivables that are expected to be uncollectible due to bad financial condition or insolvency of the debtor.

(b) Provision for bonuses

Provision for bonuses is calculated based on an estimated amount of future bonus payments attributable to employees’ services for the period.

Actuarial gains and losses and past service costs are recognized within shareholders’ equity (accumulated other comprehensive income, hereinafter, “AOCI”), after adjusting for tax effects, and the difference between retirement benefit obligations and plan assets shall be recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits).

Since the year ended March 31, 2015, the new accounting standard allows the choice of the method of attributing expected benefit to periods between the “Straight-line basis” and “Benefit formula basis”. The new accounting standard also revised the calculation method of the discount rate and requires that the discount rate reflect the expected timing of each benefit payment. Compared with the previous fiscal year, the changes in standards related to the method of attributing expected benefit to periods and the calculation method of the discount rate had no effect on the Company’s financial statements.

(11) Asset Retirement Obligations

The Company recognizes asset retirement obligations as liabilities and the corresponding asset retirement costs as tangible fixed assets.

(12) Legal Contingencies

The Company recognizes legal contingencies when the following criteria are met: (a) future outflows of cash and other resources are identified, (b) the outflows occur as a result of the events during current or past accounting periods, (c) it is probable that such outflows occur, and (d) the outflows can be reasonably measured.

(13) Revenue Recognition

Revenue is recognized upon receipt of goods by customers.

(14) Research and Development Cost

Research and development costs are charged to income as incurred.

(15) Accounting for Leases (Lessee Accounting)

Finance leases, for those in which the ownership of leased property is ultimately transferred to the Group at the end of the lease term, are accounted for using the same depreciation method applied to property, plant and equipment owned by the Group.

Finance leases, in which the ownership of leased property is not ultimately transferred to the lessee at the end of the lease term, are depreciated on the straight line method over the period of lease with no residual value.

(16) Income Taxes

The provision for income taxes is computed based on the pretax income reported in the accompanying consolidated statement of operations. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of net operating loss carry forwards and temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowance is provided to reduce deferred tax assets to an amount that is considered realizable.

(17) Accounting for Consumption Tax

Income and expenses are recorded net of consumption taxes.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

(18) Recent Accounting Pronouncements under Japanese GAAP

On September 13, 2013, the revised ASBJ Statement No.21, “Accounting Standard for Business Combination” was issued with an effective date of April 1, 2015. Major changes are as follows:

Changes in equity in a subsidiary without loss of control such as acquisition and disposal of subsidiaries’ equity and issuance of new shares by subsidiaries under the current effective statement are either accounted for as profit and loss transactions or goodwill (or negative goodwill) is recognized for step-acquisition transactions. Subsequent to the implementation of the revised statement, these transactions are accounted for as equity transactions and recognized as part of capital reserve.


2.	Net profit is presented as the amount net of non-controlling interests’ share of profit (loss) under the current effective statement, while it will be presented at the gross amount (i.e. share of profit (loss) by non-controlling interest included) under the revised statement.


3.	Expenses related to acquisition, such as advisory fees are included as part of the acquisition cost under the current statement, while all these costs will be expensed under the revised statement.

If purchase price allocation (“PPA”) is not finalized in the year of business combination, a provisional amount is recognized and any changes made to the provisional amount will be accounted for as extraordinary gain (loss) in the following financial year under the current effective statement. Subsequent to the implementation of the revised statement, financial information of the year of business combination will be restated to reflect the finalized PPA and is presented in the following year’s financial statements as comparative information.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

3. Inventories

Inventories consist of the following as of March 31, 2016 and 2015 :



	Millions of Yen		Thousands of U.S. Dollars (note 1)
	March 31, 2016	March 31, 2015	March 31, 2016
Raw materials	1,332	1,611	11,717
Work in process	1,740	1,701	15,306
Finished goods	2,382	2,207	20,954
Supplies	355	336	3,123
Total	5,809	5,855	51,100

4. Related-Party Transactions

Transactions of the Group with related-parties for the years ended March 31, 2016 , 2015 and 2014 are as follows:



