SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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, 1997.
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
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Commission file number 1-10431
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AVX CORPORATION
Delaware 33-0379007
(State of other jurisdiction (IRS Employer ID No.)
of incorporation or organization)
801 17th Avenue South, Myrtle Beach, South Carolina 29577
(Address of principal executive offices)
(803) 448-9411
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 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 7, 1997
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Common Stock, par value $0.01 per share 88,181,000
AVX CORPORATION
INDEX
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Page Number
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PART I: Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997 and
March 31, 1997 1
Consolidated Statements of Income for the three months
ended September 30, 1997 and 1996 and for the six months ended
September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for the six months ended
September 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4-5
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II: Other Information
Signatures
Exhibits
1
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
September 30, 1997 March 31, 1997
(unaudited)
--------------- -------------
Current assets:
Cash and cash equivalents $220,588 $188,574
Accounts receivable, net 152,263 155,358
Inventories 285,529 247,895
Deferred income taxes 21,145 21,145
Other receivables - affiliate 4,783 3,131
Prepaid and other 21,418 22,365
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Total current assets 705,726 638,468
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Property and equipment:
Land 10,077 10,028
Buildings and improvements 118,172 113,614
Machinery and equipment 618,157 588,880
Construction in progress 41,978 34,040
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788,384 746,562
Accumulated depreciation (512,952) (474,970)
---------- ---------
275,432 271,592
Goodwill, net 33,993 34,913
Other assets 10,662 4,334
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TOTAL ASSETS $1,025,813 $949,307
========== ========
Current liabilities:
Short-term debt - bank $ 10,230 $ 12,216
Current maturities of long-term debt 1,307 1,362
Accounts payable:
Trade 44,948 39,399
Affiliates 43,374 38,621
Income taxes payable 26,740 25,405
Accrued payroll and benefits 36,601 34,328
Accrued expenses 35,114 30,465
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Total current liabilities 198,314 181,796
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Long-term debt 11,594 12,170
Deferred income taxes 10,431 12,190
Other liabilities 11,581 11,182
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TOTAL LIABILITIES 231,920 217,338
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Contingencies (Note 4)
Stockholders' equity:
Preferred stock, par value $0.01 per share:
Authorized, 20,000,000 shares; None issued
or outstanding
Common stock, par value $0.01 per share:
Authorized, 300,000,000 shares;
88,166,000 and 88,000,000 issued and
outstanding at September 30, and
March 31, 1997, respectively 882 880
Additional paid-in capital 324,632 319,909
Retained earnings 470,006 408,904
Foreign currency translation adjustment (1,627) 2,276
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TOTAL STOCKHOLDERS' EQUITY 793,893 731,969
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,025,813 $949,307
========== ========
See accompanying notes to consolidated financial statements.
2
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except share data)
Three Months ended Six Months ended
September 30, September 30,
1997 1996 1997 1996
------------------ ----------------
Net sales $329,224 $267,909 $643,031 $536,120
Cost of sales 249,906 202,114 485,633 397,039
-------- -------- -------- --------
Gross profit 79,318 65,795 157,398 139,081
-------- -------- -------- --------
Selling, general, and
administrative expenses 28,533 25,919 56,941 52,736
Profit from operations 50,785 39,876 100,457 86,345
------- -------- -------- -------
Other income (expense):
Interest income 2,949 1,731 5,890 3,268
Interest expense (447) (503) (958) (1,006)
Other, net 723 257 715 544
------- -------- -------- -------
Income before income taxes 54,010 41,361 106,104 89,151
Provision for income taxes 17,280 13,208 34,439 28,531
------- ------- -------- -------
Net income $36,730 $28,153 $71,665 $60,620
======= ======= ======== =======
Income per share $ 0.41 $ 0.32 $ 0.81 $ 0.69
======= ======= ======= =======
Dividends Declared $ 0.06 $ 0.055 $ 0.12 $ 0.11
======= ======= ======= =======
Weighted average number
of common shares
outstanding 88,074,596 88,000,000 88,037,502 88,000,000
See accompanying notes to consolidated financial statements.
