1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended December 31, 1999.
[ ] 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 1-10431
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)
(843) 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 14, 2000
- ----- -------------------------------
Common Stock, par value $0.01 per share 87,143,675
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AVX CORPORATION
INDEX
PAGE NUMBER
PART I: Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1999 ................. 1
Consolidated Statements of Income for the three months ended
December 31, 1998 and 1999 and for the nine months ended December 31, 1998 and 1999... 2
Consolidated Statements of Cash Flows for the nine months ended December 31, 1998
and 1999.............................................................................. 3
Notes to Consolidated Financial Statements.............................................. 4-6
ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition... 7
PART II: Other Information....................................................................... 11
ITEM 6. Exhibits and Reports on Form 8-K........................................................ 11
Signatures
Exhibits
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AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
March 31, 1999 December 31, 1999
-------------- ------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 173,106 $ 234,391
Accounts receivable, net 157,331 190,735
Inventories 277,393 305,170
Deferred income taxes 21,895 22,175
Other receivables - affiliates 2,738 3,442
Prepaid and other 31,072 40,224
----------- -----------
Total current assets 663,535 796,137
Property plant and equipment, net 304,248 343,468
Goodwill, net 78,790 75,441
Other assets 11,467 15,389
----------- -----------
TOTAL ASSETS $ 1,058,040 $ 1,230,435
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term bank debt $ 20,944 $ 16,663
Current maturities of long-term debt 148 13
Accounts payable:
Trade 46,737 73,939
Affiliates 32,311 55,054
Income taxes payable 11,995 34,909
Accrued payroll and benefits 41,055 45,574
Accrued expenses 39,092 46,899
----------- -----------
Total current liabilities 192,282 273,051
Long-term debt 12,714 17,229
Deferred income taxes 6,115 7,651
Other liabilities 16,288 14,564
----------- -----------
TOTAL LIABILITIES 227,399 312,495
----------- -----------
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; 88,184,125 issued 882 882
Additional paid-in capital 325,028 333,353
Retained earnings 541,267 610,466
Accumulated other comprehensive income (loss) (4,789) (9,371)
Common stock in treasury, at cost: 1,929,100 (March 1999)
and 1,056,875 (Dec. 1999) shares (31,747) (17,390)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 830,641 917,940
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,058,040 $ 1,230,435
=========== ===========
See accompanying notes to consolidated financial statements.
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AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except share data)
THREE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
------------------------------- ----------------------------------
1998 1999 1998 1999
--------------- -------------- --------------- ----------------
Net sales $ 310,718 $ 416,412 $ 926,862 $ 1,131,135
Cost of sales 273,804 328,620 795,884 922,063
--------------- -------------- --------------- ----------------
Gross profit 36,914 87,792 130,978 209,072
Selling, general, and administrative expenses 29,450 30,064 86,005 87,482
--------------- -------------- --------------- ----------------
Profit from operations 7,464 57,728 44,973 121,590
Other income (expense):
Interest income 1,640 2,747 6,204 6,450
Interest expense (492) (546) (1,710) (1,453)
Other, net 420 2,627 13 1,227
--------------- -------------- --------------- ----------------
Income before income taxes 9,032 62,556 49,480 127,814
Provision for income taxes 2,980 20,049 15,512 41,754
--------------- -------------- --------------- ----------------
Net income $ 6,052 $ 42,507 $ 33,968 $ 86,060
=============== ============== =============== ================
Income per share:
Basic $ 0.07 $ 0.49 $ 0.39 $ 0.99
=============== ============== =============== ================
Diluted $ 0.07 $ 0.48 $ 0.39 $ 0.99
=============== ============== =============== ================
Weighted average number of common shares:
Basic 86,563,748 86,944,202 87,280,959 86,555,383
Diluted 86,608,593 87,802,122 87,299,321 87,160,948
Dividends declared $ 0.065 $ 0.065 $ 0.195 $ 0.195
=============== ============== =============== ================
See accompanying notes to consolidated financial statements.