	Millions of Yen			Thousands of U.S. Dollars (note 1)
	Year ended March 31, 2016	Year ended March 31, 2015	(Unaudited) Year ended March 31, 2014	Year ended March 31, 2016
Purchase from KEMET (**)	2,537	1,608	585	22,317
Sales transactions with NT Sales Co., Ltd. (*)	4,958	6,151	6,657	43,614
Gain on Transfer of plan assets to NEC Energy Device Ltd.(note 9)	-	371	-	-

The balances due to or due from related-parties at March 31, 2016 and 2015 are as follows:



	Millions of Yen		Thousands of U.S. Dollars (note 1)
	March 31, 2016	March 31, 2015	March 31, 2016
Accounts receivable to NT Sales Co., Ltd. (*)	478	489	4,205
Accounts payable to KEMET (**)	555	342	4,882
Long-term debt from NEC (***)	25,417	25,417	223,584

* The Company sells parts and materials to NT Sales Co., Ltd., its equity-method affiliate, within ordinary course of business.

** The Company sells parts and materials to and purchases parts and materials from KEMET, within ordinary course of business. The amount of sales to KEMET is immaterial.

*** The Company has unsecured long-term debt from NEC. The loans are made at terms and conditions determined with reference to current market rates and standards.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

5. Income Taxes

Components of deferred tax assets and liabilities at March 31, 2016 and 2015 are as follows:



	Millions of Yen				Thousands of U.S. Dollars (note 1)
	March 31, 2016		March 31, 2015		March 31, 2016
Deferred tax assets
Inventories	91		92		801
Provision for bonuses	255		279		2,243
Accrued expenses	125		152		1,100
Liability for retirement benefits	1,380		1,419		12,139
Property, plant and equipment	1,646		1,781		14,479
Investments in securities	396		422		3,483
Estimated liabilities for antitrust claims and settlements	2,435		1,185		21,420
Net operating loss carry forwards	16,505		17,375		145,188
Other	274		295		2,410
Total gross deferred tax assets	23,107		23,000		203,263
Less: Valuation allowance	(22,840	)	(22,713	)	(200,915	)
Deferred tax assets	267		287		2,348

Deferred tax liabilities
Unrealized losses on lands	(308	)	(324	)	(2,709	)
Undistributed earnings of foreign subsidiaries and others	(1,265	)	(1,324	)	(11,128	)
Other	(28	)	(11	)	(246	)
Deferred tax liabilities	(1,601	)	(1,659	)	(14,083	)
Net deferred tax liabilities	(1,334	)	(1,372	)	(11,735	)

Reconciliation between the income tax benefit that would result from applying statutory tax rate to pretax loss and the reported amount of income tax expense (benefit) for the years ended March 31, 2016 , 2015 and 2014 are as follows:



	Millions of Yen						Thousands of U.S. Dollars (note 1)
	Year ended March 31, 2016		Year ended March 31, 2015		(Unaudited) Year ended March 31, 2014		Year ended March 31, 2016
Computed “expected” tax benefit	(1,660	)	(788	)	(1,407	)	(14,602	)
Increase (decrease) in income taxes resulting from:
Nondeductible expenses	737		127		86		6,483
Change of valuation allowance	1,545		1,377		1,036		13,591
Payment of transfer price	—		(51	)	88		—
Foreign income tax differential	(291	)	(370	)	675		(2,560	)
Taxes on undistributed earnings	(32	)	347		(565	)	(281	)
Change in statutory tax rate	(26	)	(60	)	37		(229	)
Other	4		182		21		35
Actual income tax expense (benefit)	277		764		(29	)	2,437

Amendments to the Japanese tax regulations were enacted into law on March 20, 2014, March 31, 2015 and March 31, 2016. As a result of these amendments, (1) the statutory income tax rate was reduced from approximately 38% to 35% effective for the fiscal year beginning April 1, 2014, (2) was reduced to approximately 33% effective for the fiscal year beginning April 1, 2015 and (3) was approximately 31% effective for the fiscal year beginning April 1, 2016. Consequently, the statutory income tax rate utilized for

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

deferred tax assets and liabilities expected to be settled or realized in the fiscal year ended March 31, 2016 is approximately 33% and for periods subsequent to March 31, 2016 is approximately 31%.

