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SECURITIES AND EXCHANGE COMMISSION
Washington , DC 20549
FORM 10-Q
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X |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2012
or
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from __________ to __________
Commission file number 1-7201
(Exact name of registrant as specified in its charter)
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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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1 AVX Boulevard Fountain Inn , South Carolina |
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29644 |
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(Address of principle executive offices) |
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(Zip Code) |
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(864) 967-2150 |
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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 |
X |
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 |
X |
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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Accelerated filer |
[ X ] |
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Non-accelerated filer |
[ ] |
(Do not check if a smaller reporting company) |
Smaller reporting company |
[ ] |
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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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 August 7, 2012 |
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Common Stock, par value $0.01 per share |
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169,330,825 |
AVX CORPORATION
INDEX
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Page Number |
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PART I: |
Financial Information: |
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ITEM 1. |
Financial Statements (unaudited): |
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Consolidated Balance Sheets as of March 31, 2012 and June 30, 2012 |
3 |
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Consolidated Statements of Operations for the three months ended June 30, 2011 and 2012 |
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Consolidated Statements of Cash Flows for the three months ended June 30, 2011 and 2012 |
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ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
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ITEM 3. |
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ITEM 4. |
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PART II: |
Other Information: |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 6. |
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Signature |
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28 |
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AVX Corporation and Subsidiaries
(in thousands, except per share data)
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March 31, |
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June 30, |
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2012 |
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2012 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Short-term investments in securities |
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Accounts receivable - trade |
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Accounts receivable - affiliates |
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Inventories |
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Income taxes receivable |
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Deferred income taxes |
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Prepaid and other |
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Total current assets |
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Long-term investments in securities |
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Property and equipment |
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Accumulated depreciation |
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Goodwill |
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Intangible assets, net |
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Deferred income taxes - non-current |
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Other assets |
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Total Assets |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable - trade |
$ |
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$ |
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Accounts payable - affiliates |
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Income taxes payable |
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Deferred income taxes |
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Accrued payroll and benefits |
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Accrued expenses |
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Total current liabilities |
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Pensions |
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Deferred income taxes - non-current |
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Other liabilities |
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Total Liabilities |
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Commitments and contingencies (Note 8) |
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Stockholders' Equity: |
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Preferred stock, par value $.01 per share: |
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Authorized, 20,000 shares; None issued and outstanding |
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- |
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- |
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Common stock, par value $.01 per share: |
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Authorized, 300,000 shares; issued, 176,368 shares; outstanding, 169,600 and 169,431 shares at March 31 and June 30, 2012, respectively |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive income |
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Treasury stock, at cost: |
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6,768 and 6,937 shares at March 31 and June 30, 2012, respectively |
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Total Stockholders' Equity |
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Total Liabilities and Stockholders' Equity |
$ |
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$ |
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See accompanying notes to consolidated financial statements.
3
AVX Corporation and Subsidiaries
(in thousands, except per share data)
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Three Months Ended June 30, |
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2011 |
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2012 |
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Net sales |
$ |
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$ |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Environmental charge |
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- |
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Profit (loss) from operations |
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Other income: |
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Interest income |
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Other, net |
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Income (loss) before income taxes |
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Provision for (benefit from) income taxes |
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Net income (loss) |
$ |
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$ |
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Income (loss) per share: |
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Basic |
$ |
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$ |
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Diluted |
$ |
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$ |
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Dividends declared |
$ |
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$ |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to consolidated financial statements.
4
AVX Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in thousands)
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Three Months Ended June 30, |
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2011 |
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2012 |
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Net income (loss) |
$ |
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$ |
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Other comprehensive income, net of income taxes |
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Foreign currency translation adjustment |
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Foreign currency cash flow hedges adjustment |
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Pension liability adjustment |
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Unrealized gain on available-for-sale securities |
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- |
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Other comprehensive income (loss), net of income taxes |
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Comprehensive income (loss) |
$ |
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$ |
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See accompanying notes to consolidated financial statements.
