CONFORMED
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, 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 November 1, 1999
----- -------------------------------
Common Stock, par value $0.01 per share 86,773,186
<PAGE>
AVX CORPORATION
INDEX
Page Number
-----------
PART I: Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and
March 31, 1999 1
Consolidated Statements of Income for the three months ended
September 30, 1999 and 1998 and for the six months ended
September 30, 1999 and 1998 2
Consolidated Statements of Cash Flows for the six months ended
September 30, 1999 and 1998 3
Notes to Consolidated Financial Statements 4-7
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II: Other Information
Signatures
Exhibits
<PAGE>
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
September 30, 1999 March 31, 1999
(unaudited)
------------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 221,905 $ 173,106
Accounts receivable, net 185,971 157,331
Inventories 282,241 277,393
Deferred income taxes 22,193 21,895
Other receivables - affiliates 2,782 2,738
Prepaid and other 33,761 31,072
---------- ----------
Total current assets 748,853 663,535
Property plant and equipment, net 317,245 304,248
Goodwill, net 76,790 78,790
Other assets 14,199 11,467
---------- ----------
TOTAL ASSETS $ 1,157,087 $ 1,058,040
Liabilities and Stockholders' Equity ========== ==========
Current liabilities:
Short-term bank debt $ 12,507 $ 20,944
Current maturities of long-term debt 56 148
Accounts payable:
Trade 63,585 46,737
Affiliates 47,338 32,311
Income taxes payable 24,961 11,995
Accrued payroll and benefits 45,378 41,055
Accrued expenses 46,521 39,092
---------- ----------
Total current liabilities 240,346 192,282
Long-term debt 17,938 12,714
Deferred income taxes 6,776 6,115
Other liabilities 14,931 16,288
---------- ----------
TOTAL LIABILITIES 279,991 227,399
---------- ----------
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 328,845 325,028
Retained earnings 574,013 541,267
Accumulated other comprehensive income (loss) (1,305) (4,789)
Common stock in treasury, at cost: 1,539,789
(Sept. 1999) and 1,929,100 (March 1999) shares (25,339) (31,747)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 877,096 830,641
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,157,087 $ 1,058,040
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE> 1
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,
------------------ ---------------
1999 1998 1999 1998
Net sales $ 371,573 $ 324,144 $ 714,723 $ 616,144
Cost of sales 304,152 281,540 593,443 522,080
------- ------- ------- -------
Gross profit 67,421 42,604 121,280 94,064
Selling, general, and
administrative expenses 29,960 28,675 57,418 56,555
------- ------- ------- -------
Profit from operations 37,461 13,929 63,862 37,509
Other income (expense):
Interest income 1,872 1,986 3,703 4,564
Interest expense (420) (687) (907) (1,218)
Other, net (521) (1) (1,400) (407)
------- ------ ------ ------
Income before income taxes 38,392 15,227 65,258 40,448
Provision for income taxes 12,285 4,713 21,705 12,532
------- ------- ------- -------
Net income $ 26,107 $ 10,514 $ 43,553 $ 27,916
======= ======= ======= =======
Basic and Diluted Income
per share $ 0.30 $ 0.12 $ 0.50 $ 0.32
Dividends Declared $ 0.065 $ 0.065 $ 0.13 $ 0.13
Weighted average number of
common shares outstanding 86,460,460 87,313,613 86,359,911 87,641,524
See accompanying notes to consolidated financial statements.