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AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
NINE MONTHS ENDED DECEMBER 31,
---------------------------------
1998 1999
--------------- ----------------
Operating Activities:
Net income $ 33,968 $ 86,060
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 69,659 70,765
Changes in operating assets and liabilities, net of effects of business
acquired:
Accounts receivable 7,668 (41,374)
Inventories 45,472 (30,331)
Accounts payable and accrued expenses (24,220) 65,435
Income taxes payable (5,781) 25,811
Other assets and liabilities 9,492 (8,348)
--------- ---------
Net cash from operating activities 136,258 168,018
--------- ---------
Investing Activities:
Purchases of property and equipment (72,839) (109,279)
Loans to investee (1,805)
Business acquired, net of cash (58,027)
Other 17 (863)
--------- ---------
Net cash used in investing activities (130,849) (111,947)
--------- ---------
Financing Activities:
Purchase of treasury stock (27,513)
Proceeds from issuance of debt 17,764 11,861
Repayment of debt (17,486) (9,349)
Dividends paid (17,043) (16,861)
Exercise of stock options 11 19,920
--------- ---------
Net cash from (used in) financing activities (44,267) 5,571
--------- ---------
Effect of exchange rate changes on cash 69 (357)
--------- ---------
Increase (decrease) in cash and cash equivalents (38,789) 61,285
Cash and cash equivalents at beginning of period 201,887 173,106
--------- ---------
Cash and cash equivalents at end of period $ 163,098 $ 234,391
========= =========
See accompanying notes to consolidated financial statements.
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AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(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, 1999.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. Accounts Receivable:
Accounts receivable consisted of:
March 31, December 31,
1999 1999
----------- -----------
Trade $ 183,033 $ 232,699
Less: allowances for doubtful accounts, sales
returns, distributor adjustments and discounts (25,702) (41,964)
--------- -----------
$ 157,331 $ 190,735
========= ===========
3. Inventories:
Inventories consisted of:
March 31, December 31,
1999 1999
----------- -----------
Finished goods $ 91,551 $ 99,591
Work in process 96,604 100,822
Raw materials and supplies 89,238 104,757
-------------- -----------
$ 277,393 $ 305,170
============== ===========
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AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED - (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. 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 a material adverse
effect on the Company's financial condition or results of operations.
5. Comprehensive Income:
Comprehensive income for the three and nine month periods ended December
31, 1998 and 1999, includes the following components:
Three Months Nine Months
----------------------------------------------------
Ended December 31, 1998 1999 1998 1999
------------------ ----------------------------------------------------
Net income $ 6,052 $ 42,507 $ 33,968 $ 86,060
Other comprehensive income, net of tax:
Foreign currency translation adjustment (1,208) (8,066) 5,333 (4,582)
-------- -------- -------- --------
Comprehensive income $ 4,844 $ 34,441 $ 39,301 $ 81,478
======== ======== ======== ========
The only adjustment to net income in the periods was for foreign currency
translation adjustments.
6. Earnings Per Share:
Basic earnings per share are computed by dividing net income by the
weighted average number of shares of common stock outstanding for the period.
Diluted earnings per share has been calculated by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding for the period. 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.
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AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED - (continued)
Common stock equivalents, not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the common shares for the respective period, were as
follows:
December 31,
----------------------
1998 1999
-------- --------
Quarter ended 373,426 --
Nine months ended 487,036 --
7. Segment information:
The Company has three reportable operating segments: Passive Components,
Connectors and Research and Development. The Company is organized, exclusive of
research and development, on the basis of products being separated into six
units. Five of the units which manufacture or distribute ceramic, tantalum, film
and power capacitors, ferrites and other passive devices have been aggregated
into the segment "Passive Components".
