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 September 30, 2007.
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 November 1, 2007
|
|
|
Common
Stock, par value $0.01 per share
|
171,448,520
|
AVX
CORPORATION
INDEX
|
Page
Number
|
||
|
PART
I:
|
Financial
Information:
|
|
|
ITEM
1.
|
Financial
Statements:
|
|
|
|
3
|
|
|
4
|
||
|
5
|
||
|
|
6
|
|
|
ITEM
2.
|
|
16
|
|
ITEM
3.
|
|
23
|
|
ITEM
4.
|
|
23
|
|
PART
II:
|
|
|
|
ITEM
1.
ITEM
1A.
|
24
24
|
|
|
ITEM
2.
|
|
25
|
|
ITEM
6.
|
|
26
|
|
|
27
|
|
-2-
Consolidated
Balance Sheets (Unaudited)
(in
thousands, except per share data)
|
March
31,
|
September
30,
|
||||
|
ASSETS
|
2007
|
2007
|
|||
|
Current
assets:
|
|||||
|
Cash
and cash equivalents
|
$
|
684,382
|
$
|
581,548
|
|
|
Short-term
investments in securities
|
|
145,000
|
|
120,000
|
|
|
Accounts
receivable - trade
|
|
191,106
|
|
234,714
|
|
|
Accounts
receivable - affiliates
|
|
5,059
|
|
4,377
|
|
|
Inventories
|
|
330,141
|
|
382,776
|
|
|
Deferred
income taxes
|
|
26,941
|
|
26,953
|
|
|
Prepaid
and other
|
|
38,766
|
|
41,292
|
|
|
Total
current assets
|
|
1,421,395
|
|
1,391,660
|
|
|
Long-term
investments in securities
|
|
139,000
|
|
89,000
|
|
|
Property
and equipment
|
|
1,593,282
|
|
1,702,403
|
|
|
Accumulated
depreciation
|
|
(1,349,409)
|
|
(1,410,376)
|
|
|
|
|
243,873
|
|
292,027
|
|
|
Goodwill
|
|
71,166
|
|
150,702
|
|
|
Intangible
assets
|
-
|
97,000
|
|||
|
Other
assets
|
|
24,102
|
|
9,732
|
|
|
Total
Assets
|
$
|
1,899,536
|
$
|
2,030,121
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||
|
Current
liabilities:
|
|||||
|
Accounts
payable - trade
|
$
|
50,903
|
$
|
55,656
|
|
|
Accounts
payable - affiliates
|
|
75,786
|
|
91,953
|
|
|
Current
portion of long-term debt
|
|
-
|
|
2,171
|
|
|
Income
taxes payable
|
|
14,668
|
|
5,677
|
|
|
Accrued
payroll and benefits
|
|
38,965
|
|
39,520
|
|
|
Accrued
expenses
|
|
27,038
|
|
34,656
|
|
|
Total
current liabilities
|
|
207,360
|
|
229,633
|
|
|
Long-term
debt
|
|
-
|
|
4,773
|
|
|
Other
liabilities
|
|
56,897
|
|
69,753
|
|
|
Total
Liabilities
|
|
264,257
|
|
304,159
|
|
|
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
|
|
|||
|
Authorized,
300,000 shares; issued, 176,368 shares
|
|
|
1,764 | ||
|
Additional
paid-in capital
|
|
340,911
|
|
342,121
|
|
|
Retained
earnings
|
|
1,226,283
|
|
1,290,188
|
|
|
Accumulated
other comprehensive income
|
|
128,812
|
|
157,377
|
|
|
Treasury
stock, at cost:
|
(62,491)
|
|
|||
|
4,694
and 4,855 shares at March 31 and September 30, 2007,
respectively
|
|
|
(65,488)
|
||
|
Total
Stockholders' Equity
|
|
1,635,279
|
|
1,725,962
|
|
|
Total
Liabilities and Stockholders' Equity
|
$
|
1,899,536
|
$
|
2,030,121
|
|
See
accompanying notes to consolidated
financial statements.
-3-
Consolidated
Statements of Operations (Unaudited)
(in
thousands, except per share data)
|
Three
Months Ended September 30,
|
Six
Months Ended September 30,
|
||||||||||
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|||
|
Net
sales
|
$
|
374,648
|
$
|
400,706
|
$
|
741,056
|
$
|
783,864
|
|||
|
Cost
of sales
|
|
296,757
|
|
329,861
|
|
|
|
587,838
|
|
638,133
|
|
|
Restructuring
charges
|
-
|
2,056
|
-
|
2,217
|
|||||||
|
Gross
profit
|
|
77,891
|
|
68,789
|
|
153,218
|
|
143,514
|
|||
|
Selling,
general and administrative expenses
|
|
29,415
|
|
29,581
|
|
|
|
57,789
|
|
60,149
|
|
|
In-process
reseach and development charge
|
|
-
|
|
390
|
|
-
|
|
390
|
|||
|
Profit
from operations
|
|
48,476
|
|
38,818
|
|
95,429
|
|
82,975
|
|||
|
Other
income (expense):
|
|||||||||||
|
Interest
income
|
|
9,639
|
|
13,140
|
|
17,633
|
|
25,222
|
|||
|
Interest
expense
|
|
-
|
|
-
|
|
-
|
|
(242)
|
|||
|
Other,
net
|
|
(655)
|
|
44
|
|
(1,924)
|
|
(800)
|
|||
|
Income
before income taxes
|
|
57,460
|
|
52,002
|
|
111,138
|
|
107,155
|
|||
|
Provision
for income taxes
|
|
18,675
|
|
14,561
|
|
36,120
|
|
30,555
|
|||
|
Net
income
|
$
|
38,785
|
$
|
37,441
|
$
|
75,018
|
$
|
76,600
|
|||
|
Earnings
per share:
|
|||||||||||
|
Basic
|
$
|
0.23
|
$
|
0.22
|
$
|
0.44
|
$
|
0.45
|
|||
|
Diluted
|
$
|
0.22
|
$
|
0.22
|
$
|
0.43
|
$
|
0.44
|
|||
|
Weighted
average common shares outstanding:
|
|||||||||||
|
Basic
|
|
172,094
|
|
171,685
|
|
172,187
|
|
171,741
|
|||
|
Diluted
|
|
172,784
|
|
172,477
|
|
172,952
|
|
172,554
|
|||
See
accompanying notes to consolidated
financial statements.