6. Liability for Retirement Benefits

The Group has several defined benefit plans and defined contribution plans. Defined benefit plans include the defined benefit pension plans and the lump-sum severance payment plans. Additional retirement benefits are paid in certain circumstances.

Retirement benefit obligations at March 31, 2016 and 2015 are as follows:



	Millions of Yen				Thousands of U.S. Dollars (note 1)
	March 31, 2016		March 31, 2015		March 31, 2016
Projected benefit obligations	12,756		11,820		112,210
Plan assets	(6,974	)	(7,236	)	(61,348	)
Unfunded retirement benefit obligations	5,782		4,584		50,862
Liability for retirement benefits	5,782		4,584		50,862

Retirement benefit expenses for the years ended March 31, 2016 , 2015 and 2014 are as follows:



	Millions of Yen						Thousands of U.S. Dollars (note 1)
	Year ended March 31, 2016		Year ended March 31, 2015		(Unaudited) Year ended March 31, 2014		Year ended March 31, 2016
Service cost	497		582		590		4,372
Interest cost	136		155		153		1,196
Expected return on plan assets	(219	)	(178	)	(161	)	(1,926	)
Amortization of transitional obligation	-		274		364		-
Amortization of actuarial gains and losses	180		227		285		1,583
Amortization of past service costs	(35	)	(35	)	(35	)	(308	)
Contributions paid for defined contribution pension plans	89		97		112		783
Retirement benefit expenses	648		1,122		1,308		5,700

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

Basis for calculation of retirement benefit obligations for the years ended March 31, 2016 , 2015 and 2014and are as follows:



Allocation method for projected retirement benefit cost	Straight line method
Discount rate	0.2% (years ended March 31, 2015 and 2014: 1.1% (Unaudited))
Expected rate of return on plan assets	3.0% (years ended March 31, 2015 and 2014: 2.5% (Unaudited))
Period for amortization of transitional obligation	15 years
Period for amortization of past service costs	Mainly 15 years (Past service costs are amortized on a straight line basis over certain number of years within employees’ average remaining service periods as incurred)
Period for amortization of actuarial gains and losses	Mainly 15 years (Actuarial gains and losses are amortized on a straight line basis over certain number of years within employees’ average remaining service periods, starting from the following year after incurred)

7. Loss on Impairment of Long-Lived Assets

Summary of assets or asset groups for which losses on impairment of long-lived assets were recognized for the years ended March 31, 2016 , 2015 and 2014 are as follows:

(a) Long lived assets - Idle assets

The Company treats fixed assets comprised of land, buildings, machinery and equipment located at Sendai, Japan as idle assets because no future usage is expected due to obsolescence. Recoverable amounts for idle assets were measured based on net realizable value. Land values are measured based on real estate appraisals, and machinery and equipment are measured based on market values.

For the years ended March 31, 2016 , 2015 and 2014, the Company recognized impairment charges of 38 million yen (334 thousand U.S. dollars, note 1), 25 million yen and 70 million yen (unaudited), respectively.

(b) Long lived assets - Assets related to the capacitor business

For the year ended March 31, 2014, the Company determined that impairment assessments were required in the capacitor business due to a sharp decline and changing landscape in the personal computer markets.

Recoverable amounts for related assets are measured based on net realizable value. Land and buildings are measured based on third party real estate appraisals, and other property, plant and equipment mainly comprised of machinery are measured based on the income approach. As a result of the assessment, the Company recognized an impairment charge of 4,155 million yen (unaudited) related to its capacitor business. The impairment loss was included in other expenses in the accompanying consolidated statements of operations for the year ended March 31, 2014.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

8. Research and Development Expenses

Research and development expenses for the years ended March 31, 2016 , 2015 and 2014 are as follows:



	Millions of Yen			Thousands of U.S. Dollars (note 1)
	Year ended March 31, 2016	Year ended March 31, 2015	(Unaudited) Year ended March 31, 2014	Year ended March 31, 2016
Research and development expenses	872	930	1041	7,671

9. Other Income (Expenses)

The major components of other income (expense) are as follows:

(1) Gain on sale of long-lived assets

Gain on sales of long-lived assets of 2,146 million yen (unaudited) for the year ended March 31, 2014 was mainly related to the sale of a portion of land located at the Company’s Sendai office.