3
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Six Months Ended September 30,
-----------------------------
1997 1996
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Operating Activities:
Net income $71,665 $60,620
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 41,983 37,553
Deferred income taxes (1,759) (3,156)
Changes in operating assets and
liabilities:
Accounts receivable (3,230) 8,173
Inventories (38,161) (26,222)
Accounts payable and accrued expenses 17,196 (15,338)
Income taxes payable 2,043 1,753
Other assets and liabilities 6,569 (65)
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Net cash from operating activities 96,306 63,318
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Investing Activities:
Purchases of property and equipment (52,461) (53,144)
Equity investments (5,300)
Other 67 7
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Net cash used in investing activities (57,694) (53,137)
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Financing Activities:
Repayment of debt (84) (3,523)
Dividends paid (10,563) (9,680)
Proceeds from issuance of debt 65
Proceeds from issuance of common stock 4,036
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Net cash from (used in) financing
activities (6,611) (13,138)
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Effect of exchange rate changes on cash 13 127
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Increase (decrease) in cash and cash equivalents 32,014 (2,830)
Cash and cash equivalents at beginning of period 188,574 131,601
-------- --------
Cash and cash equivalents at end of period $220,588 $128,771
======== ========
See accompanying notes to consolidated financial statements
4
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
1. Basis of presentation:
The consolidated financial statements of AVX Corporation and subsidiaries
(the "Company" or "AVX") include the accounts of the Company and its
subsidiaries. All significant intercompany transactions and accounts have
been eliminated. In the opinion of management, the accompanying unaudited
financial statements reflect all adjustments (consisting of normal recurring
accruals) that are necessary to a fair presentation of the results for the
interim periods shown. These financial statements should be read in
conjunction with the Company's audited financial statements for the fiscal
year ended March 31, 1997.
2. Accounts Receivable:
Accounts receivable consisted of:
September 30, March 31,
1997 1997
----------- --------
Trade $176,572 $173,414
Less, allowance for doubtful accounts,
sales returns, distributor adjustments
and discounts (24,309) (18,056)
-------- --------
$152,263 $155,358
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3. Inventories:
Inventories consisted of:
September 30, March 31,
1997 1997
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Finished goods $ 96,791 $ 83,711
Work in process 106,046 89,146
Raw materials and supplies 82,692 75,038
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$285,529 $247,895
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5
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
4. Environmental Matters 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 sites. 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. Based upon information known to the Company,
the Company had accrued approximately $4,700 at September 30, 1997 and
management believes that it has adequate reserves with respect to these
matters. Actual costs may vary from these estimated reserves, but such costs
are not expected to have material adverse effect on the Company's financial
condition or results of operations.
5. New Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No.128 ("SFAS 128"). The new
standard replaces primary and fully diluted earnings per share with basic and
diluted earnings per share. SFAS 128 is required to be adopted by the Company
for periods ending after December 15, 1997. Had the Company been required to
adopt SFAS 128 for the periods presented, the adoption would not have
materially impacted reported earnings per share.
6. Subsequent Event
On October 9, 1997, the Company declared a $0.06 dividend per share of common
stock with respect to the quarter ended September 30, 1997, payable on
November 10, 1997.
6
AVX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
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Three Months Ended September 30, 1997 Compared to Three Months Ended
- -------------------------------------------------------------------
September 30, 1996
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Net sales in the three months ended September 30, 1997 increased 22.9% to
$329.2 million from $267.9 million in the three months ended
September 30, 1996. The increase was attributable to continued growth in both
ceramic and tantalum products, particularly surface mount capacitors and
advanced products. In addition, reported U.S. dollar sales were negatively
impacted by the strengthening of the U.S. dollar against certain European
currencies.
Gross profit in the three months ended September 30, 1997 increased 20.1%
to $79.3 million (24.1% of net sales) from $65.8 million (24.6% of net sales)
in the three months ended September 30, 1996. The decrease in gross profit as
a percentage of net sales can be attributed to a combination of factors.
Results for the quarter were negatively impacted by (a) a temporary halt in
production in the Czech Republic facility as a result of floods, (b) the
continuation of the trend toward lower average selling prices, and (c) an
increase in palladium prices, a raw material currently used in the manufacture
of certain surface mount ceramic capacitors. However, the effect of these
decreases was offset in part by the strength of advanced products, improvements
in manufacturing efficiencies, and higher through-put in the factories.
Selling, general and administrative expenses in the three months ended
September 30, 1997 increased to $28.5 million (8.7% of net sales) from $25.9
million (9.7% of net sales) in the three months ended September 30, 1996.
Selling, general and administrative expenses, as a percent of sales, declined
1.0% (8.7% vs. 9.7%). The decrease is attributable to the benefit of higher
sales and the Company's ongoing cost containment programs, offset somewhat by
higher research and development spending.
As the strengthening of the U.S. dollar served to reduce reported sales,
it also reduced certain manufacturing cost incurred in the European facilities,
therefore the net impact on earnings was not material.
As a result of the above factors, profit from operations in the three
months ended September 30, 1997 increased 27.4% to $50.8 million from $39.9
million in the three months ended September 30, 1996.
For the reasons set forth above, higher interest income on invested cash
and a $900 thousand dividend from a nonmarketable equity investment, net
income in the three months ended September 30, 1997 increased 30.5% to $36.7
million (11.2% of net sales) from $28.2 million (10.5% of net sales) in the
three months ended September 30, 1996.