-4-
Consolidated
Statements of Cash Flows (Unaudited)
(in
thousands)
|
Six
Months Ended September 30,
|
||||
|
|
2006
|
2007
|
||
|
Operating
Activities:
|
||||
|
Net
income
|
$
|
75,018
|
$
|
76,600
|
|
Adjustment
to reconcile net income to net cash from operating
activities,
|
||||
|
net
of business acquired:
|
|
|
|
|
|
Depreciation
|
|
27,275
|
|
24,229
|
|
In-process
research and development charge
|
|
-
|
|
390
|
|
Stock-based
compensation expense
|
|
1,365
|
|
1,374
|
|
Deferred
income taxes
|
|
6,937
|
|
6,660
|
|
(Gain)
Loss on sale of property, plant & equipment
|
|
-
|
|
(4)
|
|
Changes
in operating assets and liabilities, net of business
acquired:
|
|
|
|
|
|
Accounts
receivable
|
|
(17,804)
|
|
(28,673)
|
|
Inventories
|
|
(384)
|
|
(10,438)
|
|
Accounts
payable and accrued expenses
|
|
29,419
|
|
23,060
|
|
Income
taxes payable
|
|
4,505
|
|
(4,929)
|
|
Other
assets
|
|
(5,107)
|
|
12,576
|
|
Other
liabilities
|
|
(2,605)
|
|
(15,508)
|
|
Net
cash provided by (used in) operating activities
|
|
118,619
|
|
85,337
|
|
Investing
Activities:
|
||||
|
Purchases
of property and equipment
|
|
(21,975)
|
|
(27,038)
|
|
Purchase
of business, net of cash acquired
|
|
-
|
|
(223,333)
|
|
Purchases
of investment securities
|
|
(79,000)
|
|
(59,000)
|
|
Redemption
of investment securities
|
|
138,000
|
|
134,000
|
|
Proceeds
from property, plant & equipment dispositions
|
|
-
|
|
19
|
|
Net
cash provided by (used in) investing activities
|
|
37,025
|
|
(175,352)
|
|
Financing
Activities:
|
||||
|
Dividends
paid
|
|
(12,916)
|
|
(13,756)
|
|
Purchase
of treasury stock
|
|
(7,526)
|
|
(6,534)
|
|
Proceeds
from exercise of stock options
|
3,958
|
2,889
|
||
|
Excess
tax benefit from stock-based payment arrangements
|
|
608
|
|
483
|
|
Net
cash provided by (used in) financing activities
|
|
(15,876)
|
|
(16,918)
|
|
Effect
of exchange rate on cash
|
|
5,582
|
|
4,099
|
|
Increase
(decrease) in cash and cash equivalents
|
|
145,350
|
|
(102,834)
|
|
Cash
and cash equivalents at beginning of period
|
|
505,326
|
|
684,382
|
|
Cash
and cash equivalents at end of period
|
$
|
650,676
|
$
|
581,548
|
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 six months ended
September 30, 2007 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2008 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,
2007.
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 Notes to 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, 2007. 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, 2007. During the six month period
ended September 30, 2007, except as noted below, 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, goodwill, intangible assets,
property and equipment, income taxes and contingencies.
New
Accounting Standards
In
June
2006, the Financial Accounting Standards Board (“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.
The Company adopted the provisions of FIN 48 effective April 1, 2007. The
cumulative effect of the change in retained earnings as of the date of adoption,
which represents the difference between the net amount of assets and liabilities
recognized in the Company’s consolidated balance sheet prior to the application
of FIN 48 and the net amount of assets and liabilities recognized as a result
of
applying FIN 48, is an increase of approximately $1,100.
The
amount of unrecognized tax benefits recorded on the Company’s balance sheet at
the date of adoption, and that, if recognized, would affect the effective tax
rate is approximately $5,500. This amount excludes an accrual for estimated
interest and penalties in the amount of approximately $240 which has been
recorded as a component of interest expense.
The
Company does not expect that the balances with respect to its uncertain tax
positions will significantly increase or decrease within the next 12
months. For its more significant locations, the Company is subject to
income tax examinations generally for the year 2001 and for the years 2004
and
forward in the United States, 2004 and forward in Singapore, 2001 and forward
in
Hong Kong, and 2001 and forward in the United Kingdom.
-6-
In
September 2006, the FASB issued Statement of Financial Accounting Standard
No.
157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, provides
guidance for measuring fair value and requires additional
disclosures. This statement does not require any new fair value
measurements, but rather applies to all other accounting pronouncements that
require or permit fair value measurements. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007. The Company is currently evaluating the impact of SFAS 157 on
the consolidated financial statements.
In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an amendment of FASB Statement No. 115” (“SFAS 159”), which permits
entities to choose to measure many financial instruments and certain other
items
at fair value. In accordance with SFAS 159, entities will report
unrealized gains and losses for which the fair value option has been elected
in
earnings at each subsequent reporting date. SFAS 159 is effective for
financial statements issued for fiscal years beginning after November 15,
2007. Early adoption is permitted provided SFAS 157 provisions are
applied. The Company is currently evaluating the impact of SFAS 159
on the consolidated financial statements.
Goodwill
and Acquired Intangible Assets
Goodwill
totaling $77,456 at September 30, 2007, was recorded as a result of the
September 25, 2007 acquisition of American Technical Ceramics Corp. (“ATC”).
This amount, which represents the excess of the purchase price over the
estimated fair value of assets acquired and liabilities assumed, is subject
to
adjustment as the Company completes its analysis of these fair
values.
As
of the
date of acquisition, intangible assets resulting from the merger with ATC were
recorded at estimated fair value and are being amortized on a straight-line
basis over their estimated useful lives. These identifiable intangible assets
include, but are not limited to, tradename, customer relationships, and
developed technologies and are subject to adjustment as indicated above. See
Note 10 for information regarding this acquisition.
|
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.
-7-
The
table
below represents the basic and diluted weighted average number of shares of
common stock and potential common stock equivalents:
|
|
|
Three
Months Ended September 30,
|
Six
Months Ended September 30,
|
||||||
|
|
|
2006
|
2007
|
2006
|
2007
|
||||
|
Net
Income
|
$
|
38,785
|
$
|
37,441
|
$
|
75,018
|
$
|
76,600
|
|
|
Computation
of Basic EPS:
|
|||||||||
|
Weighted
Average Shares Outstanding used in
computing
Basic EPS
|
|
172,094
|
|
171,685
|
|
172,187
|
|
171,741
|
|
|
Basic
earnings per share
|
$
|
0.23
|
$
|
0.22
|
$
|
0.44
|
$
|
0.45
|
|
|
Computation
of Diluted EPS:
|
|||||||||
|
Weighted
Average Shares Outstanding
|
|
172,094
|
|
171,685
|
|
172,187
|
|
171,741
|
|
|
Effect
of stock options
|
|
690
|
|
792
|
|
765
|
|
813
|
|
|
Shares
used in computing Diluted EPS (1)
|
|
172,784
|
|
172,477
|
|
172,952
|
|
172,554
|
|
|
Diluted
earnings per share
|
$
|
0.22
|
$
|
0.22
|
$
|
0.43
|
$
|
0.44
|
|
(1)
Common stock equivalents, not included in the computation of diluted earnings
per share because the impact would have been antidilutive, were 3,028 shares
and
2,801 shares and 2,663 shares and 2,629 shares for the three months and six
months ended September 30, 2006 and 2007, respectively.
|
3.
