AVX CORP
10-Ks and 10-Qs
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
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X
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Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the quarterly period ended December 31, 2009.
or
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For the
transition period from __________ to __________
Commission
file number
1-7201
(Exact
name of registrant as specified in its charter)
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Delaware
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33-0379007
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer ID No.)
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801
17th Avenue South, Myrtle Beach, South Carolina
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29577
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(Address
of principle executive offices)
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(Zip
Code)
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(843)
448-9411
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||
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(Registrant's
phone number, including area code)
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||
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
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Yes
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X
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No
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Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
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Yes
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No
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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer
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[ ]
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Accelerated
filer
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[X]
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Non-accelerated
filer
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[ ]
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(Do
not check if a smaller reporting company)
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Smaller
reporting company
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[ ]
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
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Yes
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No
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X
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Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
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Class
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Outstanding at February 1,
2010
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|||
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Common
Stock, par value $0.01 per share
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170,244,452 | |||
AVX
CORPORATION
INDEX
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Page
Number
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PART
I:
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Financial
Information:
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ITEM
1.
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Financial
Statements:
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3
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||
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4
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5
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6
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ITEM
2.
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21
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ITEM
3.
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28
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ITEM
4.
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28
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PART
II:
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||
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ITEM
1.
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29
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ITEM
1A.
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29
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ITEM
6.
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24
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30
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-2-
(in
thousands, except per share data)
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March
31,
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December
31,
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|||||||
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ASSETS
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2009
|
2009
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||||||
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Current
assets:
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||||||||
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Cash
and cash equivalents
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$ | 522,709 | $ | 686,762 | ||||
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Short-term
investments in securities
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- | 40,000 | ||||||
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Available-for-sale
investment securities
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24,014 | 14,269 | ||||||
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Accounts
receivable - trade
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141,525 | 160,080 | ||||||
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Accounts
receivable - affiliates
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2,190 | 6,572 | ||||||
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Inventories
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365,003 | 341,707 | ||||||
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Deferred
income taxes
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35,016 | 38,847 | ||||||
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Prepaid
and other
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42,047 | 30,242 | ||||||
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Total
current assets
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1,132,504 | 1,318,479 | ||||||
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Long-term
investments in securities
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199,192 | 169,999 | ||||||
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Long-term
available-for-sale investment securities
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16,565 | 4,100 | ||||||
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Property
and equipment
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1,467,522 | 1,502,403 | ||||||
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Accumulated
depreciation
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(1,204,135 | ) | (1,243,570 | ) | ||||
| 263,387 | 258,833 | |||||||
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Goodwill
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162,263 | 162,345 | ||||||
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Intangible
assets - net
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90,586 | 88,113 | ||||||
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Other
assets
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8,032 | 19,282 | ||||||
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Total
Assets
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$ | 1,872,529 | $ | 2,021,151 | ||||
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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||||||||
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Current
liabilities:
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||||||||
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Accounts
payable - trade
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$ | 25,294 | $ | 35,636 | ||||
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Accounts
payable - affiliates
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38,681 | 69,436 | ||||||
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Income
taxes payable
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2,928 | 7,761 | ||||||
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Accrued
payroll and benefits
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39,227 | 39,094 | ||||||
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Accrued
expenses
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43,272 | 45,382 | ||||||
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Total
current liabilities
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149,402 | 197,309 | ||||||
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Other
liabilities
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53,374 | 46,116 | ||||||
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Total
Liabilities
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202,776 | 243,425 | ||||||
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Commitments
and contingencies (Note 8)
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||||||||
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Stockholders'
Equity:
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||||||||
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Preferred
stock, par value $.01 per share:
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- | - | ||||||
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Authorized, 20,000 shares; None issued and outstanding
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||||||||
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Common
stock, par value $.01 per share:
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1,764 | 1,764 | ||||||
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Authorized, 300,000 shares; issued, 176,368 shares
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||||||||
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Additional
paid-in capital
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343,275 | 344,825 | ||||||
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Retained
earnings
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1,402,202 | 1,478,113 | ||||||
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Accumulated
other comprehensive income
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64 | 32,069 | ||||||
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Treasury
stock, at cost:
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(77,552 | ) | (79,045 | ) | ||||
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5,984 and 6,124 shares at March 31 and December 31, 2009,
respectively
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||||||||
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Total
Stockholders' Equity
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1,669,753 | 1,777,726 | ||||||
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Total
Liabilities and Stockholders' Equity
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$ | 1,872,529 | $ | 2,021,151 | ||||
See accompanying notes to consolidated
financial statements.
-3-
(in
thousands, except per share data)
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Three
Months Ended
December
31,
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Nine
Months Ended
December
31,
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|||||||||||||||
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2008
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2009
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2008
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2009
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|||||||||||||
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Net
sales
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$ | 320,617 | $ | 334,958 | $ | 1,117,786 | $ | 937,520 | ||||||||
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Cost
of sales
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265,846 | 262,413 | 932,814 | 744,785 | ||||||||||||
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Vendor
settlement
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- | (5,000 | ) | - | (5,000 | ) | ||||||||||
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Restructuring
charges
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1,790 | 1,451 | 6,366 | 2,763 | ||||||||||||
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Gross
profit
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52,981 | 76,094 | 178,606 | 194,972 | ||||||||||||
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Selling,
general and administrative expenses
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29,049 | 27,891 | 95,728 | 82,286 | ||||||||||||
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Restructuring
charges
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1,003 | 979 | 1,720 | 1,736 | ||||||||||||
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Other
operating income
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- | (2,970 | ) | (4,051 | ) | (2,970 | ) | |||||||||
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Profit
from operations
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22,929 | 50,194 | 85,209 | 113,920 | ||||||||||||
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Other
income (expense):
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||||||||||||||||
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Interest
income
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5,243 | 1,390 | 17,964 | 5,812 | ||||||||||||
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Interest
expense
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- | (20 | ) | (127 | ) | (67 | ) | |||||||||
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Other,
net
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(1,657 | ) | (838 | ) | (280 | ) | (717 | ) | ||||||||
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Income
before income taxes
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26,515 | 50,726 | 102,766 | 118,948 | ||||||||||||
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Provision
for income taxes
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2,651 | 10,300 | 20,106 | 22,600 | ||||||||||||
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Net
income
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$ | 23,864 | $ | 40,426 | $ | 82,660 | $ | 96,348 | ||||||||
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Income
per share:
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||||||||||||||||
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Basic
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$ | 0.14 | $ | 0.24 | $ | 0.48 | $ | 0.57 | ||||||||
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Diluted
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$ | 0.14 | $ | 0.24 | $ | 0.48 | $ | 0.57 | ||||||||
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Weighted
average common shares outstanding:
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||||||||||||||||
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Basic
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170,382 | 170,244 | 170,685 | 170,284 | ||||||||||||
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Diluted
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170,408 | 170,390 | 170,783 | 170,284 | ||||||||||||
See accompanying notes to consolidated
financial statements.
-4-
(in
thousands)
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Nine
Months Ended December 31,
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||||||||
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2008
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2009
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|||||||
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Operating
Activities
:
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||||||||
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Net
income
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$ | 82,660 | $ | 96,348 | ||||
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Adjustment
to reconcile net income to net cash from operating
activities:
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Depreciation
and amortization
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50,011 | 43,110 | ||||||
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Stock-based
compensation expense
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1,866 | 1,549 | ||||||
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Deferred
income taxes
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(1,230 | ) | 8,980 | |||||
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Loss
on available-for-sale securities
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3,644 | 362 | ||||||
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Gain
on property, plant & equipment, net of retirements
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(3,654 | ) | (3,011 | ) | ||||
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Changes
in operating assets and liabilities:
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||||||||
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Accounts
receivable
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33,310 | (18,153 | ) | |||||
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Inventories
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(12,292 | ) | 32,894 | |||||
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Accounts
payable and accrued expenses
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(93,806 | ) | 27,744 | |||||
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Income
taxes payable
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(13,662 | ) | (4,332 | ) | ||||
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Other
assets
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(2,088 | ) | (2,116 | ) | ||||
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Other
liabilities
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8,919 | 4,357 | ||||||
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Net
cash provided by (used in) operating activities
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53,678 | 187,732 | ||||||
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Investing
Activities:
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||||||||
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Purchases
of property and equipment
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(39,069 | ) | (22,081 | ) | ||||
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Purchases
of investment securities
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(229,002 | ) | (269,955 | ) | ||||
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Sales
and redemptions of available-for-sale securities
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32,417 | 25,383 | ||||||
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Sales
and redemptions of investment securities
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199,000 | 258,956 | ||||||
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Proceeds
from property, plant & equipment dispositions
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6,088 | 4,474 | ||||||
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Contingent
consideration for a prior acquisition
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(6,201 | ) | (63 | ) | ||||
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Other
investing activities
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202 | (797 | ) | |||||
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Net
cash provided by (used in) investing activities
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(36,565 | ) | (4,083 | ) | ||||
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Financing
Activities:
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||||||||
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Dividends
paid
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(20,498 | ) | (20,435 | ) | ||||
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Purchase
of treasury stock
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(9,535 | ) | (1,494 | ) | ||||
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Proceeds
from exercise of stock options
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812 | - | ||||||
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Excess
tax benefit from stock-based payment arrangements
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132 | - | ||||||
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Other
financing activities
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- | 1,732 | ||||||
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Net
cash provided by (used in) financing activities
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(29,089 | ) | (20,197 | ) | ||||
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Effect
of exchange rate on cash
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(29,414 | ) | 601 | |||||
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Increase
(decrease) in cash and cash equivalents
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(41,390 | ) | 164,053 | |||||
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Cash
and cash equivalents at beginning of period
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568,864 | 522,709 | ||||||
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Cash
and cash equivalents at end of period
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$ | 527,474 | $ | 686,762 | ||||
See accompanying notes to consolidated
financial statements.
-5-
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share data)
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1.
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Basis
of Presentation:
|
The
consolidated financial statements of AVX Corporation and subsidiaries ("AVX" or
the "Company") include all accounts of the Company and its subsidiaries. All
significant intercompany transactions and accounts have been eliminated. The
accompanying financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC") for
interim financial reporting. These consolidated financial statements are
unaudited, and in the opinion of management, include all adjustments, consisting
of normal recurring adjustments and accruals, necessary for the fair statement
of the consolidated balance sheets, operating results and cash flows for the
periods presented. Operating results for the three and nine months ended
December 31, 2009 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2010 due to cyclical and other
factors. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been omitted in accordance with the rules and
regulations of the SEC. These consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and
accompanying notes included in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 2009.