The Company evaluates performance of its segments based upon sales and
operating profit. There are no intersegment revenues. The tables below present
information about reported segments for the three and nine month periods ended
December 31, 1998 and 1999:
Three Months Nine Months
--------------------------- --------------------------
Ended December 31, 1998 1999 1998 1999
- ------------------- --------------------------------------------------------
Net sales:
Passive components $ 282,392 $ 382,777 $ 840,545 $1,034,741
Connectors 28,326 33,635 86,317 96,394
---------- ---------- ---------- ----------
Total $ 310,718 $ 416,412 $ 926,862 $1,131,135
========== ========== ========== ==========
Three Months Nine Months
-------------------------- ----------------------
Ended December 31, 1998 1999 1998 1999
- ------------------- ---------------------------------------------------
Operating profit:
Passive components $ 10,897 $ 57,736 $ 54,282 $ 131,982
Connectors 4,369 7,394 14,707 19,467
Research & development (4,856) (4,523) (15,150) (16,615)
Corporate administration (2,946) (2,879) (8,866) (13,244)
--------- --------- --------- ---------
Total $ 7,464 $ 57,728 $ 44,973 $ 121,590
========= ========= ========= =========
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AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED - (continued)
8. Acquisition:
On June 2, 1998, the Company purchased the passive component business of
Thomson-CSF ("TPC") for $74,000 ($58,000 in cash and $16,000 of assumed debt).
The acquisition was accounted for as a purchase and funded through the use of
working capital. Based upon market valuations of the fair values of the assets
acquired and liabilities assumed the purchase price exceeded the fair value of
net assets acquired by approximately $49,600, which is being amortized on a
straight-line basis over 20 years. The results of the operations of TPC are
included in the accompanying financial statements from the date of acquisition.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED DECEMBER 31, 1999
COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1998
Results of Operations
Three months ended December 31, 1998 1999
- --------------------------------------------------------------------------------
Net sales 100% 100%
Cost of sales 88.1 78.9
Gross profit 11.9 21.1
Selling, general and administrative expenses 9.5 7.2
Profit from operations 2.4 13.9
Income before income taxes 2.9 15.0
Provision for income taxes 1.0 4.8
Net income 1.9 10.2
Net sales in the three months ended December 31, 1999 increased 34.0% to
$416.4 million from $310.7 million in the three months ended December 31, 1998.
The increase was attributable to growth in both passive components and
connectors. The growth in sales is a result of the expansion of the worldwide
demand for electronic components and the Company's continued investment in plant
and equipment in order to increase production capacity. This expansion has been
led by the strong growth in the telecommunications and information technology
hardware industries, as the use of electronics in all walks of life has become
more widespread and sophisticated.
Gross profit in the three months ended December 31, 1999 increased 137.8% to
$87.8 million (21.1% of net sales) from $36.9 million (11.9% of net sales) in
the three months ended December 31, 1998. The increase in gross profit can be
attributed both to additional sales and improved operating efficiencies. As a
result of increased worldwide demand for passive components, sales prices have
stabilized and, in some cases, have increased. The improvement in gross profit
as a percentage of sales can be attributed to the favorable pricing environment
and the impact of improvements in our manufacturing processes and higher
throughput in our factories. Gross profit continues to be negatively impacted by
the rise in the cost of palladium, currently a raw material used in a portion of
the multi-layer ceramic capacitors that the Company produces. The price we paid
for palladium purchased during the three months ended December 31, 1999 exceeded
the price paid for an equivalent amount of palladium purchased during the three
months ended December 31, 1998 by approximately $8.0 million. The TPC passive
component businesses acquired in June 1998 are not yet profitable, but efforts
to stimulate sales growth and reduce costs are ongoing.
7
10
Selling, general and administrative expenses in the three months ended
December 31, 1999 were $30.1 million (7.2% of net sales) compared with $29.4
million (9.5% of net sales) in the three months ended December 31, 1998. The
decline in selling, general and administrative expenses, as a percentage of
sales, is a result of higher sales.