5
AVX Corporation and Subsidiaries
(in thousands)
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Three Months Ended June 30, |
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2011 |
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2012 |
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Operating Activities : |
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Net income (loss) |
$ |
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$ |
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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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Stock-based compensation expense |
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Deferred income taxes |
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Other |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Accounts payable and accrued expenses |
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Income taxes payable |
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Other assets |
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Other liabilities |
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Net cash provided by operating activities |
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Investing Activities: |
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Purchases of property and equipment |
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Purchases of investment securities |
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Sales of available-for-sale securities |
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- |
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Redemptions of investment securities |
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Net cash used in investing activities |
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Financing Activities: |
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Dividends paid |
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Purchase of treasury stock |
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Proceeds from exercise of stock options |
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- |
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Excess tax benefit from stock-based payment arrangements |
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- |
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Net cash used in financing activities |
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Effect of exchange rate on cash |
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Increase (decrease) in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
$ |
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$ |
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See accompanying notes to consolidated financial statements .
6
AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share data)
1. Basis of Presentation:
Our consolidated financial statements of AVX Corporation and its subsidiaries (“AVX” or the “Company”) include all accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. We have prepared the accompanying financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. These consolidated fin ancial 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 , comprehensive income (loss) , and cash flows for the periods presented. Operating results for the three months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2013 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 .
Critical Accounting Policies and Estimates:
We have identified the accounting policies and estimates that are critical to our business operations and understanding our 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 20 12 . Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended March 31, 20 12 . During the three month period ended June 30 , 20 12 , there were no significant changes to any critical accounting 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 .
New Accounting Standards
Effective April 1, 2012, we adopte d Accounting Standards Update 2011-05, Presentation of Comprehensive Income , or ASU 2011-05, which revises the manner in which companies present comprehensive income. Under ASU 2011-05, companies may present comprehensive income, which is net income adjusted for the components of other comprehensive income, either in a single, continuous statement of comprehensive income or by using two separate but consecutive statements. Regardless of the alternative chosen, companies must display adjustments for items reclassified from other comprehensive income into net income within the presentation of both net income and other comprehensive income. ASU 2011-05 requires retrospective application. The adoption affects only the display of those components of equity categorized as other comprehensive income and does not change existing recognition and measurement requirements that determine net earnings. The Company has elected to present two separate but consecutive statements.
Effective April 1, 2012, we adopted Accounting Standards Update 2011-12, which effectively deferred the changes in ASU 2011-05 that relate to the presentation of reclassifications out of accumulated other comprehensive income. Our adoption of ASU 2011-12 did not have a material effect on our consolidated financial statements.
7
Effective April 1, 2012, we adopted Accounting Standards Update 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment , which intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The ASU also expands upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The ASU did not have a material effect on our consolidated financial statements.
We have reviewed newly issued accounting pronouncements and concluded that they are either not applicable to our business or that no material effect is expected on our consolidated financial statements as a result of future adoption.
2. Earnings Per Share:
Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding 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 c ommon stock equivalents during the period. Stock options are the only common stock equivalents currently used in our calculation 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:
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Three Months Ended June 30, |
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2011 |
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2012 |
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Net Income (Loss) |
$ |
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$ |
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Computation of Basic EPS: |
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Weighted Average Shares Outstanding used in computing Basic EPS |
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Basic earnings per share |
$ |
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$ |
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Computation of Diluted EPS: |
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Weighted Average Shares Outstanding |
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Effect of stock options |
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- |
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Shares used in computing Diluted EPS (1) |
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Diluted Income (Loss) per share |
$ |
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$ |
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(1) Common stock equivalents, not included in the computation of diluted earnings per share because the impact would have been antidilutive were 1,472 shares and 3 , 358 shares for the three months ended June 30, 2011 and 2012 , respectively. In addition, 88 shares that would have been dilutive if we had income were excluded from the computation of diluted earnings per share due to the Company's net loss position for the three months ended June 30, 2012.
8
3. Trade Accounts Receivable:
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March 31, 2012 |
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June 30, 2012 |
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Gross Accounts Receivable - Trade |
$ |
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$ |
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Less: |
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Allowances for doubtful accounts |
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Stock rotation and ship from stock and debit |
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Sales returns and discounts |
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Total allowances |
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Net Accounts Receivable - Trade |
$ |
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$ |
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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.