Critical
Accounting Policies and Estimates:
The
Company has identified the accounting policies and estimates that are critical
to its business operations and understanding the Company's results of
operations. Those policies and estimates can be found in Note 1, "Summary of
Significant Accounting Policies", of the Notes to Consolidated Financial
Statements and in "Critical Accounting Policies and Estimates", in “Management's
Discussion and Analysis of Financial Condition and Results of Operations”
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2009. Accordingly, this Quarterly Report on Form 10-Q should be read
in conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2009. During the three and nine month period ended December 31,
2009, except as noted below, there were no significant changes to any critical
accounting policies, judgments involved in applying those policies or to the
methodology used in determining estimates including those related to investment
securities, revenue recognition, inventories, goodwill, intangible assets,
property and equipment, income taxes and contingencies.
Foreign
Currency
As a
result of certain restructuring activities, including the movement of certain
manufacturing operations out of the United Kingdom, the Company reassessed the
functional currency designation of certain UK subsidiaries and determined that a
change in functional currency designation to the U.S. dollar was appropriate for
those UK operations. This change in functional currency from the British Pound
to the U.S dollar was effective April 1, 2009. This change results in the
translation amounts recorded for these operations that are included in
consolidated accumulated other comprehensive income as of March 31,
2009 to remain unchanged indefinitely and otherwise did not have a material
impact on the consolidated financial position, results of operations or cash
flows of the Company.
New
Accounting Standards
Guidance
issued by the Financial Accounting Standards Board (“FASB”) in April of 2008
related to the Determination of the Useful Lives of Intangible Assets, which
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of an intangible asset is
effective for financial statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those years. The adoption of
this guidance did not affect the consolidated financial position, results of
operations or cash flows of the Company.
-6-
Guidance
issued by the FASB in December 2008 related to Employers’ Disclosures about
Postretirement Benefit Plan Assets requires that information about plan assets
be disclosed, on an annual basis, based on fair value disclosure requirements.
The Company will be required to separate plan assets into the three fair value
hierarchy levels and provide a roll forward of the changes in fair value of plan
assets classified as Level 3. The requirements related to the disclosures about
plan assets are effective for fiscal years ending after December 15, 2009.
Since the requirements are only additional disclosures concerning plan assets,
the adoption of this guidance will not affect the consolidated financial
position, results of operations or cash flows of the Company.
Guidance
issued by the FASB in April 2009 is intended to provide application guidance and
revise the disclosures regarding fair value measurements and impairments of
securities. The requirements are summarized as follows:
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·
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Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly.
This addresses the determination of fair values when there
is no active market or where the price inputs represent distressed sales.
It also reaffirms the view in previous guidance that the objective of fair
value measurement is to reflect an asset’s sale price in an orderly
transaction at the date of the financial
statements.
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·
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Interim Disclosures
about Fair Value of Financial Instruments.
This enhances
consistency in financial reporting by increasing the frequency of fair
value disclosures to a quarterly instead of annual basis for any financial
instruments that are not currently reflected on the balance sheet at fair
value.
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·
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Recognition and
Presentation of Other-Than-Temporary Impairments.
This amends the
other-than-temporary impairment guidance for debt securities and
presentation and disclosure requirements of other-than-temporary
impairments of debt and equity
securities.
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This
guidance is effective for fiscal years and interim reporting periods ending
after June 15, 2009. The adoption of this guidance did not have a material
impact on the consolidated financial position, results of operations or cash
flows of the Company.
Guidance
issued by the FASB in June 2009
requires companies to recognize in the financial statements the
effects of subsequent events that provide additional evidence about conditions
that existed at the date of the balance sheet, including the estimates inherent
in the process of preparing financial statements. An entity shall disclose the
date through which subsequent events have been evaluated, as well as whether
that date is the date the financial statements were issued. Companies are not
permitted to recognize subsequent events that provide evidence about conditions
that did not exist at the date of the balance sheet but arose after the balance
sheet date and before financial statements are issued. Some non-recognized
subsequent events must be disclosed to keep the financial statements from being
misleading. For such events a company must disclose the nature of the event, an
estimate of its financial effect, or a statement that such an estimate cannot be
made. This guidance applies prospectively for interim or annual financial
periods ending after June 15, 2009. The adoption o
f this guidance did not affect the consolidated financial
position, results of operations or cash flows of the Company.
Guidance
issued by the FASB in June 2009 established the “FASB Accounting Standards
Codification” (“Codification”) as the single source of authoritative
nongovernmental U.S. GAAP which was launched on July 1, 2009. The Codification
does not change current U.S. GAAP, but is intended to simplify user access to
all authoritative U.S. GAAP by providing all the authoritative literature
related to a particular topic in one place. All existing accounting standard
documents will be superseded and all other accounting literature not included in
the Codification will be considered non-authoritative. Rules and interpretive
releases of the Securities and Exchange Commission (SEC) under authority of
federal securities laws are also sources of authoritative GAAP for SEC
registrants. The Codification is effective for interim and annual periods ending
after September 15, 2009 and did not have an impact on the Company’s financial
condition, results of operations or cash flows.
-7-
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2.
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Earnings
Per Share:
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Basic
earnings per share are computed by dividing net earnings by the weighted average
number of shares of common stock outstanding for 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.
Stock options are the only common stock equivalents currently used by the
Company and are computed using the treasury stock method.
The table
below represents the basic and diluted weighted average number of shares of
common stock and potential common stock equivalents:
|
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||
|
Net
Income
|
$ | 23,864 | $ | 40,426 | $ | 82,660 | $ | 96,348 | ||||||||
|
Computation
of Basic EPS:
|
||||||||||||||||
|
Weighted
Average Shares Outstanding used in
computing Basic
EPS
|
170,382 | 170,244 | 170,685 | 170,284 | ||||||||||||
|
Basic
earnings per share
|
$ | 0.14 | $ | 0.24 | $ | 0.48 | $ | 0.57 | ||||||||
|
Computation
of Diluted EPS:
|
||||||||||||||||
|
Weighted
Average Shares Outstanding
|
170,382 | 170,244 | 170,685 | 170,284 | ||||||||||||
|
Effect
of stock options
|
26 | 146 | 98 | - | ||||||||||||
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Shares
used in computing Diluted EPS
(1)
|
170,408 | 170,390 | 170,783 | 170,284 | ||||||||||||
|
Diluted
Income per share
|
$ | 0.14 | $ | 0.24 | $ | 0.48 | $ | 0.57 | ||||||||
(1) Common
stock equivalents, not included in the computation of diluted earnings per share
because the impact would have been antidilutive were 9,379 shares and 5,081
shares and 7,303 shares and 7,264 shares for the three and nine months ended
December 31, 2008 and 2009, respectively.
|
3.
|
Trade
Accounts Receivable:
|
|
March
31,
2009
|
December
31,
2009
|
|||||||
|
Gross
Accounts Receivable - Trade
|
$ | 161,563 | $ | 180,750 | ||||
|
Less:
|
||||||||
|
Allowances
for doubtful accounts
|
947 | 656 | ||||||
|
Stock
rotation and ship from stock and debit
|
12,169 | 13,290 | ||||||
|
Sales
returns and discounts
|
6,922 | 6,724 | ||||||
|
Total
allowances
|
20,038 | 20,670 | ||||||
|
Net
Accounts Receivable - Trade
|
$ | 141,525 | $ | 160,080 | ||||
Charges
related to allowances for doubtful accounts are charged to selling, general and
administrative expenses. Charges related to stock rotation, ship from stock and
debit, sales returns and sales discounts are reported as deductions from
revenue.
|
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||
|
Allowances
for doubtful accounts:
|
||||||||||||||||
|
Beginning
Balance
|
$ | 1,327 | $ | 671 | $ | 1,303 | $ | 947 | ||||||||
|
Charges
|
11 | (141 | ) | 41 | (100 | ) | ||||||||||
|
Applications
|
54 | 126 | 99 | (191 | ) | |||||||||||
|
Translation
and other
|
(272 | ) | - | (323 | ) | - | ||||||||||
|
Ending
Balance
|
$ | 1,120 | $ | 656 | $ | 1,120 | $ | 656 | ||||||||
-8-
|
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||
|
Stock
rotation and ship from stock and debit:
|
||||||||||||||||
|
Beginning
Balance
|
$ | 14,231 | $ | 12,845 | $ | 12,941 | $ | 12,169 | ||||||||
|
Charges
|
9,249 | 8,097 | 30,444 | 23,100 | ||||||||||||
|
Applications
|
(9,734 | ) | (7,652 | ) | (29,600 | ) | (21,979 | ) | ||||||||
|
Translation
and other
|
(86 | ) | - | (125 | ) | - | ||||||||||
|
Ending
Balance
|
$ | 13,660 | $ | 13,290 | $ | 13,660 | $ | 13,290 | ||||||||
|
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||
|
Sales
returns and discounts:
|
||||||||||||||||
|
Beginning
Balance
|
$ | 9,353 | $ | 6,864 | $ | 9,253 | $ | 6,922 | ||||||||
|
Charges
|
5,426 | 3,833 | 17,392 | 11,916 | ||||||||||||
|
Applications
|
(5,919 | ) | (3,965 | ) | (17,643 | ) | (12,132 | ) | ||||||||
|
Translation
and other
|
(275 | ) | (8 | ) | (417 | ) | 18 | |||||||||
|
Ending
Balance
|
$ | 8,585 | $ | 6,724 | $ | 8,585 | $ | 6,724 | ||||||||
|
4.
|
Fair
Value:
|
Fair
Value Hierarchy:
The fair
value framework requires the categorization of assets and liabilities into three
levels based upon the assumptions (inputs) used to value the assets or
liabilities. Level 1 provides the most reliable measure of fair value, whereas
Level 3 generally requires significant management judgment. The three levels are
defined as follows:
|
§
|
Level 1
: Unadjusted
quoted prices in active markets for identical assets and
liabilities.
|
|
§
|
Level 2
: Observable
inputs other than those included in Level 1. For example, quoted prices
for similar assets or liabilities in active markets or quoted prices for
identical assets or liabilities in inactive
markets.
|
|
§
|
Level 3
: Unobservable
inputs reflecting management’s own assumptions about the inputs used in
pricing the asset or liability.
