Exhibit 99.1

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. In addition, as discussed in Note 2b, “Retrospective Adoption of FSP APB 14-1”  to our Consolidated financial Statements, our financial statements as of March 31, 2009, 2008 and 2007 and for the years then ended, included elsewhere in this Current Report on Form 8-K, have been adjusted for the retrospective application of Financial Accounting Standards Board Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” 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 in this Current Form 8-K. The data set forth below may not be indicative of KEMET’s future financial condition or results of operations (see Item 1A, “Risk Factors”) (amounts in thousands except per share amounts):

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, 2009. 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 which have been prepared assuming that we will continue as a going concern. As discussed in Note 2, “Debt, Liquidity and Capital Resources” to our consolidated financial statements, the decline in net sales, profitability and liquidity during the year ended March 31, 2009, our expectation that we will achieve the required level of profitability under an “EBITDA” covenant by only a narrow margin and that, given the degree of uncertainty with respect to the near-term outlook for the global economy and the possible effects on the Company’s operations, there is significant uncertainty as to whether the Company’s forecasts will be achieved. Management’s plans concerning these matters are discussed in Note 17, “Subsequent Events” to our consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Except for the historical information contained herein, 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.

Business Overview

KEMET is a leading manufacturer of the majority of capacitors types, including tantalum, multilayer ceramic, solid aluminum, plastic film, paper and electrolytic capacitors. Capacitors are electronic components that store, filter and regulate electrical energy and current flow and are one of the essential passive components used in circuit boards. Virtually all electronic applications and products contain capacitors, including communication systems, data processing equipment, personal computers, cellular phones, automotive electronic systems, military and aerospace systems, and consumer electronics.

KEMET’s business strategy is to generate revenues by being the preferred capacitor supplier to the world’s most successful electronics original equipment manufacturers, electronics manufacturing service providers, and electronics distributors. We reach our customers through a direct sales force, as well as a limited number of manufacturing representatives, that call on customer locations around the world.

KEMET manufactures capacitors in Bulgaria, China, Finland, Germany, Indonesia, Italy, Mexico, Portugal, Sweden, the United Kingdom, and the United States. Substantially all of the manufacturing previously located in the United States has been relocated to our lower-cost manufacturing facilities in Mexico and China. Production that remains in the U.S. focuses primarily on early-stage manufacturing of new products and other specialty products for which customers are predominantly located in North America.

The market for all of our capacitors is highly competitive. The capacitor industry is characterized by, among other factors, a long-term trend toward lower prices for capacitors, low transportation costs, and fewer import barriers. Competitive factors that influence the market for our products include product quality, customer service, technical innovation, pricing and timely delivery. It is our belief that we compete favorably on the basis of each of these factors.

KEMET is organized into three distinct business groups: Tantalum, Ceramic 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 and marketing functions are shared by each of the business groups and are allocated to the business groups. In addition, all corporate costs are

allocated to the business groups. See Note 8, “Segment and Geographic Information” to our consolidated financial statements.

We believe our Mexican operations are among the most cost efficient in the world, and they continue to be our primary production facilities supporting North America and, to a large extent, European customers. We also believe that our China manufacturing facilities enjoy low production costs and proximity to large and growing markets, which have caused some of our key customers to relocate production facilities to Asia, particularly China. As a result, one of our strategies is to continue to shift production to low-cost locations which provide us the best opportunity to be a low-cost producer of capacitors.

The global economic downturn adversely affected sales throughout the year leading to lower sales in Tantalum and Ceramic, and weaker than expected sales in Film and Electrolytic. Additionally, the downturn worsened over the course of fiscal year 2009 and led to sequentially decreasing sales in each quarter, particularly in the fourth quarter. In fiscal year 2009, the poor economic environment negatively affected our sales and had an adverse impact on our results of operations and liquidity. We took aggressive steps to offset the adverse impact of lower revenues and net losses on our liquidity and announced three restructuring initiatives to reduce costs to be more in line with lower sales volumes. During the first quarter of fiscal year 2009, we recognized charges of $4.9 million primarily for reductions in workforce in Film and Electrolytic. In the second quarter of fiscal year 2009, we recognized charges of $16.1 million related to the rationalization of corporate staff and manufacturing support functions in the United States, Europe, Mexico, and Asia. Approximately 640 employees were affected by this action. During the third quarter of fiscal year 2009, we recognized charges of $3.5 million related primarily to the reduction of approximately 1,500 manufacturing positions representing approximately 14% of our workforce. During the fourth quarter of fiscal year 2009, we incurred expenses of $0.9 million primarily related to the closing of sales offices. Throughout fiscal year 2009, we incurred expenses of $5.5 million related to our manufacturing relocation plan. These initiatives are expected to save $52 million on an annualized basis.

Additionally, where possible, we instituted a 10% wage reduction for all salaried employees effective January 1, 2009 (excluding those on a commission based salary) and a temporary suspension of our U.S. defined contribution plan match, reducing it from 6% to 0%. These actions are expected to save approximately $12 million on an annualized basis.

We perform an annual test of impairment of our goodwill in the first quarter of each fiscal year and in any other quarter in which events occur that would cause us to reevaluate the value of our assets. As a result of the first quarter review, we recorded a $152.6 million impairment charge which reduced both goodwill and long-lived assets by $88.6 million and $63.9 million, respectively. The goodwill impairment and long-lived asset charge to earnings reduced the results under U.S. generally accepted accounting principles. However, both are non-cash in nature. The impairment was charged to Ceramic and Film and Electrolytic in the amounts of $76.4 million and $76.2 million, respectively.

A factor that determines whether or not goodwill is impaired is the market value of our common stock. After our first fiscal quarter earnings release on July 30, 2008, the market price of our common stock declined significantly below the level that we used in performing our annual impairment review as of June 30, 2008. Because the stock price did not recover in the second quarter of fiscal year 2009, we tested goodwill for impairment again as of September 30, 2008. In addition to our goodwill impairment testing, we also tested our long-lived asset groups for impairment. These goodwill impairment tests resulted in a second quarter goodwill impairment charge of $85.7 million to write off all of the remaining goodwill of Film and Electrolytic and Tantalum. No long-lived asset impairment was identified as a result of the second quarter long-lived asset impairment testing.

The goodwill impairment evaluation utilized both the market approach and the income approach to determine our fair value and the fair value of our reporting units. The market approach included our market capitalization and the market capitalization of our peer group companies.

On September 15, 2008, we sold assets related to the production and sale of wet tantalum capacitors to a subsidiary of Vishay. We received $33.7 million in cash proceeds, net of amounts held in escrow, from the sale of these assets. At the same time, we entered into a three-year term loan for $15.0 million with Vishay. The sale resulted in a pre-tax gain of $28.3 million, which is net of related fees and amounts held in escrow. Proceeds of $1.5 million are held in escrow to secure our obligations under the sales agreement, and we will record any release of escrow funds as additional gain when and to the extent the funds are received. Annual revenues generated from these assets were approximately $16.0 million.

On September 19, 2008, we prepaid our obligations under the Senior Notes which carried a fixed interest rate of 6.66% with interest payable semi-annually and with a final maturity date of May 4, 2010. The prepayment included the outstanding principal balance of $40.0 million, accrued interest of $1.0 million, a make-whole amount of $2.0 million, and a prepayment fee of $0.2 million. The make-whole amount and prepayment fee are shown as “Loss on early retirement of debt” in the Consolidated Statements of Operations. We had been, and were at the time of the prepayment, in compliance with all the financial covenants under the Senior Notes.

On October 21, 2008, we closed on Facility A, with UniCredit. Under the terms of Facility A agreed to at that time, we agreed to repay the principal amount in nine semi-annual installments during the four and one-half year term with the first payment due in April 2009. The credit facility is priced at EURIBOR plus 1.7%, and is secured with real property in Italy, certain accounts receivable in Europe, and a pledge of the shares of Arcotronics Italia S.p.A. and Arcotronics Industries S.r.l., two of KEMET’s subsidiaries in Italy. Facility A was subsequently amended as described below.

We are subject to covenants under Facility A which, among other things, restrict our ability to make capital expenditures above certain thresholds and require us to meet financial tests related principally to our fixed charge coverage ratio and profitability. The first measurement date for these financial tests was to be June 30, 2009, and afterwards, every three months, on a trailing twelve month basis (see amendment discussion below).

Additionally, the occurrence of events that significantly compromise our financial, economic, asset or operating situation and significantly compromise our ability to ensure prompt and regular repayment of Facility A allow UniCredit to accelerate repayment of Facility A. We deem the foregoing provision of Facility A to be a subjective acceleration clause and we have assessed the likelihood of whether or not it will be exercised. While we do not presently expect UniCredit to exercise its rights under this clause within the next twelve months, there can be no assurance that UniCredit will not exercise their rights.

Proceeds from Facility A in the amount of EUR 50.0 million were used to pay off an existing short-term credit facility with UniCredit with a scheduled maturity date of December 2008. Additional proceeds from Facility A in the amount of EUR 10.0 million were applied to reduce the outstanding principal of the EUR 46.8 million short-term credit facility with UniCredit with a scheduled maturity date of April 2009 (“Facility B”). In addition, we made a cash payment out of our existing cash balance to UniCredit of EUR 1.8 million which was applied to further reduce the outstanding principal of Facility B. The outstanding balance on Facility B after these payments was EUR 35.0 million.

