<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-95057
PROSPECTUS
5,250,000 SHARES
(AVX LOGO) CORPORATION
COMMON STOCK
------------------------
Kyocera Corporation, our majority stockholder, is selling 5,250,000 shares
of our common stock. AVX Corporation will not receive any proceeds from the sale
of the shares by Kyocera.
The common stock trades on the New York Stock Exchange under the symbol
"AVX." On February 15, 2000, the last sale price of the common stock as reported
on the New York Stock Exchange was $64 3/4 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $63.00 $330,750,000
Underwriting discount....................................... $2.44 $12,810,000
Proceeds, before expenses, to Kyocera....................... $60.56 $317,940,000
</TABLE>
The underwriters may also purchase up to an additional 750,000 shares from
Kyocera at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery on or about February
22, 2000.
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
------------------------
The date of this prospectus is February 15, 2000.
<PAGE> 2
AVX A Worldwide Manufacturer of
Passive Electronic Components
[Photo of
Ceramic
Capacitors] [Photo of Ceramic Surface Mount
Capacitor Production Equipment]
[Photo of
Tantalum
Capacitors]
AVX's passive electronic components are
used by leading OEMs in such industries as
telecommunications, information technology
hardware, automotive and medical.
[Photo of
Integrated
Passive
Component]
[Photo of
Connectors]
[Photos of end user products]
[Photo of
Leaded
Capacitors]
AVX manufactures and supplies a broad line
of passive electronic components and
related products, some of which are pictured
on the left.
<PAGE> 3
[DESCRIPTION OF GRAPHICS]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Enforceability of Civil Liabilities......................... 6
Use of Proceeds............................................. 6
Price Range of Common Stock................................. 6
Dividend Policy............................................. 6
Selected Consolidated Financial Data........................ 7
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 8
Business.................................................... 14
Management.................................................. 20
Selling Stockholder......................................... 21
Relationship with Kyocera and Related Transactions.......... 21
Description of Capital Stock................................ 23
Shares Eligible for Future Sale............................. 25
Underwriting................................................ 26
Legal Matters............................................... 28
Experts..................................................... 28
Incorporation of Certain Documents by Reference............. 28
Where You Can Find More Information......................... 28
Index to Consolidated Financial Statements.................. F-1
</TABLE>
FORWARD-LOOKING STATEMENTS
This prospectus includes or incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Words such as "expects,"
"anticipates," "approximates," "believes," "estimates," "intends," and "hopes"
and variations of such words and similar expressions are intended to identify
such forward-looking statements. We intend these forward-looking statements, all
of which are qualified by this statement, to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Litigation
Securities Reform Act of 1995 and we are including this statement for purposes
of complying with these safe harbor provisions. We have based these statements
on our current expectations and projections about future events. These
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected in these statements. These risks and
uncertainties include those set forth under "Risk Factors" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition." The
forward-looking statements contained in this prospectus include, among other
issues, statements about the following:
- general economic conditions in our markets, including inflation,
recession, interest rates and other economic factors;
- damage to or other disruption of our facilities and equipment; and
- other factors that generally affect the business of manufacturing and
supplying electronic components and related products.
We are not obligated to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
---------------------
You should rely only on the information contained in this prospectus. We
have not, and Kyocera and the underwriters have not, authorized any other person
to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not, and Kyocera
and the underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospectus may have changed since that date.
ii
<PAGE> 5
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important
to you. You should read the entire prospectus, including the consolidated
financial statements and related notes, before making an investment decision.
THE COMPANY
AVX is a leading worldwide manufacturer and supplier of a broad line of
passive electronic components and related products. Virtually all types of
electronic devices use our passive component products to store, filter or
regulate electric energy.
Our passive electronic component products include ceramic and tantalum
capacitors, film capacitors, ferrites, varistors and non-linear resistors
manufactured in our facilities throughout the world and passive components
manufactured by Kyocera. We also manufacture and sell electronic connectors and
distribute and sell certain electronic connectors manufactured by Kyocera. In
fiscal 1999, our net sales totaled $1.25 billion with passive components
accounting for approximately 91% and electronic connectors accounting for
approximately 9% of this total. For the nine months ended December 31, 1999, we
generated $1.13 billion in net sales and $86.1 million of net income. Sales for
the quarter ended December 31, 1999 were $416.4 million and net income was $42.5
million.
Our customers are multi-national original equipment manufacturers, or OEMs,
and contract equipment manufacturers, or CEMs (also referred to as electronic
manufacturing service providers (EMSs)). In order to meet the needs of our
global customer base, we have developed a comprehensive product line, a global
manufacturing presence and a worldwide marketing organization that we believe
positions us to react to both global and local market trends. We produce our
passive electronic components in 28 manufacturing facilities located in 13
countries around the world. We have invested $292 million over the past three
fiscal years and an additional $109 million in the first nine months of the
current fiscal year to increase and upgrade our production capacity. We market
our products through our own direct sales force, independent manufacturers'
representatives or electronic component distributors depending on market
characteristics and demands. We coordinate our sales, marketing and
manufacturing organization by strategic customer account and globally by region.
Approximately 58% of our net sales in fiscal 1999 were outside North America,
with Europe accounting for 28% and Asia for 30%, respectively.
We sell our products to customers in a broad array of industries, such as
telecommunications, information technology hardware, automotive electronics,
medical devices and consumer electronics. Our major customers include Motorola,
Lucent, Ericsson, Nokia, Northern Telecom, Sagem, Samsung and Siemens in the
telecommunications industry; IBM, Compaq, Seagate Technology, Apple, 3Com, Acer
and Sony in the information technology hardware industry; Robert Bosch, Siemens,
General Motors, VDO, Valeo and Magneti Marelli in the automotive industry; and
Medtronics, St. Jude Medical and Guidant in the medical industry. Major CEM
customers include Solectron, Celestica, Jabil and SCI. We believe that growth
and innovation in the telecommunications and information technology hardware
industries have been and will continue to be driving forces behind growth and
technological advances in the passive component industry. We estimate that, in
fiscal 1999, approximately 65% of our net sales were to the telecommunications
and information technology hardware industries.
We believe that our research and development capabilities are an important
strategic advantage. During the past twelve months, we introduced approximately
40 new products from our global research and development facilities in Myrtle
Beach, South Carolina, Northern Ireland, Israel and England. We have invested
$111 million in research, development and engineering over the past three fiscal
years, which we believe has enhanced our leading position in the industry.
Our executive offices are located in Myrtle Beach, South Carolina. Our
principal address and telephone number are 801 17th Avenue South, Myrtle Beach,
SC 29577 (843) 448-9411. Our manufacturing facilities are located in North
America, Mexico, Central and South America, Europe and Asia.
1
<PAGE> 6
THE SELLING STOCKHOLDER
Kyocera is a global producer of high technology solutions in such fields as
electronics, telecommunications, metal processing, automotive components,
optics, medical and dental implants and solar energy. Since 1990, we have
entered into several agreements with Kyocera under which we can sell certain
Kyocera manufactured electronic components everywhere in the world except Japan,
purchase raw materials from Kyocera used in the manufacture of ceramic
capacitors and share ceramic technology and manufacturing resources. These
arrangements should continue to provide us with important competitive
advantages.
As of December 31, 1999, Kyocera owned approximately 76% of our common
stock. When this offering is complete, Kyocera will own approximately 70% of our
common stock (approximately 69% if the underwriters' over-allotment option is
exercised in full) and will continue to have the ability to elect AVX's entire
board of directors and exercise a controlling influence over our business and
affairs.
THE OFFERING
<TABLE>
<S> <C>
Common stock being offered
by Kyocera........................................ 5,250,000 shares
Shares outstanding before and after the
offering.......................................... 87,127,250 shares(1)
Use of proceeds..................................... We will not receive any proceeds from the
sale of shares by Kyocera.
Risk factors........................................ See "Risk Factors" and other information
included in this prospectus for a discussion
of factors you should carefully consider
before deciding to invest in shares of our
common stock.
Dividend policy..................................... Our board of directors expects to continue to
pay regular quarterly cash dividends on
shares of our common stock.
New York Stock Exchange Symbol...................... AVX
</TABLE>
- ---------------
(1) The number of shares outstanding both before and after the offering excludes
746,075 shares of common stock issuable upon the exercise of options
outstanding and 449,650 shares available for grant as of December 31, 1999
under AVX's stock option plans.
2
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
This table includes certain summary consolidated financial information. You
should read this table together with the discussion under the heading
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and our consolidated financial statements and related notes that we
include in this prospectus and similar sections in the documents that we
incorporate by reference in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED MARCH 31, ENDED DECEMBER 31,
--------------------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................... $ 988,893 $1,207,761 $1,126,178 $1,267,653 $1,245,473 $ 926,862 $1,131,135
Gross profit.................. 211,206 321,267 274,315 297,437 167,409 130,978 209,072
Profit from operations........ 110,193 204,681 171,946 186,700 53,305 44,973 121,590
Net income.................... 74,871 137,736 121,341 134,651 41,516 33,968 86,060
Basic and diluted income per
share....................... $ 0.87 $ 1.58 $ 1.38 $ 1.53 $ 0.48 $ 0.39 $ 0.99
Weighted average common shares
outstanding................. 85,800 87,175 88,000 88,110 87,066 87,281 86,555
Cash dividends declared per
common share................ $ 0.305 $ 0.229 $ 0.225 $ 0.245 $ 0.260 $ 0.195 $ 0.195
OTHER DATA:
EBITDA(1)..................... $ 172,019 $ 276,246 $ 255,198 $ 275,745 $ 149,752 $ 114,645 $ 193,582
Net cash from operating
activities.................. 126,158 155,687 167,926 136,761 184,403 136,258 168,018
Capital expenditures.......... 77,308 110,487 93,954 100,374 97,715 72,839 109,279
Research, development and
engineering expenses........ 25,000 30,000 33,000 36,000 42,000 29,000 33,000
</TABLE>
<TABLE>
<S> <C>
AS OF
DECEMBER 31, 1999
-----------------
(UNAUDITED)
BALANCE SHEET DATA:
Working capital............................................. $ 523,086
Total assets................................................ 1,230,435
Long-term debt.............................................. 17,229
Stockholders' equity........................................ 917,940
</TABLE>
- ---------------
(1) EBITDA is earnings before interest, taxes, depreciation and amortization.
3
<PAGE> 8
RISK FACTORS
You should consider carefully, in addition to the other information
contained in this prospectus, the following factors before purchasing shares of
our common stock.
THE CYCLICAL DEMAND FOR ELECTRONIC PRODUCTS AND COMPONENTS COULD RESULT IN
FLUCTUATIONS IN OUR SALES RESULTS
Virtually all electronics products and applications use passive electronic
components and electronic connectors sold by AVX. As a result, the demand for
our products and our operating results may be negatively affected by a downturn
in the electronics sector. In addition, a variety of factors affecting
customers, many of which are beyond our control, may influence the level of our
net sales in a particular period, including, without limitation, the timing of
significant orders and shipments and new product introductions, production and
quality problems, changes in the cost of materials, disruption in sources of
supply and seasonal patterns of spending. In addition, our sales and operating
results may fluctuate on a quarter to quarter basis.
CHANGES IN TECHNOLOGY MAY DISRUPT OUR SALES RESULTS AND PRODUCTION CAPABILITIES
Rapid technological evolution in the electronics industry requires us to
anticipate and respond rapidly to changes in industry standards and customer
needs and to develop and introduce new and enhanced products on a timely and
cost-effective basis. We must manage transitions from products using older
technology to those that utilize up-to-date technology in order to maintain and
increase sales and profitability, minimize disruptions in customer orders and
avoid excess inventory of products that are less responsive to our customers'
demands. New product introductions could contribute to fluctuations in operating
results as orders for new products commence and orders for existing products
decline. In response to these challenges, our research and development efforts
place a priority on the design and development of innovative products and
manufacturing processes and engineering advances in existing product lines and
manufacturing operations.
WE FACE SIGNIFICANT COMPETITION IN THE PASSIVE ELECTRONIC COMPONENTS INDUSTRY
AND THE CAPACITOR BUSINESS
Our business is highly competitive worldwide, with low transportation costs
and few import barriers. We compete principally on the basis of product quality
and reliability, availability, customer service, technological innovation,
timely delivery and price. The industry has become increasingly concentrated and
globalized in recent years. Our major competitors, some of which are larger than
AVX, have significant financial resources and technological capabilities.
AN INABILITY TO REDUCE COSTS COULD ADVERSELY AFFECT OUR PROFIT MARGINS AND SALES
GROWTH
We are under continuous pressure from our customers to reduce the prices
for our products. The intense competition in our industry motivates us to
continually decrease prices over a product's life cycle. Our profit margins and
sales growth may suffer if we are unable to reduce the cost of production when
sales prices decline.
A DECREASE IN AVAILABILITY AND INCREASE IN COST OF OUR KEY RAW MATERIALS COULD
ADVERSELY AFFECT OUR PROFIT MARGINS
We currently use palladium, a precious metal, and tantalum powder, among
other raw materials, for the production of capacitors. Palladium is mined
primarily in Russia and South Africa and is currently used as one of the raw
materials in a portion of our multi-layered ceramic capacitor production.
Historically, the market for palladium has experienced a substantial amount of
price volatility. The lack of availability of, or significant price increases
for, palladium or tantalum could have a material adverse effect on our results
of operations. Although palladium and tantalum powder have generally been
available in sufficient quantities to meet our manufacturing requirements, there
can be no assurance that this situation
4
<PAGE> 9
will prevail in the future. We have expanded, and will continue to expand, the
use of base metals, such as nickel, in the production of multi-layered ceramic
capacitors in order to reduce our use of palladium.
FUTURE FOREIGN ECONOMIC AND POLITICAL CONDITIONS COULD ADVERSELY AFFECT OUR
PRODUCTION CAPABILITY
We manufacture and assemble some of our products in foreign locations, such
as the Czech Republic, El Salvador, Israel, Mexico, Taiwan, Malaysia, Brazil and
Northern Ireland. Although we have not experienced significant problems
conducting operations in these areas to date, changes in local economic or
political conditions could impact our production capability and adversely affect
our business and operating results.
FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES MAY ADVERSELY AFFECT OUR
PROFITABILITY
We manufacture and sell electronic components in various regions of the
world and export and import these products to and from a large number of
countries. Sales and manufacturing costs are frequently denominated in local
currencies. Fluctuations in exchange rates could negatively impact our cost of
production and sales that, in turn, could decrease our profitability. Although
we engage in limited hedging operations, such as foreign currency contracts, to
reduce our exposure to foreign currency fluctuations and although currency gains
and losses have not been material during recent periods, there can be no
assurance that such measures will eliminate or substantially reduce our risk in
the future.
FUTURE CHANGES IN OUR ENVIRONMENTAL LIABILITY AND COMPLIANCE OBLIGATIONS MAY
HARM OUR ABILITY TO OPERATE OR INCREASE OUR COSTS
Our manufacturing operations are subject to environmental laws and
regulations governing air emissions; wastewater discharges; the handling,
disposal and remediation of hazardous substances and certain chemicals used and
generated in our manufacturing processes; and employee health and safety. More
stringent environmental regulations may be enacted in the future, and we cannot
presently determine the modifications, if any, in our operations that any such
future regulations might require, or the cost of compliance with these
regulations. In order to resolve liabilities at various sites, we have entered
into various administrative orders and consent decrees, some of which may, under
certain conditions, be reopened or subject to renegotiation.
KYOCERA OWNS A MAJORITY OF OUR STOCK AND CONTROLS OUR BOARD OF DIRECTORS; FUTURE
STOCK SALES BY KYOCERA COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
STOCK
After the completion of the offering, Kyocera will retain approximately 70%
of the common stock (approximately 69% if the over-allotment option is exercised
in full) and will continue to retain control over all matters requiring approval
by the stockholders, including the election of directors. Future sales of common
stock in the public market by Kyocera could adversely affect the market price of
our common stock. AVX currently has, and will continue to have, a variety of
contractual relationships with Kyocera.
LOSING THE SERVICES OF KEY PERSONNEL COULD HARM OUR BUSINESS
Our continued success depends on the efforts and abilities of our executive
officers and other key employees. If any of our executive officers or other key
employees leave AVX, our operations could be adversely affected. Except for an
employment agreement with Benedict P. Rosen, our Chief Executive Officer, we do
not have any employment contracts with any of our executive officers or other
key employees. Our ability to attract and retain quality employees in all
disciplines is important to our future success.
OUR CHARTER AND BY-LAWS AND PROVISIONS OF THE DELAWARE LAW COULD HAVE
ANTI-TAKEOVER EFFECTS ON AVX
Our charter and by-laws provide for advance notification of stockholders'
proposals and the removal of directors only by a supermajority vote of
stockholders and for cause. These provisions and other anti-takeover provisions
in our charter and by-laws and Delaware law could deter hostile takeovers or
delay or prevent changes in control or management of AVX.
5
<PAGE> 10
ENFORCEABILITY OF CIVIL LIABILITIES
Kyocera is a Japanese corporation with the majority of its assets and
operations located, and the majority of its revenues derived, outside the United
States. Kyocera has appointed CT Corporation System, New York, New York, as its
agent to receive service of process with respect to any action brought against
it in any federal or state court in the State of New York arising from this
offering. However, it may not be possible for investors to enforce outside the
United States judgments against Kyocera obtained in the United States in any
such actions, including actions predicated upon the civil liability provisions
of the United States federal and state securities laws. In addition, certain
directors and officers of Kyocera and certain directors of AVX are residents of
Japan, and all or substantially all of the assets of such persons are or may be
located outside the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon such
persons, or to enforce against them judgments obtained in United States courts,
including judgments predicated upon the civil liability provisions of the United
States federal and state securities laws. Kyocera, the directors and officers of
Kyocera and such directors of AVX have been advised by their Japanese counsel,
Tomotsune Kimura & Mitomi, that there is uncertainty as to whether the courts of
Japan would (i) recognize judgments of United States courts obtained against
Kyocera or such persons predicated upon the civil liability provisions of the
United States federal and state securities laws or (ii) enforce in original
actions brought in Japan liabilities against Kyocera or such persons predicated
upon the United States federal and state securities laws.
USE OF PROCEEDS
AVX will not receive any of the proceeds from the sale of common stock by
Kyocera.
PRICE RANGE OF COMMON STOCK
Our common stock is listed on the New York Stock Exchange and trades under
the symbol "AVX." The following presents the high and low sale prices for our
common stock for each quarter since the quarter ended June 30, 1997, as reported
on the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
2000 1999 1998
------------ ------------ ------------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First quarter..................................... $29 $15 1/8 $21 5/16 $15 5/8 $29 1/8 $19 3/4
Second Quarter.................................... 40 24 1/2 17 15/16 13 5/8 39 5/8 26 5/8
Third Quarter..................................... 50 7/16 32 9/16 20 3/4 13 1/2 34 1/2 17 11/16
Fourth Quarter (through February 15, 2000)........ 73 1/2 42 7/16 17 15/16 12 9/16 23 3/8 18 1/4
</TABLE>
See the cover page of this prospectus for a recent closing price of our
common stock on the New York Stock Exchange.
DIVIDEND POLICY
AVX has paid regular quarterly cash dividends since 1995. Dividends on the
common stock are subject to the discretion of our board of directors and will
depend on our earnings, capital requirements, financial condition, statutory
restrictions and other relevant factors. There can be no assurance that we will
declare and pay dividends in the future.
6
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for AVX
for the five fiscal years ended March 31, 1999. The selected consolidated
financial data for the five fiscal years ended March 31, 1999 are derived from
AVX's consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP, independent accountants. The selected consolidated
financial data for the nine month periods ended December 31, 1998 and 1999 are
derived from unaudited consolidated financial statements. The consolidated
financial data for the nine month periods ended December 31, 1998 and 1999
include all adjustments, consisting of normal recurring accruals, which we
consider necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the nine months
ended December 31, 1999 are not necessarily indicative of the results that may
be expected for the entire year ending March 31, 2000. The consolidated
financial data set forth below should be read in conjunction with AVX's
consolidated financial statements and the notes thereto and "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------------------------ ---------------------
1995 1996 1997 1998 1999 1998 1999
-------- ---------- ---------- ---------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $988,893 $1,207,761 $1,126,178 $1,267,653 $1,245,473 $926,862 $1,131,135
Cost of sales......................... 777,687 886,494 851,863 970,216 1,078,064 795,884 922,063
-------- ---------- ---------- ---------- ---------- -------- ----------
Gross profit.......................... 211,206 321,267 274,315 297,437 167,409 130,978 209,072
Selling, general and administrative
expenses............................ 101,013 116,586 102,369 110,737 114,104 86,005 87,482
-------- ---------- ---------- ---------- ---------- -------- ----------
Profit from operations................ 110,193 204,681 171,946 186,700 53,305 44,973 121,590
Interest income....................... 2,018 5,096 7,536 11,268 7,946 6,204 6,450
Interest expense...................... (2,229) (2,352) (2,049) (1,921) (2,228) (1,710) (1,453)
Other, net............................ 1,218 1,655 1,010 1,377 1,719 13 1,227
-------- ---------- ---------- ---------- ---------- -------- ----------
Income before income taxes............ 111,200 209,080 178,443 197,424 60,742 49,480 127,814
Provision for income taxes............ 36,329 71,344 57,102 62,773 19,226 15,512 41,754
-------- ---------- ---------- ---------- ---------- -------- ----------
Net income............................ $ 74,871 $ 137,736 $ 121,341 $ 134,651 $ 41,516 $ 33,968 $ 86,060
======== ========== ========== ========== ========== ======== ==========
Basic and diluted income per share.... $ 0.87 $ 1.58 $ 1.38 $ 1.53 $ 0.48 $ 0.39 $ 0.99
Weighted average common shares
outstanding......................... 85,800 87,175 88,000 88,110 87,066 87,281 86,555
Cash dividends declared per common
share............................... $ 0.305 $ 0.229 $ 0.225 $ 0.245 $ 0.260 $ 0.195 $ 0.195
OTHER DATA:
EBITDA(1)............................. $172,019 $ 276,246 $ 255,198 $ 275,745 $ 149,752 $114,645 $ 193,582
Net cash from operating activities.... 126,158 155,687 167,926 136,761 184,403 136,258 168,018
Capital expenditures.................. 77,308 110,487 93,954 100,374 97,715 72,839 109,279
Research, development and engineering
expenses............................ 25,000 30,000 33,000 36,000 42,000 29,000 33,000
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF
-------------------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
---------- ---------- ---------- ---------- ---------- ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 224,999 $ 357,930 $ 456,672 $ 552,787 $ 471,253 $ 523,086
Total assets................................ 670,697 867,516 949,307 1,048,653 1,058,040 1,230,435
Long-term debt.............................. 9,544 8,507 12,170 8,376 12,714 17,229
Stockholder's equity........................ 456,266 624,000 731,969 850,884 830,641 917,940
</TABLE>
- ---------------
(1) EBITDA is earnings before interest, taxes, depreciation and amortization.
7
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The growth in sales during this fiscal year is due to the expansion of the
worldwide demand for electronic components and to AVX's commitment over the past
several years to (i) put plant and equipment in place around the world to
increase production capacity in advance of our customers' requirements, and (ii)
continue to invest in research, development and engineering in order to provide
our customers with new generations of passive component and connector product
solutions.
The expansion of the worldwide demand for electronic components has been
led primarily by 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.
The following table sets forth the percentage relationships to net sales of
certain income statement items for the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------- ------------
1997 1998 1999 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 75.6 76.5 86.6 85.9 81.5
Gross profit............................... 24.4 23.5 13.4 14.1 18.5
Selling, general and administrative
expenses................................. 9.1 8.7 9.2 9.3 7.7
Profit from operations..................... 15.3 14.8 4.2 4.8 10.8
Income before income taxes................. 15.8 15.6 4.8 5.3 11.3
Provision for income taxes................. 5.0 5.0 1.5 1.6 3.7
Net income................................. 10.8 10.6 3.3 3.7 7.6
</TABLE>
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. We believe that in addition
to 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 our manufacture of
multi-layer ceramic capacitors, (b) capacity expansion programs and continuous
improvements in our production processes, (c) cost control measures and (d) the
growth of advanced products and connector products through innovation and
component design in conjunction with our customers.
RESULTS OF OPERATIONS
Nine Months Ended December 31, 1999 Compared to Nine Months Ended December 31,
1998
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 our continued investment in plant and
equipment in order to increase production capacity.
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
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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 we produce. The price we paid for
palladium purchased during the nine months ended December 31, 1999 exceeded the
price we paid for an equivalent amount of palladium purchased during the nine
months ended December 31, 1998 by approximately $18.0 million. On June 2, 1998,
we acquired the passive component business of Thomson-CSF (TPC). The TPC passive
component business is not yet profitable, but efforts to stimulate sales growth
and reduce costs are ongoing.
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 $45.0 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, together with 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.
Year Ended March 31, 1999 Compared to Year Ended March 31, 1998
Net sales for the year ended March 31, 1999 decreased 1.7% to $1,245.5
million from $1,267.7 million for the year ended March 31, 1998. Sales for the
year ended March 31, 1999 include approximately $85 million of sales from TPC.
Exclusive of the acquisition of TPC, sales declined 8.5%, although global unit
sales increased year over year. The decrease in revenue was attributable to a
combination of factors, including, the negative impact of the Asian economic
crisis on worldwide demand and prices, a softening of demand in the electronic
components industry as customers reduced their level of inventory and suppliers
reduced their lead times and the continued trend toward smaller part sizes, all
of which contributed to lower average selling prices. Partially offsetting these
overall effects was a 6.8% increase in sales of advanced products within the
passive components group and an 8% increase in sales of connector products.
Gross profit as a percentage of net sales for the year ended March 31, 1999
decreased 10.1% to $167.4 million (13.4% of net sales) from $297.4 million
(23.5% of net sales) for the year ended March 31, 1998. As indicated above,
overall sales prices in fiscal 1999 were lower compared to fiscal 1998. Gross
profit was also negatively impacted by the rising cost of palladium, a precious
metal used in the manufacture of ceramic capacitors. Compared to fiscal 1998,
the average market price for palladium during fiscal 1999 increased 152% to $315
per troy ounce. The overall impact of rising palladium prices is estimated to
have reduced gross profit for fiscal 1999 by $16.7 million. Slightly lower
throughput, which negatively impacts cost absorption, reflects soft demand and
the intentional reduction in our inventory levels, also contributed to the
decline in gross profit. Partially offsetting these factors were continued
production efficiencies and improvements in production processes, as well as the
impact of relatively higher sales of better margin advanced and connector
products. Gross profit was also negatively impacted by costs associated with the
integration of the TPC operation into our organization. Cost cutting measures
and organizational changes initiated since the TPC acquisition are ongoing.
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Selling, general and administrative expenses for the year ended March 31,
1999 were $114.1 million (9.2% of net sales), compared with $110.7 million (8.7%
of net sales) in the year ended March 31, 1998. The increase is primarily
attributable to the integration of the TPC operations and the amortization of
goodwill related to the acquisition.
Research, development and engineering expenditures, which encompass the
personnel and related expenses devoted to developing new products, processes and
technical innovations, were $42 million and $36 million in fiscal 1999 and 1998,
respectively. These costs were incurred as we continued to enhance existing
product lines and develop new products.
As a result of the above factors, profit from operations for the year ended
March 31, 1999, decreased to $53.3 million from $186.7 million for the year
ended March 31, 1998.
For the reasons set forth above and lower interest income on invested cash,
net income in the year ended March 31, 1999 decreased to $41.5 million (3.3% of
net sales) from $134.6 million (10.6% of net sales) for the year ended March 31,
1998.
Year Ended March 31, 1998 Compared to Year Ended March 31, 1997
Net sales for the year ended March 31, 1998 increased 12.6% to $1,267.7
million from $1,126.2 million for the year ended March 31, 1997. The increase
was primarily attributable to the growth in the ceramic and tantalum products,
particularly surface-mount and advanced products. Despite the overall increase
in sales, our results continued to be impacted by several factors including: (a)
the shortening of lead times as customers reduced their level of inventory and
suppliers reduced lead times, (b) a continuation of the trend toward
surface-mount products and smaller part sizes, which traditionally have lower
average selling prices, (c) an overall reduction in selling prices, (d) the
uncertainties surrounding the Asian economic crisis and (e) the strengthening of
the U.S. dollar and certain European currencies, which had a modest dampening
effect on reported U.S. dollar sales.