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Three Months Ended June 30, |
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2011 |
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2012 |
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Allowances for doubtful accounts: |
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Beginning Balance |
$ |
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$ |
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Charges |
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- |
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Applications |
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Ending Balance |
$ |
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$ |
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Three Months Ended June 30, |
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2011 |
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2012 |
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Stock rotation and ship from stock and debit: |
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Beginning Balance |
$ |
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$ |
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Charges |
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Applications |
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Ending Balance |
$ |
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$ |
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Three Months Ended June 30, |
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2011 |
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2012 |
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Sales returns and discounts: |
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Beginning Balance |
$ |
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$ |
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Charges |
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Applications |
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Translation and other |
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- |
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Ending Balance |
$ |
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$ |
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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:
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Level 1 : Unadjusted quoted prices in active markets for identical assets and liabilities. |
9
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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. |
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Level 3 : Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability. |
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Based on |
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Quoted prices |
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Other |
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in active |
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observable |
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Unobservable |
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Fair Value at |
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markets |
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inputs |
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inputs |
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March 31, 2012 |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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Assets measured at fair value on a recurring basis: |
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Assets held in the non-qualified deferred compensation program (1) |
$ |
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$ |
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$ |
- |
|
$ |
- |
|
Foreign currency derivatives (2) |
|
|
|
|
- |
|
|
|
|
|
- |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on |
|||||||
|
|
|
|
Quoted prices |
|
Other |
|
|
||||
|
|
|
|
in active |
|
observable |
|
Unobservable |
||||
|
|
Fair Value at |
|
markets |
|
inputs |
|
inputs |
||||
|
|
March 31, 2012 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
||||
|
Liabilities measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
Obligation related to assets held in the non-qualified deferred compensation program (1) |
$ |
|
|
$ |
|
|
$ |
- |
|
$ |
- |
|
Foreign currency derivatives (2) |
|
|
|
|
- |
|
|
|
|
|
- |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on |
|||||||
|
|
|
|
Quoted prices |
|
Other |
|
|
||||
|
|
|
|
in active |
|
observable |
|
Unobservable |
||||
|
|
Fair Value at |
|
markets |
|
inputs |
|
inputs |
||||
|
|
June 30, 2012 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
||||
|
Assets measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets held in the non-qualified deferred compensation program (1) |
$ |
|
|
$ |
|
|
$ |
- |
|
$ |
- |
|
Foreign currency derivatives (2) |
|
|
|
|
- |
|
|
|
|
|
- |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on |
|||||||
|
|
|
|
Quoted prices |
|
Other |
|
|
||||
|
|
|
|
in active |
|
observable |
|
Unobservable |
||||
|
|
Fair Value at |
|
markets |
|
inputs |
|
inputs |
||||
|
|
June 30, 2012 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
||||
|
Liabilities measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
Obligation related to assets held in the non-qualified deferred compensation program (1) |
$ |
|
|
$ |
|
|
$ |
- |
|
$ |
- |
|
Foreign currency derivatives (2) |
|
|
|
|
- |
|
|
|
|
|
- |
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
(1) The market value of the assets held in the trust for the non-qualified deferred compensation program is included as an ass et and a liability as the trust’ s assets are available to us as general creditors in the event of our insolvency.
(2) Foreign currency derivatives in the form of forward contracts are included in prepaid and other in the consolidated balance sheets. Unrealized gains and losses on derivatives classified as cash flow hedges are recorded in other comprehensive income (loss) . Gains and losses on derivatives not designated as hedges are recorded in other income.
Valuation Techniques:
The following describes valuation techniques used to a ppropriately value our assets held in the non-qualified deferred compensation plan and derivatives.
Assets held in the non-qualified deferred compensation plan
Assets valued using Level 1 inputs in the table above represent a ssets from our 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.
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
We primarily use 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 our forecasted transactions related to purchase commitments and sales, denominated in various currencies. We also use 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 our 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 March 31, 2012 and June 30, 20 12 , all of our forward contracts are Level 2 measur ements .
5. Financial Instruments and Investments in Securities:
At March 31, 20 12 and June 30, 2012 , we classified investments in debt se curities and time deposits as held-to-maturity securities .
11
Our long-term and short-term investment securities are accounted for as held-to-maturity securities and are carried at amortized cost. We have the ability and intent to hold these investments until maturity. All income generated from the held-to-maturity securities investments are recorded as interest income.