On April 3, 2009, we entered into an agreement with UniCredit to extend and restructure Facility B with UniCredit. Under the terms agreed to at that time, Facility B remained unsecured and bears interest at a rate of six-month EURIBOR plus 2.5%. We agreed to repay the principal amount in three installments of EUR 2.0 million each on January 1, 2010, July 1, 2010 and January 1, 2011, and a fourth and final principal payment in the amount of EUR 29.0 million on July 1, 2011. As a result of this restructuring, we classified EUR 33.0 million ($43.9 million) as long-term debt as of March 31, 2009. Facility B was subsequently amended as described below.

Throughout fiscal year 2009, we continued to review strategic financing alternatives to improve liquidity and reduce overall leverage. In April 2009, we entered into amendments to Facility A and Facility B with UniCredit which, among other things, modified the financial covenants under Facility A (Facility B does not contain any covenants, however it contains cross acceleration provisions linked to Facility A) and modified the scheduled amortization under Facility A and Facility B. These amendments to the UniCredit facilities became effective June 30, 2009 upon the consummation of the tender offer discussed below. See discussion below regarding our forecasted compliance with the financial covenants required by UniCredit. The following table shows the amortization schedule for the UniCredit Facilities under the original and amended terms (amounts in thousands):

(1)                                  A principal payment of $7.7 million on Facility A was made on the scheduled due date of April 1, 2009.

On May 5, 2009, we announced the execution of the Platinum Credit Facility with K Financing. The Platinum Credit Facility consisted of a term loan of up to $52.5 million, line of credit loans that may be borrowed from time to time (but not reborrowed after being repaid) of up to $12.5 million and a working capital loan of up to $12.5 million.

Concurrently, on May 5, 2009, we commenced a tender offer for the Notes. The term loan discussed above can only be used to purchase the Notes and will only be funded to the extent required to purchase Notes accepted for purchase pursuant to the tender offer. Additionally, funds from the line of credit loans and working capital loan under the Platinum Credit Facility are available to us, for limited purposes, subject to the satisfaction or waiver of certain conditions, including the consummation of the tender offer on the terms described in the Offer to Purchase. Under the initial terms of the tender offer, holders of Notes who validly tendered, and did not validly withdraw, their Notes on or prior to the Expiration Date would receive $300 for each $1,000 principal amount of Notes purchased in the tender offer, plus accrued and unpaid interest to, but not including, the date of payment for the Notes accepted for payment. The tender offer and our obligation to purchase and pay for the Notes validly tendered and not validly withdrawn pursuant to the tender offer was initially conditioned upon (1) at least $166.3 million in aggregate principal amount of Notes (representing 95% of the outstanding Notes) being validly tendered and not validly withdrawn, and (2) the receipt by us of the proceeds from a term loan of up to $52.5 million from K Financing.

On June 3, 2009, we announced the extension of the tender offer until an expiration date of June 12, 2009. All terms and conditions of the tender offer remained unchanged with this extension. On June 8, 2009, we announced an increase in the purchase price from $300 per $1,000 principal amount of the Notes to $400 per $1,000 principal amount of the Notes and extended the expiration date to June 19, 2009. In addition, we decreased the minimum tender condition from $166.3 million in aggregate principal amount of the Notes (representing 95% of the outstanding Notes) to $122.5 million in aggregate principal amount of the Notes (representing 70% of the outstanding Notes). We also entered into the Amended and Restated Credit Agreement with K Financing, whereby, among other matters, the potential size of the term loan facility increased from $52.5 million to $60.3 million. The Amended and Restated Platinum Credit Facility would have required the use of up to $9.8 million of our internal cash on hand for purchases of Notes validly tendered and not validly withdrawn pursuant

to the tender offer if more than $150.6 million aggregate principal amount of the Notes were validly tendered and not validly withdrawn and all funds under the term loan facility under the Amended and Restated Platinum Credit Facility were disbursed. As discussed below, the $150.6 million threshold was not met and we did not disburse internal cash for the purchase of the Notes.

On June 22, 2009, we announced a reduction in the minimum tender condition pursuant to the tender offer from $122.5 million in aggregate principal amount of Notes (representing 70% of the outstanding Notes) to $87.5 million in aggregate principal amount of Notes (representing 50% of the outstanding Notes) and an extension of the expiration date to June 26, 2009. All remaining terms and conditions of the tender offer were unchanged with this extension. We also entered into a Revised Amended and Restated Credit Agreement with K Financing (the “Revised Amended and Restated Platinum Credit Facility”), whereby, among other matters, the minimum tender condition was reduced from $122.5 million in aggregate principal amount of Notes (representing 70% of the outstanding Notes) to $87.5 million in aggregate principal amount of Notes (representing 50% of the outstanding Notes).

On June 26, 2009, $93.9 million in aggregate principal amount of the Notes were validly tendered (representing 53.7% of the outstanding Notes). As a result of the consummated tender offer, we used $37.6 million from the term loan under the Revised Amended and Restated Platinum Credit Facility to extinguish the tendered Notes. We incurred approximately $9 million in fees and expense reimbursements related to the execution of this tender offer. We funded these costs with an equal amount of proceeds from a line of credit loan under the Revised Amended and Restated Platinum Credit Facility. No monies have been drawn on the working capital loan provision, under which we currently have a borrowing capacity of $7.5 million based on our book-to-bill ratio. The term loan facility will accrue interest at an annual rate of 9% for cash payment until the one-year anniversary of the consummation of the tender offer. At our option, after the one-year anniversary of the consummation of the tender offer, the term loan facility will accrue interest at an annual rate of 9% for cash payment, or cash and PIK interest at the rate of 12% per annum, with the cash portion being 5% and the PIK portion being 7%. The working capital loans and the line of credit loans will accrue interest at a rate equal to the greater of (i) LIBOR plus 7%, or (ii) 10%, payable monthly in arrears. In the event more than $8.8 million in aggregate principal amount of the Notes remain outstanding as of March 1, 2011, then the maturity date of the term loan facility, the line of credit loans and the working capital loan is accelerated to March 1, 2011. If the aggregate principal amount of the Notes outstanding at March 1, 2011 is less than or equal to $8.8 million the maturity date of the term loan facility will be November 15, 2012 and the maturity date for the line of credit loans and the working capital loan will be July 15, 2011. In addition, we will pay K Financing a success fee of $5.0 million, payable at the time of repayment in full of the term loan facility, whether at maturity or otherwise.

The Revised Amended and Restated Platinum Credit Facility contains certain financial maintenance covenants, including requirements that we maintain a minimum consolidated EBITDA and fixed charge coverage ratio. See discussion below regarding our forecasted compliance with these financial covenants. In addition to the financial covenants, the Revised Amended and Restated Platinum Credit Facility also contains limitations on capital expenditures, the incurrence of indebtedness, the granting of liens, the sale of assets, sale and leaseback transactions, fundamental corporate changes, entering into investments, the payment of dividends, voluntary or optional payment and prepayment of indebtedness (including the Notes) and other limitations customary to secured credit facilities.

Our obligations to K Financing arising under the Revised Amended and Restated Platinum Credit Facility are secured by substantially all of our assets located in the United States, Mexico, Indonesia and China (other than accounts receivable owing by account debtors located in the United States, Singapore and Hong Kong, which exclusively secure obligations to Vishay). As further described in the Offer to Purchase, in connection with entering into the Revised Amended and Restated Platinum

Credit Facility, K Financing and UniCredit entered into a letter of understanding with respect to their respective guarantor and collateral pools, and our assets in Europe that are not pledged to either lender. The letter of understanding also sets forth each lender’s agreement not to interfere with the other’s exercise of remedies pertaining to their respective collateral pools.

Concurrent with the consummation of the tender offer, we issued K Financing the Closing Warrant to purchase up to 80,544,685 shares of our common stock, subject to certain adjustments, representing approximately 49.9% of our outstanding common stock on a post-Closing Warrant basis. The Closing Warrant will be exercisable at a maximum aggregate purchase price of $40.3 million, subject to certain adjustments, at any time prior to the tenth anniversary of its date of issuance. The Closing Warrant may be exercised in exchange for cash, by means of net settlement of a corresponding portion of amounts owed by us under the Revised Amended and Restated Platinum Credit Facility, by cashless exercise to the extent of appreciation in the value of our common stock above the exercise price of the Closing Warrant, or by combination of the preceding alternatives. The issuance of the Closing Warrant may be deemed an “ownership change” for purposes of Section 382 of the Code. If such an ownership change is deemed to occur, the amount of our taxable income that can be offset by our net operating loss carryovers in taxable years after the ownership change will be limited. We believe it is more likely than not that the issuance of the Closing Warrant will not be deemed an ownership change for purposes of Section 382 of the Code although the matter is not free from doubt. In addition, the exercise of the Closing Warrant may give rise to an ownership change for purposes of Section 382 of the Code.

We also entered into the Investor Rights Agreement with K Financing. Pursuant to the terms of the Investor Rights Agreement, we have, subject to certain terms and conditions, granted K Financing Board observation rights which would permit K Financing to designate up to three individuals to observe Board meetings and receive information provided to the Board. In addition, the Investor Rights Agreement provides K Financing with certain preemptive rights. Subject to the terms and limitations described in the Investor Rights Agreement, in connection with any proposed issuance of securities, we would be required to offer to sell to K Financing a pro rata portion of such securities equal to the percentage determined by dividing the number of shares of common stock held by K Financing plus the number of shares of common stock issuable upon exercise of the Closing Warrant, by the total number of shares of common stock then outstanding on a fully diluted basis. The Investor Rights Agreement also provides K Financing with certain registration and information rights.