As a result of the above factors, profit from operations in the three months
ended December 31, 1999 increased 673.4% to $57.7 million from $7.5 million in
the three months ended December 31, 1998.
The results for the quarter ended December 31,1999 include the benefit of
$3.0 million of other income as a result of a settlement for defective materials
from a supplier. The expense related to the use of these materials was recorded
in prior years.
For the reasons set forth above, together with the benefit of higher net
interest income offset in part by foreign currency exchange losses, net income
in the three months ended December 31, 1999 was $42.5 million (10.2% of net
sales) compared to $6.1 million (1.9% of net sales) in the three months ended
December 31, 1998.
NINE MONTHS ENDED DECEMBER 31, 1999
COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1998
Results of Operations
Nine months ended December 31, 1998 1999
- ------------------------------ ---- ----
Net sales 100% 100%
Cost of sales 85.9 81.5
Gross profit 14.1 18.5
Selling, general and administrative expenses 9.3 7.7
Profit from operations 4.8 10.8
Income before income taxes 5.3 11.3
Provision for income taxes 1.6 3.7
Net income 3.7 7.6
Net sales in the nine months ended December 31, 1999 increased 22.0% to
$1,131.1 million from $926.9 million in the nine months ended December 31, 1998.
The increase was attributable to growth in both passive components and
connectors. The growth in sales is a result of the expansion of the worldwide
demand for electronic components and the Company's continued investment in plant
and equipment in order to increase production capacity. This expansion has been
led by the strong growth in the telecommunications and information technology
hardware industries, as the use of electronics in all walks of life has become
more widespread and sophisticated.
Gross profit in the nine months ended December 31, 1999 increased 59.6% to
$209.1 million (18.5% of net sales) from $131.0 million (14.1% of net sales) in
the nine months ended December 31, 1998. The increase in gross profit can be
attributed both to additional sales and improved operating efficiencies. As a
result of increased worldwide demand for passive components, sales prices have
stabilized and, in some cases, have increased. The improvement in gross profit
as a percentage of sales can be attributed to the favorable pricing environment
and the impact of improvements in our manufacturing processes and higher
throughput in our factories. Gross profit continues to be negatively impacted by
the rise in the cost of palladium, currently a raw material used in a portion of
the multi-layer ceramic capacitors that the Company produces. The price we paid
for palladium purchased during the nine months ended December 31, 1999 exceeded
the price paid for an equivalent amount of palladium purchased during the nine
months ended December 31, 1998 by approximately $18.0 million. The TPC passive
component businesses acquired in June 1998 are not yet profitable, but efforts
to stimulate sales growth and reduce costs are ongoing.
8
11
Selling, general and administrative expenses in the nine months ended
December 31, 1999 were $87.5 million (7.7% of net sales) compared with $86.0
million (9.3% of net sales) in the nine months ended December 31, 1998. The
decline in selling, general and administrative expenses, as a percentage of
sales, is a result of higher sales, offset in part by higher research and
development costs.
As a result of the above factors, profit from operations in the nine months
ended December 31, 1999 increased 170.4% to $121.6 million from $44.9 million in
the nine months ended December 31, 1998.
The results for the nine months ended December 31, 1999 include the benefit
of $3.0 million of other income as a result of a settlement for defective
materials from a supplier. The expense related to the use of these materials was
recorded in prior years.
For the reasons set forth above, and the benefit of higher net interest
income offset in part by foreign currency exchange losses, net income in the
nine months ended December 31, 1999 was $86.1 million (7.6% of net sales)
compared to $34.0 million (3.7% of net sales) in the nine months ended December
31, 1998.