|
|
Based
on
|
||||||||||||||||
|
Fair
Value at
March
31, 2009
|
Quoted
prices in active markets
(Level
1)
|
Other
observable inputs
(Level
2)
|
Unobservable
inputs
(Level
3)
|
|||||||||||||
|
Assets
measured at fair value on a recurring basis:
|
||||||||||||||||
|
Available-for-sale
investment securities - short-term
|
$ | 24,014 | $ | - | $ | 19,813 | $ | 4,201 | ||||||||
|
Available-for-sale
investment securities - long-term
|
16,565 | - | 13,668 | 2,897 | ||||||||||||
|
Assets
held in the non-qualified deferred
compensation program
(1)
|
7,265 | 7,265 | - | - | ||||||||||||
|
Total
|
$ | 47,844 | $ | 7,265 | $ | 33,481 | $ | 7,098 | ||||||||
-9-
|
Based
on
|
||||||||||||||||
|
Fair
Value at
March
31, 2009
|
Quoted
prices in active markets
(Level
1)
|
Other
observable inputs
(Level
2)
|
Unobservable
inputs
(Level
3)
|
|||||||||||||
|
Liabilities
measured at fair value on a recurring basis:
|
||||||||||||||||
|
Obligation
related to assets held in the non-qualified
deferred
compensation program
(1)
|
$ | 7,265 | $ | 7,265 | $ | - | $ | - | ||||||||
|
Foreign
currency derivatives
(2)
|
1,025 | - | 1,025 | - | ||||||||||||
|
Total
|
$ | 8,290 | $ | 7,265 | $ | 1,025 | $ | - | ||||||||
|
Based
on
|
||||||||||||||||
|
Fair
Value at
December
31, 2009
|
Quoted
prices in active markets
(Level
1)
|
Other
observable inputs
(Level
2)
|
Unobservable
inputs
(Level
3)
|
|||||||||||||
|
Assets
measured at fair value on a recurring basis:
|
||||||||||||||||
|
Available-for-sale
investment securities - short-term
|
$ | 14,269 | $ | - | $ | 12,578 | $ | 1,691 | ||||||||
|
Available-for-sale
investment securities - long-term
|
4,100 | - | 3,614 | 486 | ||||||||||||
|
Assets
held in the non-qualified deferred
compensation program
(1)
|
9,127 | 9,127 | - | - | ||||||||||||
|
Total
|
$ | 27,496 | $ | 9,127 | $ | 16,192 | $ | 2,177 | ||||||||
|
Based
on
|
||||||||||||||||
|
Fair
Value at
December
31, 2009
|
Quoted
prices in active markets
(Level
1)
|
Other
observable inputs
(Level
2)
|
Unobservable
inputs
(Level
3)
|
|||||||||||||
|
Liabilities
measured at fair value on a recurring basis:
|
||||||||||||||||
|
Obligation
related to assets held in the non-qualified
deferred
compensation program
(1)
|
$ | 9,127 | $ | 9,127 | $ | - | $ | - | ||||||||
|
Foreign
currency derivatives
(2)
|
2,625 | - | 2,625 | - | ||||||||||||
|
Total
|
$ | 11,752 | $ | 9,127 | $ | 2,625 | $ | - | ||||||||
(1) The
market value of the assets held in the trust is included as an asset and a
liability of the Company because the trust’s assets are available to the
Company’s general creditors in the event of the Company’s
insolvency.
(2)
Foreign currency derivatives in the form
of forward contracts are included in accrued expenses in the March 31, 2009 and
December 31, 2009 consolidated balance sheet. Unrealized gains and losses on
derivatives classified as cash flow hedges are recorded in other comprehensive
income. Gains and losses on derivatives not designated as hedges are recorded in
other income (expense).
-10-
The
following table presents additional information about Level 3 assets measured at
fair value on a recurring basis for three and nine months ended December 31,
2008 and 2009, respectively.
| Available-for-sale investment securities | ||||||||||||||||
|
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||
|
Balance,
beginning of period
|
$ | 14,451 | $ | 3,320 | $ | 14,364 | $ | 7,098 | ||||||||
|
Net
realized and unrealized gains/(losses) included in
earnings
|
(1,526 | ) | 9 | (2,297 | ) | (324 | ) | |||||||||
|
Net
unrealized gains/(losses) included in comprehensive income
|
(586 | ) | 86 | (1,141 | ) | 651 | ||||||||||
|
Purchases,
issuances and settlements
|
(4,445 | ) | (205 | ) | (6,907 | ) | (3,614 | ) | ||||||||
|
Transfers
in and/or out of Level 3
|
1,401 | (1,033 | ) | 5,276 | (1,634 | ) | ||||||||||
|
Balance,
end of period
|
$ | 9,295 | $ | 2,177 | $ | 9,295 | $ | 2,177 | ||||||||
Valuation
Techniques:
To
appropriately assign fair value to assets and liabilities, valuation techniques
are used, such as the market approach (comparable market prices), the income
approach (present value of future income or cash flow), and the cost approach
(cost to replace the service capacity of an asset or replacement cost). The
following describes valuation techniques used to appropriately value the
Company’s available-for-sale securities and derivatives.
Investment
Securities
Assets
valued using Level 1 inputs in the table above represent assets from the
Company’s non-qualified deferred compensation program. The funds in the
non-qualified deferred compensation program are valued based on the number of
shares in the funds using a price per share traded in an active
market.
Assets
valued using Level 2 inputs in the table above represent a portfolio including
foreign bonds, corporate bonds, asset backed obligations and mortgage-backed
securities. Valuation inputs used include benchmark yields, reported trades,
broker and dealer quotes, issuer spreads, two-sided markets, benchmark
securities, bids, offers and reference data.
Assets
valued using Level 3 inputs in the table above represent a portfolio including
corporate bonds, asset backed obligations and mortgage-backed securities.
Unobservable inputs for valuation are management’s assessments based on a third
party pricing vendor using valuation inputs described above for Level 2,
adjusted based on the best economic and industry information available in the
circumstances.
Investments
are considered to be impaired when a decline in fair value is judged to be
other-than-temporary. If the cost of an investment exceeds its fair value, among
other factors, we evaluate general market conditions, the duration and extent to
which the fair value is less than cost, and whether or not we expect to recover
the security's entire amortized cost basis. Once a decline in fair value is
determined to be other-than-temporary, an impairment charge is recorded and a
new cost basis in the investment is established.
Derivatives
The
Company primarily uses forward contracts, with maturities generally less than
four months, designated as cash flow hedges to protect against the foreign
currency exchange rate risks inherent in its forecasted transactions related to
purchase commitments and sales, denominated in various currencies. The Company
also uses derivatives not designated as hedging instruments to hedge foreign
currency balance sheet exposures. These derivatives are used to offset currency
changes in the fair value of the hedged assets and liabilities. Fair values for
all of the Company’s derivative financial instruments are valued by adjusting
the market spot rate by forward points, based on the date of the contract. The
spot rates and forward points used are an average rate from an actively traded
market. At December 31, 2009, all of the Company’s forward contracts have been
designated as Level 2 measurements in the hierarchy.
-11-
|
5.
|
Financial
Instruments and Investments in
Securities:
|
At March
31, 2009 and December 31, 2009 investments in debt securities and time deposits
held by the Company were classified either as available-for-sale or
held-to-maturity.
Available-for-sale
investments are recorded at fair value. The underlying investment securities are
classified as either current or long-term assets based on their underlying
expected cash flows and are being recorded at fair market value. Any unrealized
holding gains and losses resulting from these securities are reported, net of
tax as a separate component of shareholders' equity until realized. Realized
gains and losses and declines in value judged to be other than temporary, if
any, are included in the results of operations and are determined by specific
identification of securities. During the nine months ended December 31, 2009,
the Company has recorded other-than-temporary impairment charges of $362 to
earnings. There were no such impairment charges in the second and third quarters
of fiscal year 2010. In addition, during the three and nine months ended
December 31, 2009, pre-tax net gains of $670 and $3,094, respectively, were
recorded in other comprehensive income related to these securities. See Notes 4
and 9 for additional disclosures related to these available-for-sale
securities.
Investments
in held-to-maturity securities, recorded at amortized cost were as
follows:
|
March
31, 2009
|
||||||||||||||||
|
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Estimated
Fair Value
|
|||||||||||||
|
Long-term
investments:
|
||||||||||||||||
|
U.S.
government and agency securities
|
$ | 199,192 | $ | 175 | $ | (758 | ) | $ | 198,609 | |||||||
| $ | 199,192 | $ | 175 | $ | (758 | ) | $ | 198,609 | ||||||||
|
December
31, 2009
|
||||||||||||||||
|
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Estimated
Fair Value
|
|||||||||||||
|
Short-term
investments:
|
||||||||||||||||
|
U.S.
government and agency securities
|
$ | 40,000 | $ | 363 | $ | (19 | ) | $ | 40,344 | |||||||
|
Long-term
investments:
|
||||||||||||||||
|
U.S.
government and agency securities
|
169,999 | 288 | (134 | ) | 170,153 | |||||||||||
| $ | 209,999 | $ | 651 | $ | (153 | ) | $ | 210,497 | ||||||||
The
amortized cost and estimated fair value of held-to-maturity investments at
December 31, 2009, by contractual maturity, are shown below. Actual maturities
may differ from contractual maturities because issuers may have the right to
call or prepay obligations without call or prepayment penalties.
|
December
31, 2009
|
||||||||
|
Held-to-Maturity
|
||||||||
|
Amortized
Cost
|
Estimated
Fair Value
|
|||||||
|
Due
in one year or less
|
$ | 40,000 | $ | 40,344 | ||||
|
Due
after one year through five years
|
169,999 | 170,153 | ||||||
|
Total
|
$ | 209,999 | $ | 210,497 | ||||
-12-
|
6.
|
Inventories:
|
|
March
31,
2009
|
December
31,
2009
|
|||||||
|
Finished
goods
|
$ | 106,688 | $ | 83,068 | ||||
|
Work
in process
|
78,498 | 83,592 | ||||||
|
Raw
materials and supplies
|
179,817 | 175,047 | ||||||
| $ | 365,003 | $ | 341,707 | |||||
|
7.
|
Stock-Based
Compensation:
|
In May
2009, the Company granted 500 options to employees pursuant to the 2004 Stock
Option Plan described in Note 11, “Stock Based Compensation”, of the Notes to
Consolidated Financial Statements contained in the Company’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2009. The weighted average grant
date fair value per share and the weighted average exercise price per share for
these options is $2.18 and $9.60, respectively.
In August
2009, the Company granted 30 options to members of the Board of Directors
pursuant to the 2004 Non-Employee Directors’ Stock Option Plan described in Note
11, “Stock Based Compensation”, of the Notes to Consolidated Financial
Statements contained in the Company’s Annual Report on Form 10-K for the fiscal
year ended March 31, 2009. The weighted average grant date fair value per share
and the weighted average exercise price per share for these options is $2.21 and
$11.48, respectively.
|
8.
|
Commitments
and Contingencies:
|
The
Company is involved in disputes, warranty, and legal proceedings arising in the
normal course of business. While the Company cannot predict the outcome of these
disputes and proceedings, management believes, based upon a review with legal
counsel, that none of these proceedings will have a material impact on our
financial position, results of operations, or cash flows. However, the Company
cannot be certain of the eventual outcome and any adverse results in these or
other matters that may arise from time to time may harm its financial position,
results of operations, or cash flows.