We also entered into a Corporate Advisory Services Agreement with Platinum Advisors for a term of at least four years, pursuant to which we will pay an annual fee of $1.5 million to Platinum Advisors for certain advisory services.

We believe that the consummation of the tender offer and execution of the Revised Amended and Restated Platinum Credit Facility and amendments to the UniCredit facilities will improve our liquidity situation. Given our cost reduction and working capital initiatives, our anticipated borrowing ability under the working capital loan provision of the Revised Amended and Restated Platinum Credit Facility, and the UniCredit Amendments, we estimate that our current operating plans will provide for sufficient cash to cover liquidity requirements. However, we currently anticipate that we will continue to experience severe pressure on our liquidity during fiscal year 2010. Furthermore, the generation of adequate liquidity will largely depend upon our ability to achieve sales growth over the next several quarters and our ability to execute our current operating plans and to manage costs. In light of current global economic conditions, and other risks and uncertainties, there can be no assurance that we will be successful in this regard. An unanticipated decrease in sales, sales that fall below our expectations, 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. We will continually monitor and adjust our business plan as necessary to respond to developments in our business, markets and the broader economy. In addition to the actions discussed above, we continue to review additional initiatives to

improve liquidity in the short-term as well as to reduce our total overall leverage, including the sale of non-core assets.

Based on our operating plans, we currently forecast that we will meet the financial covenants required by the Revised Amended and Restated Platinum Credit Facility and Facility A at each of the measurement dates during fiscal year 2010. However, in the case of the EBITDA covenant, our forecast shows that we will achieve the required level of profitability by a narrow margin. Our current forecast anticipates a steady recovery, over the next several quarters, of the principal markets and industries into which our products are sold. Our expectations in this regard are based on our consideration of various information sources including, among others, industry surveys and input from various key customers. Given the degree of uncertainty with respect to the near-term outlook for the global economy and the possible effects on our operations, there is significant uncertainty as to whether our forecasts will be achieved. Therefore, there can be no assurance that we will be able to meet the financial covenants required by the Revised Amended and Restated Platinum Credit Facility and Facility A. In the event of a covenant breach, we would seek a waiver or amendment, but such remedy would be out of our control and rest in the discretion of our lenders.

Our accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. Specifically, our consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets, or the amounts or classification of liabilities that might be necessary in the event we are unable to continue as a going concern. The significant uncertainties surrounding our liquidity and capital resources and ability to meet financial covenants as discussed above, cast substantial doubt on our ability to continue as a going concern. The failure to successfully maintain sufficient cash, and/or the non-compliance with our financial covenants without a waiver or amendment granted by our lenders, would have a material adverse effect on our business, results of operations, financial position and liquidity.

Acquisitions

Arcotronics Italia S.p.A.

On October 12, 2007, pursuant to the terms of a Stock Purchase Agreement between KEMET Electronics Corporation, our wholly owned subsidiary, and Blue Skye (Lux) S.a r.l. (“Blue Skye”), we acquired 100% of Arcotronics Italia S.p.A. (“Arcotronics”) from Blue Skye. The acquisition included manufacturing facilities in Sasso Marconi, Monghidoro, and Vergato, Italy; Landsberg, Germany; Towcester, United Kingdom; Kyustendil, Bulgaria; and Anting-Shanghai, China, and is included in Film and Electrolytic.

We paid EUR 17.5 million ($24.8 million) for 100% of the outstanding share capital of Arcotronics, assumed net financial debt of EUR 98.0 million ($138.9 million) and certain other long-term liabilities of Arcotronics totaling EUR 35.1 million ($49.8 million).

In connection with the acquisition, we entered into a Senior Facility Agreement with UniCredit whereby UniCredit agreed to lend to us up to EUR 47.0 million ($66.8 million). We used a portion of this facility to repay a portion of the outstanding indebtedness of Arcotronics, with the balance available for general corporate purposes. A portion of this debt has subsequently been paid down and the Senior Facility Agreement was amended on April 3, 2009 and June 26, 2009.

Evox Rifa Group Oyj

On April 24, 2007, pursuant to the terms of a Combination Agreement between KEMET Electronics Corporation and Evox Rifa Group Oyj (“Evox Rifa”), we purchased 92.7% of Evox Rifa pursuant to a tender offer completed on April 12, 2007. Evox Rifa had 178.2 million shares outstanding at the time of the commencement of the tender offer. KEMET purchased 165.2 million shares at a

price of EUR 0.12 per share or EUR 19.8 million ($27.0 million). KEMET announced at the time that it intended to acquire the remaining outstanding shares pursuant to a squeeze-out process. Following the settlement of the completion trades relating to the tender offer, Evox Rifa became a subsidiary of KEMET. In September 2007, we completed the squeeze-out process and purchased the remaining outstanding shares of Evox Rifa for EUR 1.8 million ($2.4 million). This additional amount is considered part of the purchase price of the acquisition. This acquisition is also included in Film and Electrolytic.

In addition, pursuant to the tender offer, KEMET offered to acquire all of the outstanding loan notes under the convertible capital loan issued by Evox Rifa for consideration corresponding to the aggregate of the nominal amount per loan note of EUR 100 plus accrued interest up to and including the closing date of the tender offer. The outstanding amount of the loan notes and accrued interest at the time of the commencement of the tender offer was EUR 5.9 million ($8.1 million). Holders of 95.7% of the convertible capital loan notes issued by Evox Rifa tendered their loan notes pursuant to the tender offer and consequently, KEMET redeemed these notes as of April 24, 2007. In addition to the payment made for the shares and loan notes, KEMET assumed EUR 19.5 million ($26.6 million) in outstanding indebtedness of Evox Rifa.

Tantalum business unit of EPCOS AG

On April 13, 2006 we completed the purchase of the tantalum business unit of EPCOS for a purchase price of EUR 80.9 million ($98.4 million). The acquisition included all of the issued share capital of EPCOS-Pecas e Componentes Electronicos S.A. and certain other assets of the tantalum business unit of EPCOS, primarily in Germany. Of the EUR 80.9 million, KEMET paid EUR 68.3 million ($82.7 million) in cash and assumed certain liabilities and working capital adjustments of EUR 12.6 million. The acquisition did not include EPCOS’ tantalum capacitor manufacturing facility in Heidenheim, Germany. As a result, KEMET and EPCOS entered into a manufacturing and supply agreement under which EPCOS continued to manufacture products exclusively for KEMET at the Heidenheim facility to ensure a continued supply of products to customers during the transition period. In connection with the acquisition, we paid $4.4 million in legal and professional fees which were capitalized as part of the purchase price. On September 29, 2006, we agreed upon the final purchase amount related to the transaction and received a favorable credit of EUR 3.0 million ($3.8 million). This amount reduced our goodwill recorded in the transaction.

On September 30, 2006, the transition period ended and KEMET purchased certain of the Heidenheim, Germany manufacturing assets and the research and development assets for EUR 8.2 million ($10.4 million). We also purchased inventories at the Heidenheim plant for EUR 1.2 million ($1.6 million). In addition, we assumed a pension liability of EUR 1.1 million ($1.3 million) for the Heidenheim employees. Finally, we incurred additional legal and audit fees relating to the acquisition of $0.5 million. The net additional purchase price was EUR 8.8 million ($11.1 million).

Taking into account both the April 13, 2006 closing adjustment and the transition agreement on September 30, 2006, we purchased the tantalum business unit of EPCOS for a total purchase price of EUR 86.7 million ($105.8 million). The final cash settlement was made in October 2006.

Off-Balance Sheet Arrangements

Other than operating lease commitments, 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 significant 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 KEMET believes 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 management’s 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.

KEMET’s management believes the following critical accounting policies contain the most significant judgments and estimates used in the preparation of the consolidated financial statements:

·                  ASSET IMPAIRMENT—GOODWILL AND LONG-LIVED ASSETS.  We apply the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”. Under SFAS No. 142, goodwill, which represents the excess of purchase price over fair value of net assets acquired, and intangible assets with indefinite useful lives are no longer amortized but are tested for impairment at least on an annual basis in accordance with the provisions of SFAS No. 142. We perform our impairment test during the first quarter of each fiscal year and when otherwise warranted.

We are organized into three distinct business groups: Tantalum, Ceramic and Film and Electrolytic. We evaluate our goodwill on a reporting unit basis consistent with the provisions of SFAS No. 142. 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 each reporting unit as defined under SFAS No. 142, 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 determined 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.

For the impairment or disposal of long-lived assets, KEMET follows the guidance as prescribed in Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). In accordance with SFAS No. 144, 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.