Gross profit as a percentage of net sales for the year ended March 31, 1998
decreased 0.9% to $297.4 million (23.5% of net sales) from $274.3 million (24.4%
of net sales) for the year ended March 31, 1997. Overall sales prices in the
1998 year were lower compared to the 1997 year. Gross profit was also negatively
impacted by the rising cost of palladium. Continued automation of the
manufacturing processes and higher volumes of throughput in our factories have
helped to reduce manufacturing costs for products sold and enabled us to
maintain strong gross profit levels. As a result of our strategy to manufacture
in the various regions in which we sell products, the strengthening of the U.S.
dollar and certain European currencies reduced the overall cost of manufacturing
when reported in U.S. dollars.
Selling, general and administrative expenses for the year ended March 31,
1998 were $110.7 million (8.7% of net sales), compared with $102.4 million (9.1%
of net sales) in the year ended March 31, 1997. The increase in selling, general
and administrative expenses was due to higher research and development spending,
higher sales commissions and the benefit of adjustments to environmental
remediation accruals in 1997. As a percentage of sales, these expenses declined
due to our stringent cost control measures.
Research, development and engineering expenditures, which encompass the
personnel and related expenses devoted to developing new products, processes and
technical innovations, were $36 million and $33 million in fiscal 1998 and 1997,
respectively.
As a result of the above factors, profit from operations for the year ended
March 31, 1998 increased 8.6% to $186.7 million from $171.9 million for the year
ended March 31, 1997.
For the reasons set forth above, higher interest income on invested cash
and a $3.1 million dividend from a nonmarketable equity investment, net income
in the year ended March 31, 1998 increased 11.0% to $134.6 million (10.6% of net
sales) from $121.3 million (10.8% of net sales) for the year ended March 31,
1997.
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LIQUIDITY AND CAPITAL RESOURCES
Our liquidity needs arise primarily from working capital requirements,
dividends, capital expenditures and acquisitions. Historically, we have
satisfied our liquidity requirements through internally generated funds. As of
December 31, 1999, we 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 $167.9 million for the year ended
March 31, 1997, $136.8 million for the year ended March 31, 1998, $184.4 million
for the year ended March 31, 1999 and $168.0 million for the nine months ended
December 31, 1999.
Purchases of property and equipment were $93.9 million in fiscal 1997,
$100.4 million in fiscal 1998, $97.7 million in fiscal 1999 and $109.3 million
for the nine months ended December 31, 1999. These expenditures related to
expanding the production capabilities of the passive components and connector
product lines. The carrying value for our equipment reflects the fact that
depreciation expense for machinery and equipment is generally computed using the
accelerated double-declining balance method. We continue to add additional
capacity. We expect to purchase equipment totalling from $130 million to $170
million during each of fiscal 2000 and fiscal 2001.
On June 2, 1998, we purchased the TPC passive component business for $74.0
million, including the assumption of debt. Our net cash outlay was $58.0
million.
During fiscal 1998, we invested $5.3 million for a 41% interest in the
research and development company, Electro-Chemical Research Ltd. (ECR). ECR has
developed and patented a technology for high capacity electrical storage
devices. We have committed to make an additional investment of $2.7 million in
May 2000 for an additional 10% interest in ECR.
Although the majority of our funding is internally generated, certain of
our European subsidiaries 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.
In fiscal 1997, 1998 and 1999, dividends of $19.4 million, $21.1 million
and $22.7 million, respectively, were paid to stockholders. To date in fiscal
2000, we have paid dividends of $16.9 million.
In accordance with our stock repurchase program, we are authorized to
purchase 2.2 million shares. We purchased 1,929,100 shares at a cost of $31.7
million during fiscal 1999. The repurchased shares are held as treasury stock
and are used to satisfy stock option exercises.
We have established reserves for our projected share of costs associated
with the remediation of, and compliance with, environmental matters at various
sites. Adjustments to such provisions and related expenditures have not been
material in any of these periods.
Based on our financial condition as of December 31, 1999, we believe that
cash on hand and expected to be generated from operating activities will be
sufficient to satisfy our anticipated financing needs for working capital,
capital expenditures, environmental clean-up costs, research, development and
engineering expenses and any dividends to be paid for the foreseeable future.
YEAR 2000
The Year 2000 issue concerns the inability of information systems to
properly recognize and process date-sensitive information beyond January 1,
2000. AVX 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
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<PAGE> 16
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.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued and amended Statement
of Financial Accounting 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. We will be
required to adopt SFAS No. 133 for the quarter ended June 30, 2001. Currently,
we are evaluating this standard and the impact it will have on our consolidated
financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign Currency
Our European sales, which accounted for approximately 28% of fiscal 1999
revenues, generally are denominated in local currencies while those in North
America and Asia generally are denominated in U.S. dollars. Also, certain
manufacturing and operating costs denominated in local currencies are incurred
in Europe, Asia, Mexico and Central and South America. As a result, fluctuations
in currency exchange rates affect our operating results and cash flow. In order
to minimize the effect of movements in currency exchange rates, we periodically
enter into forward exchange contracts to hedge external and intercompany foreign
currency transactions. We do not hold or issue derivative financial instruments
for speculative purposes. Currency exchange gains and losses have been
immaterial during the periods presented.
Assuming a 10% hypothetical adverse change in all foreign currencies, with
the resulting functional currency gains and losses translated into U.S. dollars
at the spot rate, the resulting net loss in fair value of exchange contracts
held would not be material to our results, financial position or cash flows.
Euro
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency, the Euro. We have successfully completed all
the necessary enhancements to our sales order, banking arrangements and
operational procedures to ensure Euro compliance. We are able to process orders,
invoice customers and accept payment in Euros throughout Europe. The
introduction of the Euro has not had any material adverse impact upon us. We
continue to monitor the risk of price erosion that could result from increased
price transparency among countries using the Euro.
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<PAGE> 17
Precious Metals
We are at risk to fluctuations in prices for commodities used to
manufacture our products, primarily palladium and tantalum.
Palladium, a precious metal used in the manufacture of a portion of our
multi-layer ceramic capacitors, is primarily purchased from various companies in
the form of palladium sponge and ingot. The main areas of mining of palladium
are in Russia and South Africa. Palladium is considered a commodity and is
subject to price volatility and has fluctuated in a range of approximately $120
to $450 per troy ounce during the past three years. We have managed, through the
use of forward purchase agreements and strategic spot buying, to purchase
palladium at a cost below the average market cost for each of the past three
years. We are addressing the volatility in the price of palladium by (i)
adjusting the manufacturing process for the parts made with palladium to reduce
the amount of the precious metal used in each part, and (ii) substituting base
metals, such as nickel, in the production of multi-layer ceramic capacitors. We
have constructed a new 100,000 square foot production facility in Myrtle Beach,
which began production during the first quarter of this fiscal year and is
focusing on nickel based products. Because of robust demand for ceramic parts,
both palladium and nickel based production capacity is currently needed to
satisfy our customers' needs.
Assuming a 10% hypothetical increase in the average cost of palladium
purchased by AVX, gross profit for the year ended March 31, 1999 would have been
negatively impacted by approximately $9.6 million.
Tantalum powder is a principal material used in the manufacture of solid
tantalum capacitors. This product is purchased under annual contracts through
suppliers from various parts of the world at prices that are subject to periodic
adjustment. We are a major consumer of the world's annual tantalum production.
Although we believe that there is currently no problem with the procurement of
tantalum powder and that the tantalum required by us has generally been
available in sufficient quantity to meet requirements, the limited number of
tantalum powder suppliers could lead to higher prices.
Assuming a 10% hypothetical increase in the average cost of tantalum
purchased by AVX, gross profit for the year ended March 31, 1999 would have been
negatively impacted by approximately $6.6 million.
Interest Rate Exposure
Interest rate exposure is centrally managed by offsetting surplus cash and
deposits against borrowings on a currency-by-currency basis. We maintain an
insignificant amount of foreign currency denominated long-term and short-term
debt. The term of these borrowings range from 3 months to 36 months, with both
fixed and variable interest rates. A 10% adverse movement in interest rates
would not have a material impact on our operating results, financial position or
cash flows.
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<PAGE> 18
BUSINESS
AVX is a leading worldwide manufacturer and supplier of a broad line of
passive electronic components and related products. Virtually all types of
electronic devices use our passive component products to store, filter or
regulate electric energy.
Our passive electronic component products include ceramic and tantalum
capacitors, film capacitors, ferrites, varistors and non-linear resistors
manufactured in our facilities throughout the world and passive components
manufactured by Kyocera. We also manufacture and sell electronic connectors and
distribute and sell certain electronic connectors manufactured by Kyocera.
Our customers are multi-national original equipment manufacturers, or OEMs,
and contract equipment manufacturers, or CEMs (also referred to as electronic
manufacturing service providers (EMSs)). We market our products through our own
direct sales force, independent manufacturers' representatives or electronic
component distributors, based upon market characteristics and demands. We
coordinate our sales, marketing and manufacturing organization by strategic
customer account and globally by region.
We sell our products to customers in a broad array of industries, such as
telecommunications, information technology hardware, automotive electronics,
medical devices and instrumentation, industrial instrumentation, military and
aerospace electronic systems and consumer electronics. We estimate that, in
fiscal 1999, approximately 65% of our net sales were to the telecommunications
and information technology hardware industries.
Our principal strategic advantages include:
Providing Superior Customer Service. We believe that the breadth and
quality of our product line and our ability to respond to our customers'
design and delivery requirements in a rapid fashion make us the provider of
choice for our multi-national customer base. We differentiate ourselves by
providing our customers with a substantially complete passive component
solution. We market six families of products: ceramic products, tantalum
products, advanced products, other passive products, connector devices and
Kyocera resale products. This broad array allows our OEM and CEM (EMS)
customers to streamline their purchasing and supply organization.
Maintaining the Lowest Cost, Highest Quality Manufacturing
Organization. We are the only U.S. passive component manufacturer to
manufacture its own ceramic raw materials, which we believe provides a
significant cost and flexibility advantage over our competitors. We are
also investing heavily in the production of base metal ceramic capacitors
in order to reduce our dependence on palladium. We have invested $292
million over the past three fiscal years and an additional $109 million in
the first nine months of the current fiscal year to upgrade and enhance our
manufacturing capabilities. In order to continually reduce the cost of
production, since 1976, our strategy has included the transfer of more
labor intensive manufacturing processes to such areas as El Salvador,
Northern Ireland, Mexico and the Czech Republic.
Globally Coordinating our Marketing and Manufacturing Facilities. Our
28 manufacturing facilities are located in 13 different countries around
the world. As our customers continue to grow and increase their global
production locations, we are ideally situated to meet their supply
requirements. We are also committed to the continuous evaluation of the
potential in new manufacturing locations based on customers' demands and
business opportunities. We assign a global customer account executive to
cover each of our major multi-national customers.
Creating Innovative and Unique Products and Manufacturing
Processes. Our four principal research locations, in Myrtle Beach, South
Carolina, Northern Ireland, England and Israel, participated in the
introduction of approximately 40 new products in the past 12 months. In the
1999 EBN EE Passives Survey, AVX was named as the technology leader by 21%
of the respondents, with our nearest competitor named by only 13% of the
respondents. Our scientists are working continually with our customers to
develop products that will assist them in achieving their design and
production goals. Also, our engineers continue to improve the manufacturing
processes for our existing products in order to improve reliability and
decrease the cost of production.
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PRODUCTS
We offer an extensive line of passive components designed to provide our
customers with "one-stop shopping" for substantially all of their passive
component needs. Passive components represented approximately 91% of our net
sales and connectors accounted for approximately 9% of our net sales in fiscal
1999. Financial information concerning our passive components, connectors and
research and development segments is set forth in our consolidated financial
statements in this prospectus.
Passive Components
We manufacture a full line of multi-layered ceramic and solid tantalum
capacitors in many different sizes and configurations. Our strategic focus on
the growing use of ceramic and tantalum capacitors is reflected in our
investment during the past three fiscal years of approximately $264.4 million
and an additional $96.7 million during the nine months ended December 31, 1999
primarily to increase our capacitor manufacturing capacity. We believe that
sales of ceramic and tantalum capacitors will continue to be among the most
rapidly growing in the worldwide capacitor market because technological advances
have been constantly expanding the number and type of applications for these
products.
Tantalum and ceramic capacitors are commonly used in conjunction with
integrated circuits and are best suited for applications requiring low to medium
capacitance values. Capacitance is the measure of the capacitor's ability to
store electric energy. Generally, ceramic capacitors are more cost-effective at
lower capacitance values, and tantalum capacitors are more cost-effective at
medium capacitance values.
We produce two basic versions of ceramic and tantalum capacitors:
surface-mount and leaded. Surface-mount capacitors are attached directly to a
circuit board. Leaded capacitors are attached to a circuit board using lead
wires. In recent years there has been significant industry-wide growth in the
use of surface-mount capacitors, and industry analysts have predicted that this
will cause the market for leaded capacitors to decline. In certain applications,
however, leaded capacitors continue to be the component of choice. The net sales
of surface-mount and leaded ceramic and tantalum capacitors accounted for
approximately 53% of our passive component net sales in fiscal 1999.
We also offer a line of advanced passive component products to fill the
special needs of our customers. Our advanced products engineers work with some
customers' in-house technical staffs to design, produce and manufacture special
products to meet the specifications of particular applications. The manufacture
of special products permits us, through our research and development activities,
to make technological advances, provide customers with design solutions to fit
their needs, gain a marketing inroad with the customer with respect to our
complete product line and, in some cases, develop products that can be sold to
additional customers in the future. Our advanced products division presently has
significant ongoing projects with a variety of key customers. Sales of advanced
products accounted for approximately 19% of passive component net sales in
fiscal 1999.
With the acquisition of TPC, we expanded our family of passive components
to include film capacitors, ferrites, high-energy/voltage power capacitors,
varistors and non-linear resistors. These products share the same distribution
and market channels as our historical product base and further enhance our
product offerings. The sale of TPC products accounted for approximately 8% of
passive component net sales in fiscal 1999.