OUTLOOK
Our customers are forecasting an increase in demand for electronic
components in order to meet expected demand for their end use products. The
increase in worldwide demand for passive components has led to stabilized and,
in some cases, increased, prices. As reflected in this year's quarterly sales
results, we have significantly increased our production capacity in recent years
through continued investment in plant and equipment. The Company believes that
in addition to the increased worldwide demand for electronic components, there
are several other factors that provide opportunities for continued improvements
in profitability, including (a) the continued decrease in the amount of precious
metal used and the substitution of base metals for precious metals in the
manufacture of multi-layer ceramic capacitors, (b) capacity expansion programs
and continuous improvements in production processes, (c) cost control measures
and (d) the growth of advanced and connector products through innovation and
component design in conjunction with our customers.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from working capital
requirements, dividends, capital expenditures and acquisitions. Historically,
the Company has satisfied its liquidity requirements through internally
generated funds. As of December 31, 1999, the Company had a current ratio of
2.92 to 1, $234.4 million of cash and cash equivalents, $917.9 million of
stockholders' equity and an insignificant amount of long-term debt.
Net cash from operating activities was $168.0 million in the nine months
ended December 31, 1999 compared to $136.3 million in the nine months ended
December 31, 1998.
Purchases of property and equipment were $109.3 million in the nine month
period ended December 31, 1999 and $72.8 million in the nine month period ended
December 31, 1998. Expenditures for both periods were primarily for expanding
production capabilities of the passive components and connector product lines
throughout the world.
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12
On June 2, 1998, the Company purchased the passive component business of
TPC for $74.0 million, including the assumption of debt. The Company's net cash
outlay was $58.0 million during the nine months ended December 31,1998.
Although the majority of the Company's funding is internally generated,
certain European subsidiaries of the Company have from time to time borrowed
German deutsche marks, French francs and euros under various bank agreements. At
December 31, 1999, outstanding balances under such agreements totalled $33.7
million. These borrowings have been used for working capital requirements and to
repay other outstanding obligations.
Based on the financial condition of the Company as of December 31, 1999, the
Company 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, environmental cleanup costs,
research, development and engineering expenses and any dividends to be paid for
the foreseeable future.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue concerns the inability of information systems to
properly recognize and process date-sensitive information beyond January 1,
2000. The Company determined that it was required to modify or replace some of
its hardware and software so that those systems would properly utilize dates
beyond December 31, 1999.
During the past year, we implemented internal procedures to resolve the Year
2000 issue that involved four phases: assessment, remediation, testing and
implementation. We completed our assessment of all major systems that could be
affected by the Year 2000 issue. The assessment indicated that most of our
significant systems, such as customer order, manufacturing and accounting
systems, could be affected. In response to the assessment, we completed the
remediation phase for all major information technology systems, which included
software reprogramming and replacement. We completed system testing and
implementation of our Year 2000 program before the end of 1999.
Additionally, we canvassed our important raw material and service suppliers
for Year 2000 compliance. Our search did not reveal any supplier problems that
would materially impact our results of operations, liquidity or capital
resources.
The total cost of our Year 2000 project was approximately $5.3 million,
which was funded through operating cash flows.
We have not experienced any significant Year 2000 related system failures
nor, to our knowledge, have any of our suppliers. We intend to monitor and test
our own systems for ongoing Year 2000 compliance; however, we cannot guarantee
that our computer systems or the systems of other companies upon which our
operations rely will not be adversely affected by problems associated with the
Year 2000 issue.
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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 2000,
overall volume and pricing trends, cost reduction strategies and their
anticipated results, and expectations for research and development, capital
expenditures and Year 2000 preparations. 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, including those discussed in the Company's annual
report on Form 10-K for year ended March 31, 1999, that could cause actual
results to differ materially from those expressed in or implied by the
information or statements.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a)
Exhibit 27.0 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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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: January 20, 2000
AVX Corporation
/s/ DONALD B. CHRISTIANSEN
----------------------------
Donald B. Christiansen
Chief Financial Officer,
Senior Vice President and
Treasurer
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INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
27.0 Financial Data Schedule