UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
|
X
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
For
the quarterly period ended December 31, 2006.
or
|
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
For
the
transition period from __________ to __________
Commission
file number
1-7201
(Exact
name of registrant as specified in its charter)
|
Delaware
|
33-0379007
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer ID No.)
|
|
|
801
17th Avenue South, Myrtle Beach, South Carolina
|
29577
|
|
|
(Address
of principle executive offices)
|
(Zip
Code)
|
|
|
(843)
448-9411
|
||
|
(Registrant's
phone number, including area code)
|
||
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
|
Yes
|
X
|
No
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See the definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
|
Large
accelerated filer
|
X
|
Accelerated
filer
|
Non-accelerated
filer
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
|
Yes
|
No
|
X
|
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
|
Class
|
Outstanding
at February 1, 2007
|
|
|
Common
Stock, par value $0.01 per share
|
171,886,137
|
AVX
CORPORATION
INDEX
|
|
|
Page
Number
|
|
PART
I:
|
Financial
Information:
|
|
|
ITEM
1.
|
Financial
Statements:
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
6
|
|
|
ITEM
2.
|
16
|
|
|
ITEM
3.
|
25
|
|
|
ITEM
4.
|
25
|
|
|
PART
II:
|
||
|
ITEM
2.
|
26
|
|
|
ITEM
6.
|
26
|
|
|
27
|
||
Consolidated
Balance Sheets (Unaudited)
(in
thousands, except per share data)
|
March
31,
|
December
31,
|
|||
|
ASSETS
|
2006
|
2006
|
||
|
Current
assets:
|
||||
|
Cash
and cash equivalents
|
$
|
505,326
|
$
|
677,729
|
|
Short-term
investments in securities
|
|
158,995
|
|
115,000
|
|
Accounts
receivable - trade
|
|
174,530
|
|
186,008
|
|
Accounts
receivable - affiliates
|
|
2,918
|
|
2,273
|
|
Inventories
|
|
307,653
|
|
326,903
|
|
Deferred
income taxes
|
|
25,196
|
|
24,678
|
|
Prepaid
and other
|
|
29,154
|
|
35,575
|
|
Total
current assets
|
|
1,203,772
|
|
1,368,166
|
|
Long-term
investments in securities
|
|
135,004
|
|
149,000
|
|
Property
and equipment
|
|
1,468,386
|
|
1,580,623
|
|
Accumulated
depreciation
|
|
(1,235,436)
|
|
(1,336,389)
|
|
|
|
232,950
|
|
244,234
|
|
Goodwill
|
|
69,483
|
|
70,921
|
|
Other
assets
|
|
33,999
|
|
29,767
|
|
Total
Assets
|
$
|
1,675,208
|
$
|
1,862,088
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||
|
Current
liabilities:
|
||||
|
Accounts
payable - trade
|
$
|
41,412
|
$
|
48,117
|
|
Accounts
payable - affiliates
|
|
63,599
|
|
70,522
|
|
Income
taxes payable
|
|
9,179
|
|
22,575
|
|
Accrued
payroll and benefits
|
|
34,272
|
|
35,874
|
|
Accrued
expenses
|
|
22,568
|
|
28,440
|
|
Total
current liabilities
|
|
171,030
|
|
205,528
|
|
Other
liabilities
|
|
56,069
|
|
53,875
|
|
Total
Liabilities
|
|
227,099
|
|
259,403
|
|
Commitments
and contingencies (Note 6)
|
||||
|
Stockholders'
Equity:
|
||||
|
Preferred
stock, par value $.01 per share:
|
-
|
-
|
||
|
Authorized,
20,000 shares; None issued and outstanding
|
|
|
|
|
|
Common
stock, par value $.01 per share:
|
1,764
|
1,764
|
||
|
Authorized,
300,000 shares; issued, 176,368 shares
|
|
|
|
|
|
Additional
paid-in capital
|
|
338,784
|
|
340,310
|
|
Retained
earnings
|
|
1,098,237
|
|
1,189,703
|
|
Accumulated
other comprehensive income
|
|
62,589
|
|
129,627
|
|
Treasury
stock, at cost:
|
|
|||
|
4,152
and 4,444 shares at March 31 and December 31, 2006,
respectively
|
|
(53,265)
|
|
(58,719)
|
|
Total
Stockholders'
Equity
|
|
1,448,109
|
|
1,602,685
|
|
Total
Liabilities and Stockholders'
Equity
|
$
|
1,675,208
|
$
|
1,862,088
|
See
accompanying notes to consolidated financial statements.
-3-
Consolidated
Statements of Operations (Unaudited)
(in
thousands, except per share data)
|
Three
Months Ended December 31,
|
Nine
Months Ended December 31,
|
||||||||||
|
|
2005
|
2006
|
2005
|
2006
|
|||||||
|
Net
sales
|
$
|
349,068
|
$
|
378,088
|
|
|
$
|
994,813
|
$
|
1,119,144
|
|
|
Cost
of sales
|
|
290,646
|
|
305,493
|
|
|
|
853,482
|
|
893,331
|
|
|
Gross
profit
|
|
58,422
|
|
72,595
|
|
|
|
141,331
|
|
225,813
|
|
|
Selling,
general and administrative expenses
|
|
27,972
|
|
29,513
|
|
|
|
81,616
|
|
87,302
|
|
|
Profit
from operations
|
|
30,450
|
|
43,082
|
|
|
|
59,715
|
|
138,511
|
|
|
Other
income (expense):
|
|||||||||||
|
Interest
income
|
|
5,993
|
|
10,548
|
|
|
|
16,077
|
|
28,181
|
|
|
Interest
expense
|
|
(457)
|
|
-
|
|
|
|
(1,456)
|
|
-
|
|
|
Other,
net
|
|
337
|
|
(552)
|
|
|
|
2,183
|
|
(2,476)
|
|
|
Income
before income taxes
|
|
36,323
|
|
53,078
|
|
|
|
76,519
|
|
164,216
|
|
|
Provision
for income taxes
|
|
11,909
|
|
17,251
|
|
|
|
24,850
|
|
53,371
|
|
|
Net
income
|
$
|
24,414
|
$
|
35,827
|
|
|
$
|
51,669
|
$
|
110,845
|
|
|
Income
per share:
|
|||||||||||
|
Basic
|
$
|
0.14
|
$
|
0.21
|
|
|
$
|
0.30
|
$
|
0.64
|
|
|
Diluted
|
$
|
0.14
|
$
|
0.21
|
|
|
$
|
0.30
|
$
|
0.64
|
|
|
Weighted
average common shares outstanding:
|
|||||||||||
|
Basic
|
|
172,654
|
|
172,041
|
|
|
|
172,621
|
|
172,138
|
|
|
Diluted
|
|
173,194
|
|
172,926
|
|
|
|
173,055
|
|
172,897
|
|
See
accompanying notes to consolidated financial statements.