(2) Gain on sale of business

The access device business was divested in July 2014, resulted in gain on sales of 554 million yen for the year ended March 31, 2015.

(3) Gain on transfer of plan assets

Part of plan assets of the Company was transferred to NEC Energy Device, Ltd., which was a subsidiary of the Company and sold to NEC in April 2010. The gain of 371 million yen for the year ended March 31, 2015 resulted from the actuarial calculation of the plan assets at transfer date.

(4) Restructuring charges

For the year ended March 31, 2015, the Company conducted business restructuring, and recorded losses of 395 million yen in relation to severance benefits and 29 million yen in relation to job-placement assistance.

10. Net loss per Share

Net loss per share is computed based on the weighted-average number of common shares outstanding during the year. The Company issued convertible preferred stock on March 12, 2012, which is convertible into 270,934 thousand shares of common stock. The diluted net loss per share is not presented as it is anti-dilutive due to the losses incurred for the years ended March 31, 2016, 2015 and 2014.

11. Supplemental Information to Consolidated Statements of Cash Flows

Cash and cash equivalents at March 31, 2016 , 2015 and 2014 for consolidated statements of cash flow purposes are reconciled to the amounts reported in the consolidated balance sheets as follows:



	Millions of Yen				Thousands of U.S. Dollars (note 1)
	Year ended March 31, 2016	Year ended March 31, 2015	(Unaudited) Year ended March 31, 2014		Year ended March 31, 2016
Cash on hand and in banks	11,733	12,211	11,319		103,211
Time deposits with maturities of more than three months	—	—	(56	)	—
Cash and cash equivalents	11,733	12,211	11,263		103,211

12. Contingencies - Legal Proceeding

Beginning March 2014, the Company and certain subsidiaries have been subject to inquiries and investigative proceedings by the responsible authorities of the People’s Republic of China, the United States of America, European Commission, Japan, South Korea, Taiwan, Singapore and Brazil in relation to potential alleged anti-competitive behavior for capacitor products.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

As results of these proceedings, the United States Department of Justice announced a plea agreement with the Company in September 2015 and the plea agreement was approved by the United States District Court in January 2016; the "Statement of Objections" indicating a preliminary opinion of the European Committee on the suspicion of the European competition law violation was received in November 2015; the Taiwan Fair Trade Commission announced a penalty against the Company in December 2015, however the Company is dissatisfied with the sentence and an administrative litigation has been lodged to the Taiwan court in February 2016; in Japan, a cease-and-desist order and a penalty were issued by the Japan Fair Trade Commission in March 2016; in addition, various civil and class action lawsuits have been filed in the United States and Canada. In May 2016, the Company reached settlement agreements with the class plaintiffs in the United States. For other jurisdictions where the proceedings are still ongoing, the Company estimated the possible losses based on available information. As a result, estimated losses of approximately 6.1 billion yen which may result from the lawsuits, verdicts and investigations were accrued as costs for antitrust claims and settlements for the year ended March 31, 2016.

The actual amounts of payments ultimately made as these investigations are completed and settled may be different from the amounts accrued, which could have an adverse effect on the Company’s business, results of operations and financial condition.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

13. Significant Differences Between Japanese GAAP and U.S. Generally Accepted Accounting Principles (“U.S. GAAP”)

Japanese GAAP differs in certain respects from U.S. GAAP. The significant differences between Japanese GAAP and U.S. GAAP as they pertain to the Group are described below, which also includes reconciliations of net loss and shareholders’ equity under Japanese GAAP with the corresponding amounts under U.S. GAAP, along with a summary consolidated statement of comprehensive income (loss), a summary consolidated balance sheet, and a summary consolidated statement of changes in shareholders’ equity under U.S. GAAP.