<PAGE> 2
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Six Months Ended September 30,
1999 1998
------------------------------
Operating Activities:
Net income $ 43,553 $ 27,916
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 45,362 45,441
Changes in operating assets and liabilities,
net of effects of business acquired:
Accounts receivable (32,758) (13,020)
Inventories (4,773) 24,123
Accounts payable and accrued expenses 43,777 (22,653)
Income taxes payable 12,649 (2,415)
Other assets and liabilities 2,120 11,108
------- -------
Net cash from operating activities 109,930 70,500
Investing Activities:
Purchases of property and equipment (55,843) (49,520)
Loans to investee (1,025)
Business acquired, net of cash (58,027)
Other (563) 17
------- -------
Net cash used in investing activities (57,431) (107,530)
------- -------
Financing Activities:
Purchase of treasury stock (22,147)
Proceeds from issuance of debt 7,318 17,764
Repayment of debt (9,307) (16,153)
Dividends paid (10,807) (11,418)
Proceeds from issuance of treasury stock
under option plans 8,939 11
------- -------
Net cash from (used in) financing activities (3,857) (31,943)
------- -------
Effect of exchange rate changes on cash 157 54
------- -------
Increase (decrease) in cash and cash equivalents 48,799 (68,919)
Cash and cash equivalents at beginning of period 173,106 201,887
------- -------
Cash and cash equivalents at end of period $ 221,905 $ 132,968
======= =======
See accompanying notes to consolidated financial statements
<PAGE> 3
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:
September 30, March 31,
1999 1999
--------- ---------
$ 225,981 $ 183,033
Less: allowances for doubtful accounts, sales
returns, distributor adjustments and discounts (40,010) (25,702)
-------- --------
$ 185,971 $ 157,331
======== ========
3. Inventories:
Inventories consisted of:
September 30, March 31,
1999 1999
--------- ---------
Finished goods $ 85,167 $ 91,551
Work in process 105,069 96,604
Raw materials and supplies 92,005 89,238
------- --------
$ 282,241 $ 277,393
======= ========
<PAGE> 4
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 six month periods ended
September, 30 1999 and 1998, includes the following components:
Three Months Six Months
Ended September 30, 1999 1998 1999 1998
-------------------------------------
Net income $26,107 $10,514 $43,553 $27,916
Other comprehensive income,
net of tax:
Foreign currency translation
adjustment 8,343 6,558 3,484 6,541
-------------------------------------
Comprehensive income $34,450 $17,072 $47,037 $34,457
=====================================
The only adjustments to net income in the periods was for foreign currency
translation adjustments.
<PAGE> 5
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
which were 86,460,460, 87,313,613, 86,359,911 and 87,641,524 for the three and
six month periods ended September 30, 1999 and 1998, respectively.
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 which were 87,326,463, 87,313,613, 86,919,838 and
87,650,499 for the three and six month periods ended September 30, 1999 and
1998, 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.
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 option's exercise price was greater than the average
market price of the common shares for the respective period, were as follows:
September 30,
1999 1998
-------------------
Quarter ended - 809,214
Six months ended 2,741 544,034
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 six month periods ended
September 30, 1999 and 1998:
Three Months Six Months
Ended September 30, 1999 1998 1999 1998
----------------------------------------
Net sales:
Passive components $339,916 $294,260 $651,964 $558,153
Connectors 31,657 29,884 62,759 57,991
Research & development - - - -
----------------------------------------
Total $371,573 $324,144 $714,723 $616,144
========================================
Three Months Six Months
Ended September 30, 1999 1998 1999 1998
-----------------------------------------
Operating profit:
Passive components $43,707 $16,821 $74,246 $43,385
Connectors 6,699 6,275 12,073 10,338
Research & development (6,900) (6,153) (12,092) (10,294)
Corporate administration (6,045) (3,014) (10,365) (5,920)
-----------------------------------------
Total $37,461 $13,929 $63,862 $37,509
=========================================
<PAGE> 6
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED - (continued)
8. Acquisition:
On June 2, 1999 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.
9. Subsequent Event:
On October 18, 1999, the Company declared a $0.065 dividend per share of
common stock with respect to the quarter ended September 30, 1999, payable on
November 8, 1999.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three months ended September 30, 1999 1998
------------------------------------------------------------
Net sales 100% 100%
Cost of sales 81.9 86.9
Gross profit 18.1 13.1
Selling, general and administrative expenses 8.1 8.8
Profit from operations 10.1 4.3
Income before income taxes 10.3 4.7
Net income 7.0 3.2
Three Months Ended September 30, 1999 Compared to Three Months Ended
- --------------------------------------------------------------------
September 30, 1998
- ------------------
Net sales in the three months ended September 30, 1999 increased 14.6% to
$371.6 million from $324.1 million in the three months ended
September 30, 1998. The increase was attributable to growth in both passive
components and connectors, particularly tantalum and advanced products. The
growth in sales is a result of the Company increasing its production capacity
and the expansion of the worldwide demand for electronic components. This
expansion has been led by the strong growth in the telecommunication and data
processing industries, as the use of electronics in all walks of life has
become more widespread and sophisticated.