Consolidated
Statements of Cash Flows (Unaudited)
(in
thousands)
|
Nine
Months Ended December 31,
|
||||
|
|
2005
|
2006
|
||
|
Operating
Activities:
|
||||
|
Net
income
|
$
|
51,669
|
$
|
110,845
|
|
Adjustment
to reconcile net income to net cash from operating
activities:
|
||||
|
Depreciation
|
|
52,399
|
|
40,304
|
|
Stock-based
compensation expense
|
|
-
|
|
2,016
|
|
Deferred
income taxes
|
|
3,277
|
|
9,757
|
|
Gain
on sale of property, plant & equipment
|
|
(924)
|
|
(37)
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
Accounts
receivable
|
|
(28,049)
|
|
(5,001)
|
|
Inventories
|
|
58,642
|
|
(334)
|
|
Accounts
payable and accrued expenses
|
|
(30,250)
|
|
33,425
|
|
Income
taxes payable
|
|
5,917
|
|
12,976
|
|
Other
assets
|
|
1,647
|
|
(5,211)
|
|
Other
liabilities
|
|
(2,793)
|
|
(2,581)
|
|
Net
cash provided by (used in) operating activities
|
|
111,535
|
|
196,159
|
|
Investing
Activities:
|
||||
|
Purchases
of property and equipment
|
|
(26,917)
|
|
(37,279)
|
|
Purchases
of investment securities
|
|
(100,000)
|
|
(148,000)
|
|
Redemption
of investment securities
|
|
36,000
|
|
178,017
|
|
Proceeds
from property, plant & equipment dispositions
|
|
275
|
|
41
|
|
Other
|
424
|
-
|
||
|
Net
cash provided by (used in) investing activities
|
|
(90,218)
|
|
(7,221)
|
|
Financing
Activities:
|
||||
|
Dividends
paid
|
|
(19,401)
|
|
(19,379)
|
|
Purchase
of treasury stock
|
|
(13,081)
|
|
(10,912)
|
|
Proceeds
from exercise of stock options
|
5,592
|
4,310
|
||
|
Excess
tax benefit from stock-based payment arrangements
|
|
-
|
|
657
|
|
Net
cash provided by (used in) financing activities
|
|
(26,890)
|
|
(25,324)
|
|
Effect
of exchange rate on cash
|
|
(5,832)
|
|
8,789
|
|
Increase
(decrease) in cash and cash equivalents
|
|
(11,405)
|
|
172,403
|
|
Cash
and cash equivalents at beginning of period
|
|
490,470
|
|
505,326
|
|
Cash
and cash equivalents at end of period
|
$
|
479,065
|
$
|
677,729
|
See
accompanying notes to consolidated financial statements.
-5-
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share data)
| 1. |
Basis
of Presentation:
|
The
consolidated financial statements of AVX Corporation and subsidiaries ("AVX"
or
the "Company") include all accounts of the Company and its subsidiaries.
All
significant intercompany transactions and accounts have been eliminated.
The
accompanying financial statements have been prepared by the Company pursuant
to
the rules and regulations of the Securities and Exchange Commission ("SEC")
for
interim financial reporting. These consolidated financial statements are
unaudited, and in the opinion of management, include all adjustments, consisting
of normal recurring adjustments and accruals, necessary for the fair
presentation of the consolidated balance sheets, operating results and cash
flows for the periods presented. Operating results for the three and nine
months
ended December 31, 2006 are not necessarily indicative of the results that
may
be expected for the fiscal year ending March 31, 2007 due to cyclical and
other
factors. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been omitted in accordance with the rules
and
regulations of the SEC. These consolidated financial statements should be
read
in conjunction with the audited consolidated financial statements and
accompanying notes included in the Company's Annual Report on Form 10-K for
the
fiscal year ended March 31, 2006.
Critical
Accounting Policies and Estimates:
The
Company has identified the accounting policies and estimates that are critical
to our business operations and understanding the Company's results of
operations. Those policies and estimates can be found in Note 1, "Summary
of
Significant Accounting Policies", of the Company's Notes to the Consolidated
Financial Statements contained in the Company's Annual Report on Form 10-K
for
the fiscal year ended March 31, 2006. Accordingly, this Quarterly Report
on Form
10-Q should be read in conjunction with the Company's Annual Report on Form
10-K
for the fiscal year ended March 31, 2006. During the three-month period ended
December 31, 2006, there were no significant changes to any critical accounting
policies, judgments involved in applying those policies or to the methodology
used in determining estimates including those related to revenue recognition,
inventories, property and equipment, income taxes and contingencies except
as
discussed below under “Stock-Based Compensation.”
Stock-Based
Compensation
Prior
to
April 1, 2006, the Company accounted for stock-based compensation in accordance
with Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure, an Amendment of FASB
Statement No. 123" ("SFAS 148"). As allowed by SFAS 148, the Company measured
stock-based compensation expense using the intrinsic value method in accordance
with Accounting Principles Board (“APB”) Opinion No. 25, "Accounting for Stock
Issued to Employees", and its related interpretations. Accordingly, compensation
expense for stock option grants was measured as the excess of the quoted
market
price of common stock at the grant date over the exercise price. No related
compensation expense was recognized, but as required under Statement of
Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation"
("SFAS
123"),
the
pro forma effect of stock-based compensation on net income and earnings per
share for employee stock options granted was estimated at the date of grant
using a Black-Scholes-Merton option pricing model and disclosed in the notes
to
the financial statements as the estimated fair value of the options amortized
to
pro forma net income
over
the options'
vesting
period.
-6-
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based
Payment” (“SFAS 123(R)”). This statement is a revision of SFAS 123 and
supersedes APB Opinion No. 25 and its related interpretations. SFAS 123(R)
requires that the cost resulting from all share-based payment transactions
be
recognized in the financial statements. SFAS 123(R) establishes fair value
as
the measurement objective in accounting for share-based payment arrangements
and
requires all entities to apply a fair-value based measurement method in
accounting for share-based payment transactions with employees, except for
equity instruments held by employee share ownership plans.
Effective
April 1, 2006, the Company adopted SFAS 123(R) using the modified prospective
approach. Under this method, compensation cost recognized during the three
and
nine months ended December 31, 2006 includes: (a) compensation cost for all
stock options granted prior to, but not yet vested as of April 1, 2006, based
on
the grant date fair value estimated in accordance with the original provisions
of SFAS 123 amortized over the options’ vesting period, and (b) compensation
cost for all options granted subsequent to April 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS
123(R)
amortized on a straight-line basis over the options’ vesting period.
The
Company's policy is to grant stock options at fair value (market) on the
date of
grant.
The
following table illustrates the effect on net income and net income per share
had the Company applied the fair value recognition provisions of SFAS 123
to
account for the Company’s employee stock-based compensation plans for the three
and nine months ended December 31, 2005. For purposes of pro forma disclosure,
the estimated fair value of the stock awards, as prescribed by SFAS 123,
is
amortized to expense over the vesting period of such awards:
|
Three
Months Ended
|
Nine
Months Ended
|
||||
|
|
|
December
31, 2005
|
December
31, 2005
|
||
|
Net
income:
|
|||||
|
As
reported
|
$
24,414
|
$
51,669
|
|||
|
Less:
|
Total
stock-based employee compensation expense determined under
fair value
based method for all awards, net of taxes
|
(783)
|
(2,322)
|
||
|
Pro
forma net income
|
|
$
23,631
|
|
$
49,347
|
|
|
Earnings
per share:
|
|||||
|
Basic
- as reported
|
$
0.14
|
$
0.30
|
|||
|
Basic
- pro forma
|
$
0.14
|
$
0.29
|
|||
|
Diluted
- as reported
|
$
0.14
|
$
0.30
|
|||
|
Diluted
- pro forma
|
$
0.14
|
$
0.29
|
|||
The
following table shows total stock-based compensation expense included in
the
condensed consolidated statement of operations:
|
Three
Months Ended
|
Nine
Months Ended
|
|||||
|
December
31, 2006
|
December
31, 2006
|
|||||
|
Stock-based
compensation expense
|
||||||
|
|
Cost
of sales
|
$
|
260
|
$
|
806
|
|
|
|
Selling,
general and administrative expenses
|
391
|
1,210
|
|||
|
Total
stock-based compensation expense
|
$
|
651
|
$
|
2,016
|
||
-7-
New
Accounting Standards
In
July
2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in
Income Taxes" ("FIN 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 48 provides guidance on
the financial statement recognition and measurement of a tax position taken
or
expected to be taken in a tax return. FIN 48 requires that the Company recognize
in its 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. FIN 48 is effective for the Company’s fiscal year beginning
April 1, 2007. The Company is currently evaluating the impact of FIN 48 on
the
consolidated financial statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standard
No.
158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans” (“SFAS 158”), which requires an employer to recognize the overfunded or
underfunded status of its defined benefit postretirement plans as an asset
or
liability in its statement of financial position and to recognize changes
in
that funded status in the year in which the changes occur through comprehensive
income. This standard also requires an employer to measure the funded status
of
a plan as of the date of its year end statement of financial position. The
Company is required to initially recognize the funded status of its defined
benefit plans and to provide the required disclosures in accordance with
this
standard as of its fiscal year ending March 31, 2007. The Company believes
that
SFAS 158 will not have a material impact on its consolidated financial
statements.
| 2. |
Earnings
Per Share:
|
Basic
earnings per share are computed by dividing net earnings by the weighted
average
number of shares of common stock outstanding for the period. Diluted earnings
per share are computed by dividing net earnings by the sum of (a) the weighted
average number of shares of common stock outstanding during the period and
(b)
the dilutive effect of potential common stock equivalents during the period.
