<PAGE>
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 June 30, 1998.
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 July 31, 1998
------ -----------------------------
Common Stock, par value $0.01 per share 87,610,125
<PAGE>
AVX CORPORATION
INDEX
Page Number
------------
PART I: Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and March 31, 1998 1
Consolidated Statements of Income for the three months ended
June 30, 1998 and 1997 2
Consolidated Statements of Cash Flows for the three months ended
June 30, 1998 and 1997 3
Notes to Consolidated Financial Statements 4-6
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II: Other Information
Signatures
Exhibits
<PAGE>1
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
June 30, 1998 March 31, 1998
(unaudited)
------------- --------------
Assets
Current assets:
Cash and cash equivalents $ 185,878 $ 201,887
Accounts receivable, net 160,369 139,812
Inventories 360,030 326,787
Deferred income taxes 20,039 20,039
Other receivables - affiliates 2,780 3,707
Prepaid and other 27,319 29,980
--------- ---------
Total current assets 756,415 722,212
Property and equipment:
Land 10,186 10,110
Buildings and improvements 131,021 123,668
Machinery and equipment 699,572 663,594
Construction in progress 59,178 44,313
--------- ---------
899,957 841,685
Accumulated depreciation (578,247) (559,431)
--------- --------
321,710 282,254
--------- ---------
Goodwill, net 43,579 33,479
Other assets 10,735 10,708
--------- ---------
TOTAL ASSETS $1,132,439 $1,048,653
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term bank debt $ 27,006 $ 9,887
Current maturities of long-term debt 2,946 2,911
Accounts payable:
Trade 42,596 39,507
Affiliates 31,093 37,800
Income taxes payable 18,854 15,650
Accrued payroll and benefits 29,333 36,361
Accrued expenses 83,488 27,309
-------- --------
Total current liabilities 235,316 169,425
Long-term debt 11,214 8,376
Deferred income taxes 9,612 8,563
Other liabilities 23,885 11,405
-------- --------
TOTAL LIABILITIES 280,027 197,769
-------- --------
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 (June 1998) and 88,183,500
(March 1998) issued. 882 882
Additional paid-in capital 325,026 325,017
Retained earnings 534,087 522,410
Foreign currency translation adjustment 2,558 2,575
Less common stock in treasury,
at cost: 552,500 shares (10,141) -
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 852,412 850,884
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,132,439 $1,048,653
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>2
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except share data)
Three Months ended June 30,
1998 1997
---------------------------
Net sales $ 292,000 $ 313,807
Cost of sales 240,540 235,727
------- -------
Gross profit 51,460 78,080
Selling, general and administrative
expenses 27,880 28,408
------- -------
Profit from operations 23,580 49,672
Other income (expense):
Interest income 2,578 2,941
Interest expense (531) (511)
Other, net (406) (8)
------- -------
Income before income taxes 25,221 52,094
Provision for income taxes 7,819 17,159
------- -------
Net income $ 17,402 $ 34,935
======= =======
Amounts per share:
Basic and diluted income per share $ 0.20 $ 0.40
Dividends declared $ 0.065 $ 0.06
Weighted average number of common
shares outstanding 87,973,038 88,000,000
See accompanying notes to consolidated financial statements.
<PAGE> 3
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Three Months Ended June 30,
1998 1997
-----------------------------
Operating Activities:
Net income $ 17,402 $ 34,935
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 21,286 20,769
Deferred income taxes 1,048 (665)
Changes in operating assets and liabilities,
net of effects from purchase of TPC:
Accounts receivable 5,593 1,693
Inventories (4,108) (8,240)
Accounts payable and accrued expenses (19,720) (3,624)
Income taxes payable 3,379 14,200
Other assets and liabilities 7,740 5,797
------- -------
Net cash from operating activities 32,620 64,865
------- -------
Investing Activities:
Purchases of property and equipment (24,636) (25,368)
Business acquired, net of cash received (10,941)
Equity investment (5,300)
------- ------
Net cash used in investing activities (35,577) (30,668)
------- ------
Financing Activities:
Repayment of debt (42) (43)
Dividends paid (5,725) (5,281)
Purchase of treasury stock (10,141)
Proceeds from issuance of debt 2,836
Issuance of stock options 11
------- -------
Net cash from (used in) financing activities (13,061) (5,324)
------- -------
Effect of exchange rate changes on cash 9 (139)
------- -------
Increase (decrease) in cash and cash equivalents (16,009) 28,734
Cash and cash equivalents at beginning of period 201,887 188,574
------- -------
Cash and cash equivalents at end of period $ 185,878 $ 217,308
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>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, 1998.
