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 December 31, 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 January 30, 1998
- ----- -------------------------------
Common Stock, par value $0.01 per share 88,183,500
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 December 31, 1997 and
March 31, 1997 1
Consolidated Statements of Income for the three months
ended December 31,1997 and 1996 and for the nine months
ended December 31, 1997 and 1996 2
Consolidated Statements of Cash Flows for the nine months ended
December 31, 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)
December 31, 1997 March 31, 1997
(unaudited)
-------------- --------------
Current assets:
Cash and cash equivalents $195,637 $188,574
Accounts receivable, net 144,077 155,358
Inventories 324,410 247,895
Deferred income taxes 21,145 21,145
Other receivables - affiliate 4,534 3,131
Prepaid and other 30,363 22,365
---------- -------
Total current assets 720,166 638,468
Property and equipment:
Land 10,106 10,028
Buildings and improvements 121,012 113,614
Machinery and equipment 645,167 588,880
Construction in progress 39,861 34,040
---------- -------
816,146 746,562
Accumulated depreciation (538,697) (474,970)
---------- -------
277,449 271,592
Goodwill, net 33,890 34,913
Other assets 10,813 4,334
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TOTAL ASSETS $1,042,318 $949,307
========== ========
Current liabilities:
Short-term bank debt $ 10,152 $ 12,216
Current maturities of long-term debt 1,297 1,362
Accounts payable:
Trade 36,155 39,399
Affiliates 39,165 38,621
Income taxes payable 26,010 25,405
Accrued payroll and benefits 38,035 34,328
Accrued expenses 32,190 30,465
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Total current liabilities 183,004 181,796
Long-term debt 11,463 12,170
Deferred income taxes 10,627 12,190
Other liabilities 12,006 11,182
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TOTAL LIABILITIES 217,100 217,338
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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;
88,183,500 and 88,000,000 shares issued
and outstanding at December 31, and
March 31, 1997 respectively 882 880
Additional paid-in capital 325,012 319,909
Retained earnings 498,045 408,904
Foreign currency translation adjustment 1,279 2,276
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TOTAL STOCKHOLDERS' EQUITY 825,218 731,969
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,042,318 $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 Nine Months ended
December 31, December 31,
1997 1996 1997 1996
------------------- --------------------
Net sales $319,651 $289,574 $962,682 $825,694
Cost of sales 245,478 224,941 731,111 621,980
------- ------- ------- -------
Gross profit 74,173 64,633 231,571 203,714
------- ------- ------- -------
Selling, general, and
administrative expenses 27,727 22,253 84,668 74,989
------- ------- ------- -------
Profit from operations 46,446 42,380 146,903 128,725
Other income (expense):
Interest income 2,858 1,900 8,748 5,168
Interest expense (480) (497) (1,438) (1,503)
Other, net (469) 444 246 988
------- ------- -------- -------
Income before income taxes 48,355 44,227 154,459 133,378
Provision for income taxes 15,026 14,176 49,465 42,707
------- ------- -------- -------
Net income $33,329 $30,051 $104,994 $90,671
======= ======= ======== =======
Basic and Diluted income
per share $ 0.38 $ 0.34 $ 1.19 $ 1.03
======= ======= ======== =======
Dividends Declared $ 0.06 $ 0.055 $ 0.18 $ 0.165
======= ======= ======== =======
Weighted average number
of common shares
outstanding (Basic) 88,180,892 88,000,000 88,085,471 88,000,000
See accompanying notes to consolidated financial statements.
3
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Nine Months Ended December 31,
-----------------------------
1997 1996
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Operating Activities:
Net income $104,994 $90,671
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 64,896 59,241
Deferred income taxes (1,563) (3,158)
Changes in operating assets and
liabilities:
Accounts receivable 5,180 9,852
Inventories (74,160) (8,196)
Accounts payable and accrued expenses 2,722 (22,053)
Income taxes payable 668 5,226
Other assets and liabilities (3,175) 744
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Net cash from operating activities 99,562 132,327
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Investing Activities:
Purchases of property and equipment (75,807) (70,475)
Equity investments (5,300)
Other 67 2
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Net cash used in investing activities (81,040) (70,473)
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Financing Activities:
Repayment of debt (127) (3,523)
Dividends paid (15,853) (14,520)
Proceeds from issuance of debt 65
Proceeds from issuance of common stock 4,482
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Net cash from (used in) financing activities (11,498) (17,978)
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Effect of exchange rate changes on cash 39 426
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Increase (decrease) in cash and cash equivalents 7,063 44,302
Cash and cash equivalents at beginning of period 188,574 131,601
-------- --------
Cash and cash equivalents at end of period $195,637 $175,903
======== ========
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:
December 31, March 31,
1997 1997
--------- --------
Trade $169,642 $173,414
Less, allowance for doubtful accounts,
sales returns, distributor adjustments
and discounts (25,565) (18,056)
-------- --------
$144,077 $155,358
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3. Inventories:
Inventories consisted of:
December 31, March 31,
1997 1997
-------- ---------
Finished goods $111,494 $ 83,711
Work in process 111,884 89,146
Raw materials and supplies 101,032 75,038
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$324,410 $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 $4,600 at
December 31, 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 June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, Disclosure about Segments of an
Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131
establishes standards for disclosure of segment information about products
and services, geographic areas, major customers and certain interim
disclosures of segment information which are not required by accounting
standards currently applied by the Company. The Company will be required to
adopt SFAS No. 131 for the year ended March 31, 1999. Currently, the Company
is evaluating this standard and the timing of adoption and is uncertain as
to the impact it will have on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
No. 130"). SFAS No. 130 established standards for reporting and presenting
comprehensive income and its components in a full set of general - purpose
financial statements. SFAS No. 130 is effective for both interim and annual
periods beginning after December 15, 1997. The adoption is not expected to
have a material impact on the consolidated financial statements.