Investments in held-to-maturity securities, recorded at amortized cost , were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012 |
||||||||||
|
|
|
|
Gross |
|
Gross |
|
|
||||
|
|
|
|
|
Unrealized |
|
Unrealized |
|
Estimated |
|||
|
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
||||
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
$ |
|
|
$ |
- |
|
$ |
|
|
$ |
|
|
Corporate bonds |
|
|
|
|
|
|
|
- |
|
|
|
|
Time deposits |
|
|
|
|
- |
|
|
- |
|
|
|
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|||||||||
|
|
|
|
Gross |
|
Gross |
|
|
||||
|
|
|
|
|
Unrealized |
|
Unrealized |
|
Estimated |
|||
|
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
||||
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
$ |
|
|
$ |
- |
|
$ |
|
|
$ |
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits |
|
|
|
|
- |
|
|
- |
|
|
|
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The amortized cost and estimated fair value of held-to-maturity investments at June 30, 2012 , 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
Held-to-Maturity |
||||
|
|
|
|
|
Amortized |
|
Estimated |
||
|
|
|
|
|
Cost |
|
Fair Value |
||
|
Due in one year or less |
|
|
|
$ |
|
|
$ |
|
|
Due after one year through five years |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
$ |
|
12
6. Inventories:
|
|
|
|
|
|
|
|
|
March 31, 2012 |
|
June 30, 2012 |
||
|
Finished goods |
$ |
|
|
$ |
|
|
Work in process |
|
|
|
|
|
|
Raw materials and supplies |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
7. Stock-Based Compensation:
In May 2012, we granted 493 options to employees pursuant to the 2004 Stock Option Plan described in Note 10, “Stock Based Compensation”, of the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012. The weighted average grant date fair value per share and the weighted average exercise price per share for these options are $2.13 and $10.90, respectively.
There were no stock options exercised during the first quarter of fiscal year 2013.
8. Commitments and Contingencies:
We have been identified by the United States Environmental Protection Agency ("EPA"), state governmental agencies , or other private parties as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or equivalent state or local laws for clean-up and re sponse costs associated with certain sites at which remediation is required with respect to prior contamination . Because CERCLA has generally 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 certain sites, financially responsible PRPs other than AVX also are, or have been, involved in site investigation and clean-up a ctivities. We believe that liability resulting from these sites will be apportioned between AVX and other PRPs.
To resolve our liability at the sites at which the Company has been named a PRP, we have entered into various administrative orders and consent decrees with federal and state regulatory agencies governing the timing and nature of investigation and remediation. 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.
In 1991, in connection with a consent decree, we paid $66 million, plus interest, toward the environmental conditions at, and remediation of, New Bedford Harbor in the Commonwealth of Massachusetts (“the harbor”) in settlement with the United States and the Commonwealth of Massachusetts, subject to reopener provisions, including a reopener if certain remediation costs for the site exceed $130.5 million. In 2007, we received notification from the EPA and the Department of Justice indicating that the United States was preparing to exercise the cost reopener. In March 2011, the EPA issued the Fourth Explanation of Significant Differences (“ESD #4”) that explains the planned changes to the existing remedial action plan for the harbor to include the use of a confined aquatic disposal (“CAD”) cell, along with interim off-site transportation and disposal of certain contaminated dredge spoils, and the continued use of long-term on-site storage for other contaminated dredge spoils. ESD #4 provides future cost estimates under the new remedial action plan (in addition to costs incurred to date) ranging from $362 million to $401 million, net present value, based on certain criteria included in the ESD #4. The EPA has indicated that remediation costs through December 31, 2011 were approximately $456 million, not all of which are subject to the reopener provisions.
On April 18, 2012, the EPA issued to the Company a Unilateral Administrative Order (“UAO”) directing the Company to perform the Remedial Design, the Remedial Action, and Operation and Maintenance for the harbor cleanup. The effective date set forth in the UAO was June 18, 2012, pursuant to which the Company had until June 25, 2012 to inform the EPA if it intends to comply with the UAO. The EPA has extended the effective date of the UAO to October 1, 2012.
13
We are continuing to assess the UAO as well as potential defenses and other actions with respect to the site and to engage in mediation with the EPA and the Commonwealth of Massachusetts. Our current estimate of the potential liability is $366 million in connection with this matter. We recognize liabilities for environmental exposures when analysis indicates that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Accordingly , we have recorded a charge for the first quarter ended June 30, 2012 (in addition to the $100 million charge recorded in the quarter ended March 31, 2012) of $266 million with respect to this matter.