Stock options are the only common stock equivalents currently used by the
Company and are computed using the treasury stock method.
The
table
below represents the basic and diluted weighted average number of shares
of
common stock and potential common stock equivalents:
|
|
|
Three
Months Ended December 31,
|
Nine
Months Ended December 31,
|
||||||
|
|
|
2005
|
2006
|
2005
|
2006
|
||||
|
Net
Income
|
$
|
24,414
|
$
|
35,827
|
$
|
51,669
|
$
|
110,845
|
|
|
Computation
of Basic EPS:
|
|||||||||
|
Weighted
Average Shares Outstanding used in computing Basic EPS
|
|
172,654
|
|
172,041
|
|
172,621
|
|
172,138
|
|
|
Basic
earnings per share
|
$
|
0.14
|
$
|
0.21
|
$
|
0.30
|
$
|
0.64
|
|
|
Computation
of Diluted EPS:
|
|||||||||
|
Weighted
Average Shares Outstanding
|
|
172,654
|
|
172,041
|
|
172,621
|
|
172,138
|
|
|
Effect
of stock options
|
|
540
|
|
885
|
|
434
|
|
759
|
|
|
Shares
used in computing Diluted EPS (1)
|
|
173,194
|
|
172,926
|
|
173,055
|
|
172,897
|
|
|
Diluted
Income per share
|
$
|
0.14
|
$
|
0.21
|
$
|
0.30
|
$
|
0.64
|
|
(1)
Common stock equivalents, not included in the computation of diluted earnings
per share because the impact would have been antidilutive were 914 shares
and
1,924 shares and 1,010 shares and 2,706 shares for the three months and nine
months ended December 31, 2005 and 2006, respectively.
-8-
| 3. |
Trade
Accounts Receivable:
|
Trade
accounts receivable consisted of:
|
March
31, 2006
|
December
31, 2006
|
||||
|
Gross
Accounts Receivable - Trade
|
$
|
199,090
|
$
|
214,037
|
|
|
Less:
|
|
|
|
|
|
|
|
Allowances
for doubtful accounts
|
|
1,772
|
|
1,592
|
|
|
Stock
rotation and ship from stock and debit
|
|
14,292
|
|
15,039
|
|
|
Sales
returns and discounts
|
|
8,496
|
|
11,398
|
|
|
Total
allowances
|
|
24,560
|
|
28,029
|
|
|
Net
Accounts Receivable - Trade
|
$
|
174,530
|
$
|
186,008
|
Charges
related to allowances for doubtful accounts are charged to selling, general
and
administrative expenses. Charges related to stock rotation, ship from stock
and
debit, sales returns and sales discounts are reported as deductions from
revenue.
|
Three
Months Ended December 31,
|
Nine
Months Ended December 31,
|
||||||||
|
|
|
2005
|
|
2006
|
|
|
2005
|
|
2006
|
|
Allowances
for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
$
|
1,784
|
$
|
1,415
|
|
$
|
3,426
|
$
|
1,772
|
|
Charges
|
|
(13)
|
|
159
|
|
|
171
|
|
(93)
|
|
Applications
|
|
162
|
|
(6)
|
|
|
(1,594)
|
|
(143)
|
|
Translation
and other
|
|
(19)
|
|
24
|
|
|
(89)
|
|
56
|
|
Ending
Balance
|
|
1,914
|
|
1,592
|
|
|
1,914
|
|
1,592
|
|
Stock
rotation and ship from stock and debit:
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
17,290
|
|
15,742
|
|
|
18,174
|
|
14,292
|
|
Charges
|
|
10,279
|
|
8,904
|
|
|
30,800
|
|
30,803
|
|
Applications
|
|
(9,475)
|
|
(9,651)
|
|
|
(30,837)
|
|
(30,164)
|
|
Translation
and other
|
|
(14)
|
|
44
|
|
|
(57)
|
|
108
|
|
Ending
Balance
|
|
18,080
|
|
15,039
|
|
|
18,080
|
|
15,039
|
|
Sales
returns and discounts:
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
8,309
|
|
9,661
|
|
|
11,043
|
|
8,496
|
|
Charges
|
|
3,769
|
|
6,817
|
|
|
14,189
|
|
20,221
|
|
Applications
|
|
(4,783)
|
|
(5,159)
|
|
|
(17,867)
|
|
(17,504)
|
|
Translation
and other
|
|
(13)
|
|
79
|
|
|
(83)
|
|
185
|
|
Ending
Balance
|
$
|
7,282
|
$
|
11,398
|
|
$
|
7,282
|
$
|
11,398
|
-9-
| 4. |
Inventories:
|
Inventories
consisted of:
|
March
31, 2006
|
December
31, 2006
|
|||
|
Finished
goods
|
$
|
97,963
|
$
|
98,598
|
|
Work
in process
|
|
81,055
|
|
96,650
|
|
Raw
materials and supplies
|
|
128,635
|
|
131,655
|
|
|
$
|
307,653
|
$
|
326,903
|
| 5. |
Stock-Based
Compensation:
|
The
Company has four fixed option plans. Under the 1995 Stock Option Plan, as
amended, the Company could grant options to employees for the purchase of
up to
an aggregate of 9,300 shares of common stock. Under the Non-Employee Directors'
Stock Option Plan, as amended, the Company could grant options for the purchase
of up to an aggregate of 650 shares of common stock. No awards were made
under
these two plans after August 1, 2005. Under the 2004 Stock Option Plan the
Company may grant options to employees for the purchase of up to an aggregate
of
10,000 shares of common stock. Under the 2004 Non-Employee Directors' Stock
Option Plan, the Company may grant options for the purchase of up to an
aggregate of 1,000 shares of common stock. Under all plans, the exercise
price
of each option shall not be less than the market price of the Company's stock
on
the date of grant and an option's maximum term is 10 years. Options granted
under the 1995 Stock Option Plan and the 2004 Stock Option Plan vest as to
25%
annually and options granted under the Non-Employee Directors' Stock Option
Plan
and the 2004 Non-Employee Directors' Stock Option Plan vest as to one third
annually. Requisite service periods related to all plans begin on the grant
date. The number of shares of common stock available for future issuance
under
all of the plans, consisting of options available to be granted and options
currently outstanding, was 15,323 as of December 31, 2006.
Options
exercised under the Company’s option plans are issued from the Company’s
treasury shares. As of December 31, 2006, the Company has 5,447 shares that
may
yet be purchased under repurchase programs authorized by the Board of Directors.
The Company purchased 1,240 shares at a cost of $15,788 during fiscal 2006
and
712 shares at a cost of $10,912 during the nine months ended December 31,
2006.
The Company expects to continue to purchase shares during the remainder of
the
fiscal year.
Activity
under the Company’s Stock Option Plans is summarized as
follows:
|
|
|
Number
of Shares
|
Average
Price (a)
|
Average
Life (years) (b)
|
Aggregated
Intrinsic Value
|
|||
|
Outstanding
at March 31, 2006
|
|
4,813
|
$
|
14.72
|
|
|
|
|
|
Options
granted
|
|
513
|
|
15.27
|
|
|
|
|
|
Options
exercised
|
|
(421)
|
|
10.25
|
|
|
$
|
2,727
|
|
Options
cancelled/forfeited
|
|
(59)
|
|
18.88
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
4,846
|
$
|
15.14
|
|
5.36
|
$
|
(1,704)
|
|
Exercisable
at December 31, 2006
|
|
3,584
|
$
|
15.69
|
|
4.28
|
$
|
(3,230)
|
| (a) |
Weighted-average
exercise price
|
| (b) |
Weighted-average
contractual life remaining
|
-10-
Unvested
share activity under the Company’s Stock Options Plans for the nine months ended
December 31, 2006 is summarized as follows:
|
|
|
|
|
|
|
Number
of Shares
|
Weighted
Average Grant-Date Fair Value
|
|
|
Unvested
balance at March 31, 2006
|
|
|
|
|
1,382
|
$
|
5.65
|
|
|
Options
granted
|
|
|
|
|
|
513
|
|
5.44
|
|
Options
forfeited
|
|
|
|
|
|
(31)
|
|
5.64
|
|
Options
vested
|
|
|
|
|
|
(602)
|
|
6.45
|
|
Unvested
balance at December 31, 2006
|
|
|
|
1,262
|
$
|
5.39
|
||
As
of
December 31, 2006, $4,337 of total unrecognized compensation costs related
to
unvested awards is expected to be recognized over approximately four
years.