On
October 19, 2009, the Company and Cabot Corporation announced the favorable
resolution of all outstanding litigation between the parties relating to the
supply of tantalum by Cabot to AVX. Please refer to Note 12 Commitments and
Contingencies of the Company’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2009. The terms of the settlement are confidential.
From time
to time the Company enters into delivery contracts with selected suppliers for
certain metals used in its production processes. The delivery contracts
represent routine purchase orders for delivery within three months and payment
is due upon receipt. Currently we do not have any such contracts in
place.
The
Company has 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 seven sites at which remediation is
required. However, since 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 two of the seven
sites, financially responsible PRPs other than AVX also are, or have been,
involved in site investigation and clean-up activities. The Company believes
that any liability resulting from these sites will be apportioned between AVX
and other PRPs.
-13-
To
resolve the Company’s liability at each of the sites at which it has been named
a PRP, the Company has entered into various administrative orders and consent
decrees with federal and state regulatory agencies governing the timing and
nature of investigation and remediation. The Company has paid, or reserved for,
all estimated amounts required under the terms of these orders and decrees
corresponding to its apportioned share of the liabilities. As is customary, the
orders and decrees regarding 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. The Company currently has reserved approximately
$19,500 at December 31, 2009 and $19,879 at March 31, 2009 related to these
matters. Except for the matters discussed below, while no assurance can be
given, the Company does not believe that any additional costs to be incurred by
AVX at any of the sites will have a material adverse effect on its financial
condition, results of operations or cash flows.
In July
2007, the Company received oral notification from the EPA, and in December 2007,
written notification from the U.S. Department of Justice indicating that the
United States is preparing to exercise the reopener provision under a 1991
consent decree relating to the environmental conditions at, and remediation of,
New Bedford Harbor in the Commonwealth of Massachusetts. In 1991, in connection
with that consent decree, the Company paid $66,000, plus interest, toward the
environmental conditions at, and remediation of, the harbor in settlement with
the EPA and the Commonwealth of Massachusetts, subject to reopener provisions,
including a reopener if certain remediation costs for the site exceed $130,500.
The EPA has indicated that remediation costs through December 6, 2007 (which
remediation is ongoing) are approximately $318,500. The Company has not yet
completed an investigation of the monies spent or available defenses in light of
the notification. The Company has also not yet determined whether or to what
extent other parties may bear responsibility for these costs. On April 1, 2008,
the EPA indicated that the future work to be performed at the harbor is expected
to exceed hundreds of millions of dollars under current estimates. The Company
anticipates further discussions with the U.S. Department of Justice, the EPA,
and the Commonwealth of Massachusetts. The Company is investigating the claim as
well as potential defenses and other actions, including the engagement of
environmental engineering consultants to study and analyze documentation to be
made available by the EPA with respect to the site. The potential impact of this
matter on the Company’s financial position, results of operations and cash flows
cannot be determined at this time.
On June
2, 2006, the Company received a “Confirmation of Potential Liability; Demand and
Notice of Decision Not to Use Special Notice Procedures” dated May 31, 2006 from
the EPA with regard to $1,600 (subsequently modified to $900) of past costs, as
well as future costs for environmental remediation, related to the purported
release of hazardous substances at an abandoned facility referred to as the
“Aerovox Facility” (the “Facility”), located at 740 Belleville Avenue, New
Bedford, Massachusetts. Aerovox Corporation, a predecessor of AVX, sold this
Facility to an unrelated third party in 1973. A subsequent unrelated owner,
Aerovox Inc., the last manufacturer to own and operate in the Facility, filed
for bankruptcy in 2001 and abandoned the Facility. The Company has had numerous
meetings with the EPA, the Massachusetts Department of Environmental Protection
and the City of New Bedford regarding the potential environmental remediation of
the Facility and the assignment of responsibility among the parties. Settlement
discussions are ongoing and no definitive agreements have been reached among the
parties. AVX never actually operated in the Facility. However, based on such
ongoing discussions and draft document exchanges regarding remediation
alternatives and having performed our own estimates of remediation costs, the
Company accrued $18,200 in the quarter ended March 31, 2009 (which amount is
included in the $19,500 reserved as of December 31, 2009 for potential CERCLA
liability as disclosed above) as an estimate of the potential liability related
to performance of certain environmental remediation actions at the Facility.
This accrual assumes the anticipated performance of certain remedial actions by
the other parties. The accrual represents the estimate of the Company’s costs to
remediate; however, until all parties agree and remediation is complete, the
Company can not be certain there will be no additional costs.
-14-
In
September 2007, the Company received notice from Horry Land Company, the owner
of property adjacent to the Company’s South Carolina factory, that Horry Land
Company’s property value had been negatively impacted by alleged migration of
certain pollutants from the Company’s property and demanding $5,400 in
compensatory damages, exclusive of costs that have not been determined. The
Company investigated the allegations and determined that the demanded payment
was not justified and that issues of liability, among other issues, exist under
environmental laws. As a result, in October 2007, the Company filed a
declaratory judgment action in United States District Court for the District of
South Carolina under the CERCLA and the Federal Declaratory Judgment Act,
seeking a declaration that the Company is not liable for the property damages
claimed by Horry Land Company and for a determination and allocation of past and
future environmental response costs. Horry Land Company has asserted its claims
in this suit and it is now proceeding. In addition, two other suits have been
filed against the Company relating to the same contamination. One suit was filed
in the South Carolina State Court on November 27, 2007 by certain individuals
seeking certification as a class action which has not yet been determined. The
other suit is a commercial suit filed on January 16, 2008 in South Carolina
State Court by John H. Nance and JDS Development of Myrtle Beach, Inc. Both of
these suits are currently pending in South Carolina state court. AVX has also
sought to join the United States Air Force as a potentially responsible party.
The Company intends to defend vigorously the claims that have been asserted in
the three related lawsuits. At this stage of the litigation, there has not been
a determination as to responsible parties or the amount, if any, of damages.
With respect to the related environmental assessment, the Company is in the
process of a feasibility study to evaluate possible remedies and at this stage
have not been able to determine what measures may have to be undertaken or the
likely costs of any such measures. Accordingly, the potential impact of either
the lawsuits or the remediation on the Company’s financial position, results of
operations, and cash flows cannot be determined at this time.
The
Company also operates on sites that may have potential future environmental
issues as a result of activities at sites during AVX’s long history of
manufacturing operations or prior to the start of operations by AVX. Even though
the Company may have rights of indemnity for such environmental matters at
certain sites, regulatory agencies in those jurisdictions may require the
Company to address such issues. Once it becomes probable that the Company will
incur costs in connection with remediation of a site and such costs can be
reasonably estimated, the Company establishes reserves or adjusts reserves for
the projected share of these costs. A separate account receivable is recorded
for any indemnified costs.
|
9.
|
Comprehensive
Income:
|
Comprehensive
income represents changes in equity during a period except those resulting from
investments by and distributions to shareholders. The specific components
include net income, pension liability and other post-retirement benefit
adjustments, deferred gains and losses resulting from foreign currency
translation adjustments, unrealized gains and losses on qualified foreign
currency cash flow hedges and unrealized gains and losses on available-for-sale
securities.
Comprehensive
income includes the following components:
|
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||
|
Net
income
|
$ | 23,864 | $ | 40,426 | $ | 82,660 | $ | 96,348 | ||||||||
|
Other
comprehensive income (loss):
|
||||||||||||||||
|
Pension
liability adjustment and other post-retirement
benefits
adjustment
|
(235 | ) | 548 | 196 | 2,380 | |||||||||||
|
Foreign
currency translation adjustment
|
(115,285 | ) | (12,025 | ) | (169,137 | ) | 27,518 | |||||||||
|
Foreign
currency cash flow hedges
|
1,218 | (2,569 | ) | (2,458 | ) | (152 | ) | |||||||||
|
Unrealized
gain (loss) on available-for-sale securities
|
(2,123 | ) | 489 | (2,399 | ) | 2,259 | ||||||||||
|
Comprehensive
income (loss)
|
$ | (92,561 | ) | $ | 26,869 | $ | (91,138 | ) | $ | 128,353 | ||||||
-15-
|
10.
|
Segment
and Geographic Information:
|
The
Company has three reportable segments: Passive Components, KED Resale and
Connectors. The Passive Components segment consists primarily of surface mount
and leaded ceramic capacitors, RF thick and thin film components, tantalum
capacitors, film capacitors, ceramic and film power capacitors, super
capacitors, EMI filters, thick and thin film packages, varistors, thermistors,
inductors and resistive products. The KED Resale segment consists primarily of
ceramic capacitors, frequency control devices, SAW devices, sensor products, RF
modules, actuators, acoustic devices and connectors produced by Kyocera, and
resold by AVX. The Connectors segment consists primarily of Elco automotive,
telecom and memory connectors manufactured by AVX. Sales and operating results
from these reportable segments are shown in the tables below. In addition, the
Company has a corporate administration group consisting of finance and
administrative activities and a separate Research and Development
group.
The
Company evaluates performance of its segments based upon sales and operating
profit. There are no intersegment revenues. The Company allocates the costs of
shared resources between segments based on each segment's usage of the shared
resources. Cash, accounts receivable, investments in securities and certain
other assets, which are centrally managed, are not readily allocable to
operating segments.