|
Trade
Accounts Receivable:
|
|
March
31,
2007
|
September
30,
2007
|
||||
|
Gross
Accounts Receivable - Trade
|
$
|
213,869
|
$
|
259,446
|
|
|
Less:
|
|
|
|
|
|
|
|
Allowances
for doubtful accounts
|
|
1,705
|
|
1,409
|
|
|
Stock
rotation and ship from stock and debit
|
|
11,918
|
|
13,806
|
|
|
Sales
returns and discounts
|
|
9,140
|
|
9,517
|
|
|
Total
allowances
|
|
22,763
|
|
24,732
|
|
|
Net
Accounts Receivable - Trade
|
$
|
191,106
|
$
|
234,714
|
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 September 30,
|
Six
Months Ended September 30,
|
||||||||
|
|
|
2006
|
2007
|
2006
|
2007
|
||||
|
Allowances
for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
$
|
1,533
|
$
|
1,643
|
|
$
|
1,772
|
$
|
1,705
|
|
Charges
|
|
3
|
|
(42)
|
|
|
(252)
|
|
(42)
|
|
Applications
|
|
(137)
|
|
(198)
|
|
|
(137)
|
|
(273)
|
|
Translation
and other
|
|
16
|
|
6
|
|
|
32
|
|
19
|
|
Ending
Balance
|
$
|
1,415
|
$
|
1,409
|
|
$
|
1,415
|
$
|
1,409
|
-8-
|
Stock
rotation and ship from stock and debit:
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
$
|
15,289
|
$
|
13,082
|
|
$
|
14,292
|
$
|
11,918
|
|
Charges
|
|
10,935
|
|
10,558
|
|
|
21,899
|
|
21,382
|
|
Applications
|
|
(10,503)
|
|
(9,841)
|
|
|
(20,513)
|
|
(19,518)
|
|
Translation
and other
|
|
21
|
|
7
|
|
|
64
|
|
24
|
|
Ending
Balance
|
$
|
15,742
|
$
|
13,806
|
|
$
|
15,742
|
$
|
13,806
|
|
Sales
returns and discounts:
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
$
|
8,945
|
$
|
9,829
|
|
$
|
8,496
|
$
|
9,140
|
|
Charges
|
|
8,341
|
|
7,050
|
|
|
13,404
|
|
15,538
|
|
Applications
|
|
(7,672)
|
|
(7,407)
|
|
|
(12,345)
|
|
(15,223)
|
|
Translation
and other
|
|
47
|
|
45
|
|
|
106
|
|
62
|
|
Ending
Balance
|
$
|
9,661
|
$
|
9,517
|
|
$
|
9,661
|
$
|
9,517
|
|
4.
|
Inventories:
|
|
|
|
March
31,
2007
|
September
30,
2007
|
|
|
Finished
goods
|
$
|
100,266
|
$
|
113,661
|
|
Work
in process
|
|
98,147
|
|
102,723
|
|
Raw
materials and supplies
|
|
131,728
|
|
166,392
|
|
|
$
|
330,141
|
$
|
382,776
|
|
5.
|
Stock-Based
Compensation:
|
In
May
2007, the Company granted 496 options to employees pursuant to the 2004 Stock
Option Plan described in Note 9, “Stock Based Compensation”, of the Notes to
Consolidated Financial Statements contained in the Company’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2007. The weighted average grant
date fair value per share is $5.99 and the weighted average exercise price
per
share for these options is $17.88.
In
August
2007, the Company granted options to purchase an aggregate of 120 shares of
common stock to its non-employee directors pursuant to the 2004 Non-Employee
Directors’ Stock Option Plan described in Note 9, “Stock Based Compensation”, of
the Notes to Consolidated Financial Statements contained in the Company’s Annual
Report on Form 10-K for the fiscal year ended March 31, 2007. The weighted
average grant date fair value per share is $4.15 and the weighted average
exercise price per share for these options is $16.20.
|
6.
|
Commitments
and Contingencies:
|
The
amount of unrecognized tax benefits recorded on the Company’s balance sheet at
the date of adoption of FIN 48 was approximately $5,500. The Company is unable
to reasonably estimate in which future periods these amounts will ultimately
be
settled.
-9-
The
Company has been named as a potentially responsible party (“PRP”) 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. To resolve the Company’s liability at each of the
sites at which the Company has been named a PRP, the Company has entered
into various administrative orders and consent decrees with federal and state
regulatory agencies governing the timing and nature of investigation and
remediation. The Company has paid, or reserved for, all estimated
amounts required under the terms of these orders and decrees corresponding
to
the Company’s apportioned share of the liabilities. As is customary,
the orders and decrees regarding sites where the PRPs are not themselves
implementing the chosen remedy contain provisions allowing the EPA to reopen
the
agreement and seek additional amounts from settling PRPs in the event that
certain contingencies occur, such as the discovery of significant new
information about site conditions during remediation or substantial cost
overruns for the chosen remedy. The existence of these reopener
provisions, combined with the difficulties of reliably estimating remediation
costs and the joint and several nature of such liabilities, makes it difficult
to predict the ultimate liability at any site with certainty.
In
July
2007, the Company received oral notification from the EPA indicating that
it is
considering exercising the reopener provision under a 1991 consent decree
relating to the environmental conditions at, and remediation of, New Bedford
Harbor, Massachusetts. Under that consent decree, the Company paid
$66,000, plus interest, toward the environmental conditions at, and remediation
of, the harbor in settlement with the EPA and the Commonwealth of Massachusetts,
subject to reopener provisions, including a reopener if certain remediation
costs for the site exceed $130,500. The EPA has indicated that
remediation costs through April 2007 (which remediation is ongoing) are
approximately $302,000. The Company has not yet undertaken discussions with
the
EPA regarding this matter, the monies spent or any evaluation of the merits
or
applicability of the reopener provisions to the current status of the site.
The
Company has also not yet determined the extent to which other parties may
bear
responsibility for these costs. Accordingly, the potential
impact of this matter on the Company’s financial position, results of
operations and cash flows cannot be determined at this time.
On
June
2, 2006, the Company received a “Confirmation of Potential Liability; Demand and
Notice of Decision Not to Use Special Notice Procedures” dated May 31, 2006 from
the EPA with regard to the purported release of hazardous substances at a
facility referred to as the “Aerovox Facility” (the “Facility”), located at 740
Belleville Avenue, New Bedford, Massachusetts. The EPA sought $1,600
(subsequently modified to $900) of past costs, as well as future costs
associated with the demolition of the Facility. A predecessor of AVX sold this
Facility to an unrelated third party in 1973. The Company 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,
the Company provided a written response to the EPA, denying liability. The
EPA
has recently indicated orally that the proposed plan of remediation has been
modified, and that its present provisional estimate of future costs for such
remediation is $13,700. The Company anticipates further discussions with the
EPA. The potential impact on the Company’s financial position,
results of operations and cash flows cannot be determined at this
time.