The
weighted average estimated fair value of the Company’s stock options granted at
grant date market prices was $5.44 per option during the nine months ended
December 31, 2006 and $4.91 per option during the nine months ended December
31,
2005. The condensed consolidated statement of operations includes $1,728,
net of
$288 of tax benefit, in stock-based compensation expense for the nine months
ended December 31, 2006.
The
Company’s weighted average fair value is estimated at the date of grant using a
Black-Scholes-Merton option-pricing model. The Company estimated volatility
by
considering the Company’s historical stock volatility. The Company calculated
the dividend yield based on historical dividends paid. In accordance with
SFAS
123(R) the Company has estimated forfeitures in determining the weighted
average
fair value calculation. The forfeiture rate used for the nine months ended
December 31, 2006 was 6.4%. The following are significant weighted average
assumptions used for estimating the fair value of options issued under the
Company’s stock option plans:
|
Nine
Months Ended December 31,
|
||||
|
|
|
2005
|
|
2006
|
|
Expected
life (in years)
|
|
4
|
|
5
|
|
Risk-free
interest rate
|
|
4.00%
|
|
4.90%
|
|
Expected
volatility
|
|
55.74%
|
|
35.25%
|
|
Dividend
yield
|
|
1.31%
|
|
0.98%
|
| 6. |
Commitments
and Contingencies:
|
The
Company has been named as a potentially responsible party in state and federal
administrative proceedings seeking contribution for costs associated with
the
correction and remediation of environmental conditions at various waste disposal
and operating sites.
On
June
2, 2006, AVX received a “Confirmation of Potential Liability; Demand and Notice
of Decision Not to Use Special Notice Procedures” dated May 31, 2006 from the
U.S. Environmental Protection Agency (“EPA”) with regard to $1,610 (subsequently
modified to $738) of past costs, as well as future costs for environmental
remediation, related to the purported release of hazardous substances at
a
facility referred to as the “Aerovox Facility” (“Facility”), located at 740
Belleville Avenue, New Bedford, Massachusetts. A predecessor of AVX sold
this
Facility to an unrelated third party in 1973.
-11-
AVX
has
investigated the claim as well as potential defenses and other actions,
including the engagement of environmental engineering consultants to study
and
analyze documentation made available by the EPA with respect to the Facility.
In
August 2006, AVX provided a written response to the EPA, denying liability.
AVX
anticipates further discussions with the EPA. The potential impact on the
Company’s financial position and results of operations cannot be determined at
this time.
The
Company also operates on sites that may have environmental issues in the
future.
Once it becomes probable that the Company will incur costs in connection
with
remediation of a site and such costs can be reasonably estimated, the Company
establishes reserves or adjusts its reserve for its projected share of these
costs. Management believes that, as of December 31, 2006, its reserves of
approximately $2,398 are adequate with respect to these matters. Actual
costs
may
vary from these estimated reserves, but such costs are not expected to have
a
material adverse effect on the Company's financial condition or results of
operations.
The
Company is also involved in other disputes and legal proceedings arising
in the
normal course of business. While the Company cannot predict the outcome of
these
disputes and proceedings, the Company believes, based upon a review with
legal
counsel, that none of these disputes or proceedings will have a material
impact
on the Company’s financial position, results of operations, or cash flows.
| 7. |
Comprehensive
Income:
|
Comprehensive
income represents changes in equity during a period except those resulting
from
investments by and distributions to shareholders. The specific components
include net income, pension liability adjustments, deferred gains and losses
resulting from foreign currency translation adjustments and qualified foreign
currency cash flow hedges.
Comprehensive
income includes the following components:
|
Three
Months Ended December 31,
|
Nine
Months Ended December 31,
|
|||||||||
|
|
|
|
2005
|
2006
|
2005
|
2006
|
||||
|
Net
income
|
$
|
24,414
|
$
|
35,827
|
|
$
|
51,669
|
$
|
110,845
|
|
|
Other
comprehensive income:
|
||||||||||
|
|
Foreign
currency translation adjustment
|
|
(8,236)
|
|
27,965
|
|
|
(41,750)
|
|
67,591
|
|
|
Foreign
currency cash flow hedges
|
|
339
|
|
(282)
|
|
|
513
|
|
(553)
|
|
Comprehensive
income
|
$
|
16,517
|
$
|
63,510
|
|
$
|
10,432
|
$
|
177,883
|
|
| 8. |
Segment
and Geographic Information:
|
The
Company has three reportable segments: Passive Components, KED Resale and
Connectors. The Passive Components segment consists primarily of surface
mount
and leaded ceramic and tantalum capacitors, film and power capacitors and
varistors. The KED Resale segment consists primarily of ceramic capacitors,
crystal oscillators, SAW devices, resistive products, RF modules, actuators,
acoustic devices and connectors produced by Kyocera Corporation of Japan
(“Kyocera”) and resold by AVX. The Connectors segment consists primarily of Elco
automotive, telecom and memory connectors manufactured by AVX. Sales and
operating results from these reportable segments are shown in the tables
below.
In addition, the Company has a corporate administration group consisting
of
finance and administrative activities and a separate Research and Development
group.
-12-
The
Company evaluates performance of its segments based upon sales and operating
profit. There are no intersegment revenues. The
Company allocates the costs of shared resources between segments based on
each
segment's
usage
of the shared resources. Cash,
accounts receivable, investments in securities and certain other assets,
which
are centrally managed, are not readily allocable to operating segments.
The
tables below present information about reported segments:
|
Three
Months Ended December 31,
|
Nine
Months Ended December 31,
|
||||||||
|
|
|
2005
|
2006
|
2005
|
2006
|
||||
|
Net
sales:
|
|||||||||
|
Passive
Components
|
$
|
211,638
|
$
|
219,103
|
|
$
|
613,913
|
$
|
668,426
|
|
KED
Resale
|
|
117,356
|
|
134,390
|
|
|
323,297
|
|
378,596
|
|
Connectors
|
|
20,074
|
|
24,595
|
|
|
57,603
|
|
72,122
|
|
Total
|
$
|
349,068
|
$
|
378,088
|
|
$
|
994,813
|
$
|
1,119,144
|
|
Three
Months Ended December 31,
|
Nine
Months Ended December 31,
|
||||||||
|
|
|
2005
|
2006
|
2005
|
2006
|
||||
|
Operating
profit:
|
|||||||||
|
Passive
Components
|
$
|
27,456
|
$
|
39,947
|
|
$
|
57,143
|
$
|
134,848
|
|
KED
Resale
|
|
10,542
|
|
11,277
|
|
|
24,610
|
|
30,961
|
|
Connectors
|
|
2,140
|
|
1,945
|
|
|
5,220
|
|
5,792
|
|
Research
& development
|
|
(2,775)
|
|
(2,835)
|
|
|
(7,852)
|
|
(8,157)
|
|
Corporate
administration
|
|
(6,913)
|
|
(7,252)
|
|
|
(19,406)
|
|
(24,933)
|
|
Total
|
$
|
30,450
|
$
|
43,082
|
|
$
|
59,715
|
$
|
138,511
|
|
March
31, 2006
|
December
31, 2006
|
|||
|
Assets:
|
||||
|
Passive
Components
|
$
|
471,991
|
$
|
494,745
|
|
KED
Resale
|
|
31,347
|
|
37,100
|
|
Connectors
|
|
34,156
|
|
42,600
|
|
Research
& development
|
|
6,747
|
|
7,078
|
|
Cash,
A/R and investments in securities
|
|
976,773
|
|
1,130,010
|
|
Goodwill
- Passive components
|
|
59,206
|
|
60,644
|
|
Goodwill
- Connectors
|
|
10,277
|
|
10,277
|
|
Corporate
administration
|
|
84,711
|
|
79,634
|
|
Total
|
$
|
1,675,208
|
$
|
1,862,088
|
-13-
The
following geographic data is based upon net sales generated by operations
located within particular geographic areas:
|
Three
Months Ended December 31,
|
Nine
Months Ended December 31,
|
||||||||
|
|
|
2005
|
2006
|
2005
|
2006
|
||||
|
Net
sales:
|
|||||||||
|
Americas
|
$
|
107,037
|
$
|
103,383
|
|
$
|
310,060
|
$
|
324,712
|
|
Europe
|
|
73,018
|
|
82,090
|
|
|
231,235
|
|
250,806
|
|
Asia
|
|
169,013
|
|
192,615
|
|
|
453,518
|
|
543,626
|
|
Total
|
$
|
349,068
|
$
|
378,088
|
|
$
|
994,813
|
$
|
1,119,144
|
| 9. |
Pension
Plans:
|
The
following table shows the components of the net periodic pension cost for
the
three and nine months ended December
31,
2005
and 2006 for the Company’s defined benefit plans:
|
U.S.