2. Accounts Receivable:
Accounts receivable consisted of:
June 30, March 31,
1998 1998
------- -------
Trade $ 187,397 $ 163,348
Less, allowances for doubtful accounts, sales
returns, distributor adjustments and discounts (27,028) (23,536)
------- -------
$ 160,369 $ 139,812
======= =======
3. Inventories:
Inventories consisted of:
June 30, March 31,
1998 1998
------- --------
Finished goods $ 143,507 $ 116,811
Work in process 110,716 114,827
Raw material and supplies 105,807 95,149
------- -------
$ 360,030 $ 326,787
======= =======
<PAGE>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 $3.2 million at June 30, 1998
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 a material adverse effect on the Company's
financial condition or results of operations.
5. New Accounting Standards:
In June 1998, the Financial Accounting Standards Board issued statement of
financial Acounting Standards No. 133 Accounting for derivative Instruments
and Hedging Activities ("SFAS No. 133"). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. The Company will be required to adopt SFAS No. 133 for the quarter
ended June 30, 2000. Currently, the Company is evaluating this standard and
is uncertain as to the impact it will have on the Company's consolidated
financial statements.
6. Comprehensive Income:
The Company has adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS No. 130"). The statement requires
disclosure of total non-shareowner changes in equity on an annual basis. Total
non-shareowner changes in equity includes all changes in equity during a
period except those resulting from investments by and distributions to
shareowners. The specific components include: net income, deferred gains and
losses resulting from foreign currency translation and minimum pension
liability adjustments.
Comprehensive income for the three months ended June, 30 1998 and 1997,
includes the following components:
Three Months ended June 30,
1998 1997
-----------------------------
Net income $17,402 $34,935
Other comprehensive income, net of tax:
Foreign currency translation adjustment (17) 2,368
------ ------
Comprehensive income $17,385 $37,303
====== ======
<PAGE> 6
The accumulated balances for comprehensive income (loss), (all of which relate
to foreign currency translation adjustments) as of June 30, 1998 and 1997 is
as follows:
Three Months ended June 30,
1998 1997
--------------------------
Balance at beginning of period $2,575 $2,276
Translation adjustment (17) 2,368
----- -----
Balance at end of period 2,558 4,644
===== =====
7. 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
which were 87,973,038 and 88,000,000 for the three months ended June 30, 1998
and 1997, respectively.
Diluted earnings per share has been calculated by dividing net income
by the weigthed average number of shares of common stock and common stock
equivalents outstanding for the period which were 87,980,994 and 88,122,788
and for the three months ended June 30, 1998 and 1997, 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.
8. Acquisition:
On June 2, 1998, the Company purchased the passive component business of
Thomson-CSF ("TPC") for $75 million, including the assumption of debt. The
acquisition was accounted for as a purchase and the acquired assets and assumed
liabilities have been included in the accompanying consolidated financial
statements as of June 30, 1998 based upon preliminary estimates. Evaluations
of the fair values of the assets acquired and liabilities assumed are underway
and the final purchase price allocation could differ from those estimates and
assumptions.
Included in accrued liabilities at June 30, 1998 is a $47.5 million liability
in connection with an August 31, 1998 repayment by TPC of amounts due Thomson
CSF, which is a part of the acquisiton cost referred to above.
9. Treasury shares:
In January 1998, the Company's Board of Directors approved a stock
repurchase program whereby up to 2.2 million shares of common stock may be
purchased from time to time at the discretion of management. The repurchased
shares are held as treasury stock and are available for general corporate
purposes.
10. Subsequent Event:
On July 16, 1998, the Company declared a $0.065 dividend per share of
common stock with respect to the quarter ended June 30, 1998, payable on
August 10, 1998.
<PAGE> 7
ITEM2.
- -----
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
Three months ended June 30, 1998 1997
- -------------------------------------------------------
Net sales 100.0% 100.0%
Cost of sales 82.4 75.1
Gross profit 17.6 24.9
Selling, general and administrative
expenses 9.6 9.0
Profit from operations 8.1 15.8
Income before income taxes 8.6 16.6
Provision for income taxes 2.7 5.5
Net income 6.0 11.1
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
- -----------------------------------------------------------------------------
Net sales in the three months ended June 30, 1998 decreased 7% to $292.0
million from $313.8 million in the three months ended June 30, 1997. The
decrease was attributable to a combination of factors, including the softening
in demand of the electronic component industry as customers reduce their level
of inventory and suppliers reduce their lead times, lower average selling
prices, the Asian economic crisis, and the continued trend toward smaller part
sizes which traditionally have lower average selling prices.
Gross profit in the three months ended June 30, 1998 decreased 34% to
$51.5 million (17.6% of net sales) from $78.1 million (24.9% of net sales)
in the three months ended June 30, 1997. The decrease in gross profit as a
percentage of net sales can be attributed to a decline in selling prices, the
rising cost of palladium, a principle raw material used in the manufacture of
ceramic capacitors, and lower factory through put as a result of the soft
demand.