We perform our goodwill impairment tests during the first quarter of each fiscal year and when otherwise warranted. In the first quarter of fiscal year 2009, we recorded a goodwill impairment charge of $88.6 million based on the annual impairment test. Also occurring in the first quarter of fiscal year 2009, and in part as a result of the goodwill impairment testing, we tested the long-lived assets of Ceramic for impairment. As a result of this testing, Ceramic recorded a $5.3 million impairment charge to write off all of its other intangible assets and recorded a $58.6 million impairment charge to write down long-lived assets. We tested goodwill for impairment again as of September 30, 2008. In addition to our goodwill impairment testing, we also tested our long-lived asset groups for impairment. These impairment tests resulted in a second quarter goodwill impairment charge of $85.7 million to write off all of the remaining goodwill of Film and Electrolytic and Tantalum. KEMET also completed long-lived asset impairment tests in the third and fourth quarters of fiscal year 2009 and concluded that no further impairment existed. The goodwill impairment and long-lived asset charge to earnings reduced the results under U.S. generally accepted accounting principles; however, both were non-cash in nature.

The goodwill and long-lived asset impairment reviews are highly subjective and involve the use of significant 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. 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 our financial condition and operating results

·                  REVENUE RECOGNITION.  We recognize revenue only when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price to the buyer is fixed or determinable, and (4) collectibility is reasonably assured.

A portion of sales consists of 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. Products with customer specific requirements are tested and approved by the customer before we mass produce and ship the products. We recognize revenue at shipment as the sales terms for products produced with

customer specific requirements do not contain a final customer acceptance provision or other provisions that are unique and would otherwise allow the customer different acceptance rights.

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 “ship-from-stock and debit” (“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 KEMET’s 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 management.

The SFSD program provides a mechanism for the distributor to meet a competitive price after obtaining authorization from the local Company sales office. This program allows the distributor to ship its higher-priced inventory and debit us for the difference between KEMET’s list price and the lower authorized price for that specific transaction. We established reserves for our SFSD program based primarily on historical SFSD activity and certain distributors’ actual inventory levels comprising approximately 90% of the total global distributor inventory related to customers which participate in the SFSD program.

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.

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

·                  weighted-average 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

·                  medical cost inflation—used to calculate the impact future medical costs will have on post-retirement obligations.

Management understands 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.

Management bases our assumptions on either historical or market data that it considers reasonable. Variations in these assumptions could have a significant effect on the amounts reported in Consolidated Balance Sheets and the Consolidated Statements of Operations.

·                  INCOME TAXES.  Income taxes are accounted for under the asset and liability method, as prescribed by Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). 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.

Management believes that it is more likely than not that a portion of its 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. Management has 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.

In June 2006, the Financial Accounting Standard Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”) which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN No. 48 provides guidance on the financial statement recognition and measurement of tax position taken or expected to be taken in a tax return. FIN No. 48 requires 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. We adopted the provisions of FIN No. 48 effective April 1, 2007. Any accruals for estimated interest and penalties would be recorded as a component of income tax expense.

·                  INVENTORIES.  Inventories are valued at the lower of cost or market, with cost determined under the first-in, first-out method and market based upon net realizable value. The valuation of inventories requires management to make estimates. We also must assess the prices at which it believes 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.

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 Condensed Consolidated Statements of Operations for the periods indicated (amounts in thousands):

Comparison of Fiscal Year 2009 to Fiscal Year 2008

Overview:

Net sales:

Net sales for fiscal year 2009 were $804.4 million, which represented a 5.4% decrease from fiscal year 2008 net sales of $850.1 million. Film and Electrolytic sales increased $60.6 million while Tantalum and Ceramic sales decreased by $56.6 million and $49.7 million, respectively. The Arcotronics business was acquired near the beginning of the third quarter of fiscal year 2008. Accordingly, the increase in Film and Electrolytic sales occurred because fiscal year 2009 contained a full year of Arcotronics’ sales while fiscal year 2008 contained slightly less than two quarters of Arcotronics’ sales. The global economic downturn adversely affected sales throughout the year leading to lower sales in Tantalum and Ceramic, and weaker than expected sales in Film and Electrolytic. Additionally, the downturn worsened over the course of fiscal year 2009 and led to sequentially decreasing sales in each quarter, particularly in the fourth quarter. This decrease in sales is attributable to distributors reducing their inventories in order to allow them to operate in line with forecasted customer demand, and to lower demand from our electronic manufacturing services and original equipment manufacturing customers.

By region, 25% of net sales for the year ended March 31, 2009 were to customers in North America and South America (“Americas”), 35% were to customers in Asia and Pacific Rim (“APAC”), and 40% were to customers in Europe, Middle East and Africa (“EMEA”). For the year ended March 31, 2008, 28% of net sales were to customers in the Americas, 36% were to customers in APAC, and 36% were to customers in EMEA.

By channel, 47.4% of net sales for the year ended March 31, 2009, were to distribution customers, 19.4% were to electronic manufacturing services customers, and 33.2% were to original equipment manufacturing customers. For the year ended March 31, 2008, 47.6% of net sales were to distribution

customers, 17.5% were to electronic manufacturing services customers, and 34.9% were to original equipment manufacturing customers.

Gross Margin:

Gross margin for the fiscal year ended March 31, 2009 decreased from 18.2% of net sales in the prior year to 8.5% of net sales. Several factors contributed to the decrease in gross margin percentage in fiscal year 2009. In the first half of the year, we experienced higher manufacturing costs related to inflation in the utility, freight and distribution areas as well as increased costs in conjunction with the relocation and start up of equipment in China. Additionally, we recorded a $7.5 million lower of cost or market charge to adjust Ceramic Hi-CV inventory to its net realizable value. Price decreases in Hi-CV products in Asia caused the net realizable value of the inventory to fall below its carrying value. In the last half of the year, particularly the fourth quarter, gross margin as a percent to sales was down because of the unfavorable absorption impact of lower sales on manufacturing fixed costs. While improved manufacturing performance and the benefits of our cost savings plans led to lower manufacturing costs, these reductions were not enough to offset the impact of lower volume. Lower volume had a particularly unfavorable gross margin impact in Film and Electrolytic, where the pace of our restructuring and cost reduction efforts have slowed considerably because of our liquidity situation.

Selling, general and administrative expenses:

SG&A expenses were $93.8 million, or 11.7% of net sales for fiscal year 2009 compared to $99.0 million, or 11.7% of net sales for fiscal year 2008. The decrease was primarily due to cost reductions resulting from our rationalization plan announced in the second quarter of fiscal year 2009; we began to see savings from the plan in the second half of fiscal year 2009. Partially offsetting these savings were $2.3 million in additional bad debt expense, an additional $2.8 million in pension charges and $1.0 million in higher incentive accruals compared to fiscal year 2008. In addition, integration expenses were up $0.9 million in fiscal year 2009 compared to fiscal year 2008 and were primarily associated with integrating our Evox Rifa and Arcotronics acquisitions.

Research and development:

Research and development expenses were $29.0 million, or 3.6% of net sales for fiscal year 2009, compared to $35.7 million, or 4.2% of net sales for fiscal year 2008. The acquisition of the Arcotronics business added $1.9 million in R&D expenses in fiscal year 2009 while the savings from the rationalization plan more than offset this increase.

Special charges:

Pre-tax special charges for fiscal year 2009, were $242.9 million as compared to $34.1 million for the prior fiscal year. The following table reflects the pre-tax charges in each fiscal year (amounts in thousands):

Fiscal Year 2009 Special Charges

We report a measure entitled Special Charges. These charges are considered items outside of normal operations, and it is the intent of KEMET to provide more information to explain the operating results. Since some of the items are not considered restructuring charges as defined by U.S. generally accepted accounting principles, we have provided the breakout of U.S. generally accepted accounting principles restructuring and impairment charges and those other charges and adjustments separately.

Restructuring charges—Restructuring charges incurred during fiscal year 2009 totaled $30.9 million. We announced three initiatives to reduce fixed costs to be more in line with lower sales volumes. During the first quarter of fiscal year 2009, we recognized charges of $4.9 million primarily for reductions in workforce in Film and Electrolytic. In the second quarter of fiscal year 2009, we recognized charges of $16.1 million related to the rationalization of corporate staff and manufacturing support functions in the United States, Europe, Mexico, and Asia. Approximately 640 employees were affected by this action. During the third quarter of fiscal year 2009, we recognized charges of $3.5 million related primarily to the reduction of approximately 1,500 manufacturing positions representing approximately 14% of our workforce. During the fourth quarter of fiscal year 2009, we incurred expenses of $0.9 million primarily related to the closing of sales offices. We incurred expenses of $5.5 million related to our manufacturing relocation plan.

Acquisition integration costs—As a result of our recent acquisitions, we incurred costs to integrate Film and Electrolytic into KEMET. We incurred $5.3 million of costs during fiscal year 2009 related to the integration which are included in the line item “Selling, general and administrative expenses” on the Consolidated Statements of Operations.

Goodwill impairment and Write down of long-lived assets—In the first quarter of fiscal year 2009, we tested goodwill for impairment and recorded an $88.6 million impairment charge. Also occurring in the first quarter of fiscal year 2009, we tested the long-lived assets of Ceramic for impairment. As a result

of this testing, Ceramic recorded a $5.3 million impairment charge to write off all of its other intangible assets and recorded a $58.6 million impairment charge to write down long-lived assets.

Because our stock price did not recover in the second quarter of fiscal year 2009, we tested goodwill for impairment again as of September 30, 2008. This impairment test resulted in a second quarter goodwill impairment charge of $85.7 million to write off all of the remaining goodwill of Film and Electrolytic and Tantalum.