Plans
|
International
Plans
|
|||||||
|
Three
Months Ended December 31,
|
Three
Months Ended December 31,
|
|||||||
|
|
|
2005
|
2006
|
2005
|
2006
|
|||
|
Service
cost
|
$
|
90
|
$
|
100
|
$
|
305
|
$
|
342
|
|
Interest
cost
|
|
408
|
|
406
|
|
1,416
|
|
1,375
|
|
Expected
return on plan assets
|
|
(409)
|
|
(399)
|
|
(1,160)
|
|
(1,252)
|
|
Amortization
of prior service cost
|
|
16
|
|
18
|
|
16
|
|
15
|
|
Recognized
actuarial loss
|
|
42
|
|
45
|
|
313
|
|
316
|
|
Net
periodic pension cost
|
$
|
147
|
$
|
170
|
$
|
890
|
$
|
796
|
|
U.S.
Plans
|
International
Plans
|
|||||||
|
Nine
Months Ended December 31,
|
Nine
Months Ended December 31,
|
|||||||
|
2005
|
2006
|
2005
|
2006
|
|||||
|
Service
cost
|
$
|
270
|
$
|
300
|
$
|
915
|
$
|
1,026
|
|
Interest
cost
|
|
1,224
|
|
1,218
|
|
4,248
|
|
4,125
|
|
Expected
return on plan assets
|
|
(1,227)
|
|
(1,197)
|
|
(3,480)
|
|
(3,756)
|
|
Amortization
of prior service cost
|
|
48
|
|
54
|
|
48
|
|
45
|
|
Recognized
actuarial loss
|
|
126
|
|
135
|
|
939
|
|
948
|
|
Net
periodic pension cost
|
$
|
441
|
$
|
510
|
$
|
2,670
|
$
|
2,388
|
The
Company made pension contributions of $1,803 to fund its U.S. Plans during
the
nine months ended December 31, 2006. The Company will not make any further
contributions to the U.S. Plans during the 2007 fiscal year. The Company
made
pension contributions of $4,020 to fund its International Plans during the
nine
months ended December 31, 2006 and expects to make an additional $1,340 in
pension contributions during the remainder of fiscal year 2007.
-14-
| 10. |
Subsequent
Events:
|
On
February 7, 2007, the Board of Directors of the Company declared a $0.0375
dividend per share of common stock with respect to the quarter ended December
31, 2006. The dividend will be paid to stockholders of record on February
19,
2007 and will be disbursed on March 2, 2007.
-15-
|
ITEM
2.
|
|
|
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains "forward-looking" information within
the
meaning of the Private Securities Litigation Reform Act of 1995. All statements
other than statements of historical fact, including statements regarding
industry prospects and future results of operations or financial position,
made
in this Quarterly Report on Form 10-Q are forward-looking. The forward-looking
information may include, among other information, statements concerning the
Company's outlook for fiscal year 2007, overall volume and pricing trends,
cost
reduction strategies and their anticipated results, expectations for research
and development, and capital expenditures. There may also be other statements
of
expectations, beliefs, future plans and strategies, anticipated events or
trends, and similar expressions concerning matters that are not historical
facts. Forward-looking statements reflect management's expectations and are
inherently uncertain. The forward-looking information and statements in this
report are subject to risks and uncertainties, including those discussed in
the
Company's Annual Report on Form 10-K for fiscal year ended March 31, 2006,
that
could cause actual results to differ materially from those expressed in or
implied by the information or statements herein. Forward-looking statements
should be read in context with, and with the understanding of, the various
other
disclosures concerning the Company and its business made elsewhere in this
quarterly report as well as other public reports filed by the Company with
the
SEC. You should not place undue reliance on any forward-looking statements
as a
prediction of actual results or developments.
The
Company does not intend to update or revise any forward-looking statement
contained in this quarterly report to reflect new events or circumstances unless
and to the extent required by applicable law. All forward-looking statements
contained in this quarterly report constitute "forward-looking statements"
within the meaning of Section 21E of the United States Securities Exchange
Act
of 1934 and, to the extent it may be applicable by way of incorporation of
statements contained in this quarterly report by reference or otherwise, Section
27A of the United States Securities Act of 1933, each of which establishes
a
safe-harbor from private actions for forward-looking statements as defined
in
those statutes.
Critical
Accounting Policies and Estimates
"Management's
Discussion and Analysis of Financial Condition and Results of Operations" is
based upon the Company's Consolidated Financial Statements and Notes thereto,
which have been prepared in accordance with generally accepted accounting
principles in the United States. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of
revenues and expenses during the reported periods. On an ongoing basis,
management evaluates its estimates and judgments, including those related to
revenue recognition, inventories, property and equipment, goodwill, income
taxes
and contingencies. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable
under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. There can be no assurance that actual results
will
not differ from those estimates.
-16-
The
Company has identified the accounting policies and estimates that are critical
to our business operations and understanding the Company's results of
operations. Those policies and estimates can be found in Note 1, "Summary of
Significant Accounting Policies", of the Company's Notes to the Consolidated
Financial Statements and in "Critical Accounting Policies and Estimates", in
“Management's Discussion and Analysis of Financial Condition and Results of
Operations” contained in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2006 and in Note 1, "Critical Accounting Policies and
Estimates", in our Notes to Consolidated Financial Statements in this Form
10-Q.
Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction
with the Company's Annual Report on Form 10-K for the fiscal year ended March
31, 2006. During the three month period ended December 31, 2006, there were
no
significant changes to any critical accounting policies, judgments involved
in
applying those policies or the methodology used in determining estimates with
respect to those related to revenue recognition, inventories, property and
equipment, income taxes and contingencies except as discussed below under
“Stock-Based Compensation”.
Stock-Based
Compensation
On
April
1, 2006, the Company adopted Statement of Financial Accounting Standards No.
123
(Revised 2004), “Share-Based Payments”, (“SFAS 123(R)”). With the adoption of
SFAS 123(R), AVX has added “Stock-Based Compensation” as a critical accounting
policy.
Among
its
provisions, SFAS 123(R) requires the Company to recognize compensation expense
for equity awards over the vesting period based on their grant-date fair value.
The compensation expense is recognized only for share-based payments expected
to
vest. We estimate forfeitures, both at the date of grant as well as throughout
the vesting period, based on the Company’s historical experience and future
expectations.
The
Company uses the Black-Scholes-Merton option pricing model to value stock
options, which requires the input of stock price and subjective assumptions.
These assumptions include the length of time employees will retain their vested
stock options before exercising them (“expected term”), the estimated volatility
of the Company’s stock price, risk-free interest rate and the expected dividend
yield. The expected term of the options is based on historical experience of
similar awards, giving consideration to the contractual terms, vesting schedules
and expectations of future employee behavior. The expected term determines
the
period for which the risk-free interest rate and volatility must be applied.
The
risk-free interest rate is based on the expected U.S. Treasury rate over the
expected term. Expected stock price volatility is based on the historical
volatility of the Company’s stock price over the expected term. Dividend yield
is management’s long-term estimate of annual dividends to be paid as a
percentage of share price.