The tables below present information about reported segments:
|
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||
|
Net
sales:
|
||||||||||||||||
|
Passive
Components
|
$ | 202,166 | $ | 204,826 | $ | 691,110 | $ | 575,051 | ||||||||
|
KED
Resale
|
100,702 | 105,782 | 351,586 | 300,540 | ||||||||||||
|
Connectors
|
17,749 | 24,350 | 75,090 | 61,929 | ||||||||||||
|
Total
|
$ | 320,617 | $ | 334,958 | $ | 1,117,786 | $ | 937,520 | ||||||||
|
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||
|
Operating
profit:
|
||||||||||||||||
|
Passive
Components
|
$ | 29,008 | $ | 49,005 | $ | 94,332 | $ | 120,625 | ||||||||
|
KED
Resale
|
4,536 | 6,902 | 16,375 | 18,707 | ||||||||||||
|
Connectors
|
(280 | ) | 3,109 | 3,751 | 5,693 | |||||||||||
|
Research
& development
|
(2,289 | ) | (1,720 | ) | (8,244 | ) | (5,220 | ) | ||||||||
|
Corporate
administration
|
(8,046 | ) | (7,102 | ) | (21,005 | ) | (25,885 | ) | ||||||||
|
Total
|
$ | 22,929 | $ | 50,194 | $ | 85,209 | $ | 113,920 | ||||||||
|
March
31, 2009
|
December
31, 2009
|
|||||||
|
Assets:
|
||||||||
|
Passive
Components
|
$ | 639,993 | $ | 612,858 | ||||
|
KED
Resale
|
33,299 | 28,728 | ||||||
|
Connectors
|
48,808 | 44,186 | ||||||
|
Research
& development
|
6,965 | 5,291 | ||||||
|
Cash,
A/R and investments in securities
|
906,195 | 1,081,782 | ||||||
|
Goodwill
- Passive components
|
151,985 | 152,068 | ||||||
|
Goodwill
- Connectors
|
10,277 | 10,277 | ||||||
|
Corporate
administration
|
75,007 | 85,961 | ||||||
|
Total
|
$ | 1,872,529 | $ | 2,021,151 | ||||
-16-
The
following geographic data is based upon net sales generated by operations
located within particular geographic areas:
|
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||
|
Net
sales:
|
||||||||||||||||
|
Americas
|
$ | 108,456 | $ | 103,516 | $ | 338,347 | $ | 280,173 | ||||||||
|
Europe
|
70,275 | 81,488 | 277,418 | 215,338 | ||||||||||||
|
Asia
|
141,886 | 149,954 | 502,021 | 442,009 | ||||||||||||
|
Total
|
$ | 320,617 | $ | 334,958 | $ | 1,117,786 | $ | 937,520 | ||||||||
|
11.
|
Pension
Plans:
|
The
following table shows the components of the net periodic pension cost for the
three and nine months ended December 31, 2008 and 2009 for the Company’s defined
benefit plans:
|
U.S.
Plans
|
International
Plans
|
|||||||||||||||
|
Three
Months Ended
December
31,
|
Three
Months Ended
December
31,
|
|||||||||||||||
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||
|
Service
cost
|
$ | 111 | $ | 96 | $ | 308 | $ | 205 | ||||||||
|
Interest
cost
|
451 | 460 | 1,809 | 1,646 | ||||||||||||
|
Expected
return on plan assets
|
(504 | ) | (378 | ) | (1,771 | ) | (1,545 | ) | ||||||||
|
Amortization
of prior service cost
|
16 | 3 | - | - | ||||||||||||
|
Recognized
actuarial loss
|
27 | 145 | 234 | 204 | ||||||||||||
|
Net
periodic pension cost
|
$ | 101 | $ | 326 | $ | 580 | $ | 510 | ||||||||
|
U.S.
Plans
|
International
Plans
|
|||||||||||||||
|
Nine
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||
|
Service
cost
|
$ | 333 | $ | 288 | $ | 924 | $ | 615 | ||||||||
|
Interest
cost
|
1,353 | 1,380 | 5,427 | 4,938 | ||||||||||||
|
Expected
return on plan assets
|
(1,512 | ) | (1,134 | ) | (5,313 | ) | (4,635 | ) | ||||||||
|
Amortization
of prior service cost
|
48 | 9 | - | - | ||||||||||||
|
Recognized
actuarial loss
|
81 | 435 | 702 | 612 | ||||||||||||
|
Net
periodic pension cost
|
$ | 303 | $ | 978 | $ | 1,740 | $ | 1,530 | ||||||||
-17-
As of
April 1, 2008, the Company has changed the measurement date in the Company’s
defined benefit plans to March 31 from December 31. As such, as of April 1,
2008, the Company recognized adjustments of $680 and $278 to beginning retained
earnings and to other comprehensive income, respectively.
Based on
current actuarial computations, during the nine months ended December 31, 2009,
the Company made contributions of $1,790 to the U.S. plans, and $3,842 to the
international plans, respectively. The Company expects to make additional
contributions of approximately $1,250 to the international plans and no
additional contributions to the U.S. plans, over the remainder of fiscal
2010.
|
12.
|
Restructuring:
|
The
Company recorded restructuring charges of $8,086 and $4,499 for the nine months
ended December 31, 2008 and 2009, respectively. The restructuring charges
recorded in the nine months ended December 31, 2008 related to employee
termination costs covering 1,044 employees. For the three months ended December
31, 2009, restructuring costs included $1,686 for employee separations covering
an additional reduction in force of approximately 15 production, technical,
administrative, sales and support employees across all geographic regions as
well as the cost related to reduction in force initiatives in prior quarters.
Restructuring costs of $744 for the three months ended December 31, 2009 related
to the consolidation of passive component manufacturing. As of December 31,
2009, there is $1,969 remaining in restructuring accruals that is expected to be
paid by the end of fiscal 2010.
Activity
related to restructuring charges is as follows:
|
Asset
|
Other
|
|||||||||||||||
|
$(000's)
|
Workforce
|
Impairment
|
Facility
|
|||||||||||||
|
Reductions
|
Write-down
|
Closure
Costs
|
Total
|
|||||||||||||
|
Balance
at March 31, 2008
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Charges
|
16,545 | 1,005 | 1,077 | 18,627 | ||||||||||||
|
Utilization
/ Payments
|
(11,538 | ) | (1,005 | ) | (945 | ) | (13,488 | ) | ||||||||
|
Foreign
Currency Translation
|
(191 | ) | - | (8 | ) | (199 | ) | |||||||||
|
Balance
at March 31, 2009
|
$ | 4,816 | $ | - | $ | 124 | $ | 4,940 | ||||||||
|
Charges
|
920 | 76 | 4 | 1,000 | ||||||||||||
|
Utilization
/ Payments / Adjustments
|
(2,241 | ) | 35 | (4 | ) | (2,210 | ) | |||||||||
|
Balance
at June 30, 2009
|
$ | 3,495 | $ | 111 | $ | 124 | $ | 3,730 | ||||||||
|
Charges
|
943 | - | 126 | 1,069 | ||||||||||||
|
Utilization
/ Payments / Adjustments
|
(1,917 | ) | (111 | ) | (109 | ) | (2,137 | ) | ||||||||
|
Balance
at September 30, 2009
|
$ | 2,521 | $ | - | $ | 141 | $ | 2,662 | ||||||||
|
Charges
|
1,686 | 371 | 373 | 2,430 | ||||||||||||
|
Utilization
/ Payments / Adjustments
|
(2,616 | ) | (371 | ) | (241 | ) | (3,228 | ) | ||||||||
|
Foreign
Currency Translation
|
73 | - | 32 | 105 | ||||||||||||
|
Balance
at December 31, 2009
|
$ | 1,664 | $ | - | $ | 305 | $ | 1,969 | ||||||||
|
13.
|
Derivative
Financial Instruments:
|
The
Company is exposed to foreign currency exchange rate fluctuations in the normal
course of business. The Company uses derivative instruments (forward contracts)
to hedge certain foreign currency exposures as part of the risk management
strategy. The objective is to offset gains and losses resulting from these
exposures with gains and losses on the forward contracts used to hedge them,
thereby reducing volatility of earnings or protecting fair values of assets and
liabilities. The Company does not enter into any trading or speculative
positions with regard to derivative instruments.
-18-
The
Company primarily uses forward contracts, with maturities less than four months,
designated as cash flow hedges to protect against the foreign currency exchange
rate risks inherent in its forecasted transactions related to purchase
commitments and sales, denominated in various currencies. These derivative
instruments are designated and qualify as cash flow hedges.
The
effectiveness of the cash flow hedges is determined by comparing the cumulative
change in the fair value of the hedge contract with the cumulative change in the
fair value of the hedged transaction, both of which are based on forward rates.
The effective portion of the gain or loss on these cash flow hedges is initially
recorded in accumulated other comprehensive income as a separate component of
stockholders' equity. Once the hedged transaction is recognized, the gain or
loss is recognized in the Company’s statement of operations. At March 31, 2009
and December 31, 2009, respectively, the Company had the following forward
contracts that were entered into to hedge against the volatility of foreign
currency exchange rates for certain forecasted sales and
purchases.
|
March
31, 2009
|
Fair
Value of Derivative Instruments
|
|||||||||
|
Asset
Derivatives
|
Liability
Derivatives
|
|||||||||
|
Balance
|
Balance
|
|||||||||
|
Sheet
|
Fair
|
Sheet
|
Fair
|
|||||||
|
Caption
|
Value
|
Caption
|
Value
|
|||||||
|
Foreign
exchange contracts
|
Prepaid
and other
|
$ | 1,355 |
Accrued
expenses
|
$ | 2,701 | ||||
|
December
31, 2009
|
Fair
Value of Derivative Instruments
|
|||||||||
|
Asset
Derivatives
|
Liability
Derivatives
|
|||||||||
|
Balance
|
Balance
|
|||||||||
|
Sheet
|
Fair
|
Sheet
|
Fair
|
|||||||
|
Caption
|
Value
|
Caption
|
Value
|
|||||||
|
Foreign
exchange contracts
|
Prepaid
and other
|
$ | 740 |
Accrued
expenses
|
$ | 2,281 | ||||
For these
derivatives designated as hedging instruments, during the three and nine months
ended December 31, 2009, a net pretax loss of $2,043 and a net pretax gain of
$3,956, respectively, was recognized in other comprehensive income. In addition,
during the three and nine months ended December 31, 2009, a net pretax gain of
$2,092 and $6,331, respectively was reclassified from accumulated other
comprehensive income into cost of sales (for hedging purchases), and a net pre
tax loss of $986 and $1,972, respectively, was reclassified from accumulated
other comprehensive income into sales (for hedging sales) in the accompanying
Statement of Operations. In addition, as a result of not realizing the
forecasted sales purchases volume related to some forward contracts at the time
of their maturity, during the three and nine months ended December 31, 2009, the
Company recognized a net pretax gain of $68 and a net pretax loss of $206,
respectively, related to ineffective hedge contracts in other expense in the
accompanying Statement of Operations. During the nine months ended December 31,
2009 and 2008, other than the ineffective contracts previously discussed, the
Company did not discontinue any cash flow hedges for which it was probable that
a forecasted transaction would not occur.