In
September 2007, the Company received notice from Horry Land Company, the owner
of property adjacent to the Company's South Carolina factory, that Horry Land
Company’s property value had been negatively impacted by alleged migration of
certain pollutants from the Company's property. Horry Land Company is seeking
to
recover $5,400 in compensatory damages, exclusive of costs that have not been
determined. The Company investigated the allegations and determined
that the demanded payment was not justified and that issues of liability, among
other issues, exist under environmental laws. At this stage of the
related environmental assessment, the Company has not been able to determine
what measures may have to be undertaken or the likely costs of any such
measures. AVX and the Horry Land Company have filed complaints
related to this issue. See Part II, Item 1, of this Form 10-Q for
details related to this litigation. Further, at this early stage of
the litigation, there has not been a determination as to responsible parties
or
the amount, if any, of damages. Accordingly, the potential impact of
the matter on the Company's financial position, results of operations, and
cash
flows cannot be determined at this time.
The
Company also currently 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
September 30, 2007, its reserves of approximately $2,717 are appropriate with
respect to these matters, although actual costs may vary from these estimated
reserves.
-10-
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. However, the Company cannot be certain of the eventual
outcome of any particular proceeding and any adverse potential impact on the
Company’s financial position, results of operations and cash flows from these or
other matters that may arise from time to time.
|
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 September 30,
|
Six
Months Ended September 30,
|
|||||||||
|
|
|
2006
|
2007
|
2006
|
2007
|
|||||
|
Net
income
|
$
|
38,785
|
$
|
37,441
|
|
$
|
75,018
|
$
|
76,600
|
|
|
Other
comprehensive income:
|
||||||||||
|
|
Pension
liability adjustment, net of tax
|
|
-
|
|
426
|
|
|
-
|
|
852
|
|
|
Foreign
currency translation adjustment
|
|
14,648
|
|
19,762
|
|
|
39,626
|
|
27,881
|
|
|
Foreign
currency cash flow hedges
|
|
704
|
|
1,194
|
|
|
(271)
|
|
(168)
|
|
Comprehensive
income
|
$
|
54,137
|
$
|
58,823
|
|
$
|
114,373
|
$
|
105,165
|
|
|
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.
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.
-11-
The
tables below present information about reported segments:
|
Three
Months Ended September 30,
|
Six
Months Ended September 30,
|
||||||||
|
|
|
2006
|
2007
|
2006
|
2007
|
||||
|
Net
sales:
|
|||||||||
|
Passive
Components
|
$
|
221,284
|
$
|
226,778
|
|
$
|
449,323
|
$
|
453,204
|
|
KED
Resale
|
|
128,213
|
|
148,044
|
|
|
244,206
|
|
279,198
|
|
Connectors
|
|
25,151
|
|
25,884
|
|
|
47,527
|
|
51,462
|
|
Total
|
$
|
374,648
|
$
|
400,706
|
|
$
|
741,056
|
$
|
783,864
|
|
Three
Months Ended September 30,
|
Six
Months Ended September 30,
|
||||||||
|
|
|
2006
|
2007
|
2006
|
2007
|
||||
|
Operating
profit:
|
|||||||||
|
Passive
Components
|
$
|
46,244
|
$
|
39,348
|
|
$
|
94,901
|
$
|
86,498
|
|
KED
Resale
|
|
10,419
|
|
12,029
|
|
|
19,684
|
|
23,508
|
|
Connectors
|
|
2,132
|
|
2,510
|
|
|
3,847
|
|
4,803
|
|
Research
& development
|
|
(2,775)
|
|
(2,878)
|
|
|
(5,322)
|
|
(5,742)
|
|
Corporate
administration
|
|
(7,544)
|
|
(12,191)
|
|
|
(17,681)
|
|
(26,092)
|
|
Total
|
$
|
48,476
|
$
|
38,818
|
|
$
|
95,429
|
$
|
82,975
|
|
|
|
March
31, 2007
|
September
30, 2007
|
|
|
Assets:
|
||||
|
Passive
Components
|
$
|
498,343
|
$
|
696,834
|
|
KED
Resale
|
|
39,943
|
|
41,304
|
|
Connectors
|
|
44,913
|
|
47,392
|
|
Research
& development
|
|
7,133
|
|
7,097
|
|
Cash,
A/R and investments in securities
|
|
1,164,547
|
|
1,029,639
|
|
Goodwill
- Passive components
|
|
60,889
|
|
140,425
|
|
Goodwill
- Connectors
|
|
10,277
|
|
10,277
|
|
Corporate
administration
|
|
73,491
|
|
57,153
|
|
Total
|
$
|
1,899,536
|
$
|
2,030,121
|
The
following geographic data is based upon net sales generated by operations
located within particular geographic areas:
|
Three
Months Ended September 30,
|
Six
Months Ended September 30,
|
||||||||
|
|
|
2006
|
2007
|
2006
|
2007
|
||||
|
Net
sales:
|
|||||||||
|
Americas
|
$
|
108,874
|
$
|
102,851
|
|
$
|
221,329
|
$
|
205,484
|
|
Europe
|
|
82,999
|
|
92,078
|
|
|
168,716
|
|
184,706
|
|
Asia
|
|
182,775
|
|
205,777
|
|
|
351,011
|
|
393,674
|
|
Total
|
$
|
374,648
|
$
|
400,706
|
|
$
|
741,056
|
$
|
783,864
|
-12-
|
9.
|
Pension
Plans:
|
The
following tables show the components of the net periodic pension cost for the
three and six months ended September 30, 2006 and 2007 for the Company’s defined
benefit plans:
|
U.S.
Plans
|
International
Plans
|
|||||||
|
Three
Months Ended September 30,
|
Three
Months Ended September 30,
|
|||||||
|
|
|
2006
|
2007
|
2006
|
2007
|
|||
|
Service
cost
|
$
|
100
|
$
|
107
|
$
|
342
|
$
|
373
|
|
Interest
cost
|
|
406
|
|
409
|
|
1,375
|
|
1,513
|
|
Expected
return on plan assets
|
|
(399)
|
|
(426)
|
|
(1,252)
|
|
(1,366)
|
|
Amortization
of prior service cost
|
|
18
|
|
21
|
|
15
|
|
17
|
|
Recognized
actuarial loss
|
|
45
|
|
66
|
|
316
|
|
371
|
|
Net
periodic pension cost
|
$
|
170
|
$
|
177
|
$
|
796
|
$
|
908
|
|
U.S.