For
fiscal 2007, the impact of adopting SFAS
123(R)
is
expected to reduce our operating income by approximately $2.6 million and our
diluted earnings per share by approximately $0.02. Future changes in the
subjective assumptions used in the Black-Scholes-Merton
option pricing model or estimates associated with forfeitures could materially
affect the stock-based compensation expense and consequently, the related
amounts recognized in the Consolidated Statement of Operations. See Note 5
of
our Consolidated Financial Statements for further discussion on our stock-based
compensation.
Business
Overview
AVX
is a
leading worldwide manufacturer and supplier of a broad line of passive
electronic components and interconnected products. Virtually all types of
electronic devices use our passive component products to store, filter or
regulate electric energy. We also manufacture and supply high-quality electronic
connectors and inter-connect systems for use in electronic products.
-17-
We
have
manufacturing, sales and distribution facilities located throughout the world
which are divided into three main geographic regions: the Americas, Asia and
Europe. AVX is organized into five main product groups with three reportable
segments: Passive Components, KED Resale and Connectors.
Our
products are marketed worldwide and are primarily sold to original equipment
manufacturers, independent electronic component distributors and contract
equipment manufacturers through our own direct sales force and independent
manufacturers'
representatives.
Results
of Operations - Three Months Ended December 31, 2006 and 2005
Net
income for the quarter ended December 31, 2006 was $35.8 million, or diluted
earnings per share of $0.21, compared with $24.4 million, or $0.14 diluted
earnings per share for the quarter ended December 31, 2005.
|
in
thousands, except per share data
|
Three
Months Ended December 31,
|
|||
|
|
|
2005
|
2006
|
|
|
Net
Sales
|
$
|
349,068
|
$
|
378,088
|
|
Gross
Profit
|
|
58,422
|
|
72,595
|
|
Operating
Income
|
|
30,450
|
|
43,082
|
|
Net
Income
|
|
24,414
|
|
35,827
|
|
Diluted
Earnings per Share
|
$
|
0.14
|
$
|
0.21
|
Net
sales
in the three months ended December 31, 2006 increased $29.0 million, or 8.3%,
to
$378.1 million compared to $349.1 million in the three months ended December
31,
2005 primarily as a result of improved customer demand during the pre-holiday
product build period and a favorable mix of value added products as end-user
demand for more sophisticated electronic devices continued through the third
quarter of our fiscal year. Supply chain inventory levels have remained stable,
further contributing to the increased demand for our components. Overall sales
prices have remained stable during the current quarter as a result of the
continued high production capacity utilization needed to meet the strong end
market demand for electronics in addition to the continued favorable economic
conditions. As a result, we had improved sales of our passive components as
well
as our resale and connector product lines when compared to the same quarter
last
year.
The
table
below represents product group revenues for the three-month periods ended
December 31, 2005 and December 31, 2006.
|
Sales
Revenue
|
Three
Months Ended December 31,
|
|||
|
$(000's)
|
|
2005
|
2006
|
|
|
Ceramic
Components
|
$
|
62,485
|
$
|
52,845
|
|
Tantalum
Components
|
|
68,199
|
|
72,269
|
|
Advanced
Components
|
|
80,954
|
|
93,989
|
|
Total
Passive Components
|
|
211,638
|
|
219,103
|
|
KDP
and KKC Resale
|
|
100,213
|
|
114,696
|
|
KEC
Resale
|
|
17,143
|
|
19,694
|
|
Total
KED Resale
|
|
117,356
|
|
134,390
|
|
Connectors
|
|
20,074
|
|
24,595
|
|
Total
Revenue
|
$
|
349,068
|
$
|
378,088
|
-18-
Passive
component sales increased $7.5 million, or 3.5%, to $219.1 million in the three
months ended December 31, 2006 from $211.6 million during the same quarter
last
year. The sales increase in passive components was primarily due to a more
favorable mix of higher value added products resulting from an increased
end-user demand for more sophisticated electronic devices as reflected in the
16.1% increase in sales of our Advanced Components compared to the same period
last year. Passive component unit sales volumes decreased approximately 10%
reflecting the Company’s marketing focus on higher value added products in lieu
of the more “commodity” components used in lower-end electronic products. We saw
very little pricing pressure in the three months ended December 31, 2006 on our
products as the industry’s production capacity utilization increased during the
period when compared to the same period last year.
KDP
and
KKC Resale sales increased 14.5% to $114.7 million in the three months ended
December 31, 2006 compared to $100.2 million during the same period last year.
When compared to the same period last year, the increase during the quarter
ended December 31, 2006 is primarily attributable to an improved product mix
and
a 5.0% increase in unit sales volume resulting from increased customer demand
for these products.
Total
Connector sales, including AVX manufactured and KEC Resale connectors, increased
$7.1 million, or 19.0%, to $44.3 million in the three months ended December
31,
2006 compared to $37.2 million during the same period last year. When compared
to the same period last year, this increase was primarily attributable to new
programs and customer demand, particularly in the automotive
sector.
The
Company's sales to independent electronic distributor customers represented
42.4% of total sales for the three months ended December 31, 2006, compared
to
40.3% for the three months ended December 31, 2005. This shift was primarily
due
to distributors reducing their inventory levels during the prior year’s quarter
ended December 31, 2005. The Company's sales to distributor customers involve
specific ship and debit and stock rotation programs for which sales allowances
are recorded as reductions in sales. Such allowance charges were $8.9 million,
or 5.3% of gross sales to distributor customers, for the three months ended
December 31, 2006 and $10.3 million, or 6.8% of gross sales to distributor
customers, for the three months ended December 31, 2005. The decrease in the
allowance charges as a percentage of distributor customer sales is reflective
of
lower inventory levels at our distributor customers, increased demand and a
stable pricing environment. Applications under such programs for the quarters
ended December 31, 2006 and 2005 were approximately $9.7 million and $9.5
million, respectively.
Geographically,
compared to the same period last year, sales increased 14.0% in Asia, and 12.4%
in Europe reflecting increased customer production and demand, especially in
the
Asian region, partially offset by a decrease of 3.4% in the Americas. Unit
sales
volume increased 4.6% in Asia partially offset by a 7.3% decrease in Europe
and
a 17.0% decrease in the Americas when compared to the same period last
year.
Gross
profit in the three months ended December 31, 2006 was 19.2% of sales,
increasing $14.2 million to $72.6 million compared to a gross profit margin
of
16.7% or $58.4 million in the three months ended December 31, 2005. This
increase reflects our enhanced production capabilities in lower cost regions
in
addition to the higher sales and an improved product mix reflecting the
Company’s focus on higher margin value added products that support the more
sophisticated end-user demands in electronics. Compared to the same period
last
year, depreciation expense was lower by $2.8 million reflecting lower capital
spending in recent years, partially offset by an unfavorable currency exchange
impact as the U.S. dollar weakened against certain foreign
currencies.
Selling,
general and administrative expenses in the three months ended December 31,
2006
were $29.5 million, or 7.8% of net sales, compared to $28.0 million, or 8.0%
of
net sales, in the three months ended December 31, 2005.
The
overall increase in selling, general and administrative expenses was due to
higher selling and other costs resulting from higher sales and an increase
in
wages and benefits, partially offset by lower professional fees related to
our
Sarbanes-Oxley compliance efforts.
-19-
As
a
result of the above factors, income from operations improved $12.6 million
to
$43.1 million in the three months ended December 31, 2006 compared to $30.5
million in the three months ended December 31, 2005.
Other
income increased $4.1 million to $10.0 million in the three months ended
December 31, 2006 compared to $5.9 million in the same period last year. This
increase is primarily due to higher interest income resulting from higher
interest rates and higher cash and securities investment balances.
The
Company's effective tax rate for the period ended December
31, 2006 was 32.5% compared to 32.8% for the same period last year. This
slightly lower effective tax rate is primarily due to higher profits in certain
low tax jurisdictions in the current period when compared to the same period
last year.
Net
income
for the three-month period ended December 31, 2006 was $35.8 million compared
to
net income of $24.4 million for the three-month period ended December 31, 2005.
The increase in net income was a result of the factors set forth
above.