6. Earnings Per Share
The Company has adopted 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. The adoption did not
result in a difference between basic and diluted earnings per share for the
periods presented.
Basic earnings per share are computed by dividing net income for the periods
by the weighted average number of shares of common stock outstanding for the
period which were 88,180,892 and 88,000,000 for the quarters end December 31,
1997 and 1996, respectively, and 88,085,471 and 88,000,000 for the nine months
ended December 31, 1997 and 1996, respectively.
Diluted earnings per share has been calculated by dividing net income for the
periods by the weighted average number of shares of common stock and common
stock equivalents outstanding for the period which were 88,284,467 and
88,063,387 for the quarters end December 31, 1997 and
6
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
1996, respectively, and 88,282,588 and 88,027,944 for the nine months ended
December 31, 1997 and 1996, respectively. Stock options are the only common
stock equivalents and are therefore considered in the diluted earnings per
share calculations. Common stock equivalents are computed using the treasury
stock method.
7. Subsequent Event
On January 22, 1998, the Company declared a $0.06 dividend per
share of common stock with respect to the quarter ended December
31, 1997, payable on February 11, 1998.
7
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 December 31, 1997 Compared to Three Months Ended
- -------------------------------------------------------------------
December 31, 1996
- -----------------
Net sales in the three months ended December 31, 1997 increased 10.4% to
$319.7 million from $289.6 million in the three months ended December 31, 1996.
The increase was attributable to continued growth in both ceramic and tantalum
products, particularly surface mount capacitors and advanced products, and
connector 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 December 31, 1997 increased 14.8%
to $74.2 million (23.2% of net sales) from $64.6 million (22.3% of net sales)
in the three months ended December 31, 1996. The increase in gross profit as
a percentage of net sales can be attributed to the growth of higher margin
advanced products, improvements in manufacturing efficiencies, and higher
through-put in the factories. These increases were offset in part by (a)
the continuation of the trend toward lower average selling prices, and (b)
an increase in palladium prices.
Selling, general and administrative expenses in the three months ended
December 31, 1997 increased to $27.7 million (8.7% of net sales) from $22.3
million (7.7% of net sales) in the three months ended December 31, 1996.
During the quarter ended December 31, 1996, selling, general and
administrative expenses were reduced by $4.0 million as a result of changes in
estimates for environmental remediation and legal costs. Exclusive of the
$4.0 million benefit in 1996, selling, general and administrative expenses in
the current quarter, as a percentage of sales, declined .4% (8.7% vs. 9.1%).
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 December 31, 1997 increased 9.6% to $46.4 million from $42.4
million in the three months ended December 31, 1996.
For the reasons set forth above, net income in the three months ended
December 31, 1997 increased 10.9% to $33.3 million (10.4% of net sales) from
$30.1 million (10.4% of net sales) in the three months ended December 31, 1996.
8
AVX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION -(continued)
Nine Months Ended December 31, 1997 Compared to Nine Months Ended
- -----------------------------------------------------------------
December 31, 1996
- ----------------
Net sales in the nine months ended December 31, 1997 increased 16.6% to
$962.7 million from $825.7 million in the nine months ended December 31, 1996.
The increase was primarily 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 nine months ended December 31, 1997 increased 13.7% to
$231.6 million (24.1% of net sales) from $203.7 million (24.7% of net sales)
in the nine months ended December 31, 1996. The decrease in gross profit as a
percentage of net sales can be attributed to a combination of factors.
Results for the nine months ended December 31, 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 nine months ended
December 31, 1997 were $84.7 million (8.8% of net sales) compared with $74.9
million (9.1% of net sales) in the nine months ended December 31, 1996. During
the nine months ended December 31, 1996, selling, general and administrative
expenses were reduced by $4.0 million as a result of changes in estimates for
environmental remediation and legal costs. Exclusive of the $4.0 million
benefit in 1996, selling, general and administrative expenses in the current
period, as a percentage of sales, declined .7% (8.8% vs. 9.5%). 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 nine
months ended December 31, 1997 increased 14.1% to $146.9 million from $128.7
million in the nine months ended December 31, 1996.
For the reasons set forth above, higher interest income on invested cash
and a $1.4 million dividend from a nonmarketable equity investment, net income
in nine months ended December 31, 1997 increased 15.8% to $105.0 million (10.9%
of net sales) from $90.7 million (11.0% of net sales) in the nine months ended
December 31, 1996.
9
AVX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION -(continued)
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 December 31, 1997, the Company had a current ratio of 3.9 to 1, $195.6
million of cash and cash equivalents, $825.2 million of stockholders' equity
and an insignificant amount of long-term debt.
Net cash from operating activities was $99.6 million in the nine months
ended December 31, 1997 compared to $132.3 million in the nine months ended
December 31, 1996. Increases in working capital, particularly inventory,
including the purchase of palladium at favorable prices, partially offset by
higher income, contributed to the decrease.
Purchases of property and equipment were $75.8 million in the nine month
period ended December 31, 1997 and $70.5 million in the nine month period
ended December 31, 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 nine month period ended December 31, 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 devices.
The Company generated $4.5 million of cash during the nine months ended
December 31, 1997 from the issuance of common stock in connection with various
stock option plans.
Based on the financial condition of the Company as of December 31, 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.
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.
10
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
fundersigned thereunto duly authorized.
Date: February 6, 1998
AVX Corporation
/s/ Donald B. Christiansen
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Donald B. Christiansen
Chief Financial Officer,
Senior Vice President and
Treasurer