Six Months Ended September 30, 1997 Compared to Six Months Ended
- ----------------------------------------------------------------
September 30, 1996
- ------------------
Net sales in the six months ended September 30, 1997 increased 19.9% to
$643.0 million from $536.1 million in the six months ended
September 30, 1996. The increase was attributable to continued growth in both
ceramic and tantalum products, particularly surface mount capacitors and
advanced products. In addition, reported U.S. dollar sales were negatively
impacted by the strengthening of the U.S. dollar against certain European
currencies.
Gross profit in the six months ended September 30, 1997 increased 13.1% to
$157.4 million (24.5% of net sales) from $139.1 million (25.9% of net sales)
in the six months ended September 30, 1996. The decrease in gross profit as a
percentage of net sales can be attributed to a combination of factors. Results
for the six months ended September 30, 1997 were negatively impacted by (a) a
temporary halt in the Czech Republic facility as a result of floods, (b) the
continuation of the trend toward lower average selling prices, and (c) an
increase in palladium prices. However, the effect of these decreases was
offset in part by the strength of advanced products, improvements in
manufacturing efficiencies, and higher through-put in the factories.
Selling, general and administrative expenses in the six months ended
September 30, 1997 were $56.9 million (8.9% of net sales) compared with $52.7
million (9.8% of net sales) in the six months ended September 30, 1996.
Selling, general, and administrative expenses as a percent of sales, declined
0.9% (8.9% vs. 9.8%). The decrease is attributable to the benefit of higher
sales and the Company's ongoing cost containment programs, offset somewhat by
higher research and development spending.
As the strengthening of the U.S. dollar served to reduce reported sales,
it also reduced certain manufacturing cost incurred in the European facilities,
therefore the net impact on earnings was not material.
As a result of the above factors, profit from operations in the six months
ended September 30, 1997 increased 16.3% to $100.5 million from $86.3 million
in the six months ended September 30, 1996.
For the reasons set forth above, higher interest income on invested cash
and a $900 thousand dividend from a nonmarketable equity investment, net
income in six months ended September 30, 1997 increased 18.2% to $71.7 million
(11.1% of net sales) from $60.6 million (11.3% of net sales) in the six months
ended September 30, 1996.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity needs arise primarily from working capital
requirements, dividends and capital expenditures. Historically, the Company
has satisfied its liquidity requirements through internally generated funds.
As of September 30, 1997, the Company had a current ratio of 3.6 to 1, $220.6
million of cash and cash equivalents, $793.9 million of stockholders' equity
and an insignificant amount of long-term debt.
Net cash from operating activities was $96.3 million in the six months
ended September 30, 1997 compared to $63.3 million in the six months ended
September 30, 1996. Higher earnings before depreciation and amortization
coupled with the Company's control over the growth of working capital
contributed to the increase.
Purchases of property and equipment were $52.5 million in the six month
period ended September 30, 1997 and $53.1 million in the six month period
ended September 30, 1996. Expenditures for both periods were primarily for
expanding production capabilities of the tantalum and ceramic surface-mount
and advanced product lines in North America and Europe.
During the six month period ended September 30, 1997 the Company invested
$5.3 million in a research and development company (Electro-Chemical Research
Ltd. "ECR"). ECR has developed and patented the technology for high capacity
electrical storage device.
The Company generated $4.0 million of cash during the six months ended
September 30, 1997 from the issuance of common stock in connection with
various stock option plans.
Based on the financial condition of the Company as of September 30, 1997,
management believes that cash on hand and expected to be generated from
operating activities will be sufficient to satisfy the Company's anticipated
financing needs for working capital, capital expenditures, research and
development expenses and any dividends to be paid in the foreseeable future.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No.128 ("SFAS 128"). The new
standard replaces primary and fully diluted earnings per share with basic and
diluted earnings per share. SFAS 128 is required to be adopted by the Company
for periods ending after December 15, 1997. Had the Company been required to
adopt SFAS 128 for the periods presented, the adoption would not have
materially impacted reported earnings per share.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
This report may contain "forward-looking" information within the meaning
of the federal securities laws. The forward-looking information may include,
among other information, statements concerning the Company's outlook for fiscal
1998, overall volume and pricing trends, cost reduction strategies and their
anticipated results, and expectations for research 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. The forward-looking information and
statements in this report are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed in or implied
by the information or statements.
7
Part II: Other Information
Item 1. Legal Proceedings.
None.
Item 2. Change in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K.
None.
Signatures
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 7, 1997
AVX Corporation
/s/ Donald B. Christiansen
---------------------------
Donald B. Christiansen
Chief Financial Officer,
Senior Vice President and
Treasurer