We have a non-exclusive license to distribute and sell Kyocera electronic
component products everywhere in the world except Japan. Our distribution and
sale of certain Kyocera products broaden our range of products and further
facilitate our ability to offer "one-stop shopping" for our customers'
electronic components needs. The Kyocera electronic components we sell include
ceramic capacitors, hybrids, oscillators, saw devices, resistor networks,
trimmers, chip resistors, ceramic filters, resonators and piezo acoustic
devices. Sales of these Kyocera products accounted for approximately 20% of
passive component net sales in fiscal 1999.
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<PAGE> 20
Connectors
We also manufacture high-quality electronic connectors and inter-connect
systems for use in the telecommunications, information technology hardware,
automotive electronics, medical device, military and aerospace industries. Our
product lines include a variety of industry-standard connectors as well as
products designed specifically for our customers' unique applications. We
produce fine pitch, or small centerline, connectors, many of which have been
selected by leading OEMs for applications in cellular phones, pagers, printers
and notebook computers. We have also developed a value-added business in flat
ribbon cable assembly and in backpanel and card edge assemblies. We also sell
certain connectors manufactured by Kyocera.
MARKETING, SALES AND DISTRIBUTION
We place a high priority on solving customers' electronic component
problems and responding to their needs. We frequently form teams consisting of
marketing, research and development and manufacturing personnel to work with
customers to design and manufacture products to suit their specific
requirements.
Our products are sold primarily to manufacturers and, to a much lesser
extent, to United States and foreign government agencies. We also have qualified
products under various military specifications, approved and monitored by the
United States Defense Electronic Supply Center, and under certain foreign
military specifications.
Approximately 42%, 28% and 30% of our net sales for fiscal 1999 were to
customers in North America, Europe, and Asia, respectively. Financial
information relating to geographic operations is set forth in our consolidated
financial statements in this prospectus. Our products are marketed worldwide by
our own sales personnel, as well as through independent manufacturers'
representatives who are compensated solely on a commission basis and independent
electronic component distributors. We have regional sales personnel in strategic
locations to provide technical and sales support for independent manufacturers'
representatives and independent electronic component distributors. We believe
that this combination of distribution channels provides a high level of market
penetration and efficient coverage of our customers on a cost-effective basis.
Our OEM customers include Motorola Inc., Lucent Technologies, L.M. Ericsson
Telefonaktiebolaget, OY Nokia AB., Northern Telecom, Sagen SA, Samsung Co.
Limited and Siemens AG in the telecommunications industry; International
Business Machines Corporation, Compaq Computer Corp., Seagate Technology
International, Apple Computer, Inc., 3Com Corporation, Acer Incorporated and
Sony Corporation in the information technology hardware industry; Robert Bosch
GmbH, Siemens AG, General Motors Corp., Mannesmann VDO AG, Valco SA and Magneti
Marelli S.p.A. in the automotive industry; and Medtronics, Inc., St. Jude
Medical and Guidant Corporation in the medical industry. Sales are also made to
large CEM customers, such as Solectron Corporation, Celestica, Inc., Jabil
Circuit, Inc. and SCI Systems, and independent electronic component
distributors, such as Arrow, Avnet, Future Electronics and Kent Electronics. Our
largest customers vary from year to year, and no customer has a long-term
commitment to purchase our products. No one customer has accounted for more than
10% of net sales for the past three fiscal years.
We had a backlog of orders of approximately $456 million at December 31,
1999, $228 million at March 31, 1999, $196 million at March 31, 1998 and $240
million at March 31, 1997. Orders may be canceled by a customer at any time,
subject to cancellation charges under certain circumstances. Backlog fluctuates
year to year due in part to the changes in customer order patterns and the
utilization of capacity in the industry. The backlog outstanding at any time is
not necessarily indicative of the level of business to be expected in any
ensuing period since certain orders are placed and delivered within the same
period.
RESEARCH, DEVELOPMENT AND ENGINEERING
Our emphasis on research and development is reflected by the fact that most
of our manufactured products and manufacturing processes have been designed and
developed by our own engineers and
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scientists. Our 60,000 square-foot facility in Myrtle Beach, South Carolina is
dedicated entirely to pure research and development, and provides centralized
coordination of our global research and development efforts. We also maintain
significant research and development staffs at our facilities in Northern
Ireland, Israel and England.
Our research, development and engineering effort places a priority on the
design and development of innovative products and manufacturing processes and
engineering advances in existing product lines and manufacturing operations.
Other areas of emphasis include material synthesis and the integration of
passive components for applications requiring reduced size and lower
manufacturing costs associated with board assembly. Research, development and
engineering expenditures were approximately $33 million, $36 million and $42
million during fiscal 1997, 1998 and 1999, respectively.
We own United States patents as well as corresponding patents in various
other countries, and also have patent applications pending, although patents are
not in the aggregate material to the successful operation of our business.
RAW MATERIALS
Although most materials incorporated in our products are available from a
number of sources, certain materials (particularly palladium and tantalum) are
available only from a relatively limited number of suppliers.
Palladium, a principal raw material used in the manufacture of ceramic
capacitors, is primarily purchased from various companies in the form of
palladium sponge and ingot. The main areas of mining of palladium are in Russia
and South Africa. Palladium is considered a commodity and is subject to price
volatility that has fluctuated in a range of approximately $120 to $450 per troy
ounce during the last three years. We are addressing the volatility in the price
of palladium by (i) adjusting the manufacturing process for the parts made with
palladium to reduce the amount of the precious metal used in each part, and (ii)
substituting base metals, such as nickel, in the production of multi-layer
ceramic capacitors. We have constructed a new 100,000 square foot production
facility in Myrtle Beach, which began production during the first quarter of
this fiscal year and is focusing on nickel based products. Because of robust
demand for ceramic parts, both palladium and nickel based production capacity is
currently needed to satisfy our customers' needs.
Tantalum powder is a principal material used in the manufacture of tantalum
capacitor products. This product is purchased under annual contracts with
suppliers from various parts of the world at prices that are subject to periodic
adjustment. We are a major consumer of the world's annual tantalum production.
We believe that there is currently no problem with the procurement of tantalum
powder because the tantalum required to produce our products has generally been
available in sufficient quantity. The limited number of tantalum powder
suppliers could, however, lead to higher prices.
AVX internally develops and produces a majority of the ceramic raw
materials used in its production processes and is expanding its ceramic
production operations in order to meet increased demand. We are the only United
States capacitor manufacturer that manufactures its own ceramic raw materials.
COMPETITION
We have encountered strong competition in our various product lines from
both domestic and foreign manufacturers. Competitive factors in the markets
include product quality and reliability, breadth of product line, customer
service, technological innovation, timely delivery and price. We believe we
compete favorably on the basis of each of these factors. The breadth of our
product offering enables us to strengthen our market position by providing
customers with one of the broadest selections of passive electronic components
and connector products available from any one source. Our major competitors are
Murata Manufacturing Company Ltd, TDK Corporation, KEMET Corporation, NEC
Corporation and Vishay Intertechnology, Inc. Our major competitors for certain
electronic connector products are AMP Incorporated, Molex Incorporated and
Amphenol Corporation.
17
<PAGE> 22
EMPLOYEES
As of December 31, 1999, we employed approximately 17,000 full time
employees. Approximately 3,800 of these employees are employed in the United
States. Of the employees located in the United States, approximately 1,700 are
covered by collective-bargaining arrangements. In addition, some foreign
employees are members of trade and government-affiliated unions.
LEGAL PROCEEDINGS
We are a party to various legal proceedings and administrative actions, all
of which are of an ordinary or routine nature incidental to our operations.
Although it is difficult to predict the outcome of any legal proceeding, in the
opinion of management, these proceedings and actions should not, individually or
in the aggregate, have a material adverse effect on our financial condition,
results of operations or cash flows.
ENVIRONMENTAL MATTERS
We are subject to federal, state and local laws and regulations concerning
the environment in the United States and to the environmental laws and
regulations of the other countries in which we have manufacturing facilities.
Based on our periodic review of the operating policies and practices at all of
our facilities, we believe that our operations currently comply, in all material
respects, with all of these laws and regulations.
We have been identified by the United States Environmental Protection
Agency ("EPA"), state governmental agencies or other private parties as a
potentially responsible party ("PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") or equivalent state or local
laws for clean-up and response costs associated with thirteen sites at which
remediation is required. Because CERCLA has been construed to authorize joint
and several liability, the EPA could seek to recover all clean-up costs from any
one of the PRPs at a site despite the involvement of other PRPs. At all but one
site, financially responsible PRPs other than AVX also are, or have been,
involved in site investigation and clean-up activities. We therefore believe
that any liability resulting from these sites will be apportioned between AVX
and other PRPs.
To resolve our liability at each of the sites at which we have been named a
PRP, we have entered into various administrative orders and consent decrees with
federal and state regulatory agencies governing the timing and nature of
investigation and remediation. We have paid, or reserved for, all amounts
required under the terms of these orders and decrees corresponding to our
apportioned share of the liabilities. As is customary, the orders and decrees at
sites where the PRPs are not themselves implementing the chosen remedy contain
provisions allowing the EPA to reopen the agreement and seek additional amounts
from settling PRPs in the event that certain contingencies occur, such as the
discovery of significant new information about site conditions during clean-up
or substantial cost overruns for the chosen remedy. The existence of these
reopener provisions, combined with the difficulties of reliably estimating
clean-up costs and the joint and several nature of CERCLA liability, makes it
difficult to predict the ultimate liability at any site with certainty. While no
assurance can be given, we do not believe that any additional costs to be
incurred by AVX at any of the sites will have a material adverse effect on our
financial condition, results of operations or cash flows.
In addition, we do not believe that any investigation or clean-up that may
be required at any other locations will have a material adverse effect on our
financial condition, results of operations or cash flows.
MANUFACTURING OPERATIONS
We conduct manufacturing operations throughout the world. All of our
operations around the world are certified to the ISO 9000 international quality
control standards. ISO 9000 is a comprehensive set of quality program standards
developed by the International Organization for Standardization. The majority of
our facilities have also been qualified under a new set of stringent QS 9000
quality standards developed by the U.S. automotive industry.
18
<PAGE> 23
Virtually all manufacturing, research and development and warehousing
facilities could at any time be involved in the manufacturing, sale or
distribution of passive components (PC) and connector products (CP). The
following is a list of our facilities, their square footage, whether they are
leased or owned and a description of their use.
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE TYPE OF INTEREST DESCRIPTION OF USE
- -------- ------- ---------------- ------------------
<S> <C> <C> <C>
UNITED STATES
Myrtle Beach, SC.................. 546,098 Owned Manufacturing/Research/
Headquarters -- PC -- CP
Myrtle Beach, SC.................. 69,000 Owned Office/Warehouse -- PC, CP
Conway, SC........................ 70,408 Owned Manufacturing -- PC
Biddeford, ME..................... 72,000 Owned Manufacturing -- PC
Colorado Springs, CO.............. 15,000 Owned Manufacturing -- PC
El Paso, TX....................... 24,460 Leased Warehouse -- PC -- CP
New Orleans, LA................... 18,840 Leased Warehouse -- PC
Olean, NY......................... 107,400 Owned Manufacturing -- PC
Raleigh, NC....................... 206,000 Owned Manufacturing/Warehouse -- PC -- CP
Sun Valley, CA.................... 25,000 Leased Manufacturing -- PC
Vancouver, WA..................... 87,048 Leased Manufacturing -- PC
Vancouver, WA..................... 10,800 Leased Warehouse/Office -- PC
OUTSIDE THE UNITED STATES
Beaune, France.................... 235,210 Leased Manufacturing -- PC
Betzdorf, Germany................. 101,671 Owned Manufacturing -- CP
Biggleswade, England.............. 10,000 Leased Manufacturing -- CP
Chihuahua, Mexico................. 393,952 Owned Manufacturing -- PC
Coleraine, N. Ireland............. 167,000 Owned Manufacturing/Research -- PC
Guadalajara, Mexico............... 20,000 Owned Warehouse -- PC -- CP
Hong Kong......................... 30,257 Owned Warehouse -- PC -- CP
Jerusalem, Israel................. 98,200 Leased Manufacturing/Research -- PC
Juarez, Mexico.................... 84,000 Owned Manufacturing -- PC -- CP
Lanskroun, Czech Republic......... 197,593 Leased Manufacturing -- PC
Lanskroun, Czech Republic......... 201,586 Owned Manufacturing -- PC
Manaus, Brazil.................... 78,500 Owned Manufacturing -- PC -- CP
Uherske Hradiste, Czech 148,910 Leased Manufacturing -- PC -- CP
Republic........................
Larne, N. Ireland................. 120,000 Owned Manufacturing/Warehouse PC -- CP
Newmarket, England................ 52,000 Leased Manufacturing -- CP
Penang, Malaysia.................. 140,825 Owned Manufacturing -- PC
Paignton, England................. 154,909 Owned Manufacturing/Research -- PC
Saint-Apollinaire, France......... 321,535 Leased Manufacturing -- PC
Seurre, France.................... 134,333 Leased Manufacturing -- PC
San Salvador, El Salvador......... 232,981 Owned Manufacturing -- PC
Singapore......................... 49,500 Leased Manufacturing/Warehouse -- PC -- CP
Taipei, Taiwan.................... 52,500 Owned Manufacturing -- PC
</TABLE>
In addition to the foregoing, we own and lease a number of sales offices
throughout the world.
Management believes that all of our property, plant and equipment is in
good operating condition. We are constantly upgrading our equipment and adding
capacity through greater use of automation. Our capital expenditures for plant
and equipment were $100.4 million in fiscal 1998, $97.7 million for fiscal 1999
and $109.3 million during the nine months ended December 31, 1999.
In order to meet the expectations of our customers during this current
period of robust demand, we plan to continue to add capacity during the balance
of fiscal year 2000 and in fiscal year 2001.