Plans
|
International
Plans
|
|||||||
|
Six
Months Ended September 30,
|
Six
Months Ended September 30,
|
|||||||
|
2006
|
2007
|
2006
|
2007
|
|||||
|
Service
cost
|
$
|
200
|
$
|
214
|
$
|
684
|
$
|
746
|
|
Interest
cost
|
|
812
|
|
818
|
|
2,750
|
|
3,026
|
|
Expected
return on plan assets
|
|
(798)
|
|
(852)
|
|
(2,504)
|
|
(2,732)
|
|
Amortization
of prior service cost
|
|
36
|
|
42
|
|
30
|
|
34
|
|
Recognized
actuarial loss
|
|
90
|
|
132
|
|
632
|
|
742
|
|
Net
periodic pension cost
|
$
|
340
|
$
|
354
|
$
|
1,592
|
$
|
1,816
|
Based
on
current actuarial computations, in fiscal year 2008, the Company has made
approximately $3,200 in contributions to the U.S. plans, and approximately
$3,000 in contributions to the international plans. The Company expects to
make
no additional contributions to the U.S. plans, and approximately $3,400 in
additional contributions to the international plans during the remainder of
the
2008 fiscal year.
|
10.
|
Acquisition:
|
On
September 25, 2007, the Company acquired by merger all of the outstanding
capital stock of American
Technical Ceramics Corp. in exchange for approximately $231,000 in cash, plus
related acquisition costs. ATC designs, develops, manufactures and markets
electronic components, including ceramic multilayer capacitors and custom thin
film circuits. ATC's products are used in a broad range of commercial and
military applications, including wireless infrastructure, fiber optics, medical
electronics, semiconductor manufacturing equipment and satellite equipment.
ATC
has manufacturing facilities and sales offices in New York, manufacturing and
research and development facilities in Florida, and sales offices in Sweden
and
China.
-13-
The
Company has used the purchase method of accounting to record the acquisition
in
accordance with Statement of Financial Accounting Standards No. 141, (“SFAS
141”), “Business Combinations”. In accordance with the purchase method, the
purchase price is allocated to the assets acquired and liabilities assumed
based
on their estimated fair values. As of September 30, 2007, the allocation of
the
purchase price has been prepared based on preliminary estimates of fair values
and is subject to additional adjustment upon completion of the analysis. The
results of operations for ATC are included in the accompanying Consolidated
Statement of Operations since the acquisition date. The results of ATC were
not
material. The related assets and liabilities were recorded based upon their
estimated relative fair values at the date of acquisition with the excess being
allocated to goodwill as shown in the following table.
|
Assets
and Liabilites Acquired
|
|
|
Accounts
receivable
|
$ 12,818
|
|
Inventory
|
31,339
|
|
Other
current assets and liabilities
|
2,247
|
|
Working
capital
|
$ 46,404
|
|
Property
and equipment
|
38,367
|
|
Intangible
assets
|
97,390
|
|
Other
assets
|
263
|
|
Long-term
debt
|
(4,773)
|
|
Deferred
taxes
|
(23,790)
|
|
Total
identified assets and liabilities
|
$ 153,861
|
|
Purchase
price
|
$ 231,317
|
|
Goodwill
|
$ 77,456
|
For
the
Company’s segment reporting, ATC will be reported in the Advanced Component
product group in the Passive Component segment. Goodwill associated with the
acquisition has been allocated to the Passive Component reporting unit and
is
subject to adjustments upon the completion of the analysis referred to
above.
|
11.
|
Debt
|
As
a
result of the merger with ATC, at September 25, 2007, the Company recorded
$6,944 in long-term and short-term debt. In accordance with SFAS 141, the debt
was recorded at the present values of the amounts to be paid using current
interest rates.
As
of
September 30, 2007, the Company had $3,623 of borrowings outstanding under
a
credit facility with General Electric Capital Corporation at fixed interest
rates ranging from 7.15% to 7.93%. Borrowings under this line of credit are
secured by the equipment purchased thereunder. Also at September 30, 2007,
the
Company had $1,476 outstanding under loans from Svenska Handelsbanken, AB.
The
loans are unsecured and bear interest at fixed rates ranging from 3.56% to
4.59%.
-14-
The
Company leases an administrative office, manufacturing and research and
development complex located in Jacksonville, Florida. The lease is for a period
of 30 years expiring September 30, 2010.
The
following table sets forth the contractual maturity of debt payable to banks
and
debt related to the capital lease as of September 30, 2007:
|
2008
|
$2,171
|
|
2009
|
2,677
|
|
2010
|
1,904
|
|
2011
|
192
|
|
Total
minimum debt payments
|
6,944
|
|
Less:
current portion
|
2,171
|
|
$4,773
|
|
12.
|
Restructuring
|
During
the first half of the fiscal year, restructuring plans were developed to reduce
the workforce in certain European locations to realign the Company’s production
capabilities. All onetime termination benefits have been accrued in accordance
with Statement of Financial Accounting Standard No. 146, “Accounting for Costs
Associated With Exit or Disposal Activities”. The Company has recorded
termination benefit charges of $2,056 and $2,217 related to this reduction
in
workforce for the three and six months ended September 30, 2007, respectively.
The restructuring plans cover the termination of 105 employees. As of the end
of
the second quarter, 22 employees have left the Company and their severance
benefits have been paid. In the Company’s consolidated balance sheet as of
September 30, 2007, the Company has a remaining accrual of $1,820 for
termination benefits for the balance of employees that will leave the Company
under the restructuring plan during the next quarter.
|
13.
|
Subsequent
Events
|
On
October 17, 2007, the Board of Directors of the Company declared a $0.04
dividend per share of common stock with respect to the quarter ended September
30, 2007. The dividend will be paid to stockholders of record on November 2,
2007 and will be disbursed on November 16, 2007. Also on October 17,
2007, the Board of Directors of the Company authorized the repurchase of an
additional 5,000 shares of the Company’s 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.
-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
2008, overall volume and pricing trends, cost reduction and acquisition
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 Item1A, “Risk Factors,” in the
Company's Annual Report on Form 10-K for fiscal year ended March 31, 2007,
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 Securities Exchange Act
of
1934, as amended, 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 Securities Act of 1933, as amended, 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,
intangible assets, 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.
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 Notes to 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, 2007 and in Note 1, "Critical Accounting Policies and
Estimates", in the 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, 2007. During the three month period ended
September 30, 2007, except as noted in Note 1, “Critical Accounting Policies and
Estimates”, of the Company’s Notes to Consolidated Financial Statements
contained in this Quarterly Report on Form 10-Q, 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, goodwill, property and
equipment, income taxes and contingencies.
-16-
Business
Overview
AVX
is a
leading worldwide manufacturer and supplier of a broad line of passive
electronic components. 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.
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. The Passive Components segment consists primarily of
surface mount and leaded ceramic capacitors, RF thick film and thin film
components, tantalum capacitors, film capacitors, ceramic and film power
capacitors, super capacitors, EMI filters, thick and thin film packages,
varistors, and resistive products. 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, and resold by AVX. The Connectors segment consists primarily
of Elco automotive, telecom and memory connectors manufactured by
AVX.
Our
customers are multi-national original equipment manufacturers, or OEMs,
independent electronic component distributors and electronic manufacturing
service providers, or EMSs. We market our products through our own
direct sales force and independent manufacturers' representatives, based upon
market characteristics and demands. We coordinate our sales,
marketing and manufacturing organizations by strategic customer account and
geographically by region.