Results
of Operations - Nine Months Ended December 31, 2006 and 2005
Net
income for the nine months period ended December 31, 2006 increased $59.2
million to $110.8 million, or diluted earnings per share of $0.64, compared
to
$51.7 million or $0.30 diluted earnings per share in the nine months ended
December 31, 2005.
|
in
thousands, except per share data
|
Nine
Months Ended December 31,
|
|||
|
|
|
2005
|
2006
|
|
|
Net
Sales
|
$
|
994,813
|
$
|
1,119,144
|
|
Gross
Profit
|
|
141,331
|
|
225,813
|
|
Operating
Income
|
|
59,715
|
|
138,511
|
|
Net
Income
|
|
51,669
|
|
110,845
|
|
Diluted
Earnings per Share
|
$
|
0.30
|
$
|
0.64
|
Net
sales
in the nine months ended December 31, 2006 increased $124.3 million, or 12.5%,
to $1.1 billion compared to $994.8 million during the same period last year
primarily as a result of increased customer demand for our components and a
favorable mix of value added products driven by end-user demand for more
sophisticated electronic devices. Also contributing to the increased sales
were
relatively low inventory levels in the supply chain and the continued favorable
economic conditions. Overall sales prices have remained stable during the first
nine months of this fiscal year as a result of increased capacity utilization
to
meet the strong end-user demand for electronics. As a result, we had improved
sales of our passive components as well as our resale and connector product
lines when compared to the same quarter last year.
-20-
The
table
below represents product group revenues for the nine-month periods ended
December 31, 2005 and December 31, 2006.
|
Sales
Revenue
|
Nine
Months Ended December 31,
|
|||
|
$(000's)
|
|
2005
|
2006
|
|
|
Ceramic
Components
|
$
|
172,986
|
$
|
172,069
|
|
Tantalum
Components
|
|
201,656
|
|
214,356
|
|
Advanced
Components
|
|
239,271
|
|
282,001
|
|
Total
Passive Components
|
|
613,913
|
|
668,426
|
|
KDP
and KKC Resale
|
|
276,378
|
|
322,378
|
|
KEC
Resale
|
|
46,919
|
|
56,218
|
|
Total
KED Resale
|
|
323,297
|
|
378,596
|
|
Connectors
|
|
57,603
|
|
72,122
|
|
Total
Revenue
|
$
|
994,813
|
$
|
1,119,144
|
Passive
component sales increased $54.5 million, or 8.9%, to $668.4 million in the
nine
months ended December 31, 2006 from $613.9 million during the same period last
year. The sales increase in Passive Components was primarily due to increased
customer demand and a favorable mix of higher value added products as end-user
demand for more sophisticated electronic devices continues to improve when
compared to the same period last year. Inventory levels in the supply chain
remained relatively low during the first nine months of this fiscal year as
demand has increased. Compared to last year, unit sales volumes were down
approximately 4.0%. The impact of the lower unit demand was offset by a
favorable mix of higher value added products as reflected in the 17.9% increase
in sales of our Advanced Components. We saw very little pricing pressure on
our
products in the nine month period ended December 31, 2006 as the industry’s
production capacity utilization increased during the period to meet the
increased demand when compared to the same period last year.
KDP
and
KKC Resale sales, increased $46.0 million, or 16.6%, to $322.4 million in the
nine months ended December 31, 2006 compared to $276.4 million during the same
period last year. The increase is attributable to a 13.6% increase in unit
sales
volumes resulting from increased customer demand for these products and an
improved product mix when compared to the same period last year.
Total
Connector sales, including AVX manufactured and KEC Resale connectors, increased
23.8 million, or 22.8%, to $128.3 million in the nine months ended December
31,
2006 compared to $104.5 million during the same period last year. This increase
was primarily attributable to increased customer demand and new programs,
particularly in the automotive sector.
The
Company's sales to independent electronic distributor customers represented
42.4% of total sales for the nine-month period ended December 31, 2006, compared
to 39.2% for the nine-month period ended December 31, 2005. This shift was
primarily due to distributors reducing their inventory levels in line with
end
market demand during the comparable period last year. The Company's sales to
distributor customers involve specific ship and debit and stock rotation
programs for which sales allowances are recorded as reductions in sales. Such
allowance charges were $30.8 million, or 6.1% of gross sales to distributor
customers, for the nine months ended December 31, 2006 and $30.8 million, or
7.3% of gross sales to distributor customers, for the nine months ended December
31, 2005. This decrease in the allowance charges is reflective of lower
inventory levels at our distributor customers, increased demand and a stable
pricing environment. Applications under such programs for the nine-month periods
ended December 31, 2006 and 2005 were approximately $30.2 million and $30.8
million, respectively.
-21-
Geographically,
compared to the same period last year, sales increased 4.7% in the Americas,
8.5% in Europe and 19.9% in Asia reflecting increased customer production and
end-user demand in the Asian region. Unit sales volumes increased 13.1% in
Asia
partially offset by decreases of 8.1% and 5.5% in the Americas and Europe
respectively, reflecting the increased demand in Asia as more global production
is moved into that region.
Gross
profit in the nine months ended December 31, 2006 was 20.1% of sales, increasing
$84.5 million to $225.8 million compared to a gross profit margin of 14.2%
or
$141.3 million in the nine months ended December 31, 2005. This increase
reflects our enhanced production capabilities in lower cost regions in additions
to higher sales and an improved product mix reflecting the Company’s marketing
focus on higher margin value added products as end-user demand for more
sophisticated electronics continues to improve. Compared to the same nine-month
period last year, depreciation expense was lower by $12.1 million reflecting
lower capital spending in recent years partially offset by an unfavorable
currency exchange impact as the U.S. dollar weakened against certain foreign
currencies.
Selling,
general and administrative expenses in the nine months ended December 31, 2006
were $87.3 million, or 7.8% of net sales, compared with $81.6 million, or 8.2%
of net sales, in the nine months ended December 31, 2005.
The
increase was primarily attributable to higher selling and personnel expense
due
to higher sales partially offset by lower professional fees related to our
Sarbanes-Oxley compliance efforts.
As
a
result of the above factors, income from operations increased $78.8 million
to
$138.5 million in the nine months ended December 31, 2006 compared to $59.7
million in the nine months ended December 31, 2005.
Other
income increased $8.9 million to $25.7 million in the nine
months
ended December 31, 2006 compared to $16.8 million in the same period last year.
This increase is primarily due to higher interest income resulting from higher
interest rates and higher cash and securities investment balances partially
offset by foreign currency exchange losses.
The
Company's effective tax rate for the nine-month
period ended December 31, 2006 and 2005 was 32.5%.
Net
income
for the nine-month period ended December 31, 2006 increased $59.1 million to
$110.8 million compared to net income of $51.7 million for the nine-month period
ended December 31, 2005. The increase in net income was a result of the factors
set forth above.
Outlook
Near-Term:
The
electronic component industry in which we operate is cyclical. Near-term results
for us will depend on growth in the economy and resulting expansion in the
telecommunications, information technology hardware, automotive, consumer
electronics and other electronic markets. We expect a continued, stable pricing
environment as we believe that the industry demand for our products is in line
with component manufacturing capacity. Additionally, the Company expects to
continue to receive near-term benefits from our enhanced production capabilities
in lower cost regions. The Company continues to evaluate its cost structure
and
manufacturing capabilities in conjunction with current demand and future
expectations.
-22-
Long-Term:
We
continue to be optimistic that opportunities for long-term growth and
profitability will continue due to: (a) the continued increase as a long-term
trend in worldwide demand for electronic devices which require our electronic
components, (b) cost reductions and improvements in our production processes
and
(c) opportunities for growth in our Advanced Product and Connector product
lines
due to advances in component design and increased end-user demand for more
sophisticated electronics.
Liquidity
and Capital Resources
The
Company's liquidity needs arise primarily from working capital requirements,
dividend payments and capital expenditures. Historically, the Company has
satisfied its liquidity requirements through funds from operations and
investment income from cash and investments in securities. As of December 31,
2006, the Company had a current ratio of 6.7 to 1, $941.7 million of cash,
cash
equivalents and short-term and long-term investments in securities, $1.6 billion
of stockholders' equity and no debt.