-19-
Derivatives
not designated as hedging instruments consist primarily of forward contracts
used to hedge foreign currency balance sheet exposures representing hedging
instruments used to offset foreign currency changes in the fair values of the
underlying assets and liabilities. The gains and losses on these foreign
currency forward contracts are recognized in other income and expense in the
same period as the remeasurement gain and loss of the related foreign currency
denominated assets and liabilities and thus naturally offset these gains and
losses. At March 31, 2009 and December 31, 2009, respectively, the Company had
the following forward contracts that were entered into to hedge against these
exposures.
|
March
31, 2009
|
Fair
Value of Derivative Instruments
|
|||||||||
|
Asset
Derivatives
|
Liability
Derivatives
|
|||||||||
|
Balance
|
Balance
|
|||||||||
|
Sheet
|
Fair
|
Sheet
|
Fair
|
|||||||
|
Caption
|
Value
|
Caption
|
Value
|
|||||||
|
Foreign
exchange contracts
|
Prepaid
and other
|
$ | 518 |
Accrued
expenses
|
$ | 1,232 | ||||
|
December
31, 2009
|
Fair
Value of Derivative Instruments
|
|||||||||
|
Asset
Derivatives
|
Liability
Derivatives
|
|||||||||
|
Balance
|
Balance
|
|||||||||
|
Sheet
|
Fair
|
Sheet
|
Fair
|
|||||||
|
Caption
|
Value
|
Caption
|
Value
|
|||||||
|
Foreign
exchange contracts
|
Prepaid
and other
|
$ | 876 |
Accrued
expenses
|
$ | 1,960 | ||||
For these
derivatives not designated as hedging instruments, during the three and nine
months ended December 31, 2009, a net pretax loss of $2,033 and a net pretax
gain of $4,627, respectively, on hedging contracts was recognized in other
income (expense). This substantially offset approximately $990 in net pretax
exchange gains for the three months ended December 31, 2009, and approximately
$5,484 in net pretax exchange losses for the nine months ended December, 31,
2009, recognized in other income (expense) in the accompanying Statement of
Operations.
At March
31, 2009 and December 31, 2009, the Company had outstanding foreign exchange
contracts with notional amounts totaling $332,351 and $232,297,
respectively.
|
14.
|
Subsequent
Event:
|
The
Company’s management has evaluated the period from October 1, 2009 through
February 5, 2010, the date of issuance of this Quarterly Report on Form 10-Q for
subsequent events requiring recognition or disclosure in the financial
statements. During the period, no material recognizable or disclosable
subsequent events were identified except as noted below.
On
January 29, 2010, the Board of Directors of the Company declared a $0.04
dividend per share of common stock with respect to the quarter ended December
31, 2009. The dividend will be paid to stockholders of record on February 19,
2010 and will be disbursed on March 5, 2010.
-20-
|
ITEM
2.
|
|
|
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains "forward-looking" information within the
meaning of the Private Securities Litigation Reform Act of 1995. All
statements other than statements of historical fact, including statements
regarding industry prospects and future results of operations or financial
position, made in this Quarterly Report on Form 10-Q are
forward-looking. The forward-looking information may include, among
other information, statements concerning our outlook for fiscal year 2010,
overall volume and pricing trends, cost reduction and acquisition strategies and
their anticipated results, expectations for research and development, and
capital expenditures. There may also be other statements of
expectations, beliefs, future plans and strategies, anticipated events or
trends, and similar expressions concerning matters that are not historical
facts. Forward-looking statements reflect management's expectations
and are inherently uncertain. The forward-looking information and
statements in this report are subject to risks and uncertainties, including
those discussed in the Company's Annual Report on Form 10-K for fiscal year
ended March 31, 2009, that could cause actual results to differ materially from
those expressed in or implied by the information or statements
herein. Forward-looking statements should be read in context with,
and with the understanding of, the various other disclosures concerning the
Company and its business made elsewhere in this quarterly report as well as
other public reports filed by the Company with the SEC. You should
not place undue reliance on any forward-looking statements as a prediction of
actual results or developments.
The
Company does not intend to update or revise any forward-looking statement
contained in this quarterly report to reflect new events or circumstances unless
and to the extent required by applicable law. All forward-looking
statements contained in this quarterly report constitute "forward-looking
statements" within the meaning of Section 21E of the United States Securities
Exchange Act of 1934 and, to the extent it may be applicable by way of
incorporation of statements contained in this quarterly report by reference or
otherwise, Section 27A of the United States Securities Act of 1933, each of
which establishes a safe-harbor from private actions for forward-looking
statements as defined in those statutes.
Critical Accounting Policies
and Estimates
"Management's
Discussion and Analysis of Financial Condition and Results of Operations" is
based upon the Company's unaudited Consolidated Financial Statements and Notes
thereto, which have been prepared in accordance with generally accepted
accounting principles in the United States. The preparation of these
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported
periods. On an ongoing basis, management evaluates its estimates and
judgments, including those related to investment securities, revenue
recognition, inventories, property and equipment, goodwill, intangible assets,
income taxes and contingencies. Management bases its estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. There can be no
assurance that actual results will not differ from those estimates.
We have
identified the accounting policies and estimates that are critical to our
business operations and understanding the Company's results of
operations. Those policies and estimates can be found in Note 1,
"Summary of Significant Accounting Policies", of the Notes to Consolidated
Financial Statements and in "Critical Accounting Policies and Estimates", in
“Management's Discussion and Analysis of Financial Condition and Results of
Operations” contained in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2009 and in Note 1, "Critical Accounting Policies and
Estimates", in the Notes to Consolidated Financial Statements in this Form
10-Q. Accordingly, this Quarterly Report on Form 10-Q should be read
in conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2009. During the three and nine months ended December
31, 2009, except as noted in Note 1, “Critical Accounting Policies and
Estimates”, of the Company’s Notes to Consolidated Financial Statements
contained in this Quarterly Report on Form 10-Q, there were no significant
changes to any critical accounting policies, judgments involved in applying
those policies or the methodology used in determining estimates with respect to
those related to investment securities, revenue recognition, inventories,
goodwill, intangible assets, property and equipment, income taxes and
contingencies.
-21-
Business
Overview
AVX is a
leading worldwide manufacturer and supplier of a broad line of passive
electronic components. Virtually all types of electronic devices use our passive
component products to store, filter or regulate electric energy. We
also manufacture and supply high-quality electronic connectors and inter-connect
systems for use in electronic products.
We have
manufacturing, sales and distribution facilities located throughout the world
which are divided into three main geographic regions: the Americas, Asia and
Europe. AVX is organized into five main product groups with three
reportable segments: Passive Components, KED Resale and
Connectors. The Passive Components segment consists primarily of
surface mount and leaded ceramic capacitors, RF thick and thin film components,
tantalum capacitors, film capacitors, ceramic and film power capacitors, super
capacitors, EMI filters, thick and thin film packages, varistors, thermistors,
inductors and resistive products. The KED Resale segment consists
primarily of ceramic capacitors, frequency control devices, SAW devices, sensor
products, RF modules, actuators, acoustic devices and connectors produced by
Kyocera, and resold by AVX. The Connectors segment consists primarily
of automotive, telecom and memory connectors manufactured by AVX.
Our
customers are multi-national original equipment manufacturers, or OEMs,
independent electronic component distributors and electronic manufacturing
service providers, or EMSs. We market our products through our own
direct sales force and independent manufacturers' representatives, based upon
market characteristics and demands. We coordinate our sales,
marketing and manufacturing organizations 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, defense and
aerospace electronic systems and consumer electronics.
Results of Operations -
Three Months Ended December 31, 2009 and 2008
Net
income for the quarter ended December 31, 2009 was $40.4 million, or diluted
earnings per share of $0.24, compared to $23.9 million, or $0.14 diluted
earnings per share, for the quarter ended December 31, 2008. This increase is a
result of the factors set forth below.
|
in
thousands, except per share data
|
Three
Months Ended
December
31,
|
|||||||
|
2008
|
2009
|
|||||||
|
Net
Sales
|
$ | 320,617 | $ | 334,958 | ||||
|
Gross
Profit
|
52,981 | 76,094 | ||||||
|
Operating
Income
|
22,929 | 50,194 | ||||||
|
Net
Income
|
23,864 | 40,426 | ||||||
|
Diluted
Earnings per Share
|
$ | 0.14 | $ | 0.24 | ||||
Net sales
in the three months ended December 31, 2009 increased $14.3 million, or 4.5%, to
$335.0 million compared to $320.6 million in the three months ended December 31,
2008. This increase is a result of increased demand across most market sectors
reflecting an upturn in the outlook of the global economy when compared to the
same period in the prior year. Supply chain inventory levels remained steady
during the quarter as distributor customers and product manufacturers, remained
cautious about increasing inventories, despite the increase in demand. Overall
sales prices for our commodity components remained stable during this third
quarter, as a result of the supply and demand situation.
-22-
The table
below represents product group revenues for the three-month periods ended
December 31, 2008 and December 31, 2009.
|
Sales
Revenue
|
Three
Months Ended
December
31,
|
|||||||
|
$(000's)
|
2008
|
2009
|
||||||
|
Ceramic
Components
|
$ | 43,147 | $ | 43,385 | ||||
|
Tantalum
Components
|
61,456 | 72,286 | ||||||
|
Advanced
Components
|
97,563 | 89,155 | ||||||
|
Total
Passive Components
|
202,166 | 204,826 | ||||||
|
KDP
and KKC Resale
|
82,390 | 85,387 | ||||||
|
KEC
Resale
|
18,312 | 20,395 | ||||||
|
Total
KED Resale
|
100,702 | 105,782 | ||||||
|
Connectors
|
17,749 | 24,350 | ||||||
|
Total
Revenue
|
$ | 320,617 | $ | 334,958 | ||||
Passive
Component sales increased $2.7 million, or 1.3%, to $204.8 million in the three
months ended December 31, 2009 compared to sales of $202.2 million during the
same quarter last year. The sales increase in Passive Components reflects an
increase in demand resulting from the more positive outlook in the current
global economy. Demand increased in the consumer electronics, telecommunications
and automotive markets as well as in the medical device and military markets.
Lower revenues from Advanced Components reflect the lower demand primarily in
the semiconductor and medical equipment businesses resulting from the current
economic conditions partially offset by higher demand in the energy markets for
wind and solar power generation systems. The increase in sales of Tantalum
Components reflects a combination of an increase in the volume of unit sales as
well as a favorable mix of products sold.
KDP and
KKC Resale sales increased 3.6% to $85.4 million in the three months ended
December 31, 2009 compared to $82.4 million during the same period last year.
When compared to the same period last year, the increase during the quarter
ended December 31, 2009 is primarily attributable to the sale of higher value
products.
Total
Connector sales, including AVX manufactured and KEC Resale connectors, increased
$8.7 million, or 24.1%, to $44.7 million in the three months ended December 31,
2009 compared to $36.1 million during the same period last year. This increase
was primarily attributable to higher demand in the automotive and consumer
products sectors in the European and Americas regions as a result of the more
positive outlook on the global economy when compared to the same period in the
prior year.