<PAGE> 7
Gross profit in the three months ended September 30, 1999 increased 58.3% to
$67.4 million (18.1% of net sales) from $42.6 million (13.1% of net sales) in
the three months ended September 30, 1998. The increase in gross profit can be
attributed to additional sales. As a result of increased worldwide demand for
tantalum and ceramic capacitors, sales prices have stabilized. The improvement
in gross profit as a percentage of sales, can be attributed to increased sales
of high margin advanced and connector products, improvements in manufacturing
processes and higher throughput in the factories. Gross profit continues to be
negatively impacted by the rise in the cost of palladium, currently a raw
material used in the manufacture of multilayer ceramic capacitors. Gross profit
was also negatively impacted by the continuing costs associated with the
integration of the TPC operation, a business acquired June 2, 1998. The benefit
of cost cutting measures and organizational changes initiated since the
acquisition has not yet been fully realized.
Selling, general and administrative expenses in the three months ended
September 30, 1999 were $30.0 million (8.1% of net sales) compared with $28.7
million (8.8% of net sales) in the three months ended September 30, 1998. The
decline in selling, general and administrative expenses, as a percentage of
sales, is primarily 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 three months
ended September 30, 1999 increased 168.9% to $37.5 million from $13.9 million
in the three months ended September 30, 1998.
For the reasons set forth above, net income in the three months ended
September 30, 1999 was $26.1 million (7.0% of net sales) compared to $10.5
million (3.2% of net sales) in the three months ended September 30, 1998.
Results of Operations
Six months ended September 30, 1999 1998
--------------------------------------------------------
Net sales 100% 100%
Cost of sales 83.0 84.7
Gross profit 17.0 15.3
Selling, general and administrative expenses 8.0 9.2
Profit from operations 8.9 6.1
Income before income taxes 9.1 6.6
Net income 6.1 4.5
<PAGE> 8
Six Months Ended September 30, 1999 Compared to Six Months Ended
- ----------------------------------------------------------------
September 30, 1998
- ------------------
Net sales in the six months ended September 30, 1999 increased 16.0% to
$714.7 million from $616.1 million in the six months ended September 30, 1998.
The increase was attributable to growth in both passive components and
connectors, particularly tantalum and advanced products. The growth in sales is
a result of the Company increasing its production capacity and the expansion of
the worldwide demand for electronic components. This expansion has been led by
the strong growth in the telecommunication and data processing industries, as
the use of electronics in all walks of life has become more widespread and
sophisticated.
Gross profit in the six months ended September 30, 1999 increased 28.9% to
$121.3 million (17.0% of net sales) from $94.1 million (15.3% of net sales) in
the six months ended September 30, 1998. The increase in gross profit can be
attributed to additional sales. As a result of increased worldwide demand for
tantalum and ceramic capacitors, sales prices have stabilized. The improvement
in gross profit as a percentage of sales, can be attributed to increased sales
of high margin advanced and connector products, improvements in manufacturing
processes and higher throughput in the factories. Gross profit continues to be
negatively impacted by the rise in the cost of palladium, currently a raw
material used in the manufacture of multilayer ceramic capacitors. Gross profit
was also negatively impacted by the continuing costs associated with the
integration of the TPC operation, a business acquired June 2, 1998. The benefit
of cost cutting measures and organizational changes initiated since the
acquisition has not yet been fully realized.