Net loss reconciliation



		Millions of Yen						Thousands of U.S. Dollars (note 1)
	note	Year ended March 31, 2016		Year ended March 31, 2015		(Unaudited) Year ended March 31, 2014		Year ended March 31, 2016
Net loss under Japanese GAAP		(5,305	)	(2,977	)	(3,677	)	(46,666	)
U.S. GAAP adjustments:
Depreciation of property, plant and equipment	(b)	(69	)	(198	)	265		(607	)
Impairment and depreciation adjustments on idle assets	(c)	39		(15	)	(319	)	343
Impairment loss related to capacitor business	(d)	—		—		(1,691	)	—
Liability for retirement benefits	(e)	198		(7	)	632		1,742
Accrued vacation	(f)	(44	)	42		10		(387	)
Other	(g)	(49	)	(66	)	187		(431	)
Income tax adjustments	(h)	116		338		151		1,020
Net loss under U.S. GAAP		(5,114	)	(2,883	)	(4,442	)	(44,986	)
Net loss from continuing operations		(5,114	)	(3,190	)	(4,606	)	(44,986	)
Net income from discontinued operations	(i)	—		307		164		—
Certain other income (expenses) under Japanese GAAP are classified as operating income (loss) under U.S. GAAP.
Net loss per share attributable to the Company’s common shareholders under U.S. GAAP
	note	Year ended March 31, 2016		Year ended March 31, 2015		(Unaudited) Year ended March 31, 2014		Year ended March 31, 2016
Weighted average shares outstanding - basic and diluted (in thousands)		541,869		541,869		541,869		541,869

		Yen (per share)						U.S. Dollars (note 1)
Basic
Net loss from continuing operations		(9.44	)	(5.89	)	(8.50	)	(0.08	)
Net income from discontinued operations	(i)	—		0.57		0.30		—
Net loss		(9.44	)	(5.32	)	(8.20	)	(0.08	)
Diluted
Net loss from continuing operations		(9.44	)	(5.89	)	(8.50	)	(0.08	)
Net income from discontinued operations	(i)	—		0.57		0.30		—
Net loss		(9.44	)	(5.32	)	(8.20	)	(0.08	)

The potential common stock upon conversion of the convertible preferred stock was excluded from the computation of diluted net loss per share, as including such potentially dilutive shares would have an anti-dilutive effect to the net loss per share as the Group recorded a net loss for the fiscal years ended March 31, 2016 , 2015 and 2014. Such convertible preferred stock is considered a participating security under U.S. GAAP. However, because there is no contractual obligation for the preferred shareholders to fund the losses of the Company, such losses have not been allocated to the preferred shareholders for purposes of determining basic net loss per share attributable to common shareholders.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

Summary U.S. GAAP consolidated statements of comprehensive income (loss)



	Millions of Yen						Thousands of U.S. Dollars (note 1)
	Year ended March 31, 2016		Year ended March 31, 2015		(Unaudited) Year ended March 31, 2014		Year ended March 31, 2016
Net loss under U.S. GAAP	(5,114	)	(2,883	)	(4,442	)	(44,986	)
Other comprehensive income (loss):
Unrealized gain on securities, net of tax effect of none in 2016, 28 million yen in 2015 and none in 2014	(55	)	52		9		(484	)
Liability for retirement benefits, net of tax effect of none in 2016, 131million yen in 2015 and none in 2014	(587	)	207		527		(5,164	)
Foreign currency translation, net of tax effect of none in 2016, 184 million yen in 2015 and none in 2014	(2,614	)	2,617		356		(22,994	)
Comprehensive loss under U.S. GAAP	(8,370	)	(7	)	(3,550	)	(73,628	)