We
sell
our products to customers in a broad array of industries, such as
telecommunications, information technology hardware, automotive electronics,
medical devices and instrumentation, industrial instrumentation, defense and
aerospace electronic systems and consumer electronics.
Results
of Operations - Three Months Ended September 30,
2007 and 2006
Net
income for the quarter ended September 30, 2007 was $37.4 million, or diluted
earnings per share of $0.22, compared to $38.8 million, or $0.22 diluted
earnings per share for the quarter ended September 30, 2006. This decrease
is
due in part to after-tax charges of $1.4 million related to headcount reductions
at facilities in Europe and $0.4 million for in-process research and development
resulting from the acquisition of American Technical Ceramics Corp., (“ATC”) on
September 25, 2007 discussed below. Net income excluding the $1.8 million
in charges for the quarter ended September 30, 2007, was $39.3 million, a $0.5
million increase over the same quarter last year.
|
Three
Months Ended September 30,
|
||||
|
$(000's)
|
|
2006
|
2007
|
|
|
Net
Sales
|
$
|
374,648
|
$
|
400,706
|
|
Gross
Profit
|
|
77,891
|
|
68,789
|
|
Operating
Income
|
|
48,476
|
|
38,818
|
|
Net
Income
|
|
38,785
|
|
37,441
|
|
Diluted
Earnings per Share
|
$
|
0.22
|
$
|
0.22
|
Net
sales
in the three months ended September 30, 2007 increased $26.1 million, or 7.0%,
to $400.7 million compared to $374.6 million in the three months ended September
30, 2006. This increase is primarily a result of continued end-market growth
and
demand in the expanding electronics marketplace. 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.
-17-
The
table
below represents product group revenues for the three month periods ended
September 30, 2006 and September 30, 2007.
|
Sales
Revenue
|
Three
Months Ended September 30,
|
|||
|
$(000's)
|
|
2006
|
2007
|
|
|
Ceramic
Components
|
$
|
57,254
|
$
|
55,128
|
|
Tantalum
Components
|
|
67,761
|
|
79,759
|
|
Advanced
Components
|
|
96,269
|
|
91,891
|
|
Total
Passive Components
|
|
221,284
|
|
226,778
|
|
KDP
and KKC Resale
|
|
109,118
|
|
126,075
|
|
KEC
Resale
|
|
19,095
|
|
21,969
|
|
Total
KED Resale
|
|
128,213
|
|
148,044
|
|
Connectors
|
|
25,151
|
|
25,884
|
|
Total
Revenue
|
$
|
374,648
|
$
|
400,706
|
Passive
Component sales increased $5.5 million, or 2.5%, to $226.8 million in the three
months ended September 30, 2007 from $221.3 million during the same quarter
last
year. The sales increase in Passive Components was primarily due to
higher sales volumes of the Company’s Tantalum Components. This reflects a
market with an escalating demand for new and value added components that provide
unique solutions necessary for today’s complex electronic
devices. Lower Advanced Component sales were principally customer
project driven, particularly in the medical market.
KDP
and
KKC Resale sales increased 15.5% to $126.1 million in the three months ended
September 30, 2007 compared to $109.1 million during the same quarter last
year. When compared to the same period last year, the increase during
the quarter ended September 30, 2007 is primarily attributable to a 36.5%
increase in unit sales volume resulting from increased customer demand for
these
products.
Total
Connector sales, including AVX manufactured and KEC Resale connectors, increased
$3.6 million, or 8.2%, to $47.9 million in the three months ended September
30,
2007 compared to $44.2 million during the same period last year. When
compared to the same quarter last year, this increase was primarily attributable
to customer demand for complex electronic devices and new programs, particularly
in the automotive sector, as more electronic content is needed to support the
functionality being built into today’s vehicles.
The
Company's sales to independent electronic distributor customers represented
42.5% of total sales for the three months ended September 30, 2007, compared
to
41.4% for the three months ended September 30, 2006. 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 $10.6 million, or 5.9% of gross
sales to distributor customers, for the three months ended September 30, 2007
and $10.9 million, or 6.6% of gross sales to distributor customers, for the
three months ended September 30, 2006. Applications under such programs for
the
quarters ended September 30, 2007 and 2006 were approximately $9.8 million
and
$10.5 million, respectively.
Geographically,
compared to the same period last year, sales increased 12.6% in Asia, and 10.9%
in Europe. This reflects the increased customer production and demand in the
Asian region and improved demand in Europe especially for our Connector
products. These increases were partially offset by lower demand in the Americas,
where sales decreased 5.5% compared to the same period last year. In addition,
the weakening of the U.S. dollar against certain foreign currencies positively
impacted sales by $5.2 million, when compared to the same quarter last
year.
-18-
Gross
profit in the three months ended September 30, 2007 was 17.2% of sales or $68.8
million compared to a gross profit margin of 20.8% or $77.9 million in the
three
months ended September 30, 2006. This decrease is attributable to several
factors including a 15.5% increase in sales of our resale products with
generally lower margins when compared to our manufactured products, coupled
with
higher raw material and utility costs and the negative effects of currency
translation. The negative effect of currency translation of approximately $7.4
million, when compared to the same quarter last year, was primarily due to
the
currency movement on reported European costs of sales due to the weakness of
the
U.S. dollar. In addition, we incurred restructuring charges of $2.1 million
related to headcount reductions in Europe as we continue to realign production
capabilities. These increases in costs were partially offset by the Company’s
continued efforts to increase efficiency of our production, to lower operating
costs, and to pursue increased capacity for the production of value added
products.
Selling,
general and administrative expenses remained relatively consistent compared
to
the same quarter last year. In the three months ended September 30,
2007 selling, general and administrative expenses were $29.6 million, or
7.4% of net sales, compared to $29.4 million, or 7.9% of net sales, in the
three
months ended September 30, 2006.
Income
from operations declined $9.7 million to $38.8 million in the three months
ended
September 30, 2007 compared to $48.5 million in the three months ended September
30, 2006. The decrease is due to the factors discussed above including a $0.4
million charge related to the write off of in-process research and development
cost related to the acquisition of ATC.
Other
income increased $4.2 million to $13.2 million in the three months ended
September 30, 2007 compared to $9.0 million in the same period last year. This
increase is predominately due to higher interest income resulting from higher
interest rates and higher cash and securities investment balances during the
quarter.
The
Company's effective tax rate for the three-month period ended September 30,
2007
was 28.0% compared to 32.5% for the same period last year. This lower effective
tax rate is primarily due to higher profits in lower tax jurisdictions in the
current period when compared to the same period last year. In
addition, the effective tax rate was favorably impacted from the benefit of
our
foreign branch losses taken as deductions in prior years’ U.S. tax returns no
longer subject to U.S. income tax recapture regulations, partially offset by
the
negative impact on certain deferred tax balances resulting from the recent
change in enacted tax rates in the United Kingdom and Germany.