Our sales
to independent electronic distributor customers represented 39.1% of total sales
for the three months ended December 31, 2009, compared to 37.5% for the three
months ended December 31, 2008. Overall distributor inventories remained lean as
distributor customers limited their inventory purchases during the quarter while
remaining cautious in this uncertain demand environment. Our sales to
distributor customers involve specific ship and debit and stock rotation
programs for which sales allowances are recorded as reductions in
sales. Such allowance charges were $8.1 million, or 5.8% of gross
sales to distributor customers, for the three months ended December 31, 2009 and
$9.2 million, or 7.1% of gross sales to distributor customers, for the three
months ended December 31, 2008. Applications under such programs for the
quarters ended December 31, 2009 and 2008 were approximately $7.7 million and
$9.7 million, respectively.
Geographically,
compared to the same period last year, sales increased 5.7% in Asia and 16.0% in
Europe (reflective of the improved outlook in those regions). Sales in the
Americas region decreased 4.6%. The movement of the U.S. dollar against certain
foreign currencies resulted in a favorable impact on sales of approximately $8.5
million when compared to the same period last year
.
-23-
Gross
profit in the three months ended December 31, 2009 was 22.7% of sales or $76.1
million compared to a gross profit margin of 16.5% or $53.0 million in the three
months ended December 31, 2008. This overall increase is primarily a result of
our disciplined cost management in addition to the sale of higher margin
products and the benefits of previously initiated restructuring actions. In
addition, we recorded a $5.0 million reduction in cost of sales related to a
vendor settlement during the quarter. During the quarter ended December 31,
2009, we incurred restructuring charges of $1.5 million related to headcount
reductions and other charges, including those related to facility closures, as
we continue to realign production capabilities and reduce operating costs to
support current business levels. We recorded $1.8 million of restructuring costs
during the quarter ended December 31, 2008. As a result of the
movement of the U.S. dollar against certain foreign currencies, cost of sales
was unfavorably impacted by approximately $9.8 million when compared to the same
period last year.
Selling,
general and administrative expenses in the three months ended December 31, 2009
were $28.9 million, or 8.6% of net sales, compared to $30.1 million, or 9.4% of
net sales, in the three months ended December 31, 2008. The overall decrease in
selling, general and administrative expenses was primarily due to a lower cost
structure resulting from current cost control initiatives and previous
restructuring actions. During the quarters ended December 31, 2009 and 2008, we
recorded approximately $1.0 million of restructuring charges primarily related
to headcount reductions to reduce ongoing selling, general and administrative
expenses.
During
the three months ended December 31, 2009, other operating income includes a gain
of $3.0 million from the sale of excess corporate assets.
As a result of the
above factors, income from operations increased $27.3 million to $50.2 million
in the three months ended December 31, 2009 compared to $22.9 million in the
three months ended December 31, 2008.
Other
income decreased $3.1 million to $0.5 million in the three months ended December
31, 2009 compared to $3.6 million in the same period last year. This decrease is
primarily due to lower interest income resulting from lower interest rates on
cash and securities investment balances and net currency exchange losses for the
current quarter.
Our
effective tax rate for the period ended December 31, 2009 was 20.3% compared to
10.0% for the same period last year. When compared to the same period last year,
this higher effective tax rate is primarily due to the cumulative effect of a
change in our annual effective tax rate from 26% to 22% during the quarter ended
December 31, 2008 which impacted the quarter by approximately $3.1 million in
addition to the recognition of a net tax benefit of $0.4 million resulting from
the release of certain liabilities associated with closed income tax audits
contributing to a lower effective rate for the prior year quarter. In
addition, higher levels of income in higher tax rate jurisdictions has
unfavorably impacted the effective tax rate in the period ended December 31,
2009 when compared to the same period last year. The effective tax rate in both
years continues to be favorably impacted from the benefit of our foreign branch
losses taken as deductions in prior years’ U.S. tax returns no longer subject to
U.S. income tax recapture regulations. In March 2007, the Internal
Revenue Service enacted a change in tax regulations that reduced the U.S. income
tax recapture period from 15 to 5 years. As a result, our annual
effective tax rate for the periods ended December 31, 2009 and 2008 has been
favorably impacted by $16.6 million and $8.6 million, respectively, due to the
expiration of recapture periods.
Results of Operations – Nine
Months Ended December 31, 2009 and 2008
Net
income for the nine months ended December 31, 2009 was $96.3 million, or diluted
earnings per share of $0.57, compared to $82.7 million, or $0.48 diluted
earnings per share, for the nine months ended December 31, 2008. This increase
is a result of the factors set forth below.
|
in
thousands, except per share data
|
Nine
Months Ended
December
31,
|
|||||||
|
2008
|
2009
|
|||||||
|
Net
Sales
|
$ | 1,117,786 | $ | 937,520 | ||||
|
Gross
Profit
|
178,606 | 194,972 | ||||||
|
Operating
Income
|
85,209 | 113,920 | ||||||
|
Net
Income
|
82,660 | 96,348 | ||||||
|
Diluted
Earnings per Share
|
$ | 0.48 | $ | 0.57 | ||||
-24-
Net sales
in the nine months ended December 31, 2009 decreased $180.3 million, or 16.1%,
to $937.5 million compared to sales of $1,117.8 million in the nine months ended
December 31, 2008. This decrease is a result of slower demand across all market
sectors reflecting the downturn in global economic activity and disruption in
the global financial markets when compared to the same period in the prior year.
Supply chain inventory levels have remained lean as distributor customers and
product manufacturers limited inventory purchases and remained cautious
reflecting the overall uncertainty in the market. Overall sales prices for our
commodity components have remained stable during the first nine months of the
current fiscal year.
The table
below represents product group revenues for the nine-month periods ended
December 31, 2008 and December 31, 2009.
|
Sales
Revenue
|
Nine
Months Ended
December
31,
|
|||||||
|
$(000's)
|
2008
|
2009
|
||||||
|
Ceramic
Components
|
$ | 145,066 | $ | 104,129 | ||||
|
Tantalum
Components
|
217,130 | 200,566 | ||||||
|
Advanced
Components
|
328,914 | 270,356 | ||||||
|
Total
Passive Components
|
691,110 | 575,051 | ||||||
|
KDP
and KKC Resale
|
289,989 | 243,371 | ||||||
|
KEC
Resale
|
61,597 | 57,169 | ||||||
|
Total
KED Resale
|
351,586 | 300,540 | ||||||
|
Connectors
|
75,090 | 61,929 | ||||||
|
Total
Revenue
|
$ | 1,117,786 | $ | 937,520 | ||||
Passive
Component sales decreased $116.1 million, or 16.8%, to $575.1 million in the
nine months ended December 31, 2009 compared to sales of $691.1 million during
the same period last year. The sales decrease in Passive Components reflects
lower demand due to the overall decline in global markets resulting from the
current economic uncertainty as both consumers and manufacturers reduced
spending. Lower demand particularly in the consumer electronics, telecom and
automotive markets was partially offset by improving medical and military
markets. Lower revenues from Advanced Components reflect the lower demand
primarily in the semiconductor and medical equipment businesses resulting from
the current economic conditions partially offset by higher demand in the energy
markets for wind and solar power generation systems. The decrease in sales of
Ceramic and Tantalum Components reflects a decrease in the volume of unit sales
and a moderate decrease in average selling prices reflective of the downturn in
the economy.
KDP and
KKC Resale sales decreased $46.6 million to $243.4 million in the nine months
ended December 31, 2009 compared to $290.0 million during the same period last
year. When compared to the same period last year, the decrease during the nine
months ended December 31, 2009 is primarily attributable to a decrease in unit
sales volume in the Asian region due to lower end user demand, particularly in
the telecommunications market, resulting from the uncertainty in global economic
conditions.
Total
Connector sales, including AVX manufactured and KEC Resale connectors, decreased
$17.6 million, or 12.9%, to $119.1 million in the nine months ended December 31,
2009 compared to $136.7 million during the same period last year. This decrease
was primarily attributable to a decrease in the automotive and consumer products
sectors in the Europe and Americas regions as a result of the adverse economy
when compared to the same period in the prior year.
Our sales
to independent electronic distributor customers represented 38.0% of total sales
for the nine months ended December 31, 2009, compared to 36.5% for the nine
months ended December 31, 2008. Overall distributor inventories remained lean as
distributor customers limited their inventory purchases during the first nine
months of the fiscal year while remaining cautious in this uncertain demand
environment. Our sales to distributor customers involve specific ship and debit
and stock rotation programs for which sales allowances are recorded as
reductions in sales. Such allowance charges were $23.1 million, or
6.1% of gross sales to distributor customers, for the nine months ended December
31, 2009 and $30.4 million, or 6.9% of gross sales to distributor customers, for
the nine months ended December 31, 2008. Applications under such programs for
the nine months ended December 31, 2009 and 2008 were approximately $22.0
million and $29.6 million, respectively.
-25-
Geographically,
compared to the same period last year, sales decreased across all regions
including 22.4% in Europe and 17.2% in the Americas. Decreases in these regions
were reflective of lower demand for electronic products due to the decline of
the global market. In addition, there was lower demand in Asia, where sales for
the nine months ended December 31, 2009 decreased 12.0% compared to the same
period in the prior year driven by declines in the consumer market. The movement
of the U.S. dollar against certain foreign currencies resulted in a favorable
impact on sales in the first nine months of the fiscal year by approximately
$5.8 million when compared to the same period last year
.
Gross
profit in the nine months ended December 31, 2009 was 20.8% of sales or $195.0
million compared to a gross profit margin of 16.0% or $178.6 million in the nine
months ended December 31, 2008. This overall increase is primarily a result of
our disciplined cost management in addition to the sale of higher margin
products and the benefits of previously initiated restructuring actions. During
the nine months ended December 31, 2009, we incurred restructuring charges of
$2.8 million related to headcount reductions and other charges, including those
related to facility closures, as we continue to realign production capabilities
and reduce operating costs to support current business levels. We recorded $6.4
million of restructuring costs during the nine months ended December 31, 2008.
We also recorded a $5.0 million reduction in cost of sales related to a vendor
settlement during the nine months ended December 31, 2009. In addition, costs
due to currency movement of the U.S. dollar against certain foreign currencies
were favorably impacted in the first nine months of the fiscal year by
approximately $0.7 million when compared to the same period last
year.