Selling, general and administrative expenses in the three months ended
June 30, 1998 were $27.9 million (9.6% of net sales) compared with $28.4
million (9.0% of net sales) in the three months ended June 30, 1997. Selling,
general and administrative expenses, as a percentage of sales, increased 0.6%
(9.6% vs. 9.0%) primarily as a result of lower sales.
As a result of the above factors, profit from operations in the three
months ended June 30, 1998 decreased 52.5% to $23.6 million from $49.7 million
in the three months ended June 30, 1997.
For the reasons set forth above, net income in the three months ended
June 30, 1998 decreased 50% to $17.4 million (6.0% of net sales) from $34.9
million (11.1% of net sales) in the three months ended June 30, 1997.
<PAGE> 8
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 June 30, 1998, the Company had a current ratio of 3.2
to 1, $185.9 million of cash and cash equivalents, $852.4 million of
stockholders' equity and an insignificant amount of long-term debt.
Net cash from operating activities was $32.6 million in the three months
ended June 30, 1998 compared to $64.9 million in the three months ended
June 30, 1997. The decrease is attributable to lower net income and the
overall reduction in the level of business.
Purchases of property and equipment were $24.6 million in the three
month period ended June 30, 1998 and $25.4 million in the three month period
ended June 30, 1997. 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.
On June 2, 1998, the Company purchased the passive component business of
Thomson-CSF ("TPC") for $75 million, including the assumption of debt. The
Company made an initial payment of $15.0 million during the three months ended
June 30, 1998 and will disburse another $47.5 million in August 1998.
During the three months ended June 30, 1997, the Company purchased for
$5.3 million, a minority interest in an electronics research company.
In accordance with the Company's stock repurchase program, the Company
purchased 552,500 shares at a cost of $10.1 million. The repurchased shares
are held as treasury stock and are available for general corporate purposes.
Based on the financial condition of the Company as of June 30, 1998, 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, research, development and
engineering expenses, and any dividends and acquistion payments to be paid in
the foreseeable future.
Certain statements contained above may be "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Actual events, results, and/or timing may differ from the events, results and
/or timing as projected, estimated, or described above.
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.
The Company held its Annual Meeting of Stockholders on July 16, 1998 for
the purpose of amending the Company's by-laws, electing a Board of Directors,
amending the 1995 Non Employee Directors' Stock Option Plan, and approving the
appointment of auditors. Proxies for the meeting were solicited pursuant to
Regulation 14A of the Securities Exchange Act of 1934 and there was no
solicitation in opposition to management's solicitations.
<PAGE> 9
Proposal 1:
Ratify amendment to the Company's by-laws to provide for a classified board of
directors.
Shares Shares Shares
voted voted Shares Shares not
"For" "Against" "Abstaining" "Broker non-votes" Voted
--------------------------------------------------------------------------
73,052,567 5,789,753 43,163 1,742,363 7,456,279
Proposal 2:
All of management's nominees for directors as listed in the proxy statement
were elected with the following vote:
Shares Shares
Voted Shares Not
"For" "Abstaining" Voted
----------------------------------------
Class 1 Kazuo Inamori 80,410,362 217,484 7,456,279
Class 1 Kensuke Itoh 80,410,232 217,614 7,456,279
Class 1 Benedict P. Rosen 80,411,083 216,763 7,456,279
Class 1 Richard Tressler 80,427,935 199,911 7,456,279
Class 1 Mashiro Umemura 80,404,031 223,815 7,456,279
Class 2 Carol A. Campbell, Jr. 80,425,891 201,955 7,456,279
Class 2 John S. Gilbertson 80,410,298 217,548 7,456,279
Class 2 Rodney N. Lanthorne 80,411,063 216,783 7,456,279
Class 2 Michihisa Yamamoto 80,411,954 215,892 7,456,279
Class 3 Marshall D. Butler 80,409,063 218,783 7,456,279
Class 3 Donald B. Christiansen 80,413,063 214,783 7,456,279
Class 3 Mashiro Yamamoto 80,411,103 216,743 7,456,279
Class 3 Yuzo Yamamura 80,410,353 217,493 7,456,279
<PAGE> 10
Proposal 3:
Amendments to the 1995 Non-Employee Directors' Stock Option Plan to (a)
increase the number of shares that may be issued under the plan by 150,000
and (b) modify the vesting period for options granted.
Shares Shares Shares
voted voted Shares not
"For" "Against" "Abstaining" Voted
-----------------------------------------------------
79,866,911 690,351 70,584 7,456,279
Proposal 4:
The appointment of PricewaterhouseCoopers LLP as the Company's independent
auditors was approved with the following vote:
Shares Shares Shares
voted voted Shares not
"For" "Against" "Abstaining" Voted
-------------------------------------------------------
80,581,343 24,791 21,712 7,456,279
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K.
None.
<PAGE> 11
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: July 31, 1998
AVX Corporation
/s/Donald B. Christiansen
----------------------
Donald B. Christiansen
Senior Vice President of Finance,
Chief Financial Officer, and
Treasurer
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