Shareholders’ equity reconciliation



		Millions of Yen				Thousands of U.S. Dollars (note 1)
	note	March 31, 2016		March 31, 2015		March 31, 2016
Shareholders’ equity under Japanese GAAP		(1,898	)	7,202		(16,696	)
U.S. GAAP adjustments:
Business combination adjustments	(a)	1,478		1,629		13,001
Accumulated depreciation	(b)	1,082		1,233		9,518
Carrying value adjustments due to reversal of impairment loss on idle long-lived assets	(c)	998		960		8,779
Carrying value adjustments due to impairment loss on long-lived assets related to capacitor business	(d)	(1,674	)	(1,945	)	(14,726	)
Liability for retirement benefits	(e)	(859	)	(1,552	)	(7,556	)
Accrued vacation	(f)	(261	)	(217	)	(2,296	)
Other	(g)	90		136		793
Income tax adjustments	(h)	(508	)	(628	)	(4,469	)
Shareholders’ equity under U.S. GAAP		(1,552	)	6,818		(13,652	)

Summary U.S. GAAP consolidated statements of changes in shareholders’ equity



	Millions of Yen						Thousands of U.S. Dollars (note 1)
	Year ended March 31, 2016		Year ended March 31, 2015		(Unaudited) Year ended March 31, 2014		Year ended March 31, 2016
Shareholders’ equity at beginning of year	6,818		6,821		10,371		59,976
Total comprehensive loss	(8,370	)	(7	)	(3,550	)	(73,628	)
Increase in capital surplus	—		4		—		—
Shareholders’ equity at end of year	(1,552	)	6,818		6,821		(13,652	)

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

Summary U.S. GAAP Consolidated Balance Sheets



	Millions of Yen				Thousands of U.S. Dollars (note 1)
	March 31, 2016		March 31, 2015		March 31, 2016
Assets
Current assets:
Cash and cash equivalents	11,733		12,211		103,211
Accounts and notes receivable, net	8,443		7,880		74,270
Inventories	5,836		5,899		51,337
Other current assets	998		797		8,779
Total current assets	27,010		26,787		237,597
Property, plant and equipment, net (notes (b), (c) and (d))	25,775		29,329		226,733
Total investments and other non-current assets	3,502		3,485		30,806
Total assets	56,287		59,601		495,136

Liabilities and shareholders’ equity
Current liabilities:
Short term borrowings and current installments of long-term debt	1,624		3,541		14,286
Other current liabilities	18,525		13,661		162,957
Total current liabilities	20,149		17,202		177,243
Long-term debt, excluding current installments	26,869		26,162		236,357
Liability for retirement benefits (note (e))	6,641		6,136		58,418
Deferred income tax liabilities (note (h))	2,106		2,179		18,526
Other non-current liabilities	2,074		1,104		18,244
Total liabilities	57,839		52,783		508,788
Shareholders’ equity:
Capital stock	34,281		34,281		301,557
Capital surplus (note (j))	32,222		64,577		283,445
Accumulated deficit (note (j))	(67,787	)	(95,028	)	(596,296	)
Accumulated other comprehensive income	(268	)	2,988		(2,358	)
Total shareholders’ equity	(1,552	)	6,818		(13,652	)
Commitments and Contingencies
Total liabilities and shareholders’ equity	56,287		59,601		495,136

Cash flows reconciliation

There are no material differences between Japanese GAAP and U.S. GAAP for purposes of presenting or reconciling the consolidated statements of cash flows.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

Notes:


(a)	Business combination adjustments

Historically, the Company entered into various business combinations and accounted for such transactions in accordance with common business practices dictated by the Commercial Code of Japan, where acquired assets and liabilities were not required to be fair valued. For U.S. GAAP purposes, the Company retroactively applied a purchase price allocation at the time of each transaction to reflect the fair value adjustments to acquired assets and liabilities, including the determination of identifiable intangible assets and goodwill because acquired assets and liabilities were required to be recorded at fair value under ASC805. Except for the acquired value of the land (including the effects of changes in foreign exchange rates), impact of such fair value adjustments to acquired assets, intangible assets, liabilities and goodwill were subsequently diminished through depreciation and amortization, or disposition and impairment, resulting in no adjustment to the consolidated balance sheet as of March 31, 2016 and 2015.


(b)	Depreciation of property, plant and equipment

Under Japanese GAAP, the Company depreciated property and equipment over the useful life of each asset under the declining-balance method through March 31, 2011. The Company changed its depreciation method to the straight-line method on a prospective basis effective April 1, 2011.