Selling,
general and administrative expenses in the nine months ended December 31, 2009
were $84.0 million, or 9.0% of net sales, compared to $97.4 million, or 8.7% of
net sales, in the nine months ended December 31, 2008. The overall decrease in
selling, general and administrative expenses was primarily due to lower selling
expenses due to lower sales and savings resulting from effective cost control
programs and benefits from previous restructuring and cost reduction actions.
During the nine months ended December 31, 2009 and 2008, we recorded $1.7
million of restructuring charges primarily related to headcount reductions to
reduce ongoing selling, general and administrative expenses.
During
the nine months ended December 31, 2009 and 2008, other operating income
includes gains of $3.0 million and $4.1 million, respectively, on the sale of
excess corporate assets.
As a result of the
above factors, income from operations increased $28.7 million to $113.9 million
in the nine months ended December 31, 2009 compared to $85.2 million in the nine
months ended December 31, 2008
Other
income decreased $12.5 million to $5.0 million in the nine months ended December
31, 2009 compared to $17.6 million in the same period last year. This decrease
is primarily due to lower interest income resulting from lower interest rates on
cash and securities investment balances and lower net currency exchange gains
for the first nine months of the fiscal year. In addition, other income for the
nine months ended December 31, 2009 and 2008 includes $0.4 million and $3.6
million, respectively, due to the decline in value of available for sale
securities.
The
Company's effective tax rate for the nine -month period ended December 31, 2009
was 19.0% compared to 19.6% for the same period last year. This lower effective
tax rate is mainly due to the reduction of deferred tax liabilities associated
with certain of our foreign branch losses taken as deductions in prior years’
U.S. tax returns no longer being subject to U.S. income tax recapture
regulations. In March 2007, the Internal Revenue Service enacted a change in tax
regulations that reduced the U.S. income tax recapture period from 15 to 5
years. As a result, $16.6 million of potential recapture will expire during the
current fiscal year ending March 31, 2010 compared to $8.6 million of recapture
that expired during the fiscal year ended March 31, 2009. This
benefit is partially offset in the current year by higher tax expense as a
result of increased taxable income in higher tax rate
jurisdictions.
Outlook
Near-Term:
The
electronic component industry in which we operate is cyclical. Near-term results
for us will depend on the impact of the overall uncertainty in global economic
conditions and its impact on telecommunications, information technology
hardware, automotive, consumer electronics and other electronic
markets. We expect to see renewed pricing pressure in the markets we
serve as our customers look to reduce procurement costs as the economy and
volumes improve. In response to current economic conditions, we expect to
continue to focus on cost management and manufacturing efficiencies. We also
continue to focus on process improvements and enhanced production capabilities
in conjunction with our focus on the sales of value added electronic components
to support today’s advanced electronic devices. If global economic conditions do
not improve, including the credit and capital markets, the impact on our
customers as well as end user demand for electronic products could cause a
significant adverse impact on our near term results.
-26-
Long-Term:
Although
there is much uncertainty in the near-term market as a result of the current
economic conditions, we continue to be optimistic that opportunities for
long-term growth and profitability will continue due to: (a) a projected
increase in the long-term worldwide demand for electronic devices, which require
electronic components such as the ones we sell, (b) cost reductions and
improvements in our production processes and (c) opportunities for growth in our
Advanced Component and Connector product lines due to advances in component
design and our production capabilities. We have fostered our
financial health and the strength of our balance sheet. We remain
confident that our strategies to weather this current economic downturn will
enable our continued long-term success.
Liquidity and Capital
Resources
Liquidity
needs arise primarily from working capital requirements, dividend payments,
capital expenditures and acquisitions. Historically, we have
satisfied our liquidity requirements through funds from operations and
investment income from cash and investments in securities. As of
December 31, 2009, we had a current ratio of 6.7 to 1, $915.1 million of cash,
cash equivalents and short-term and long-term investments in securities, $1.8
billion of stockholders' equity and no debt.
Net cash
provided by operating activities was $187.7 million in the nine months ended
December 31, 2009 compared to $53.7 million of cash provided by operating
activities in the nine months ended December 31, 2008. The increase in cash flow
from operating activities compared to the same period last year was primarily a
result of higher net income, and a more favorable currency impact when compared
to the same period last year. In addition, a decrease in inventory
levels and higher accounts payable and other accrued expenses partially offset
by higher accounts receivable also contributed to the increase in operating cash
flow for the period.
Purchases
of property and equipment were $22.1 million during the first nine months of
fiscal 2010 compared to $39.1 million in the nine month period ending December
31, 2008. Expenditures for both periods were primarily in connection with the
expansion of passive component manufacturing operations in lower cost regions,
process improvements in passive component product lines and expansion of
production of certain advanced component and connector product
lines. The carrying value for our equipment reflects the use of the
accelerated double-declining balance method to compute depreciation expense for
machinery and equipment. We continue to make strategic investments in
our advanced passive component and connector products and expect to incur
capital expenditures of approximately $30 million in fiscal 2010. The actual
amount of capital expenditures will depend upon the outlook for end-market
demand.
The
majority of our funding is internally generated through operations and
investment income from cash and investments in securities. Since
March 31, 2009, there have been no material changes in our contractual
obligations or commitments for the acquisition or construction of plant and
equipment or future minimum lease commitments under noncancellable operating
leases. Based on our financial condition as of December 31, 2009, we
believe that cash on hand and cash expected to be generated from operating
activities and investment income from cash and investments in securities will be
sufficient to satisfy our anticipated financing needs for working capital,
capital expenditures, environmental clean-up costs, research, development and
engineering expenses, any acquisitions of businesses and any dividend payments
or stock repurchases to be made during the year. While changes in customer
demand have an impact on our future cash requirements, changes in those
requirements are mitigated by our ability to adjust manufacturing capabilities
to meet increases or decreases in customer demand. We do not
anticipate any significant changes in our ability to generate or meet our
liquidity needs in the long-term.
From time
to time we enter into delivery contracts with selected suppliers for certain
precious metals used in our production processes. The delivery
contracts represent routine purchase orders for delivery within three months and
payment is due upon receipt.
We are
involved in disputes, warranty and legal proceedings arising in the normal
course of business. While we cannot predict the outcome of these proceedings, we
believe, based upon our review with legal counsel, that none of these
proceedings will have a material impact on our financial position, results of
operations, or cash flows. However, we cannot be certain if the eventual outcome
and any adverse result in these or other matters that may arise from time to
time may harm our financial position, results of operations, or cash
flows.
-27-
We have
been named as a potentially responsible party in state and federal
administrative proceedings seeking contribution for costs associated with the
correction and remediation of environmental conditions at various waste disposal
and operating sites. In addition, we operate on sites that may have
potential future environmental issues as a result of activities at sites during
AVX’s long history of manufacturing operations or prior to the start of
operations by AVX. Even though we may have rights of indemnity for
such environmental matters at certain sites, regulatory agencies in those
jurisdictions may require us to address such issues. Once it becomes
probable that we will incur costs in connection with remediation of a site and
such costs can be reasonably estimated, we establish reserves or adjust our
reserves for our projected share of these costs. A separate account
receivable is recorded for any indemnified costs. Our environmental reserves are
not discounted and 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 or indemnification of our liability by a
third party.
We
currently have environmental reserves for current remediation, compliance and
legal costs totaling $19.5 million at December 31, 2009. Additional information
related to environmental and legal issues can be found in Note 8 “Commitments
and Contingencies” of the Company’s Notes to Consolidated Financial Statements
contained in this Quarterly Report on Form 10-Q.
New Accounting
Standards
Information
related to new accounting standards that we have recently adopted or are
currently reviewing can be found in Note 1 “Basis of Presentation” under
New Accounting Standards
of
the Company’s Notes to Consolidated Financial Statements contained in this
Quarterly Report on Form 10-Q.
The
Company’s sales are denominated in various foreign currencies in addition to the
U.S. dollar. Certain manufacturing and operating costs denominated in local
currencies are incurred in Europe, Asia, Mexico and Central and South America.
Additionally, purchases of resale products from Kyocera may be denominated in
Yen. 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. Accordingly, we have hedging commitments to cover a portion
of our exchange risk on purchases, operating expenses and sales. There have been
no material net changes in the Company’s exposure to its foreign currency
exchange rate as reflected in Part II, Item 7A “Quantitative and Qualitative
Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for
the fiscal year ended March 31, 2009. See Note 13 of the Company’s Notes to
Consolidated Financial Statements contained in this Quarterly Report on Form
10-Q for further discussion of derivative financial instruments.
|
ITEM
4.
|
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company’s reports under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to management, including the Company’s Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
As of the
end of the period covered in this report, the Company carried out an evaluation,
under the supervision and with the participation of management, including the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures, as such term is
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that as of the end of the period covered by this report, the Company’s
disclosure controls and procedures were effective to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and is accumulated and
communicated to the Company’s management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosures.
In
addition, there were no changes in the Company’s internal control over financial
reporting during the Company’s third quarter of fiscal 2010 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
-28-
|
|
|
ITEM
1.
|
See Note
12, “Commitments and Contingencies”, to the AVX Corporation and Subsidiaries
Notes to Consolidated Financial Statements in the Company’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2009. The case discussed
therein related to the Cabot Corporation was settled on October 19, 2009. The
terms of the settlement are confidential. In addition, see Note 8, “Commitments
and Contingencies”, in our Notes to Consolidated Financial Statements in Part I,
Item 1 to this Form 10-Q for a discussion of our involvement as a PRP at certain
environmental remediation sites.
|
ITEM
1A.
|
Please
refer to Part I, Item 1A., Risk Factors, in the Company’s Annual
Report on Form 10-K for the fiscal year ended March 31, 2009 for
information regarding factors that could affect the Company’s results of
operations, financial condition and liquidity. There have been no material
changes to our risk factors in the nine month period ending December 31, 2009
except as described below.
AVX
recently announced the relocation of its corporate headquarters from Myrtle
Beach to Greenville, South Carolina. Although there are no
company-specific risks associated with this move, any significant move of
operations and personnel poses the possibility of the loss of key employees,
disruption of communications, or problems with information technology
systems. Management is taking steps to minimize these risks to the
extent possible.
|
ITEM
6.
|
|
|
31.1
|
|
|
31.2
|
|
|
32.1
|
-29-
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date: February
5, 2010
|
AVX
Corporation
|
|
|
By:
|
/s/
Kurt P. Cummings
|
|
Kurt
P. Cummings
|
|
|
Vice
President,
|
|
|
Chief
Financial Officer,
|
|
|
Treasurer
and Secretary
|
-30-
TABLE OF CONTENTS
Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 2. Management's Discussion and Analysis OfItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart Ii: Other InformationPart Ii:Item 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. Exhibits