During the fourth quarter of fiscal year 2009, due to circumstances that were previously considered unlikely, we reclassified one of the manufacturing facilities which was classified as held for sale during fiscal year 2008 (in accordance with SFAS No. 144) as held and used. These assets no longer meet the criteria to be classified as held for sale under SFAS No. 144. We recognized an impairment charge of $2.5 million which primarily relates to this facility as the carrying amount of the facility is not recoverable based on an independent appraisal dated February 28, 2009. In addition, a research and development facility located in Heidenheim, Germany was closed and an impairment charge of $1.2 million was recognized due to the abandonment of long-lived assets.

(Gain) loss on sales and disposals of assets—During fiscal year 2009, we recognized a gain of $25.5 million. The majority of this gain stems from the sale of assets related to the production and sale of wet tantalum capacitors to a subsidiary of Vishay. We received $33.7 million in cash proceeds, net of amounts held in escrow. Concurrently, we entered into a three-year term loan for $15.0 million with Vishay.

Net benefit plan adjustments—We recognized $28.0 million in net benefit plan adjustments. This adjustment primarily relates to the amendment to our post-retirement welfare plan to eliminate all obligations for non-UCC grandfathered retirees.

Non-recurring interest amortization charges—During fiscal year 2009, we recognized a charge of $1.3 million related to the write-off of unamortized debt costs.

Loss on early retirement of debt—In September 2008, we prepaid our obligations under the Senior Notes, incurring charges of $2.0 million related to a make-whole adjustment and a $0.2 million prepayment fee.

Inventory Adjustments—During fiscal year 2009, we recognized a charge of $16.5 million related to larger than typical inventory write-downs and manufacturing variances.

Fiscal Year 2008 Special Charges

Restructuring Charges—During fiscal year 2008, we recognized $8.2 million in costs relating to the manufacturing relocation plan. The plan included moving manufacturing operations to lower cost facilities in Mexico and China. During fiscal year 2008, we recognized a charge of $17.2 million for a reduction in workforce primarily in Europe and Mexico.

Acquisition integration costs—As part of our acquisitions, we incurred costs to integrate Film and Electrolytic into KEMET. We incurred $4.3 million of costs during fiscal year 2008 related to the integration which are included in the line item “Selling, general and administrative expenses” on the Consolidated Statements of Operations.

Write down long-lived assets—Tantalum recognized a $1.2 million charge to reduce the carrying value of an idle facility located in Mauldin, South Carolina, a $0.9 million impairment charge relating to a manufacturing facility in Heidenheim, Germany and an impairment charge of $2.1 million relating to the Evora, Portugal plant.

Operating (loss):

The operating loss for the fiscal year 2009 was $271.1 million compared to operating loss of $8.9 million in the prior fiscal year. We incurred non-cash charges of $242.0 million for goodwill impairment and the write down of long-lived assets in fiscal year 2009 compared to $4.2 million in fiscal year 2008. Lower volume led to a gross margin decrease of $86.6 million in fiscal year 2009 as compared to fiscal year 2008. Additionally, operating expenses were $12.0 million lower than in fiscal year 2008 and restructuring charges were $5.5 million higher than fiscal year 2008. These unfavorable items were partially offset by gains on the sale of assets $25.5 million in fiscal year 2009 compared to $0.7 million in fiscal year 2008 and curtailment gains on benefit plans of $30.8 million in fiscal year 2009.

Other (income) expense, net:

Other (income) expense, net was $17.3 million in fiscal year 2009 compared to $11.2 million in fiscal year 2008, an increase of $6.1 million. The increase in expense resulted from a $5.4 million decrease in interest income, a $8.1 million increase in interest expense and amortization of debt discount and a loss on early retirement of debt of $2.2 million compared to fiscal year 2008. These increases in expense were partially offset by a $9.7 million increase in other income which primarily relates to foreign exchange gains.

Income taxes:

The effective tax rate for fiscal year 2009 was (1.1)%, resulting in a tax benefit of $3.2 million. This compares to an effective tax rate of 25.4% for fiscal year 2008 that resulted in a tax expense of $5.1 million. The net income tax benefit is primarily comprised from operations in certain foreign jurisdictions, totaling a $3.6 million tax benefit. In addition, there is a $0.2 million income tax benefit from the recognition of Texas credits, and a $0.6 million tax expense relating to FIN No. 48 adjustments. No tax benefit is recognized for the U.S. tax loss for fiscal year 2009 due to the establishment of a valuation allowance. Future fluctuations in the valuation allowance are expected to result in a tax rate below the 30% to 36% historical average.

Segment Review:

The following table sets forth the operating income (loss) for each of our business segments for the fiscal years 2009 and 2008 respectively. The table also sets forth each of the segments’ net sales as a percent to total net sales, the net income (loss) components as a percent to total net sales, and the percentage increase or decrease of such components over the prior year (amounts in thousands, except percentages):

Tantalum

Net sales—Net sales decreased 13.4% during fiscal year 2009, as compared to fiscal year 2008. Unit sales volume for fiscal year 2009 decreased 15.8% as compared to fiscal year 2008. Unit sales volume and revenue were negatively affected by the global economic downturn that adversely impacted all regions as well as the weak automotive market in the United States and Europe. Average selling prices increased 2.8% for fiscal year 2009 as compared to fiscal year 2008 due to a favorable product mix shift, as specialty product shipments represented a larger share of Tantalum revenue.

Gross Margin—Gross margin as a percent of Tantalum sales decreased to 14.4% during fiscal year 2009 as compared to 19.0% in fiscal year 2008. The primary contributor to the lower gross margin was lower volume driven by the global economic downturn affecting all regions. Operational cost reductions were implemented, however the reductions were not enough to offset the revenue decline. Additionally, margins were adversely affected by increases in manufacturing costs related to inflation in the utility and freight distribution areas.

Operating income (loss)—Operating income for fiscal year 2009 was $13.3 million as compared to an operating loss of $1.8 million for fiscal year 2008. Operating income was favorably impacted $26.4 million by the gain on the sale of assets, curtailment gains on benefit plans of $22.9 million, and reductions in restructuring costs of $7.7 million. Offsets to the gains were a non-cash $24.4 million goodwill impairment charge, and lower revenue impacted by the global economic downturn, which led to lower gross margin. The lower revenue impact was partially offset by reduced operating expenses of $8.0 million primarily as a result of our rationalization plan initiated on July 31, 2008.

Ceramic

Net sales—Net sales decreased by 22.0% during fiscal year 2009, as compared to fiscal year 2008. The decrease is primarily attributed to lower volumes, partially offset by higher average selling prices. Volumes decreased 28.8% during fiscal year 2009, as compared to fiscal year 2008 due primarily to the global economic downturn as well as softening in the Hi-CV market in Asia and weak automotive markets in the United States and Europe. Average selling prices increased in fiscal year 2009 by 9.5% due primarily to product and region mix improvements over last year, partially offset by price decreases in Hi-CV products in Asia.

Gross Margin—Gross margin as a percent of Ceramic sales decreased to 5.7% during fiscal year 2009 as compared to 18.4% during fiscal year 2008. The primary contributor to the lower gross margin was lower volume driven by the global economic downturn affecting all regions. Also, a significant contributor to the lower gross margin was a $7.5 million lower-of-cost-or-market charge to adjust Hi-CV inventory to its net realizable value. Price decreases in Hi-CV products in Asia caused the net realizable value of the inventory to fall below its carrying value. Also adversely affecting gross margins in fiscal year 2009 were increases in manufacturing costs related to inflation in the utility and freight distribution areas.

Operating income (loss)—Operating loss increased from a loss of $4.5 million during fiscal year 2008 to an operating loss of $98.7 million during fiscal year 2009. The operating loss increase of $94.2 million was attributable to charges of $78.2 million for goodwill impairment and the write down of long-lived assets, a decrease of $31.5 million related to gross margin and a $2.0 million increase in restructuring charges. These unfavorable items were partially offset by lower operating expenses of $10.9 million which primarily resulted from the initiation of our rationalization plan on July 31, 2008.

Film and Electrolytic

Film and Electrolytic was created with the acquisition of Evox Rifa in April 2007 and Arcotronics in October 2007. Accordingly, the financial results for the twelve months of fiscal year 2008 include approximately eleven months of Evox Rifa activity and approximately six months of Arcotronics activity.

Net sales—Net sales increased by $60.6 million in fiscal year 2009, as compared to fiscal year 2008. The Arcotronics business, which was acquired at the beginning of the third quarter of fiscal year 2008, accounted for $61.6 million of the $60.6 million increase. Film and Electrolytic experienced declining sales in the third and fourth quarters of fiscal year 2009 due to the global economic downturn.

Gross Margin—Gross margin decreased $27.7 million from $33.0 million in fiscal year 2008 to $5.3 million in fiscal year 2009. Declining revenue was the primary cause of the drop in gross margin. Despite the cost cutting initiatives executed through head count reductions and temporary layoffs in Italy, expenses were not reduced enough to offset the revenue decline in third and fourth quarters of fiscal year 2009.

Operating income (loss)—Operating loss for fiscal year 2009 was $185.7 million which was primarily due to a non-cash goodwill impairment charge of $137.5 million. Additionally, lower gross margin, restructuring charges of $12.3 million related to reduction-in-force activity and moving production to lower cost regions of the world, and integration costs of $5.2 million also contributed to the operating loss.