Net
cash
provided by operating activities was $196.2 million in the nine months ended
December 31, 2006 compared to $111.5 million of cash provided by operating
activities in the nine months ended December 31, 2005. The increase in cash
flow
from operating activities compared to the same period last year was primarily
a
result of higher income and accounts payable, offset in part by higher accounts
receivable due to our increased sales.
Purchases
of property and equipment were $37.3 million in the nine-month period ended
December 31, 2006 compared to $26.9 million in the nine-month period ended
December 31, 2005.
Expenditures for both periods were primarily in connection with the transfer
of
passive component manufacturing operations to lower cost regions, process
improvements in passive component product lines and expansion of production
of
certain advanced and connector product lines. The carrying value for our
equipment reflects the use of the accelerated double-declining balance method
to
compute depreciation expense for machinery and equipment. We continue to add
additional capacity for advanced passive component and connector products and
expect to incur capital expenditures of approximately $50 million in fiscal
2007. The actual amount of capital expenditures will depend upon the outlook
for
end-market demand.
The
majority of the Company's funding is internally generated through operations
and
investment income from cash and investments in securities. Since March 31,
2006,
there have been no significant changes in the Company's contractual obligations
or commitments for the acquisition or construction of plant and equipment or
future minimum lease commitments under noncancellable operating leases. Based
on
the financial condition of the Company as of December 31, 2006, the Company
believes that cash on hand and cash expected to be generated from operating
activities and investment income from cash and investments in securities will
be
sufficient to satisfy the Company's anticipated financing needs for working
capital, capital expenditures, environmental clean-up costs, research,
development and engineering expenses, and any dividend payments or stock
repurchases to be made during the year. While changes in customer demand have
an
impact on the Company's future cash requirements, changes in those requirements
are mitigated by the Company's ability to adjust manufacturing capabilities
to
meet increases or decreases in customer demand. The Company does not anticipate
any significant changes in its ability to generate or meet its liquidity needs
in the long-term.
From
time
to time we enter into delivery contracts with selected suppliers for certain
precious metals used in our production processes. The delivery contracts
represent routine purchase orders for delivery within three months and payment
is due upon receipt. As of December 31, 2006, we did not have any of these
delivery contracts outstanding.
-23-
We
are
involved in disputes and legal proceedings arising in the normal course of
business. While we cannot predict the outcome of these disputes and proceedings,
we believe, based upon a review with legal counsel, that none of these disputes
or proceedings will have a material impact on our financial position, results
of
operations, or cash flows. However, we cannot be certain of the eventual outcome
of any particular proceeding and any adverse result in these or other matters
that may arise from time to time may harm our financial position, results of
operations, or cash flows.
We
have
been named as a potentially responsible party in state and federal
administrative proceedings seeking contribution for costs associated with the
correction and remediation of environmental conditions at various waste disposal
and operating sites.
On
June
2, 2006, we received a “Confirmation of Potential Liability; Demand and Notice
of Decision Not to Use Special Notice Procedures” dated May 31, 2006 from the
U.S. Environmental Protection Agency (“EPA”) with regard to $1.6 million
(subsequently modified to $0.7 million) of past costs, as well as future costs
for environmental remediation, related to the purported release of hazardous
substances at a facility referred to as the “Aerovox Facility” (“Facility”),
located at 740 Belleville Avenue, New Bedford, Massachusetts. A predecessor
of
AVX sold this Facility to an unrelated third party in 1973.
We
have
investigated the claim as well as potential defenses and other actions,
including the engagement of environmental engineering consultants to study
and
analyze documentation made available by the EPA with respect to the Facility.
In
August 2006, we provided a written response to the EPA, denying liability.
We
anticipate further discussions with the EPA. The potential impact on our
financial position and results of operations cannot be determined at this
time.
We
also
operate on sites that may have environmental issues in the future. Once it
becomes probable that we will incur costs in connection with remediation of
a
site and such costs can be reasonably estimated, we establish reserves or adjust
our reserve for our projected share of these costs. Management believes that,
as
of December 31, 2006, its reserves of approximately $2.4 million are adequate
with respect to these matters. Actual costs may vary from these estimated
reserves, but such costs are not expected to have a material adverse effect
on
our financial condition or results of operations.
New
Accounting Standards
In
July
2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 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 48 provides guidance on
the financial statement recognition and measurement of a tax position taken
or
expected to be taken in a tax return. FIN 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. FIN 48 is effective for our fiscal year beginning April 1, 2007.
We are currently evaluating the impact of FIN 48 on our consolidated financial
statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standard
No.
158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans” (“SFAS 158”), which requires an employer to recognize the overfunded or
underfunded status of its defined benefit postretirement plans as an asset
or
liability in its statement of financial position and to recognize changes in
that funded status in the year in which the changes occur through comprehensive
income. This standard also requires an employer to measure the funded status
of
a plan as of the date of its year end statement of financial position. We are
required to initially recognize the funded status of our defined benefit plans
and to provide the required disclosures in accordance with this standard as
of
our fiscal year ending March 31, 2007. We believe that SFAS 158 will not have
a
material impact on our consolidated financial statements.
-24-
The
Company’s sales are denominated in various foreign currencies in addition to the
U.S. dollar. Certain manufacturing and operating costs denominated in local
currencies are incurred in Europe, Asia, Mexico and Central and South America.
Additionally, purchases of resale products from Kyocera may be denominated
in
Yen. As a result, fluctuations in currency exchange rates affect our operating
results and cash flow. In order to minimize the effect of movements in currency
exchange rates, we periodically enter into forward exchange contracts to hedge
external and intercompany foreign currency transactions. We do not hold or
issue
derivative financial instruments for speculative purposes. Accordingly, we
have
hedging commitments to cover our exchange risk on purchases, operating expenses
and sales. Currency exchange gains and losses on foreign currency hedge
contracts have been immaterial during the periods presented.
|
ITEM
4.
|
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company’s reports under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to management, including the Company’s Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can only provide reasonable assurance of achieving the
desired control objectives, as the Company’s are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As
of the
end of the period covered in this report, the Company carried out an evaluation,
under the supervision and with the participation of management, including the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the
design and operation of our disclosure controls and procedures, as such term
is
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that as of the end of the period covered by this report, the Company’s
disclosure controls and procedures were effective to ensure that information
required to be disclosed in reports the Company files or submits under the
Exchange Act are (1) recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms,
and (2) accumulated and communicated to the Company’s management including the
Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.
In
addition, there were no changes in the Company’s internal control over financial
reporting during the Company’s third quarter of fiscal 2007 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
-25-
|
PART
II:
|
The
following table provides information regarding purchases of the Company’s equity
securities by the Company during the three months ended December 31,
2006:
|
Period
|
|
Total
Number of Shares Purchased (1)(2)
|
Average
Price Paid Per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
(1)(2)
|
Maximum
Number of Shares that may yet be Purchased Under the Plans or
Programs
(1)(2)
|
|||
|
10/1/06
- 10/31/06
|
|
-
|
|
-
|
|
-
|
|
5,668,800
|
|
11/1/06
- 11/30/06
|
|
83,195
|
|
$
15.68
|
|
83,195
|
|
5,585,605
|
|
12/1/06
- 12/31/06
|
138,700
|
15.00
|
138,700
|
5,446,905
|
||||
|
Total
|
|
221,895
|
|
$
15.26
|
|
221,895
|
|
5,446,905
|
| (1) |
On
April 19, 2001, the Board of Directors of the Company authorized
the
repurchase of up to 5,000,000 shares of our common stock from time
to time
in the open market. The repurchased shares are held as treasury stock
and
are available for general corporate
purposes.
|
| (2) |
On
October 19, 2005, the Board of Directors of the Company authorized
the
repurchase of an additional 5,000,000 shares of our common stock
from time
to time in the open market. The repurchased shares are held as treasury
stock and are available for general corporate
purposes.
|
|
ITEM
6.
|
|
|
31.1
|
|
|
31.2
|
|
|
32.1
|
-26-
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date:
February 8, 2007
|
AVX
Corporation
|
|
|
By:
|
/s/
Kurt P. Cummings
|
|
Kurt
P. Cummings
|
|
|
Vice
President,
|
|
|
Chief
Financial Officer,
|
|
|
Treasurer
and Secretary
|