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<PAGE> 24
MANAGEMENT
The following table provides certain information regarding our executive
officers as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Benedict P. Rosen.......................... 63 Chief Executive Officer
John S. Gilbertson......................... 56 President and Chief Operating Officer
Donald B. Christiansen..................... 60 Senior Vice President of Finance, Chief
Financial Officer and Treasurer
C. Marshall Jackson........................ 51 Senior Vice President of Sales and
Marketing
Ernie Chilton.............................. 55 Senior Vice President of Tantalum
S. M. Chan................................. 43 Vice President of Sales and Marketing -- Asia
Allan Cole................................. 57 Vice President of Sales
Alan Gordon................................ 50 Vice President of Sales and
Marketing -- Europe
John L. Mann............................... 57 Vice President of Quality
Roberto E. Salazar......................... 45 Vice President of Latin America Operations
Carl L. Eggerding.......................... 50 Vice President of Advanced Products and
Technology Center
Kurt P. Cummings........................... 44 Corporate Controller and Secretary
</TABLE>
BENEDICT P. ROSEN. Chairman of the Board and Chief Executive Officer since
July 1997. Chief Executive Officer and President of AVX from April 1993 until
July 1997 and a member of the Board since January 1990. Executive Vice President
from February 1985 to March 1993 and employed by AVX since 1972. Senior Managing
and Representative Director of Kyocera since June 1995 and previously served as
a Managing Director of Kyocera from 1992 to June 1995. Director of
Nitzanim-AVX/Kyocera-Venture Capital Fund Ltd., Aerovox Corporation and the
Nordson Corporation.
JOHN S. GILBERTSON. President since July 1997. Chief Operating Officer of
AVX since April 1994, and a member of the Board since January 1990. Executive
Vice President from April 1992 to July 1997, Senior Vice President from
September 1990 to March 1992 and employed by AVX since 1981. Director of Kyocera
since June 1995.
DONALD B. CHRISTIANSEN. Senior Vice President of Finance, Chief Financial
Officer and Treasurer of AVX since July 1997 and a member of the Board since
April 1992. Vice President of Finance, Chief Financial Officer and Treasurer
from April 1994 to July 1997 and Chief Financial Officer from March 1992 to
April 1994.
C. MARSHALL JACKSON. Senior Vice President of Sales and Marketing since
April 1994. From January 1990 until March 1994, Mr. Jackson was Vice President
of AVX and has been employed by AVX since 1969.
ERNIE CHILTON. Senior Vice President-Tantalum since April 1994. From
January 1990 until February 1993, Mr. Chilton served as Vice President of AVX.
Mr. Chilton has been employed by AVX since 1979.
S. M. CHAN. Vice President of Sales and Marketing Asia since April 1994.
From April 1992 until March 1994, Mr. Chan served as the Director of Marketing
of AVX. Mr. Chan has been employed by AVX since October 1990.
ALLAN COLE. Vice President of Sales of the Company since May 1987. Mr.
Cole has been employed by AVX since 1977 serving in several sales management
positions, both domestic and international.
ALAN GORDON. Vice President of European Sales and Marketing of Europe
since February 1993. From January 1991 until February 1993, Mr. Gordon served as
the Director of Marketing of AVX. Mr. Gordon has been employed by AVX since
1991.
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<PAGE> 25
JOHN L. MANN. Vice President of Quality of AVX since May 1986. From March
1984 until May 1986, Mr. Mann served as the Corporate Director of Quality.
CARL L. EGGERDING. Vice President of Advanced Products and Technology
Center since July 1997. Employed by AVX since April 1996. Prior to April 1996,
employed by IBM as Director of Development for Organic Packaging Technology.
ROBERTO E. SALAZAR. Vice President of Latin America Operations since July
1997. Served as General Manager of El Salvador Operations from 1980 until 1993.
Division President for El Salvador and later Chihuahua Mexico operations.
Business manager for the radial conformed coated devices with worldwide
responsibility since 1986.
KURT P. CUMMINGS. Secretary of the Company since July 1997. Corporate
Controller of the Company since June 1992. Prior to June 1992, Partner with
Deloitte & Touche LLP.
SELLING STOCKHOLDER
Kyocera is the majority stockholder of AVX. The address of Kyocera is 6
Takeda Tobadono-cho, Fushimi-ku, Kyoto 612-8501, Japan. As of the date of this
prospectus, Kyocera owns beneficially and of record 66,150,000 shares of common
stock, representing approximately 76% of our outstanding shares. After the
offering, Kyocera will own beneficially and of record 60,900,000 shares of
common stock, representing approximately 70% of AVX's outstanding shares (or
60,150,000 shares, representing approximately 69% of our outstanding stock, if
the underwriters' over-allotment option is exercised in full). Kyocera will,
therefore, be able, acting alone, to elect AVX's entire board of directors and
to control the vote on matters submitted to a vote of our stockholders,
including extraordinary corporate transactions.
RELATIONSHIP WITH KYOCERA AND RELATED TRANSACTIONS
From January 1990 through August 15, 1995, AVX was wholly-owned by Kyocera.
On August 15, 1995, Kyocera sold 22.9%, or 19,650,000 shares of AVX's common
stock, and AVX sold an additional 2,200,000 common shares, in a public offering.
Since January 1990, Kyocera and AVX have engaged in a significant number
and variety of related party transactions, including, without limitation, the
transactions referred to in the consolidated financial statements and related
notes thereto of AVX set forth elsewhere in this prospectus. AVX also has
established several ongoing arrangements with Kyocera and has executed several
agreements, the more significant of which are described below. Except for the
Buzzer Assembly Agreement, each of the agreements described below contains
provisions requiring that the terms of any transaction under such agreement be
equivalent to that which an independent unrelated party would agree at
arm's-length and is subject to the approval of the Special Advisory Committee of
the AVX Board of Directors. The Special Advisory Committee is comprised of the
independent directors of AVX and is required to review and approve such
agreements and any other significant transactions between AVX and Kyocera not
covered by such agreements.
Products Supply and Distribution Agreement. Pursuant to the Products Supply
and Distribution Agreement (the "Distribution Agreement") (i) AVX will act as
the non-exclusive distributor of certain Kyocera-manufactured products in
territories outside of Japan, and (ii) Kyocera will act as the non-exclusive
distributor of certain AVX-manufactured products within Japan. The Distribution
Agreement has a term of one year, with automatic one-year renewals, subject to
the right of termination by either party at the end of the then current term
upon at least three months prior written notice.
Disclosure and Option to License Agreement. Pursuant to the Disclosure and
Option to License Agreement (the "License Agreement"), AVX and Kyocera agree to
exchange confidential information relating to the development and manufacture of
multi-layered ceramic capacitors and various other ceramic products. The
expiration date of the License Agreement is March 31, 2005.
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<PAGE> 26
Materials Supply Agreement. Pursuant to the Materials Supply Agreement (the
"Supply Agreement"), AVX and Kyocera will from time to time supply the other
party with certain raw and semi-processed materials used in the manufacture of
ceramic capacitors and other ceramic products. The Supply Agreement will expire
on March 31, 2000.
Buzzer Assembly Agreement. Pursuant to the Buzzer Assembly Agreement (the
"Buzzer Agreement"), AVX assembles certain electronic components for Kyocera in
AVX's Juarez, Mexico facility. Kyocera pays AVX a fixed cost mutually agreed
upon by the parties for each component assembled plus a profit margin. The
Buzzer Agreement will terminate on March 31, 2000, subject to the right of
either party to terminate upon six months written notice. However, unless
otherwise terminated, the Buzzer Agreement shall be renewed for one year
periods.
Machinery and Equipment Purchase Agreement. Pursuant to the Machinery and
Equipment Purchase Agreement (the "Machinery Purchase Agreement"), AVX and
Kyocera will from time to time design and manufacture for the other party
certain equipment and machinery of a proprietary and confidential nature used in
the manufacture of capacitors and other electrical components. The agreement
will terminate on March 31, 2000.
AVX and Kyocera are currently negotiating certain changes to, or extensions
of, the Distribution Agreement, Supply Agreement, Buzzer Agreement and Machinery
Purchase Agreement, each of which is expected to be finalized and executed prior
to March 31, 2000. We do not expect these changes or extensions to materially
modify prior arrangements between the two companies.
22
<PAGE> 27
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of AVX consists of 300,000,000 shares of
common stock and 20,000,000 shares of preferred stock. Both before and after
giving effect to the sale of the 5,250,000 shares of common stock offered by
Kyocera in this offering, there are 87,127,250 shares of common stock
outstanding (excluding 746,075 shares of common stock issuable upon exercise of
options outstanding and 449,650 shares available for grant as of December 31,
1999 under AVX's stock option plans). No shares of preferred stock are
outstanding.
COMMON STOCK
The holders of shares of common stock are entitled to vote at all meetings
of stockholders on the basis of one vote per share and receive dividends if, as
and when declared by the board of directors, and participate ratably in any
distribution of property or assets on the liquidation, winding up or other
dissolution of AVX.
The holders of our common stock are not entitled to preemptive,
subscription or conversion rights, and there are no redemption or sinking fund
provisions applicable to the common stock. The common stock does not have
cumulative voting rights. The common stock currently outstanding is validly
issued, fully paid and non-assessable.
PREFERRED STOCK
Our board of directors, without further approval of the stockholders, is
vested with broad authority with respect to the preferred stock to establish and
designate series, fix the number of shares to be included in each series,
provide for a sinking fund for the purchase or redemption of shares or a
purchase fund for the purchase of shares of such series, and determine the
relative rights, preferences and limitations of each series, including but not
limited to the dividend and voting rights of the preferred stock and the
preferential amounts payable to the holders of preferred stock on liquidation.
The board of directors will also determine whether the preferred stock will be
convertible into other securities of the company, including common stock.
Accordingly, the issuance of preferred stock, while promoting flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting rights of the holders of, or the market price of,
common stock and, under certain circumstances, make it more difficult for a
third party to gain control of AVX. The holders of preferred stock also have the
right to vote separately as a class on any proposal involving fundamental
changes in the rights of holders of our preferred stock pursuant to Delaware
law.
ANTI-TAKEOVER PROVISIONS
Certain Provisions of the Certificate and By-laws
AVX's certificate and by-laws contain certain provisions that may delay,
defer or prevent a change in control and make removal of management more
difficult. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the board of directors and in the policies
formulated by the board of directors and to discourage certain types of
transactions that may involve an actual or threatened change of control. The
provisions also are intended to discourage certain tactics that may be used in
proxy fights.
The certificate provides that members of the board of directors may be
removed only for cause and only by the affirmative vote of the holders of 80% or
more of the voting power of the then outstanding stock of AVX.
The by-laws establish advance notice procedures with regard to stockholder
proposals. These procedures provide that notice of stockholder proposals at any
annual meeting of stockholders must generally be received in writing by the
Corporate Secretary not less than 60 days nor more than 90 days prior to the
meeting provided, that, in the event that less than 70 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholders must be received
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<PAGE> 28
within 10 days after notice of the meeting was mailed or publicized in order to
be timely. We may reject a stockholder proposal that is not made in accordance
with these procedures. We may also reject a stockholder proposal that does not,
as required by the by-laws, contain certain information concerning the matters
to be brought before the meeting or the stockholder submitting the proposal.
Business transacted at any special meeting of stockholders is limited to the
purposes stated in the notice of such special meeting.
The foregoing provisions, together with the ability of the board of
directors to issue preferred stock without further stockholder action, could
delay or frustrate the removal of incumbent directors or a change in control of
AVX even if such removal or change would be beneficial, in the short term, to
our stockholders. The provisions could also discourage or make more difficult a
merger, tender offer or proxy contest even if such event would be favorable to
the interests of stockholders.
Delaware Anti-takeover Provisions
Under Section 203 of the Delaware law, certain "business combinations"
between a Delaware corporation, the stock of which generally is publicly traded
or held of record by more than 2,000 stockholders, and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its certificate of incorporation not to be governed by Section 203 of
the Delaware law (AVX has not made such an election), (ii) the business
combination was approved by the board of directors of the corporation before the
other party to the business combination became an interested stockholder, (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to tender or vote stock held by
the plan), or (iv) the business combination was approved by the board of
directors of the corporation and ratified and authorized at an annual or special
meeting of stockholders (not by written consent) by 66 2/3% of the outstanding
voting stock which the interested stockholder did not own. The three-year
prohibition also does not apply to business combinations proposed by an
interested stockholder following the announcement or notification of
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder or group who
becomes the beneficial owner of 15% or more of a Delaware corporation's voting
stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation provides that no director of AVX will be
personally liable to the company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware law as
currently in effect or as the same may hereafter be amended. Section 102(b)(7)
of the Delaware law currently does not permit provisions that eliminate or limit
the liability of a director (i) for breach of the director's duty of loyalty to
the company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or purchases
or (iv) for any transaction from which the director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of AVX
and its stockholders (through stockholders' derivative suits on behalf of AVX)
to recover monetary damages against any director for breach of fiduciary duty as
a director (including breaches resulting from negligent or grossly negligent
behavior) except for the situations described in clauses (i)-(iv) of the
preceding sentence. These provisions will not affect the availability of
injunctive relief for breach of fiduciary duty or alter the liability of
directors under federal securities laws.
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<PAGE> 29
Our by-laws provide that AVX will indemnify its directors, officers and
certain employees and agents to the maximum extent authorized by the Delaware
law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Both before and after giving effect to the offering, AVX will have
outstanding 87,127,250 shares of common stock (excluding 746,075 shares of
common stock issuable upon exercise of options outstanding and 449,650 shares
available for grant as of December 31, 1999 under AVX's stock option plans). The
shares being sold by Kyocera pursuant to this prospectus will be freely
tradeable without restriction under the Securities Act unless purchased by
"affiliates" of AVX.
Immediately following completion of the offering, the shares of common
stock owned by Kyocera cannot be sold unless they are registered under the
Securities Act or unless an exemption from registration, such as the exemptions
provided by Rule 144 under the Securities Act, is available.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of AVX, who has
beneficially owned restricted shares for at least one year, will be entitled to
sell in any three-month period a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of common stock and (ii) the
average weekly trading volume of the common stock on the New York Stock Exchange
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the SEC. Sales pursuant to Rule 144 are also subject to
certain other requirements relating to manner of sale, notice and availability
of current public information about AVX. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of AVX at any time
during the three months immediately preceding the sale is entitled to sell
restricted shares pursuant to Rule 144(k) without regard to the limitations
described above, provided that two years have expired since the later of the
date on which such restricted shares were acquired from AVX or the date they
were acquired from an affiliate of AVX.
We and Kyocera and our executive officers and directors have agreed, with
exceptions, not to sell or transfer any common stock of AVX for a period of 90
days after the date of this prospectus without first obtaining the written
consent of Merrill Lynch & Co. For additional information, see
"Underwriting -- No Sales of Similar Securities."