Results
of Operations - Six Months Ended September 30, 2007 and 2006
Net
income for the six months ended September 30, 2007 increased 1.6 million to
$76.6 million, or diluted earnings per share of $0.44, compared to $75.0
million, or $0.43 diluted earnings per share for the quarter ended September
30,
2006. This increase includes offsetting after-tax charges of $1.5 million
related to headcount reductions at facilities in Europe and $0.4 million for
in-process research and development resulting from the acquisition of ATC on
September 25, 2007 discussed below. Net income excluding the $1.9 in
charges for the first half of this fiscal year was $78.5 million, a $3.5 million
increase over the same period in the prior year.
|
Six
Months Ended September 30,
|
||||
|
$(000's)
|
|
2006
|
2007
|
|
|
Net
Sales
|
$
|
741,056
|
$
|
783,864
|
|
Gross
Profit
|
|
153,218
|
|
143,514
|
|
Operating
Income
|
|
95,429
|
|
82,975
|
|
Net
Income
|
|
75,018
|
|
76,600
|
|
Diluted
Earnings per Share
|
$
|
0.43
|
$
|
0.44
|
-19-
Net
sales
in the six months ended September 30, 2007 increased $42.8 million, or 5.8%,
to
$783.9 million compared to $741.1 million in the six months ended September
30,
2006. This increase is primarily a result of continued end-market growth and
demand in the expanding electronics marketplace. Overall sales prices
have declined approximately 2% during the first half of the fiscal year, which
is below historic norms as a result of the continued high industry production
capacity utilization needed to meet the strong end-market demand for
electronics.
The
table
below represents product group revenues for the six month periods ended
September 30, 2006 and September 30, 2007.
|
Sales
Revenue
|
Six
Months Ended September 30,
|
|||
|
$(000's)
|
|
2006
|
2007
|
|
|
Ceramic
Components
|
$
|
119,224
|
$
|
109,205
|
|
Tantalum
Components
|
|
142,087
|
|
159,436
|
|
Advanced
Components
|
|
188,012
|
|
184,563
|
|
Total
Passive Components
|
|
449,323
|
|
453,204
|
|
KDP
and KKC Resale
|
|
207,682
|
|
236,136
|
|
KEC
Resale
|
|
36,524
|
|
43,062
|
|
Total
KED Resale
|
|
244,206
|
|
279,198
|
|
Connectors
|
|
47,527
|
|
51,462
|
|
Total
Revenue
|
$
|
741,056
|
$
|
783,864
|
Passive Component sales increased $3.9 million, or 0.9%, to $453.2 million in the six months ended September 30, 2007 from $449.3 million during the same period last year. The sales increase in Passive Components was primarily due to higher sales volumes of the Company’s Tantalum Components. This reflects a market with an escalating demand for new and value added components that provide unique solutions necessary for today’s more complex electronic devices. Lower Advanced Component sales were principally customer project driven, particularly in the medical market.
KDP
and
KKC Resale sales increased 13.7% to $236.1 million in the six months ended
September 30, 2007 compared to $207.7 million during the same period last
year. When compared to the same six months last year, this increase
is primarily attributable to a 28.8% increase in unit sales volume
resulting from increased customer demand for these products.
Total
Connector sales, including AVX manufactured and KEC Resale connectors, increased
$10.5 million, or 12.5%, to $94.5 million in the six months ended September
30,
2007 compared to $84.1 million during the same period last year. When
compared to the same period last year, this increase was primarily attributable
to customer demand for complex electronic devices and new programs, particularly
in the automotive sector, as more electronic content is needed to support the
functionality being built into today’s vehicles.
The
Company's sales to independent electronic distributor customers represented
43.2% of total sales for the six months ended September 30, 2007, compared
to
42.4% for the six months ended September 30, 2006. 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 $21.4 million, or 5.9% of gross
sales to distributor customers, for the six months ended September 30, 2007
and
$21.9 million, or 6.5% of gross sales to distributor customers, for the six
months ended September 30, 2006. Applications under such programs for the six
months ended September 30, 2007 and 2006 were approximately $19.5 million and
$20.5 million, respectively.
Geographically,
compared to the same period last year, sales increased 12.2% in Asia, and 9.5%
in Europe. This reflects the increased customer production and demand in the
Asian region and improved demand in Europe especially for our Connector
products. These increases were partially offset by lower demand in the Americas,
where sales decreased 7.2% compared to the same period last year. In addition,
the weakening of the U.S. dollar against certain foreign currencies positively
impacted sales by $8.8 million, when compared to the same period last
year.
-20-
Gross
profit in the six months ended September 30, 2007 was 18.3% of sales or $143.5
million compared to a gross profit margin of 20.7% or $153.2 million in the
six
months ended September 30, 2006. This decrease is attributable to
several factors including a 14.3% increase in sales of our resale products
with
generally lower margins when compared to our manufactured products, coupled
with
the increased cost of raw materials and utilities, and the negative impact
of
currency translation as the U.S. dollar weakened against certain foreign
currencies during the twelve months ended September 30, 2007. The negative
effect of currency translation of approximately $12.4 million, when compared
to
the same period last year, was primarily due to the currency movement on
reported European costs of sales. In addition, we incurred
restructuring charges of $2.2 million related to headcount reductions in Europe
as we continue to realign production capabilities. These increases in costs
were
partially offset by the Company’s continued efforts to increase efficiency of
our production, to lower operating costs and to pursue increased capacity for
the production of value added products. In addition, compared to the
same period last year, depreciation expense was $3.0 million lower.
Selling,
general and administrative expenses in the six months ended September 30, 2007
were $60.1 million, or 7.7% of net sales, compared to $57.8 million, or 7.8%
of
net sales, in the six months ended September 30, 2006. The overall
increase in selling, general and administrative expenses was due to higher
selling and other costs resulting principally from higher sales.
Income
from operations declined $12.5 million to $83.0 million in the six months ended
September 30, 2007 compared to $95.4 million in the six months ended September
30, 2006. This decrease is due to the factors discussed above
including a $0.4 million charge related to the write off of in-process research
and development cost related to the acquisition of ATC.
Other
income increased $8.5 million to $24.2 million in the six months ended September
30, 2007 compared to $15.7 million in the same period last year. This increase
is predominately due to higher interest income resulting from higher interest
rates and higher cash and securities investment balances during the first half
of the fiscal year.
The
Company's effective tax rate for the six-month period ended September 30, 2007
was 28.5% compared to 32.5% for the same period last year. This lower effective
tax rate is primarily due to higher profits in lower tax jurisdictions in the
current period when compared to the same period last year. In
addition, the effective tax rate was favorably impacted from the benefit of
our
foreign branch losses taken as deductions in prior years’ U.S. tax returns no
longer subject to U.S. income tax recapture regulations, partially offset by
the
negative impact on certain deferred tax balances resulting from the recent
change in enacted tax rates in the United Kingdom and Germany.