For U.S. GAAP, ASC 360, “Property, Plant and Equipment” provides that the cost of property and equipment be spread over the expected useful life of the facility in such a way as to allocate it as equitably as possible to the periods during which services are obtained from its use. The Company has determined that the straight-line method should be used. Therefore, GAAP difference exists for the periods prior to April 1, 2011.

The following table presents a reconciliation of property, plant and equipment from Japanese GAAP to U.S. GAAP as of March 31, 2016 and 2015:



	Millions of Yen								Thousands of U.S. Dollars (note 1)
	March 31, 2016				March 31, 2015				March 31, 2016
	Gross carrying amount		Accumulated depreciation		Gross carrying amount		Accumulated depreciation		Gross carrying amount		Accumulated depreciation
Balance under Japanese GAAP	93,433		(69,543	)	96,770		(69,319	)	821,895		(611,744	)
U.S. GAAP adjustments:
Change in depreciation	(1	)	994		(8	)	1,148		(9	)	8,744
Impairment and depreciation adjustments related to idle assets (note (c))	1,224		(226	)	1,185		(226	)	10,767		(1,988	)
Step up in asset value related to purchase price allocation from historical business combination (note (a))	1,478		—		1,629		—		13,001		—
Impairment loss related to capacitor business (note (d))	(1,674	)	—		(1,945	)	—		(14,725	)	—
Reclassification to assets held for sale (note (i))	—		—		—		—		—		—
Other	203		(113	)	203		(108	)	1,786		(994	)
Total adjustments	1,230		655		1,064		814		10,820		5,762
Balance under U.S. GAAP	94,663		(68,888	)	97,834		(68,505	)	832,715		(605,982	)


(c)	Impairment and depreciation adjustments on idle assets

Under Japanese GAAP, the Company groups assets for business use based on business units. In addition, the Company groups idle assets, including temporarily idle assets where no future use is expected, into a separate asset group.

Under U.S. GAAP, for purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities at the smallest unit of which identifiable cash flows can be determined. Further, under U.S. GAAP, long-lived asset that has been temporarily idle shall not be accounted for as if abandoned.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014

Therefore, the impairment losses related to the Company’s temporarily idle assets which had been recognized under Japanese GAAP is reversed under U.S. GAAP. When the temporarily idled assets are grouped with other assets and liabilities at the smallest unit of which identifiable cash flows can be determined, as required under U.S. GAAP, the carrying amount of its temporarily idled assets are deemed recoverable.

Moreover, depreciation on idle assets is recognized after the reversal of related impairment loss. Depreciation expense of 377 million yen (unaudited) was recognized under U.S. GAAP for the year ended March 31, 2014.


(d)	Impairment loss related to capacitor business

Since it was determined that the carrying amounts of long-lived assets related to the capacitor business are not recoverable, impairment losses were measured and recognized as the amount by which the carrying amounts exceeded fair value.

Under both U.S. GAAP and Japanese GAAP, discounted cash flows were used to determine fair value. However, the carrying amounts under U.S. GAAP were higher than under Japanese GAAP due to differences in depreciation methods and the fair value adjustments related to purchase price allocation in the historical business combination under U.S. GAAP. Further, impairment losses were recognized as other expenses under Japanese GAAP while recognized as selling, general and administrative expenses under U.S. GAAP.


(e)	Liability for retirement benefits

Under U.S. GAAP, the differences between the fair value of the plan assets and the projected benefit obligation of pension or post retirement plans are required to be recognized on the balance sheet. Actuarial gains or losses are permitted to be either recorded as gains or losses as incurred or deferred through the use of the corridor approach, or in any systematic method that results in earlier recognition than the corridor approach.

Prior to March 31, 2014, under Japanese GAAP, the differences between the fair value of the plan assets and the projected benefit obligation of pension or post retirement plans were not required to be recognized on the balance sheet. Actuarial gains or losses were recognized immediately or allocated over a certain number of years within the average remaining service period starting from the period in which they were incurred or a period after. Use of the corridor approach was not permitted. As of March 31, 2014, the Company adopted the revised accounting standard, as described in note 2(10)(c), and the differences between the fair value of the plan assets and the projected benefit obligation of pension or post retirement plans were recognized on the consolidated balance sheet as described in note 6.