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<PAGE> 30
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated and Salomon
Smith Barney Inc. are acting as representatives of each of the underwriters
named below. Subject to the terms and conditions set forth in a purchase
agreement among us, Kyocera and the underwriters, Kyocera has agreed to sell to
the underwriters, and each of the underwriters has agreed to purchase from
Kyocera, the number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 1,575,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 1,575,000
Morgan Stanley & Co. Incorporated........................... 1,050,000
Salomon Smith Barney Inc.................................... 1,050,000
---------
Total.......................................... 5,250,000
=========
</TABLE>
The several underwriters have agreed to purchase all of the shares of
common stock being sold under the purchase agreement if any of these shares are
purchased. If an underwriter defaults, the purchase agreement provides that the
purchase commitments of the non-defaulting underwriters may be increased or the
purchase agreement may be terminated.
We and Kyocera have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in respect of those
liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares and other conditions
contained in the purchase agreement, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify this offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the public offering price
set forth on the cover page of this prospectus and to dealers at that price less
a concession not in excess of $1.50 per share. The underwriters may allow, and
the dealers may reallow, a discount not in excess of $.10 per share to other
dealers. After the offering, the public offering price, concession and discount
may be changed.
The following table shows the per share and total public offering price,
underwriting discount and the proceeds before expenses to Kyocera. This
information is presented assuming either no exercise or full exercise by the
underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- ------------ ------------
<S> <C> <C> <C>
Public offering price............................ $63.00 $330,750,000 $378,000,000
Underwriting discount............................ $ 2.44 $ 12,810,000 $ 14,640,000
Proceeds, before expenses, to Kyocera............ $60.56 $317,940,000 $363,360,000
</TABLE>
The expenses of this offering, not including the underwriting discount, are
estimated at $560,000 and are initially payable by AVX. Kyocera will reimburse
AVX for such expenses.
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<PAGE> 31
OVER-ALLOTMENT OPTION
Kyocera has granted an option to the underwriters to purchase up to 750,000
additional shares at the public offering price, less the underwriting discount.
The underwriters may exercise this option for 30 days from the date of this
prospectus solely to cover any over-allotments. If the underwriters exercise
this option, each will be obligated, subject to conditions contained in the
purchase agreement, to purchase a number of additional shares proportionate to
that underwriter's initial amount reflected in the table above.
NO SALES OF SIMILAR SECURITIES
We and Kyocera and our executive officers and directors have agreed, with
exceptions, not to sell or transfer any common stock of AVX for a period of 90
days after the date of this prospectus without first obtaining the written
consent of Merrill Lynch & Co. Specifically, we and Kyocera and our executive
officers and directors have agreed not to directly or indirectly
- offer, pledge, sell or contract to sell any common stock of AVX,
- sell any option or contract to purchase any common stock of AVX,
- purchase any option or contract to sell any common stock of AVX,
- grant any option, right or warrant for the sale of any common stock of
AVX,
- otherwise dispose of or transfer any common stock of AVX,
- request or demand that we file any registration statement related to the
common stock of AVX, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock of AVX
whether any swap or transaction is to be settled by delivery of common
stock or other securities, in cash or otherwise.
This lockup provision applies to common stock of AVX and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock of AVX. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition.
NEW YORK STOCK EXCHANGE LISTING
The shares are listed on the New York Stock Exchange under the symbol
"AVX."
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the representatives are permitted to engage in
transactions that stabilize the price of the common stock, such as bids or
purchases to peg, fix or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short position
by purchasing shares in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the over-allotment option
described above. Purchases of the common stock to stabilize its price or to
reduce a short position may cause the price of the common stock to be higher
than it might be in the absence of such purchases.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
27
<PAGE> 32
LEGAL MATTERS
Certain legal matters relating to this offering will be passed upon for AVX
by Parker, Poe, Adams & Bernstein L.L.P., Charlotte, North Carolina. Brown &
Wood LLP, New York, New York is acting as counsel for the underwriters.
EXPERTS
The financial statements incorporated in this prospectus and registration
statement by reference to the annual report on Form 10-K for the year ended
March 31, 1999 and included in this prospectus and registration statement as of
March 31, 1998 and 1999 and for each of the three years in the period
ended March 31, 1999 have been so incorporated and included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to incorporate by reference the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we later file
with the Commission will automatically update and supersede the information
contained or incorporated by reference in this prospectus. Accordingly, we
incorporate by reference the documents listed below and any future filings we
make with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act:
- The description of our common stock which is contained in our
registration statement on Form 8-A filed with the Commission on July 12,
1995 and any amendments or reports filed for the purpose of updating such
description.
- Our annual report on Form 10-K for the year ended March 31, 1999, as
amended.
- Our quarterly reports on Form 10-Q for the quarters ended June 30, 1999,
September 30, 1999 and December 31, 1999, in each case, if applicable, as
amended.
- Our proxy statement dated July 15, 1999 (to the extent incorporated by
reference in our annual report on Form 10-K for the year ended March 31,
1999).
All documents which we subsequently file pursuant to Section 13(a), 13(c),
14, or 15(d) of the Exchange Act prior to the termination of the offering shall
be deemed to be a part of this prospectus from the date of filing of such
documents. These documents are or will be available for inspection or copying at
the locations identified below under the caption "Where You Can Find More
Information."
We will provide without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, upon written or oral request, a
copy of any and all of the documents that have been incorporated by reference in
this prospectus (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference). You should direct requests for
documents to Donald B. Christiansen, Senior Vice President of Finance and Chief
Financial Officer, 801 17th Avenue South, Myrtle Beach, SC 29577. The telephone
number is (843) 946-0355. We also maintain a website at http://www.avxcorp.com.
The information contained in our website is not incorporated by reference into,
nor is it otherwise to be deemed a part of, this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and, therefore, we file reports, proxy statements,
information statements and other information with the Securities and Exchange
Commission. You may inspect and copy this information (at prescribed
28
<PAGE> 33
rates) at the Commission's public reference facilities at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the regional offices of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. Please call the Commission at 1-800-SEC-0330 for more information on
its public reference rooms. The Commission also maintains an Internet Website at
http://www.sec.gov that contains reports, proxy statements and information
statements and other information regarding issuers that file electronically with
the Commission. In addition, this information may also be inspected at the
offices of the National Association of Securities Dealers, Inc. located at 1735
K Street, N.W., Washington, D.C. 20006.
We have filed with the Commission a registration statement (which contains
this prospectus) on Form S-3 under the Securities Act of 1933, as amended. The
registration statement relates to the common stock offered by Kyocera. This
prospectus does not contain all of the information set forth in the registration
statement and its exhibits and schedules. Statements contained in this
prospectus as to the contents of any document referred to are not necessarily
complete, and in each instance we refer you to the copy of such document filed
as an exhibit to the registration statement. For further information with
respect to us and the securities offered hereby, we refer you to the
registration statement and its exhibits and schedules, which may be obtained at
the locations described in the preceding paragraph.
29
<PAGE> 34
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AVX CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of March 31, 1998 and 1999
and (unaudited) December 31, 1999...................... F-3
Consolidated Statements of Income for the years ended
March 31, 1997, 1998 and 1999 and (unaudited) for the
nine months ended December 31, 1998 and 1999........... F-4
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1997, 1998 and 1999 and
(unaudited) for the nine months ended December 31,
1999................................................... F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1997, 1998, and 1999 and (unaudited) nine
months ended December 31, 1998 and 1999................ F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
AVX Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of AVX
Corporation and Subsidiaries at March 31, 1998 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
May 14, 1999
F-2
<PAGE> 36
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER 31,
1998 1999 1999
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 201,887 $ 173,106 $ 234,391
Accounts receivable, net.................................. 139,812 157,331 190,735
Inventories............................................... 326,787 277,393 305,170
Deferred income taxes..................................... 20,039 21,895 22,175
Other receivables......................................... 3,707 2,738 3,442
Prepaid and other......................................... 29,980 31,072 40,224
---------- ---------- ----------
Total current assets............................... 722,212 663,535 796,137
Property and equipment:
Land...................................................... 10,110 12,287 12,639
Buildings and improvements................................ 123,668 142,661 177,552
Machinery and equipment................................... 663,594 730,574 781,335
Construction in progress.................................. 44,313 58,692 63,417
---------- ---------- ----------
841,685 944,214 1,034,943
Accumulated depreciation.................................... (559,431) (639,966) (691,475)
---------- ---------- ----------
282,254 304,248 343,468
Goodwill, net............................................... 33,479 78,790 75,441
Other assets................................................ 10,708 11,467 15,389
---------- ---------- ----------
Total assets....................................... $1,048,653 $1,058,040 $1,230,435
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank debt...................................... $ 9,887 $ 20,944 $ 16,663
Current maturities of long-term debt...................... 2,911 148 13
Accounts payable:
Trade................................................... 39,507 46,737 73,939
Affiliates.............................................. 37,800 32,311 55,054
Income taxes payable...................................... 15,650 11,995 34,909
Accrued payroll and benefits.............................. 36,361 41,055 45,574
Accrued expenses.......................................... 27,309 39,092 46,899
---------- ---------- ----------
Total current liabilities............................... 169,425 192,282 273,051
Long-term debt............................................ 8,376 12,714 17,229
Deferred income taxes..................................... 8,563 6,115 7,651
Other liabilities......................................... 11,405 16,288 14,564
---------- ---------- ----------
Total liabilities.................................. 197,769 227,399 312,495
---------- ---------- ----------
Commitments and contingencies (Notes 10 and 13)
Stockholders' equity:
Preferred stock, par value $.01 per share:................ -- --
Authorized, 20,000,000 shares; None issued and outstanding
Common stock, par value $.01 per share:................... 882 882 882
Authorized, 300,000,000 shares; issued and outstanding,
88,183,500 and 88,184,125 shares for 1998 and 1999,
respectively
Additional paid-in capital................................ 325,017 325,028 333,353
Retained earnings......................................... 522,410 541,267 610,466
Accumulated other comprehensive income (loss)............. 2,575 (4,789) (9,371)
Common stock in treasury, at cost, 1,929,100 (March 31,
1999) and 1,056,875 (December 31, 1999) shares.......... -- (31,747) (17,390)
---------- ---------- ----------
Total stockholders' equity......................... 850,884 830,641 917,940
---------- ---------- ----------
Total liabilities and stockholders' equity......... $1,048,653 $1,058,040 $1,230,435
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 37
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
--------------------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $ 1,126,178 $ 1,267,653 $ 1,245,473 $ 926,862 $ 1,131,135
Cost of sales................... 851,863 970,216 1,078,064 795,884 922,063
----------- ----------- ----------- ----------- -----------
Gross profit.......... 274,315 297,437 167,409 130,978 209,072
Selling, general and
administrative expenses....... 102,369 110,737 114,104 86,005 87,482
----------- ----------- ----------- ----------- -----------
Profit from
operations.......... 171,946 186,700 53,305 44,973 121,590
Other income (expense):
Interest income............... 7,536 11,268 7,946 6,204 6,450
Interest expense.............. (2,049) (1,921) (2,228) (1,710) (1,453)
Other, net.................... 1,010 1,377 1,719 13 1,227
----------- ----------- ----------- ----------- -----------
Income before income taxes...... 178,443 197,424 60,742 49,480 127,814
Provision for income taxes...... 57,102 62,773 19,226 15,512 41,754
----------- ----------- ----------- ----------- -----------
Net income............ $ 121,341 $ 134,651 $ 41,516 $ 33,968 $ 86,060
=========== =========== =========== =========== ===========
Basic and diluted income per
share......................... $ 1.38 $ 1.53 $ 0.48 $ 0.39 $ 0.99
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding................... 88,000,000 88,109,643 87,066,028 87,280,959 86,555,383
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 38
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
------------------------------- ADDITIONAL COMPREHENSIVE CURRENT PERIOD'S
NUMBER TREASURY PAID-IN RETAINED INCOME COMPREHENSIVE
OF SHARES AMOUNT STOCK CAPITAL EARNINGS (LOSS) TOTAL INCOME
----------- ------ -------- ---------- -------- ------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996... 88,000,000 $880 $ -- $319,909 $306,923 $(3,712) $624,000
Net income................ 121,341 121,341 $121,341
Other comprehensive
income.................. 5,988 5,988 5,988
Dividends................. (19,360) (19,360)
----------- ---- -------- -------- -------- ------- -------- --------
Balance, March 31, 1997... 88,000,000 880 -- 319,909 408,904 2,276 731,969 $127,329
========
Net income................ 134,651 134,651 $134,651
Other comprehensive
income.................. 299 299 299
Dividends................. (21,145) (21,145)
Exercise of stock
options................. 183,500 2 4,482 4,484
Tax benefit of stock
option exercises........ 626 626
----------- ---- -------- -------- -------- ------- -------- --------
Balance, March 31, 1998... 88,183,500 882 -- 325,017 522,410 2,575 850,884 $134,950
========
Net income................ 41,516 41,516 $ 41,516
Other comprehensive income
(loss).................. (7,364) (7,364) (7,364)
Dividends................. (22,659) (22,659)
Exercise of stock
options................. 625 11 11
Treasury stock
purchased............... (1,929,100) (31,747) (31,747)
----------- ---- -------- -------- -------- ------- -------- --------
Balance, March 31, 1999... 86,255,025 882 (31,747) 325,028 541,267 (4,789) 830,641 $ 34,152
========
(UNAUDITED)
Net income................ 86,060 86,060 $ 86,060
Other comprehensive income
(loss).................. (4,582) (4,582) (4,582)
Dividends................. (16,861) (16,861)
Exercise of stock
options................. 872,225 14,357 5,581 19,938
Tax benefit of stock
option exercises........ 2,744 2,744
----------- ---- -------- -------- -------- ------- -------- --------
Balance, December 31,
1999.................... 87,127,250 $882 $(17,390) $333,353 $610,466 $(9,371) $917,940 $ 81,478
=========== ==== ======== ======== ======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 39
AVX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------ -------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income................................ $121,341 $134,651 $ 41,516 $ 33,968 $ 86,060
Adjustment to reconcile net income to net
cash from operating activities:
Depreciation and amortization.......... 82,242 87,668 94,728 69,659 70,765
Deferred income taxes.................. (911) (2,520) (4,305)
Changes in operating assets and
liabilities, net of effects of
business acquired:
Accounts receivable.................. (9,745) 11,621 2,269 7,668 (41,374)
Inventories.......................... (2,912) (77,053) 70,256 45,472 (30,331)
Accounts payable and accrued
expenses.......................... (5,730) (3,772) (20,804) (24,220) 65,435
Income taxes payable................. (11,093) (9,507) (3,318) (5,781) 25,811
Other assets and liabilities......... (5,266) (4,327) 4,061 9,492 (8,348)
-------- -------- -------- -------- --------
Net cash from operating
activities...................... 167,926 136,761 184,403 136,258 168,018
-------- -------- -------- -------- --------
Investing activities:
Purchases of property and equipment....... (93,954) (100,374) (97,715) (72,839) (109,279)
Equity investments........................ (5,300)
Loans to investee......................... (1,805)
Business acquired, net of cash............ (58,027) (58,027)
Other..................................... 2,347 142 65 17 (863)
-------- -------- -------- -------- --------
Net cash used in investing
activities...................... (91,607) (105,532) (155,677) (130,849) (111,947)
-------- -------- -------- -------- --------
Financing activities:
Proceeds from issuance of debt............ 9,738 2,197 19,596 17,764 11,861
Repayment of debt......................... (10,043) (3,464) (22,675) (17,486) (9,349)
Dividends paid............................ (19,360) (21,145) (22,659) (17,043) (16,861)
Purchase of treasury stock................ (31,747) (27,513)
Exercise of stock options................. 4,482 11 11 19,920
-------- -------- -------- -------- --------
Net cash from (used in) financing
activities...................... (19,665) (17,930) (57,474) (44,267) 5,571
-------- -------- -------- -------- --------
Effect of exchange rate on cash............. 319 14 (33) 69 (357)
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents............................... 56,973 13,313 (28,781) (38,789) 61,285
Cash and cash equivalents at beginning of
period.................................... 131,601 188,574 201,887 201,887 173,106
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
period.................................... $188,574 $201,887 $173,106 $163,098 $234,391
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 40
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
AVX Corporation is a leading worldwide manufacturer and supplier of a broad
line of passive electronic components and interconnect products. Components sold
by the Company are used in virtually all types of electronic products for
industries such as telecommunications, computers, automotive, medical and
consumer electronics. The consolidated financial statements of AVX Corporation
and its subsidiaries (the "Company" or "AVX") include the accounts of the
Company and its subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
Other investments for which the Company does not control the financial and
operational direction, are either accounted for using the equity method or are
recorded at cost.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Public Offering
From January 1990 through August 15, 1995, the Company was wholly-owned by
Kyocera Corporation ("Kyocera"). On August 15, 1995, Kyocera sold 22.9%, or
19,650,000 of the Company's common shares, and the Company sold an additional
2,200,000 common shares, in a public offering. As of March 31, 1999, Kyocera
owned approximately 77% of the Company's outstanding common shares.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market. Inventory costs include material, labor and manufacturing overhead.