Selling, general and administrative expenses in the six months ended
September 30, 1999 were $57.4 million (8.0% of net sales) compared with $56.6
million (9.2% of net sales) in the six months ended September 30, 1998. The
decline in selling, general and administrative expenses, as a percentage of
sales, is primarily 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 six months
ended September 30, 1999 increased 70.3% to $63.9 million from $37.5 million
in the six months ended September 30, 1998.
For the reasons set forth above, partially offset by lower interest income
and higher foreign currency exchange losses, net income in the six months ended
September 30, 1999 was $43.6 million (6.1% of net sales) compared to $27.9
million (4.5% of net sales) in the six months ended September 30, 1998.
<PAGE> 9
Outlook
The increase in worldwide demand for passive components has led to
stabilization in selling prices. As a result of this increased demand, the
Company's backlog of unfilled orders has increased 166% since March 1999. The
Company believes that in addition to the increased worldwide demand for
electronic components, there are several other factors which should lead toward
continued improvements in profitability during the next year, including,
(a) the Company's ongoing efforts to substitute base metals for precious metals
in the manufacture of multilayer ceramic capacitors, (b) capacity expansion
programs (c) cost control measures and continuous improvements in production
processes, and (d) the growth of advanced and connector products through
innovation and component design in conjunction with our customers. The Company
intends to continue its cost cutting, organizational and marketing focus
initiatives related to the TPC product line in order to improve its
profitability.
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 September 30, 1999, the Company had a current ratio of
3.1 to 1, $221.9 million of cash and cash equivalents, $877.1 million of
stockholders' equity and an insignificant amount of long-term debt.
Net cash from operating activities was $109.9 million in the six months
ended September 30, 1999 compared to $70.5 million in the six months ended
September 30, 1998.
Purchases of property and equipment were $55.8 million in the six month
period ended September 30, 1999 and $49.5 million in the six month period ended
September 30, 1998. Expenditures for both periods were primarily for expanding
production capabilities of the tantalum, ceramic 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 $74.0 million, including the assumption of debt. The
Company's net cash outlay was $58.0 million during the six months ended
September 30,1998.
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 and French francs under various bank agreements.
Based on the financial condition of the Company as of September 30, 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, research,
development and engineering costs, and any dividends and acquisition payments to
be paid in the foreseeable future.
<PAGE> 10
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. However, if such modifications and replacements are not
made, or are not completed on a timely basis, the Year 2000 Issue could have a
material impact on the operations of the Company.
The Company's plan to resolve the Year 2000 Issue involved four phases:
assessment, remediation, testing and implementation. The Company has completed
its assessment of all major systems that could be affected by the Year 2000
Issue. The assessment indicated that most of the Company's significant systems,
such as Customer order, Manufacturing and Accounting systems, could be affected.
For its information technology systems, the Company completed all phases for
all critical systems in June 1999 and completed all phases for other systems in
September 1999.
For operating equipment systems, the Company completed all aspects of
remediation, testing and implementation of its equipment systems in
September 1999.
The Company has queried its important raw material and service suppliers
relative to their resolution of the Year 2000 issue. The Company is not aware
of any supplier problems that would materially impact results of operations,
liquidity or capital resources. The Company has no means of ensuring that these
entities will be Year 2000 ready. However, as of July 1999 all key suppliers
have reported Year 2000 readiness. If important suppliers or customers are
unable to complete their Year 2000 resolution, it could materially impact the
Company.
The Company has developed a contingency plan with respect to the Year 2000
issue and is broadly communicating this information internally.
To date, the Company has incurred approximately $5.3 million ($2.7 million
of which has been expensed and $2.6 million capitalized for new software and
equipment), related to all phases of the Year 2000 Issue.
While the Company believes it has addressed all critical Year 2000 issues,
there can be no guarantee that these plans will be completed and results
achieved.
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 the year ended March 31, 1999, that could cause
actual results to differ materially from those expressed in or implied by the
information or statements.
<PAGE> 11
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 27.0 FDS
(b) Reports on Form 8-K.
None.
<PAGE> 13
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 1, 1999
AVX Corporation
/s/ Donald B. Christiansen
Donald B. Christiansen
Chief Financial Officer,
Senior Vice President and
Treasurer
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