Comparison of Fiscal Year 2008 to Fiscal Year 2007

Overview:

Net sales:

Net sales for fiscal year 2008 were $850.1 million, which represented a 29.1% increase from fiscal year 2007 net sales of $658.7 million. The acquisition of Evox Rifa and Arcotronics resulted in an increase in net sales of 30.5% in fiscal year 2008. Sales revenue for the core business decreased 1.4% due to decreases in average selling prices (“ASPs) from additions to industry capacity and changes in end market demand.

Cost of sales:

Cost of sales for fiscal year 2008, was $695.4 million as compared to $517.4 million for fiscal year 2007, a 34.4% increase. The increase in cost of sales was primarily due to the purchase of Evox Rifa and Arcotronics. Cost of sales for the core business increased 2.0%. In addition, manufacturing throughput increased in fiscal year 2008 as added capacity and higher volumes allowed us to offset the average selling price erosion.

Selling, general and administrative expenses:

SG&A expenses were $99.0 million for fiscal year 2008 compared to $89.5 million for fiscal year 2007. The increase was primarily associated with the Evox Rifa and Arcotronics acquisitions. Integration related expenses incurred in fiscal year 2008 related to the acquisitions were $4.3 million compared to $16.2 million in fiscal year 2007 which related to the EPCOS tantalum business unit acquisition integration activities.

Research and development:

Research and development expenses were $35.7 million for fiscal year 2008, compared to $33.4 million for fiscal year 2007. These costs reflect our commitment to the development and

introduction of ultralow ESR tantalums, tantalum face-down products, and aerospace and medical products. Ceramic improved its current product offerings by developing flex migration for crack elimination, and also developing a floating electrode design while expanding Hi-CV offerings. These advancements extended our leading position in certain capacitor technologies.

Special charges:

Pre-tax special charges for fiscal year 2008, were $34.1 million as compared to $27.8 million for the prior fiscal year. The following table reflects the pre-tax charges in each fiscal year (amounts in thousands):

Fiscal Year 2008 Special Charges

Restructuring charges—During fiscal year 2008, we recognized $8.2 million in costs relating to the manufacturing relocation plan. The Plan included moving manufacturing operations to lower cost facilities in Mexico and China. During fiscal year 2008, we recognized a charge of $17.2 million for a reduction in workforce primarily in Europe and Mexico. All costs were expensed as incurred.

Acquisition integration costs—As part of our acquisitions, we incurred costs to integrate Film and Electrolytic into KEMET. We incurred $4.3 million of costs during fiscal year 2008 related to the integration which are included in the line item “Selling, general and administrative expenses” on the Consolidated Statements of Operations.

Write down long-lived assets—Tantalum recognized a $1.2 million charge to reduce the carrying value of an idle facility located in Mauldin, South Carolina, a $0.9 million impairment charge relating to a manufacturing facility in Heidenheim, Germany and an impairment charge of $2.1 million relating to the Evora, Portugal plant.

Fiscal Year 2007 Special Charges

Restructuring charges—During fiscal year 2007, we recognized $9.7 million in costs relating to the manufacturing relocation plan. As of March 31, 2007, we recorded cumulative charges of $50.5 million in connection with the plan. During fiscal year 2007, we recognized a charge of $2.8 million for a reduction in force primarily in Europe and Mexico. All costs were expensed as incurred.

Loss on sales and disposals of assets—During fiscal year 2007, we sold our interest in the joint venture we held with ABM Resources NL (“ABM”) and recognized a gain of $1.4 million. In addition, we completed the sale of our Shelby, North Carolina facility for which we recognized a $0.2 million loss on the sale.

EPCOS integration—KEMET completed the acquisition of the tantalum business unit of EPCOS on April 13, 2006. During fiscal year 2007, we recorded charges of $16.2 million related to the integration which are included in the line item “Selling, general and administrative expenses” on the Consolidated Statements of Operations.

Operating income (loss):

The operating loss for the fiscal year 2008 was $8.9 million compared to operating income of $7.1 million in the prior year. The decrease in operating income from the prior year was principally from an increase in restructuring and asset impairment charges.

Other (income) expense, net:

Other (income) expense, net increased in fiscal year 2008 compared to fiscal year 2007 due to a $11.8 million increase in interest expense and amortization of debt discount compared to fiscal year 2007 due to increased debt related to acquisitions.

Income taxes:

The effective tax rate for fiscal year 2008 was 25.4%, resulting in tax expense of $5.1 million. This compares to an effective tax rate of 11.8% for fiscal year 2007 that resulted in a tax expense of $0.6 million. Besides income tax from normal business operations in certain non-U.S. jurisdictions, the net income tax expense is primarily comprised of a $2.0 million income tax benefit from the recognition of credits due to a change in Texas tax law, a $1.1 million income tax benefit from U.S. competent authority relief on a transfer pricing adjustment, a $0.8 million tax benefit from the settlement of foreign tax issues, a $2.2 million tax expense related to tax law changes in Mexico and Germany, and a $3.0 million tax expense related to fixed asset write offs in Germany. No tax benefit was recognized for the U.S. tax loss for fiscal year 2008 due to the establishment of a valuation allowance during fiscal year 2004.

Segment Review:

The following chart highlights the net sales and operating income (loss) by segment for the fiscal years shown (amounts in thousands):

Restructuring and impairment charges included in the Operating income (loss) are as follows (amounts in thousands):

Tantalum

Net sales—Net sales decreased by 0.2% during fiscal year 2008 as compared to fiscal year 2007. The decrease resulted from a 4.0% erosion in ASP partially offset by an increase in sales volumes of 3.8% during fiscal year 2008 as compared to fiscal year 2007. Volume sales increased to 4.7 billion pieces compared to 4.5 billion pieces in fiscal year 2007.

Operating income (loss)—Operating income (loss) decreased from a profit of $2.7 million in fiscal year 2007 to a loss of $1.8 million in fiscal year 2008. Operating income was negatively impacted by the restructuring costs of $27.8 million in fiscal year 2008.

Ceramic

Net sales—Net sales decreased by 3.8% during fiscal year 2008, as compared to fiscal year 2007. The decrease is attributed to ASP erosion as volume increased by 4.9% to 38.3 billion pieces in fiscal year 2008 as compared to 36.5 billion pieces in fiscal year 2007. ASPs decreased 6.8% during fiscal year 2008, as compared to fiscal year 2007 due to softening in the Hi-CV market in Asia.

Operating income (loss)—Operating income decreased from the profit reported in fiscal year 2007 of $4.4 million to an operating loss of $(4.5) million in fiscal year 2008. The decline in the operating results is attributed to lower revenues and margins in the Hi-CV market for fiscal year 2008 and additional restructuring charges of $1.8 million related to the January 2008 reduction in force.

Film and Electrolytic

This business segment was created with the acquisition of Evox Rifa in April 2007, and in October 2007 the Arcotronics acquisition completed the formation of this business group. For fiscal year 2008, Film and Electrolytic had net sales of $201.2 million and an operating loss of $2.6 million.

Quarterly Results of Operations

The following table sets forth certain quarterly information for fiscal years 2009 and 2008. This information, in the opinion of our 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 amounts):

(1)                                  The global economic downturn worsened over the course of fiscal year 2009 and led to sequentially decreasing sales in each quarter, particularly in the fourth quarter. This decrease in sales is attributable to distributors reducing their inventories in order to allow them to operate in line with forecasted customer demand and lower demand from our electronic manufacturing services and orginal equipment manufacturing customers.

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

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 balances.

In fiscal year 2009, the poor economic environment negatively affected our sales and had an adverse impact on our results of operations and liquidity. Our unfavorable results would have triggered a violation of our Senior Note debt covenants had we not negotiated temporary amendments to the covenants in order to remain in compliance. Prior to the expiration of these covenant amendments, the Senior Notes were paid off, resulting in total principal payments of $60.0 million in fiscal year 2009 to eliminate our Senior Notes. The primary reasons for our unrestricted cash balance decreasing from $81.4 million at March 31, 2008 to $39.2 million at March 31, 2009 were the Senior Notes being paid off (as noted above), cash restructuring and integration related costs, totaling approximately $30.1 million and capital expenditures of $30.5 million. These items were partially offset by $33.7 million of proceeds from the sale of assets related to the production and sale of wet tantalum capacitors and proceeds from a three-year term loan for $15.0 million with Vishay.

We took aggressive steps to offset the adverse impact of lower revenues and net losses on our liquidity. These included:

·                  Cost reduction plans which are expected to save approximately $52 million on an annualized basis;

·                  Where possible, a 10% wage reduction for all salaried employees effective January 1, 2009 (excluding those on a commission based salary) and temporary suspension of the match in our U.S. defined contribution plan match, reducing it from 6% to 0%. These actions are expected to save approximately $12 million on an annualized basis;

·                  Delaying capital spending and aligning remaining capital spending with cash flow;

·                  Reducing past due accounts receivables through more robust collection efforts and implementing aggressive inventory reduction plans; and

·                  Selling assets related to the production and sale of wet tantalum capacitors for $33.7 million in the second quarter of fiscal year 2009 that allowed us to pay off the balance of the Senior Notes.