Property and Equipment
Property and equipment are recorded at cost. Machinery and equipment are
generally depreciated on the double-declining balance method. Buildings are
depreciated on the straight-line method. The estimated useful lives used for
computing depreciation are as follows: buildings and improvements -- 10 to 31.5
years, and machinery and equipment -- 3 to 10 years. Depreciation expense was
$80,120, $85,858 and $90,858 for the years ended March 31, 1997, 1998 and 1999,
respectively.
The cost of maintenance and repairs is charged to expense as incurred. Upon
disposal or retirement, the cost and accumulated depreciation of assets are
eliminated from the respective accounts. Any gain or loss is reflected in
income.
Goodwill
Assets and liabilities related to business combinations accounted for as
purchase transactions were recorded at their respective fair values on the dates
of acquisition. Any excess of purchase price over such fair value ("Goodwill")
is amortized on a straight-line basis over periods ranging from 20 to 40 years.
The accumulated amortization as of March 31, 1998 and 1999 was $19,099 and
$22,972, respectively. The carrying value of Goodwill is evaluated quarterly in
relation to the operating performance and estimated
F-7
<PAGE> 41
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
future undiscounted cash flows of the related operating unit. Adjustments are
made if the sum of expected future net cash flows is less than carrying value.
Income Taxes
Deferred tax liabilities and assets are determined based on temporary
differences between the bases of certain assets and liabilities for income tax
and financial reporting purposes. The deferred tax assets and liabilities are
classified according to the financial statement classification of the assets and
liabilities generating the differences. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized. The Company does not provide for U.S. taxes on the undistributed
earnings of foreign subsidiaries which are considered to be reinvested
indefinitely. As of March 31, 1999, the amount of U.S. taxes on such
undistributed earnings would have been approximately $39,178.
Foreign Currency Activity
Assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at the exchange rate in effect at the balance sheet date. Operating
accounts are translated at an average rate of exchange for the respective
accounting periods. Translation adjustments result from the process of
translating foreign currency financial statements into U.S. dollars and are
reported separately as a component of accumulated comprehensive income.
The Company enters into foreign currency exchange contracts and swaps to
manage exposure to currency rate fluctuations on anticipated sales, purchases
and intercompany transactions. These exchange agreements generally qualify for
accounting as designated hedges. The realized and unrealized gains and losses on
these contracts are deferred and included as a component of the related
transaction. Any contracts that do not qualify as hedges for accounting purposes
are marked to market with the resulting gains and losses recognized in other
income or expense.
Revenue Recognition
Sales are recorded upon shipment of related goods to customers. Certain
sales to distributors are under terms which allow for the affected distributors
to receive price protection from the Company for actual sales at prices below
anticipated sales prices. A portion of sales is made to distributors under
agreements allowing limited rights of return. The Company provides an allowance
for distributor adjustments based on historical experience.
Grants
The Company receives employment and research grants from various non-US
governmental agencies which are recognized in earnings in the period in which
the related expenditures are incurred. Capital grants for the acquisition of
equipment are recorded as reductions of the related equipment cost and reduce
future depreciation expense.
Use of Estimates
The consolidated financial statements are prepared on the basis of
generally accepted accounting principles. The preparation of financial
statements in conformity with general accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at March 31, 1998 and 1999 and reported amounts of
revenues and expenses for each of the three years in the period ended March 31,
1999. Actual results could differ from those estimates and assumptions.
F-8
<PAGE> 42
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Research, Development and Engineering
Research, development and engineering expenses totaled approximately
$33,000, $36,000 and $42,000 for the years ended March 31, 1997, 1998 and 1999,
respectively, while research and development expenses included in these amounts
totaled $18,558, $21,001 and $20,622 for the years ended March 31, 1997, 1998
and 1999, respectively. Research and development expenditures are expensed when
incurred.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, allows companies to record compensation cost for
stock-based compensation plans at fair value or provide pro forma disclosures.
The Company has chosen to continue to account for stock-based compensation using
the method whereby compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
grant over the amount an employee must pay to acquire the stock.
Treasury Stock
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. As of March 31,
1999 the Company had purchased 1,929,100 shares at a cost of $31,747. The
repurchased shares are held as treasury stock and are available for general
corporate purposes.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting 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 the impact it will have
on the Company's consolidated financial statements.
2. EARNINGS PER SHARE
Basic earnings per share are computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share are computed by dividing net earnings by the sum of
(a) the weighted average number of shares of common stock outstanding during the
period and (b) the dilutive effect of potential common stock equivalents during
the period.
The basic weighted average number of shares of common stock outstanding for
the period were 88,000,000, 88,109,643 and 87,066,028 for the years ended March
31, 1997, 1998 and 1999, respectively.
The diluted weighted average number of shares of common stock and potential
common stock equivalents outstanding for the period were 88,038,950, 88,279,846
and 87,083,500 for the years ended March 31, 1997, 1998 and 1999, 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.
F-9
<PAGE> 43
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. 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. Total non-shareowner
changes in equity include all changes in equity during a period except those
resulting from investments by and distributions to shareowners.
The Company's total comprehensive income was $127,329, $134,950 and $34,152
for the years ended March 31, 1997, 1998 and 1999, respectively. The only
adjustment to net income in the periods was for foreign currency translation
adjustments.
4. ACCOUNTS RECEIVABLE
Accounts receivable at March 31 consisted of:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Trade....................................................... $163,348 $183,033
Less: allowances for doubtful accounts, sales returns,
distributor adjustments and discounts..................... (23,536) (25,702)
-------- --------
$139,812 $157,331
======== ========
</TABLE>
Charges to expense related to such allowances were approximately $58,543,
$93,059 and $111,813, and applications to such allowances were approximately
$60,991, $87,746 and $109,558 for the years ended March 31, 1997, 1998 and 1999,
respectively.
5. INVENTORIES
Inventories at March 31 consisted of:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Finished goods.............................................. $116,811 $ 91,551
Work in process............................................. 114,827 96,604
Raw materials and supplies.................................. 95,149 89,238
-------- --------
$326,787 $277,393
======== ========
</TABLE>
6. DEBT
Long-term debt at March 31 consisted of:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Deutsche mark loans at 3.29-6.25% due through 2001 $11,287 $12,862
Less -- current maturities.................................. (2,911) (148)
------- -------
$ 8,376 $12,714
======= =======
</TABLE>
As of March 31, 1999, $8.3 million of long-term deutsche mark debt
originally scheduled to mature on January 1, 2000 has been excluded from current
maturities of long-term debt based on the Company's intent and ability to extend
the facilities.
F-10
<PAGE> 44
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 148
2001........................................................ 11,080
2002........................................................ 1,634
-------
$12,862
=======
</TABLE>
Long-term debt includes 15.0 million and 5.0 million of deutsche mark loans
which have variable rates of interest based on a market rate plus .25%. At March
31, 1999, these loans had a rate of 3.29%. The remaining loans of 3.0 million
and .25 million deutsche marks carry fixed rates of 4.5% and 6.25%,
respectively.
Short-term bank debt at March 31, 1999, consists primarily of borrowings
incurred by the Company's European subsidiaries under 15.0 million and 10.0
million deutsche mark short-term working capital bank facilities bearing
interest at market rates (between 3.09% and 4.4% at March 31, 1999) which extend
through April 1999 and June 1999, respectively. In addition, the Company has two
50.0 million French franc working capital bank facilities bearing interest at
market rates (3.42% as of March 31, 1999) which extended through June 1999.
Interest paid totaled $1,639, $1,426 and $1,575 during the years ended
March 31, 1997, 1998 and 1999, respectively.
7. INCOME TAXES
For financial reporting purposes, after adjustments for certain corporate
items, income before income taxes includes the following components:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Domestic................................................ $102,717 $126,236 $24,089
Foreign................................................. 75,726 71,188 36,653
-------- -------- -------
$178,443 $197,424 $60,742
======== ======== =======
</TABLE>
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current:
Federal/State........................................... $38,186 $49,075 $13,573
Foreign................................................. 20,084 17,487 13,096
------- ------- -------
58,270 66,562 26,669
------- ------- -------
Deferred:
Federal/State........................................... 4,031 (4,362) (7,709)
Foreign................................................. (5,199) 573 266
------- ------- -------
(1,168) (3,789) (7,443)
------- ------- -------
$57,102 $62,773 $19,226
======= ======= =======
</TABLE>
F-11
<PAGE> 45
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------
1998 1999
--------------------- ---------------------
CURRENT: ASSETS LIABILITIES ASSETS LIABILITIES
-------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Sales and receivable reserves.................. $ 7,626 $ -- $ 9,489 $ --
Inventory reserves............................. 2,990 -- 3,441 --
Accrued expenses............................... 9,423 -- 8,965 --
------- ------- ------- -------
$20,039 $ -- $21,895 $ --
======= ======= ======= =======
Non-current:
Property and equipment depreciation............ $ 1,123 $ 2,707 $ 690 $ 2,002
Accrued expenses............................... 1,330 1,260 2,422 1,252
Other.......................................... -- 11,638 -- 7,934
Foreign income tax loss carryforwards.......... 4,964 -- 18,412 --
------- ------- ------- -------
7,417 15,605 21,524 11,188
Valuation allowance............................ (375) -- (16,451) --
------- ------- ------- -------
$ 7,042 $15,605 $ 5,073 $11,188
======= ======= ======= =======
</TABLE>
A reconciliation between the U.S. Federal statutory income tax rate and the
Company's effective rate for income tax is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory rate................................. 35.0% 35.0% 35.0%
Increase (decrease) in tax rate resulting from:
State income taxes, net of federal benefit.................. 2.4 1.7 1.0
Taxes at different tax rates on foreign earnings............ (2.9) (3.6) (9.5)
Change in valuation allowance............................... (.8) 10.4
Other, net.................................................. (1.7) (1.3) (5.2)
---- ---- ----
Effective tax rate.......................................... 32.0% 31.8% 31.7%
==== ==== ====
</TABLE>
At March 31, 1999, certain of the Company's foreign subsidiaries in Europe
had tax net operating loss carryforwards totaling approximately $53,428, most
with no expiration date. Accordingly, the Company's valuation allowances relate
to deferred tax assets which are the result of the loss carryforwards in these
jurisdictions. The valuation allowance increased $16,076 during the year ended
March 31, 1999, $8,500 of which was due to the pre-acquisition operating loss
carryforwards of TPC, and decreased $2,560 during the year ended March 31, 1998.
Income taxes paid totaled $72,096, $76,013 and $26,084 during the years
ended March 31, 1997, 1998 and 1999, respectively.
8. EMPLOYEE RETIREMENT PLANS
Pension Plans
The Company sponsors various defined benefit pension plans covering certain
employees. Pension benefits provided to certain U.S. employees covered under
collective bargaining agreements are based on a flat benefit formula. Effective
December 31, 1995, the Company froze benefit accruals under its domestic
non-contributory defined benefit pension plan for a significant portion of the
employees covered under collective bargaining agreements. The Company's pension
plans for certain European employees provide
F-12
<PAGE> 46
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for benefits based on a percentage of final pay. The Company's funding policy is
to contribute the statutory required amount to the appropriate trust or
government funds.