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
pricing environment with below normal annual price declines as we believe the
industry demand for our products is in line with component manufacturing
capacity. Additionally, we expect to continue to focus on cost
reductions through process improvements and enhanced production capabilities
in
conjunction with our focus on the sales of value added electronic components
to
support today’s advanced electronic devices. We believe that the addition of ATC
will benefit our Advanced Component product group with offerings of additional
components for our end-user’s sophisticated electronics, and contribute to our
sales growth through the second half of our fiscal year.
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 Component and Connector product
lines due to advances in component design and increased end-user demand for
more
sophisticated electronics.
-21-
Liquidity
and Capital Resources
The
Company's liquidity needs arise primarily from working capital requirements,
dividend payments, capital expenditures and
acquisitions. Historically, the Company has satisfied its liquidity
requirements through funds from operations and investment income from cash
and
investments in securities. As of September 30, 2007, the Company had
a current ratio of 6.1 to 1, $790.5 million of cash, cash equivalents and
short-term and long-term investments in securities, $6.9 million in debt and
$1.7 billion of stockholders' equity.
Net
cash
provided by operating activities was $85.3 million in the six months ended
September 30, 2007 compared to $118.6 million of cash provided by operating
activities in the six months ended September 30, 2006. The decrease
in cash flow from operating activities compared to the same period last year
was
primarily a result of a reduction of income taxes payable and increases in
inventories and accounts receivable.
Cash
used
in investing activities was $175.4 million during the six months ended
September 30, 2007. We had cash outflows related to investing activities
consisting of the business acquisition of ATC for $231.3 million, offset by
cash
acquired of $8.0 million.
As
a
result of the merger with ATC, the Company has obligations related to certain
debt, customer, and supplier agreements. See Note 11, “Debt” of the Notes to
Consolidated Financial Statements in this Form 10-Q for additional
information.
Purchases
of property and equipment were $27.0 million in the six month period ended
September 30, 2007 compared to $22.0 million in the six month period ended
September 30, 2006. Expenditures for both periods were primarily in
connection with the enhancement of production capabilities in our passive
component manufacturing operations, process improvements in passive component
product lines and expansion of production of certain advanced component 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 $55 million to $60 million
in fiscal 2008. 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, 2007, 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. The Company does not expect a material impact on liquidity
as
a result of the acquisition of ATC.
Based
on
the financial condition of the Company as of September 30, 2007, 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, any acquisitions of businesses 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 September 30, 2007, we did not
have any of these delivery contracts outstanding.
-22-
New
Accounting Standards
In
June
2006, the Financial Accounting Standards Board (“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. We adopted the provisions of FIN 48 effective April 1,
2007. See Note 1, “Critical Accounting Policies and Estimates”, of
the Company’s Notes to Consolidated Financial Statements contained in this
Quarterly Report on Form 10-Q for additional information regarding the impact
of
our adoption of FIN 48.
In
September 2006, the FASB issued Statement of Financial Accounting Standard
No.
157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, provides
guidance for measuring fair value and requires additional
disclosures. This statement does not require any new fair value
measurements, but rather applies to all other accounting pronouncements that
require or permit fair value measurements. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007. We are currently evaluating the impact of SFAS 157 on the
consolidated financial statements.
In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an amendment of FASB Statement No. 115” (“SFAS 159”), which permits
entities to choose to measure many financial instruments and certain other
items
at fair value. In accordance with SFAS 159, entities will report
unrealized gains and losses for which the tax value option has been elected
in
earnings at each subsequent reporting date. SFAS 159 is effective for
financial statements issued for fiscal years beginning after November 15,
2007. Early adoption is permitted provided SFAS 157 provisions are
applied. We are currently evaluating the impact of SFAS 159 on the
consolidated financial statements.
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.
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ITEM
4.
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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.
-23-
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 second quarter of fiscal 2008 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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PART
II:
|
|
ITEM
1.
|
See
Note
6, “Commitments and Contingencies”, in our Notes to Consolidated Financial
Statements in Part I, Item 1 to this Form 10-Q for a discussion of our
involvement as a PRP at certain environmental remediation sites.
In
September 2007, we received notice from Horry Land Company, the owner of
property adjacent to the Company's South Carolina factory, that Horry Land
Company’s property value had been negatively impacted by alleged migration of
certain pollutants from the Company's property. Horry Land Company is seeking
to
recover $5.4 million in compensatory damages, exclusive of costs that have
not
been determined. We investigated the allegations and determined that
the demanded payment was not justified and that issues of liability, among
other
issues, exist under environmental laws.
Accordingly,
on October 2, 2007, we filed a complaint against Horry Land Company in the
United States District Court for the District of South Carolina under the
Comprehensive Environmental Response, Compensation, and Liability Act and the
Federal Declaratory Judgment Act, seeking a declaration that the Company is
not
liable for the property damages claimed by Horry Land Company and for a
determination and allocation of past and future environmental response
costs.
On
October 5, 2007, Horry Land Company filed a complaint against the Company in
the
Court of Common Pleas of Horry County, South Carolina seeking recovery for
alleged damage to Horry Land Company's property as well as other unquantified
damages.
We
intend
to defend vigorously the action by Horry Land Company in state court and to
pursue vigorously the Company's action in Federal Court. We are
conducting an environmental assessment on and in the vicinity of the factory
as
has been requested by the South Carolina Department of Health and Environmental
Control.
At
this
stage of the environmental assessment, we have not been able to determine what
measures may have to be undertaken or the likely costs of any such
measures. Further, at this early stage of the litigation, there has
not been a determination as to responsible parties or the amount, if any, of
damages. Accordingly, the potential impact of the matter on the
Company's financial position, results of operations, and cash flows cannot
be
determined at this time.
|
ITEM
1A.
|
Please
refer to Part I, Item 1A., Risk Factors, in the Company’s Annual
Report on Form 10-K for the fiscal year ended March 31, 2007 for
information regarding factors that could affect the Company’s results of
operations, financial condition and liquidity. There have been no changes to
our
risk factors during the first half of fiscal 2008.
-24-
The
following table shows the Company’s purchases of its common stock during the
quarter.
|
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)
|
|||
|
7/1/07-
7/31/07
|
|
30,000
|
|
$ 16.36
|
|
30,000
|
|
5,157,400
|
|
8/1/07-
8/31/07
|
|
272,000
|
|
15.17
|
|
272,000
|
|
4,885,400
|
|
9/1/07-
9/30/07
|
125,000
|
15.33
|
125,000
|
4,760,400
|
||||
|
Total
|
|
427,000
|
|
$ 15.30
|
|
427,000
|
|
4,760,400
|
|
(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.
|
-25-
|
ITEM
6.
|
|
|
|
|
|
|
|
|
|
-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: November 8,
2007
|
AVX
Corporation
|
|
|
By:
|
/s/ Kurt P. Cummings |
|
Kurt
P. Cummings
|
|
|
Vice
President,
|
|
|
Chief
Financial Officer,
|
|
|
Treasurer
and Secretary
|