The basis for actuarial determination of projected retirement benefit obligations (PBO), such as allocation method for projected retirement benefit cost and discount rate, are different between Japanese GAAP and U.S. GAAP, which has been adjusted accordingly.

The following represent the most relevant differences between Japanese GAAP and U.S. GAAP in connection with assumptions used to calculate the pension liability:


(1)	Under Japanese GAAP, it is acceptable to select the same discount rate as the prior years unless there would not be a material difference between the projected benefit obligations estimated using the rate as of the balance sheet date and the one estimated using the prior year’s rate. However, there is no such exception under U.S. GAAP.


(2)	Under Japanese GAAP, it is allowed to choose the method of attributing expected benefit to periods between the Straight-line basis and Benefit formula basis. However, only benefit formula method is permitted under U.S. GAAP.


(f)	Accrued vacation

Under U.S. GAAP, an employer shall accrue a liability for employees’ compensation for future absences, such as paid vacation, if certain conditions are met. Such liabilities are accrued in the periods in which the benefits are earned. Japanese GAAP does not specifically require a company to accrue a liability for future compensated absences.


(g)	Other

Others included in the net loss and shareholders’ equity reconciliations consist of U.S. GAAP adjustments related to inventory valuation, allowance for doubtful accounts and timing difference for recognition of certain accruals.

NEC TOKIN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016, 2015 AND 2014


(h)	Income tax adjustments

Intraperiod tax allocation

U.S. GAAP requires total income tax expense or benefit for a period be allocated to different components of comprehensive income and shareholders' equity, including continuing operations, discontinued operations, extraordinary items, each component of other comprehensive income, and items charged or credited directly to shareholders' equity. All components are considered in determining the tax benefit of a loss from continuing operations. There is no similar or equivalent guidance under Japanese GAAP.

Deferred taxes on undistributed earnings of investees accounted for under the equity method

Under Japanese GAAP, with respect to profits related to investments in equity method investees, deferred taxes are not recognized except when a parent company plans recovery through dividend distributions unless the parent company has a clear intention to sell the investment in the subsidiary in the foreseeable future. Under U.S. GAAP, deferred taxes are generally recognized on temporary differences related to investments in investees accounted for under the equity method except for corporate joint ventures that are essentially permanent in duration. The amounts of deferred tax liabilities on undistributed earnings amount to 89 million yen (782 thousand U.S. dollars, note 1) and 91 million yen as of March 31, 2016 and 2015, respectively.


(i)	Discontinued operations

On March 31, 2014, the Company reached an agreement with a third party to divest the access device business. After a thorough review of the business portfolio, the Company no longer believed that the access device business is aligned with its long-term strategy. The divestiture was completed in July 2014.

The divestiture of the access device business met the conditions of discontinued operations under U.S. GAAP, therefore, the related assets, including inventories amounting to 136 million yen and property, plant and equipment amounting to 310 million yen are classified as assets held for sale in the summary consolidated U.S. GAAP balance sheets as of March 31, 2014, and the results of discontinued operation for the years ended March 31, 2015 and 2014 are presented as a separate line item from the net loss from continued operations in the net loss reconciliation table. Under Japanese GAAP, there are no classification requirement between discontinued operations and continuing operations.


(j)	Sale of Subsidiary to NEC Corporation

On April 1, 2010, NEC Energy Device, Ltd, a wholly owned subsidiary of the Company, was sold to NEC Corporation. The excess of the sale price over carrying value of the net assets sold was accounted for as a gain on sale in the Company’s consolidated statement of operations under Japanese GAAP. Under U.S. GAAP, no gain is recognized. Consequently, capital surplus and the accumulated deficit reported in the summary consolidated balance sheets under U.S. GAAP are greater than those in the consolidated balance sheets under Japanese GAAP by 5,262 million yen.