The change in the benefit obligation and plan assets of the U.S. and
non-U.S. defined benefit plans for 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------
U.S. PLANS INTERNATIONAL PLANS
----------------- -------------------
1998 1999 1998 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year......... $21,442 $23,187 $43,483 $50,471
Service cost.................................... 181 306 2,358 2,438
Interest cost................................... 1,511 1,538 3,102 3,517
Plan participants' contributions................ 0 0 926 942
Actuarial loss (gain)........................... 1,055 (854) 1,971 2,303
Benefits paid................................... (1,002) (1,074) (1,369) (1,904)
------- ------- ------- -------
Benefit obligation at end of year............... 23,187 23,103 50,471 57,767
------- ------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of
year......................................... 19,702 23,813 46,306 53,330
Actual return on assets......................... 4,903 2,652 7,124 4,331
Employer contributions.......................... 252 0 561 1,485
Plan participants' contributions................ 0 0 926 942
Benefits paid................................... (1,002) (1,074) (1,369) (1,904)
Other expenses.................................. (42) 0 (218) (370)
------- ------- ------- -------
Fair value of plan assets at end of year........ 23,813 25,391 53,330 57,814
------- ------- ------- -------
Funded status................................... 626 2,288 2,859 47
Unrecognized actuary loss (gain)................ (2,249) (3,613) (5,314) (2,093)
Unrecognized prior service cost................. 196 174 477 426
Unrecognized transition obligation.............. 87 65 (49) 54
------- ------- ------- -------
Prepaid (accrued) benefit cost.................. $(1,340) $(1,086) $(2,027) $(1,566)
======= ======= ======= =======
</TABLE>
The Company's assumptions used in determining the pension assets
(liabilities) shown were as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Assumptions:
Discount rates................................ 6.75-7.75% 6.75-7.0% 6.0-7.0%
Increase in compensation...................... 3.0-4.0% 3.0-4.0% 2.50-3.50%
Expected long-term rate of return on plan
assets..................................... 8.0-9.0% 8.0-9.0% 7.50-9.0%
</TABLE>
F-13
<PAGE> 47
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension cost related to these pension plans include the following
components:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Service cost......................................... $ 2,745 $ 2,539 $ 2,744
Plan participants' contributions..................... (872) (926) (942)
Interest cost........................................ 4,384 4,613 5,055
Expected return on plan assets....................... (4,837) (7,816) (6,748)
Amortization of prior service cost................... 10 73 51
Amortization of transition obligation................ 22 43 43
Recognized actuarial loss (gain)..................... (43) 2,342 364
------- ------- -------
Net periodic pension cost............................ $ 1,409 $ 868 $ 567
======= ======= =======
</TABLE>
Savings Plans
The Company sponsors retirement savings plans which allow eligible
employees to defer part of their annual compensation. Certain contributions by
the Company are discretionary and are determined by the Company's Board of
Directors each year. The Company's contributions to the savings plans in the
United States and Europe for the years ended March 31, 1997, 1998 and 1999, were
approximately $5,800, $6,302 and $6,272, respectively.
The Company sponsors nonqualified deferred compensation programs which
permit key employees to annually elect to defer a portion of their compensation
until retirement. A portion of the deferral is subject to a matching
contribution by the Company. The employees select among various investment
alternatives, with the investments held in a separate trust. The value of the
participant's balance fluctuates based on the performance of the investments. At
March 31, 1999, the market value of the trust, $2,503, is included as an asset
and a liability of the Company in the accompanying balance sheet because the
trust assets are available to AVX's general creditors in the event of the
Company's insolvency.
9. STOCK BASED COMPENSATION
The Company has two fixed option plans. Under the 1995 Stock Option Plan,
as amended, the Company may grant options to employees for the purchase of up to
an aggregate of 2,650,000 shares of common stock. Under the Non-Employee
Directors' Stock Option Plan, as amended, the Company may grant options for the
purchase of up to an aggregate of 250,000 shares of common stock. Under both
plans, the exercise price of each option equals the market price of the
Company's stock on the date of grant and an option's maximum term is 10 years.
Options granted under the 1995 Stock Option Plan vest as to 25% annually and
options granted under the Non-Employee Directors' Stock Option Plan vest as to
one third annually.
F-14
<PAGE> 48
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the transactions of the Company's stock
option plans for the three year period ended March 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Unexercised options outstanding -- March 31, 1996......... 1,126,000 $25.50
Options granted......................................... 534,000 $18.13
Options exercised....................................... -- --
Options forfeited....................................... (21,500) $23.61
----------
Unexercised options outstanding -- March 31, 1997......... 1,638,500 $23.12
Options granted......................................... 633,000 $22.09
Options exercised....................................... (183,500) $24.42
Options forfeited....................................... (14,325) $22.54
----------
Unexercised options outstanding -- March 31, 1998......... 2,073,675 $22.69
Options granted......................................... 458,300 $16.09
Options exercised....................................... (625) $18.13
Options forfeited....................................... (203,275) $20.26
----------
Unexercised options outstanding -- March 31, 1999......... 2,328,075 $21.20
==========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Price Range $25.50-$31.813 (weighted average contractual
life 6.5 years)...................................... 951,250 $25.80
Price Range $15.0-$19.94 (weighted average contractual
life 8.5 years)...................................... 1,376,825 $18.02
Exercisable options:
March 31, 1997.......................................... 277,500 $25.50
March 31, 1998.......................................... 534,250 $24.07
March 31, 1999.......................................... 1,051,881 $23.20
</TABLE>
The calculated fair value at date of grant for each option granted during
the years ended March 31, 1997, 1998 and 1999 was $6.82, $8.59 to $14.48 and
$6.35 to $8.59, respectively. The fair value of options at date of grant was
estimated using the Black-Scholes model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
---------------------------------
1997 1998 1999
----- ---------- ----------
<S> <C> <C> <C>
Expected life (years)........................... 5 5 5
Interest rate................................... 6.7% 6.6% 6.6%
Volatility...................................... 35% 45% 45%
Dividend yield.................................. 1.21% 0.75-1.23% 1.23-1.63%
</TABLE>
If the estimated fair value of the options had been recognized as
compensation expense over the vesting periods, income before income taxes would
have been reduced by $3,099 ($2,523 after income taxes or $.03 per share),
$4,127 ($3,408 after income taxes, or $.04 per share) and $4,839 ($3,980 after
income taxes, or $.05 per share) for the years ended March 31, 1997, 1998 and
1999, respectively.
10. COMMITMENTS AND FINANCIAL INSTRUMENTS
Commitments
At March 31, 1999, the Company had contractual obligations for the
acquisition or construction of plant and equipment aggregating approximately
$21,840. In connection with an expansion at the Company's manufacturing facility
in the Northern Ireland, capital grants totaling $11,500 have been
F-15
<PAGE> 49
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approved, $1,700 of which had not been received as of March 31, 1999 and are
contingent upon the Company spending approximately $5,700 for plant and
equipment.
The Company is a lessee under long-term operating leases primarily for
office space, plant and equipment. Future minimum lease commitments under
non-cancelable operating leases as of March 31, 1999, were as follows:
<TABLE>
<CAPTION>
YEARS
ENDING
MARCH 31,
---------
<S> <C>
2000................................................... $ 8,532
2001................................................... 6,848
2002................................................... 6,228
2003................................................... 6,214
2004................................................... 6,724
Thereafter............................................. 13,825
</TABLE>
Rental expense for operating leases was $6,390, $6,440 and $9,634 for the
years ended March 31, 1997, 1998 and 1999, respectively.
Financial Instruments
At March 31, 1999, $11,000 of the Company's intercompany borrowings by a
European subsidiary were denominated in U.S. dollars. To reduce the exposure to
foreign currency fluctuations, the subsidiary entered into foreign currency
swaps which at March 31, 1999 fixed principal balance of the intercompany
borrowings in U.K. sterling. In addition to the U.S. dollar, the Company
conducts business in most European currencies and the Japanese yen. The
Company's foreign currency contracts related to anticipated sales and purchases
generally have maturities that do not exceed six months.
The Company enters into forward delivery contracts with certain suppliers
for certain precious metals used in its production processes.
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places its cash and cash equivalents with high credit
quality institutions. At times, such investments may be in excess of the Federal
Deposit Insurance Corporation insurance limit. Concentrations of credit risk
with respect to trade accounts receivable are limited due to the large number of
entities comprising the Company's customer base and their dispersion across many
different industries and countries. As of March 31, 1999, the Company believes
that its credit risk exposure is not significant.
F-16
<PAGE> 50
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following disclosure of the estimated fair value of financial
instruments has been determined by the Company, using available market
information and appropriate valuation methodologies. The fair value of financial
instruments classified as current assets or liabilities including cash and cash
equivalents, receivables and accounts payable approximate carrying value due to
the short-term maturity of the instruments. The fair value of short-term and
long-term debt approximate carrying value based on their effective interest
rates compared to current market rates.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1999
--------------------------------- ---------------------------------
CONTRACT CARRYING UNREALIZED CONTRACT CARRYING UNREALIZED
AMOUNT AMOUNT GAIN (LOSS) AMOUNT AMOUNT GAIN (LOSS)
-------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Off-Balance Sheet Financial
Instruments:
Foreign currency contracts......... $26,541 $ -- $ 259 $46,968 $ -- $(266)
Foreign currency swaps............. 16,000 (1,474) (1,474) 11,000 (570) (570)
Metal delivery contracts........... 25,014 -- 8,016 -- -- --
</TABLE>
11. TRANSACTIONS WITH AFFILIATE
The Company's businesses include the sale and distribution of electronic
products manufactured by Kyocera.
The Company entered into transactions with Kyocera as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Sales:
Product and equipment sales to affiliates................. $ 23,120 $ 25,725 $ 14,247
Subcontracting activities................................. 2,111 1,679 2,103
Commissions received...................................... 236 438 78
Purchases:
Purchases of resale inventories, raw materials supplies,
equipment and services................................. 234,434 266,568 245,504
Commissions paid.......................................... 202 87 72
Rent paid................................................. 959 1,137 1,141
Other:
Dividends paid............................................ 14,553 15,883 17,200
</TABLE>
12. SEGMENT AND GEOGRAPHIC 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. For determining segment
assets, cash and accounts receivable, which are centrally managed, are not
readily allocable to operating segments.
F-17
<PAGE> 51
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tables below present information about reported segments for the years
ended March 31,
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
Passive components....................................... $1,036,096 $1,160,428 $1,129,714
Connectors............................................... 90,082 107,225 115,759
Research and development................................. -- -- --
---------- ---------- ----------
Total............................................ $1,126,178 $1,267,653 $1,245,473
========== ========== ==========
Operating profit:
Passive components....................................... $ 196,104 $ 211,416 $ 67,257
Connectors............................................... 3,745 10,950 18,806
Research and development................................. (18,558) (21,001) (20,622)
Corporate administration................................. (9,345) (14,665) (12,136)
---------- ---------- ----------
Total............................................ $ 171,946 $ 186,700 $ 53,305
========== ========== ==========
Depreciation:
Passive components....................................... $ 70,112 $ 74,938 $ 79,493
Connectors............................................... 6,250 7,329 7,545
Research and development................................. 2,173 2,401 2,435
Corporate administration................................. 1,585 1,190 1,385
---------- ---------- ----------
Total............................................ $ 80,120 $ 85,858 $ 90,858
========== ========== ==========
Assets:
Passive components....................................... $ 492,234 $ 570,335 $ 560,982
Connectors............................................... 47,408 45,799 33,809
Research and development................................. 15,480 17,252 19,475
Cash and accounts receivable............................. 343,932 341,699 330,438
Goodwill................................................. 34,913 33,479 78,790
Corporate administration................................. 15,340 40,089 34,546
---------- ---------- ----------
Total............................................ $ 949,307 $1,048,653 $1,058,040
========== ========== ==========
Capital expenditures:
Passive components....................................... $ 83,686 $ 89,790 $ 90,952
Connectors............................................... 6,908 5,971 3,244
Research and development................................. 3,360 4,613 3,519
---------- ---------- ----------
Total............................................ $ 93,954 $ 100,374 $ 97,715
========== ========== ==========
</TABLE>
F-18
<PAGE> 52
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following geographic data is based upon net sales generated by
operations located within that geographic area and long lived assets based upon
physical location. The Other category consists of Latin America and Israel.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
United States............................................ $ 522,879 $ 607,064 $ 520,195
Europe................................................... 253,493 291,709 345,055
Asia..................................................... 345,262 364,300 369,974
Other.................................................... 4,544 4,580 10,249
---------- ---------- ----------
Total............................................ $1,126,178 $1,267,653 $1,245,473
========== ========== ==========
Property, plant and equipment, net:
United States............................................ $ 122,390 $ 127,360 $ 129,937
Europe................................................... 116,571 119,869 129,016
Asia..................................................... 3,226 2,818 10,384
Other.................................................... 29,405 32,207 34,911
---------- ---------- ----------
Total............................................ $ 271,592 $ 282,254 $ 304,248
========== ========== ==========
</TABLE>
No one customer has accounted for more than 10% of net sales in the past
three years.
13. 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
hazardous waste disposal sites. The Company continues to monitor these actions
and proceedings and to vigorously defend its interests. The Company's ultimate
liability in connection with environmental claims will depend on many factors,
including its volumetric share of waste, the total cost of remediation and the
financial viability of other companies that also sent waste to a given site.
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 or adjusts its reserves for its projected share of these costs.
These reserves do not reflect any possible future insurance recoveries, which
are not expected to be significant, but do reflect a reasonable estimate of cost
sharing at multiple party sites. Based upon information known to the Company
concerning the size of these sites, their years of operations and the number of
past users, management believes that it has adequate reserves with respect to
these matters. Such reserves for remediation, compliance and legal costs totaled
$2,600 at March 31, 1999. 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.
14. 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 operations of TPC are included
in the accompanying financial statements from the date of acquisition.
F-19
<PAGE> 53
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended March 31, 1998 and 1999
is as follows:
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER
------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $313,807 $292,000 $329,224 $324,144
Gross profit.................................. 78,080 51,460 79,318 42,604
Net income.................................... 34,935 17,402 36,730 10,514
Basic and diluted earnings per share.......... .40 .20 .41 .12
</TABLE>
<TABLE>
<CAPTION>
THIRD QUARTER FOURTH QUARTER
------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $319,651 $310,718 $304,971 $318,611
Gross profit.................................. 74,173 36,914 65,866 36,431
Net income.................................... 33,329 6,052 29,657 7,548
Basic and diluted earnings per share.......... .38 .07 .34 .09
</TABLE>
F-20
<PAGE> 54
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5,250,000 SHARES
(AVX LOGO) CORPORATION
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
FEBRUARY 15, 2000
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