In addition to the above actions, throughout 2009, we continued to review strategic financing alternatives to improve liquidity and reduce overall leverage. In April, we entered into amendments to Facility A and Facility B with UniCredit which, among other things, modified the financial covenants under Facility A (Facility B does not contain any covenants, however it contains cross acceleration provisions linked to Facility A) and modified the scheduled amortization under Facility A and Facility B. These amendments to the UniCredit facilities became effective June 30, 2009 upon the consummation of the tender offer, discussed below. The following table shows the amortization schedule for the UniCredit Facilities under the original and amended terms (amounts in thousands):

(1)                                  A principal payment of $7.7 million on Facility A was made on the scheduled due date of April 1, 2009.

On May 5, 2009, we announced the execution of the Platinum Credit Facility with K Financing. The Platinum Credit Facility consisted of a term loan of up to $52.5 million, line of credit loans that may be borrowed from time to time (but not reborrowed after being repaid) of up to $12.5 million and a working capital loan of up to $12.5 million.

Concurrently, on May 5, 2009, we commenced a tender offer for the Notes. The term loan discussed above can only be used to purchase the Notes and will only be funded to the extent required to purchase Notes accepted for purchase pursuant to the tender offer. Additionally, funds from the line of credit loans and working capital loan under the Platinum Credit Facility are available to us, for limited purposes, subject to the satisfaction or waiver of certain conditions, including the consummation of the tender offer on the terms described in the Offer to Purchase. Under the initial terms of the tender offer, holders of Notes who validly tendered, and did not validly withdraw, their Notes on or prior to the Expiration Date would receive $300 for each $1,000 principal amount of Notes purchased in the tender offer, plus accrued and unpaid interest to, but not including, the date of payment for the Notes accepted for payment. The tender offer and our obligation to purchase and pay for the Notes validly tendered and not validly withdrawn pursuant to the tender offer was initially conditioned upon

(1) at least $166.3 million in aggregate principal amount of Notes (representing 95% of the outstanding Notes) being validly tendered and not validly withdrawn, and (2) the receipt by us of the proceeds from the term loan of up to $52.5 million from K Financing.

On June 3, 2009, we announced the extension of the tender offer until the expiration date of June 12, 2009. All terms and conditions of the tender offer remained unchanged with this extension. On June 8, 2009, we announced an increase in the purchase price from $300 per $1,000 principal amount of the Notes to $400 per $1,000 principal amount of the Notes and extended the expiration date to June 19, 2009. In addition, we decreased the minimum tender condition from $166.3 million in aggregate principal amount of the Notes (representing 95% of the outstanding Notes) to $122.5 million in aggregate principal amount of the Notes (representing 70% of the outstanding Notes). We also entered into the Amended and Restated Credit Agreement with K Financing, whereby, among other matters, the potential size of the term loan facility increased from $52.5 million to $60.3 million. The Amended and Restated Platinum Credit Facility would have required the use of up to $9.8 million of our internal cash on hand for purchases of Notes validly tendered and not validly withdrawn pursuant to the tender offer if more than $150.6 million aggregate principal amount of the Notes were validly tendered and not validly withdrawn and all funds under the term loan facility under the Amended and Restated Platinum Credit Facility have been disbursed. As discussed below, the $150.6 million threshold was not met, and we did not disburse internal cash for the purchase of the Notes.

On June 22, 2009, we announced a reduction in the minimum tender condition pursuant to the tender offer from $122.5 million in aggregate principal amount of Notes (representing 70% of the outstanding Notes) to $87.5 million in aggregate principal amount of Notes (representing 50% of the outstanding Notes) and an extension of the expiration date to June 26, 2009. All remaining terms and conditions of the tender offer were unchanged with this extension. We also entered into a Revised Amended and Restated Credit Agreement with K Financing, whereby, among other matters, the minimum tender condition was reduced from $122.5 million in aggregate principal amount of Notes (representing 70% of the outstanding Notes) to $87.5 million in aggregate principal amount of Notes (representing 50% of the outstanding Notes).

On June 26, 2009, $93.9 million in aggregate principal amount of the Notes were validly tendered (representing 53.7% of the outstanding Notes). As a result of the consummated tender offer, we used $37.6 million of the term loan under the Revised Amended and Restated Platinum Credit Facility to extinguish the tendered Notes. We incurred approximately $9 million in fees and expense reimbursements related to the execution of this tender offer. We funded these costs with an equal amount of proceeds from a line of credit loan under the Revised Amended and Restated Platinum Credit Facility. No monies have been drawn on the working capital loan provision, under which we currently have $7.5 million borrowing capacity based on our book-to-bill ratio. The term loan facility will accrue interest at an annual rate of 9% for cash payment until the one-year anniversary of the consummation of the tender offer. At our option, after the one-year anniversary of the consummation of the tender offer, the term loan facility will accrue interest at an annual rate of 9% for cash payment, or cash and PIK interest at the rate of 12% per annum, with the cash portion being 5% and the PIK portion being 7%. The working capital loans and the line of credit loans will accrue interest at a rate equal to the greater of (i) LIBOR plus 7%, or (ii) 10%, payable monthly in arrears. In the event more than $8.8 million in aggregate principal amount of the Notes remain outstanding as of March 1, 2011, then the maturity date of the term loan facility, the line of credit loans and the working capital loan is accelerated to March 1, 2011. If the aggregate principal amount of the Notes outstanding at March 1, 2011 is less than or equal to $8.8 million the maturity date of the term loan facility will be November 15, 2012 and the maturity date for the line of credit loans and the working capital loan will be July 15, 2011. In addition, we will pay K Financing a success fee of $5.0 million, payable at the time of repayment in full of the term loan facility, whether at maturity or otherwise.

The Revised Amended and Restated Platinum Credit Facility contains certain financial maintenance covenants, including requirements that we maintain a minimum consolidated EBITDA and fixed charge coverage ratio. See discussion below regarding our forecasted compliance with these financial covenants. In addition to the financial covenants, the Revised Amended and Restated Platinum Credit Facility also contains limitations on capital expenditures, the incurrence of indebtedness, the granting of liens, the sale of assets, sale and leaseback transactions, fundamental corporate changes, entering into investments, the payment of dividends, voluntary or optional payment and prepayment of indebtedness (including the Notes) and other limitations customary to secured credit facilities.

Our obligations to K Financing arising under the Revised Amended and Restated Platinum Credit Facility are secured by substantially all of our assets located in the United States, Mexico, Indonesia and China (other than accounts receivable owing by account debtors located in the United States, Singapore and Hong Kong, which exclusively secure obligations to Vishay). As further described in the Offer to Purchase, in connection with entering into the Revised Amended and Restated Platinum Credit Facility, K Financing and UniCredit entered into a letter of understanding with respect to their respective guarantor and collateral pools, and our assets in Europe that are not pledged to either lender. The letter of understanding also sets forth each lender’s agreement not to interfere with the other’s exercise of remedies pertaining to their respective collateral pools.

Concurrent with the consummation of the tender offer, we issued K Financing the Closing Warrant to purchase up to 80,544,685 shares of our common stock, subject to certain adjustments, representing approximately 49.9% of our outstanding common stock on a post-Closing Warrant basis. The Closing Warrant will be exercisable at a maximum aggregate purchase price of $40.3 million, subject to certain adjustments, at any time prior to the tenth anniversary of its date of issuance. The Closing Warrant may be exercised in exchange for cash, by means of net settlement of a corresponding portion of amounts owed by us under the Revised Amended and Restated Platinum Credit Facility, by cashless exercise to the extent of appreciation in the value of our common stock above the exercise price of the Closing Warrant, or by combination of the preceding alternatives. The issuance of the Closing Warrant may be deemed an “ownership change” for purposes of Section 382 of the Code. If such an ownership change is deemed to occur, the amount of our taxable income that can be offset by our net operating loss carryovers in taxable years after the ownership change will be limited. We believe it is more likely than not that the issuance of the Closing Warrant will not be deemed an ownership change for purposes of Section 382 of the Code although the matter is not free from doubt. In addition, the exercise of the Closing Warrant may give rise to an ownership change for purposes of Section 382 of the Code.

We also entered into the Investor Rights Agreement with K Financing. Pursuant to the terms of the Investor Rights Agreement, we have, subject to certain terms and conditions, granted K Financing Board observation rights which would permit K Financing to designate up to three individuals to observe Board meetings and receive information provided to the Board. In addition, the Investor Rights Agreement provides K Financing with certain preemptive rights. Subject to the terms and limitations described in the Investor Rights Agreement, in connection with any proposed issuance of securities, we would be required to offer to sell to K Financing a pro rata portion of such securities equal to the percentage determined by dividing the number of shares of common stock held by K Financing plus the number of shares of common stock issuable upon exercise of the Closing Warrant, by the total number of shares of common stock then outstanding on a fully diluted basis. The Investor Rights Agreement also provides K Financing with certain registration and information rights.

We also entered into a Corporate Advisory Services Agreement with Platinum Advisors for a term of at least four years, pursuant to which we will pay an annual fee of $1.5 million to Platinum Advisors for certain advisory services.

We believe that the consummation of the tender offer and execution of the Revised Amended and Restated Platinum Credit Facility and amendments to the UniCredit facilities will improve our liquidity situation. Given our cost reduction and working capital initiatives, our anticipated borrowing ability under the working capital loan provision of the Revised Amended and Restated Platinum Credit Facility, and the UniCredit Amendments, we estimate that our current operating plans will provide for sufficient cash to cover liquidity requirements. However, we currently anticipate that we will continue to experience severe pressure on our liquidity during fiscal year 2010. Furthermore, the generation of adequate liquidity will largely depend upon our ability to achieve sales growth over the next several quarters and our ability to execute our current operating plans and to manage costs. In light of current global economic conditions, and other risks and uncertainties, there can be no assurance that we will be successful in this regard. An unanticipated decrease in sales, sales that fall below our expectations, 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. We will continually monitor and adjust our business plan as necessary to respond to developments in our business, markets and the broader economy. In addition to the actions discussed above, we continue to review additional initiatives to improve liquidity in the short-term as well as to reduce our total overall leverage, including the sale of non-core assets.

Based on our operating plans, we currently forecast that we will meet the financial covenants required by the Revised Amended and Restated Platinum Credit Facility and Facility A at each of the measurement dates during fiscal year 2010. However, in the case of the EBITDA covenant, our forecast shows that we will achieve the required level of profitability by a narrow margin. Our current forecast anticipates a steady recovery, over the next several quarters, of the principal markets and industries into which our products are sold. Our expectations in this regard are based on our consideration of various information sources including, among others, industry surveys and input from various key customers. Given the degree of uncertainty with respect to the near-term outlook for the global economy and the possible effects on our operations, there is significant uncertainty as to whether our forecasts will be achieved. Therefore, there can be no assurance that we will be able to meet the financial covenants required by the Revised Amended and Restated Platinum Credit Facility and Facility A. In the event of a covenant breach, we would seek a waiver or amendment, but such remedy would be out of our control and rest in the discretion of our lenders.

Our accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. Specifically, our consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets, or the amounts or classification of liabilities that might be necessary in the event we are unable to continue as a going concern. The significant uncertainties surrounding our liquidity and capital resources and ability to meet financial covenants as discussed above, cast substantial doubt on our ability to continue as a going concern. The failure to successfully maintain sufficient cash, and/or the non-compliance with our financial covenants without a waiver or amendment granted by our lenders, would have a material adverse effect on our business, results of operations, financial position and liquidity.

Our cash and cash equivalents decreased by $42.2 million for the year ended March 31, 2009, decreased by $124.3 million for the year ended March 31, 2008 and increased by $41.9 million for the year-ended March 31, 2007 as follows (amounts in thousands):

Fiscal Year 2009 compared to Fiscal Year 2008

Operations:

Cash flows from operations improved by $26.3 million in fiscal year 2009 as compared to fiscal year 2008 despite significant declines in net sales and a significant operating loss. In fiscal year 2009, cash provided by operations of $5.7 million resulted from the aggressive management of our working capital through more robust collection efforts and initiatives to reduce inventory levels. These initiatives led to an accounts receivable decrease of $44.8 million and an inventory decrease of $71.3 million. This was partially offset by an accounts payable decrease of $67.4 million. Additionally, large non-cash items effected net income in fiscal year 2009 but did not affect cash provided by operations. These items included curtailment gains on benefit plans of $30.8 million, and a change in deferred income taxes of $8.1 million. In addition, operating results were favorably impacted by a gain on sales and disposals of assets of $25.5 million. These were adjusted positively for non-cash charges related to goodwill impairment and the write down of long-lived assets of $242.0 million and non-cash depreciation and amortization of $57.3 million. Cash used in operations of $20.6 million in fiscal year 2008 was largely the result of building working capital at Arcotronics which was acquired in the third quarter of fiscal year 2008.

Investing:

Cash provided by investing activities was $7.2 million in fiscal year 2009 compared to cash used in investing activities of $59.5 million in fiscal year 2008. Capital expenditures were $30.5 million in fiscal year 2009, down from capital expenditures of $43.6 million in fiscal year 2008 due to sales remaining relatively level with fiscal year 2008 and restrictions management put on capital expenditures in an effort to improve cash flow. Proceeds from the sale and disposal of assets generated $34.9 million in fiscal year 2009 while proceeds from the sale of long-term investments generated $46.1 million in cash during the same period last year. Acquisitions of $69.9 million in the prior year period related to the purchase of Evox Rifa and Arcotronics businesses which now make up Film and Electrolytic.

Financing:

Cash used in financing activities was $53.5 million in fiscal year 2009 as compared to $46.3 million in fiscal year 2008.

Our payments of debt related primarily to the Senior Notes. In the first quarter of fiscal year 2009, we paid $20.0 million of the outstanding principal balance on our Senior Notes in accordance with the Senior Note agreement. On September 19, 2008, we prepaid our remaining obligations under the Senior Notes, including the outstanding principal balance of $40.0 million, a make-whole amount of

$2.0 million and a prepayment fee of $0.2 million. The make-whole amount and prepayment fee are shown on the line item “Loss on early retirement of debt” on the Consolidated Statements of Operations.

Our proceeds from the issuance of debt relates primarily to a loan from Vishay. As part of the sale of the wet tantalum capacitor assets to Vishay, we entered into a three-year term loan agreement. The loan was for $15 million and carries an interest rate of LIBOR plus 4% which is payable monthly. The entire principal amount of $15 million matures on September 15, 2011 and can be prepaid without penalty. The loan is secured by certain accounts receivable of KEMET.

On September 29, 2008, we entered into Facility A with UniCredit, a financial institution headquartered in Italy and part of the Milan-based UniCredit Group. Under the terms of Facility A, we agreed to pay the principal amount in nine semi-annual installments during the four and one-half year term with the first payment due in April 2009. The credit facility is priced at EURIBOR plus 1.7%, and is secured with real property located in Italy, certain accounts receivable in Europe, and a pledge of the shares of Arcotronics Italia S.p.A. and Arcotronics Industries S.r.l., two of KEMET’s subsidiaries in Italy. Facility A was subsequently amended as described below.

Proceeds from Facility A in the amount of EUR 50.0 million were used to pay off an existing UniCredit facility. Additional proceeds from Facility A in the amount of EUR 10.0 million were applied to reduce the outstanding principal of Facility B. In addition, we made a cash payment out of our existing cash balance to UniCredit of EUR 1.8 million which was applied to further reduce the outstanding principal of the Facility B. The outstanding balance on the Facility B after these payments was EUR 35.0 million.

On April 3, 2009, we entered into an agreement with UniCredit to extend and restructure Facility B with UniCredit. Facility B remained unsecured and bears interest at a rate of six-month EURIBOR plus 2.5 percent. Under the terms agreed to at the time, we agreed to repay the principal amount in three installments of EUR 2.0 million each on January 1, 2010, July 1, 2010 and January 1, 2011, and a fourth and final principal payment in the amount of EUR 29.0 million on July 1, 2011. As a result of this restructuring, we classified EUR 33.0 million ($43.9 million) as long-term debt as of March 31, 2009.

Effective June 30, 2009, Facility A and Facility B were amended to, among other things, change the scheduled amortization. As a result, approximately $8 million of principal payment originally scheduled for October 2009 has been extended and spread over periods subsequent to fiscal year 2010. This amount has been classified as long-term debt in our March 31, 2009 consolidated balance sheet.

Fiscal Year 2008

Operations:

Cash used in operations was $20.6 million in fiscal year 2008. Cash used in operating activities included a decrease in accrued expenses of $42.3 million, an accounts payable decrease of $15.5 million, the fiscal year 2008 net loss of $17.6 million and an increase in inventories of $8.2 million. These uses were adjusted positively for non-cash expenses of depreciation, amortization and impairment charges for $57.7 million.

Investing:

Cash used in investing activities was $59.4 million in fiscal year 2008. We used cash of $69.9 million to acquire Evox Rifa and Arcotronics in fiscal year 2008. We also used cash for capital expenditures of $43.6 million in fiscal year 2008. These uses were partially offset by proceeds of $46.1 million from the maturity of short-term investments.

Financing:

Cash used in financing activities was $46.3 million in fiscal year 2008. Cash used in financing activities included a $20 million principal payment on the Senior Notes and an $18.2 million open-market repurchase of our common stock.

Other areas:

The Board of Directors has previously authorized a share buyback program to purchase up to 11.3 million shares of our common stock on the open market. On February 1, 2008, we announced that it was reactivating our share buyback program. Under the reactivation terms of the approval by our Board, we were authorized to repurchase up to 5.9 million shares of our common stock. Through March 31, 2008, we repurchased 3.7 million shares for $18.2 million. At March 31, 2009, we held 7.7 million shares of treasury stock at a cost of $59.4 million.

In December 2007, in connection with the refinancing of certain third party indebtedness obtained as part of the acquisition of Arcotronics, we entered into a credit facility with UniCredit. This facility had a final maturity date of December 31, 2008, with the full principal balance payable at maturity. However, this facility was paid off in October 2008 with proceeds from Facility A.

In October 2007, in connection with the completion of the acquisition, we entered into Facility B with UniCredit for EUR 47.0 million ($66.8 million) at a floating rate equal to the three month EURIBOR plus 1.2%. Facility B had a final maturity date of April 9, 2009, with the full principal balance payable at maturity.

Commitments

At March 31, 2009, we had contractual obligations in the form of non-cancelable operating leases and debt, including interest payments (see Note 2, “Debt, Liquidity and Capital Resources” to our consolidated financial statements), European social security, pension benefits, and other post-retirement benefits as follows (amounts in thousands):