There are two suits pending with respect to property adjacent to our Myrtle Beach, South Carolina factory claiming property value s ha ve been negatively impacted by alleged migration of certain pollutants from our property . O n November 27, 2007 a suit was filed in the South Carolina State Court by certain individuals as a class actio n . Another suit is a commercial suit filed on January 16, 2008 in South Carolina State Court. Both of these suits are pending. We intend to defend vigorously the claims that have been asserted in these two lawsuits. At this stage of the litigation, there has not been a determination as to responsible parties or the amount, if any, of damages. Based on our estimate of potential outcomes, we have accrued approximately $0.3 million with respect to these cases as of June 30, 2012.
We currently have reserve s of approximately $ 381.9 million a t June 30, 2012 related to the various matters discussed above. These reserves are classified in the Consolidated Balance Sheets as $137.7 million in accrued expenses and $244.2 million in other non-current liabilities at June 30, 2012. The amount recorded for identified contingent liabilities is based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional legal and technical information that becomes available. Also, uncertainties about the status of laws, regulations, regulatory actions, technology, and information related to individual sites make it difficult to develop an estimate of the reasonably possible aggregate environmental remediation exposure. Therefore, these costs could differ from our current estimates.
During fiscal 2010 , AVX was named as a third party defendant in a case filed in Massachusetts Superior Court captioned DaRosa v. City of New Bedford . This case relates to a former disposal site in the City of New Bedford located at Parker Street. The City asserts that AVX, among others , contributed to that site. We intend to defend vigorously the claims that have been asserted in this lawsuit. In light of the foregoing, we are not able to estimate any amount of loss or range of loss. No accrual for costs has been recorded and the potential impact of th is case on our financial position, results of operations, comprehensive income (loss), and cash flows cannot be determined at this time.
We also operate on other 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.
We are involved in disputes, warranty, and legal proceedings arising in the normal course of business. While we 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, comprehensive income (loss), or cash flows.
We have an employment agreement with our Chief Executive Officer that provides for salary continuance equivalent to his most recent base salary as a full-time employee during a two-year advisory period upon retirement.
9. Comprehensive Income (Loss):
Comprehensive income (loss) represents changes in equity during a period except those resulting from investments by and distributions to shareholders. The specific components include net income (loss), 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.
14
Other comprehensive income (loss) includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
||||||||||
|
|
2011 |
|
2012 |
||||||||
|
|
Pre-tax |
|
Net of Tax |
|
Pre-tax |
|
Net of Tax |
||||
|
Foreign currency translation adjustment |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Foreign currency cash flow hedges adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities |
|
|
|
|
|
|
|
- |
|
|
- |
|
Other comprehensive income (loss) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
10. Segment and Geographic Information:
We have three reportable segments: Passive Components, KED Resale , and Interconnect. 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 Interconnect segment consists primarily of Elco automotive, telecom , and memory connectors manufactured by AVX Interconnect . Sales and operating results from these reportable segments are shown in the tables belo w. In addition, we have a corporate administration group consisting of finance and administrative activities and a separate Research and Development group.
We evaluate performance of our segments based upon sales and operating profit. There are no intersegment revenues. We allocate 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 June 30, |
||||
|
|
2011 |
|
2012 |
||
|
Net sales: |
|
|
|
|
|
|
Passive Components |
$ |
|
|
$ |
|
|
KDP and KCD Resale |
|
|
|
|
|
|
KCP Resale |
|
|
|
|
|
|
Total KED Resale |
|
|
|
|
|
|
Interconnect |
|
|
|
|
|
|
Total |
$ |
|
|
$ |
|
15
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
||||
|
|
2011 |
|
2012 |
||
|
Operating profit: |
|
|
|
|
|
|
Passive Components |
$ |
|
|
$ |
|
|
KED Resale |
|
|
|
|
|
|
Interconnect |
|
|
|
|
|
|
Research & development |
|
|
|
|
|
|
Corporate administration |
|
|
|
|
|
|
Total |
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
March 31, 2012 |
|
June 30, 2012 |
||
|
Assets: |
|
|
|
|
|
|
Passive Components |
$ |
|
|
$ |
|
|
KED Resale |
|
|
|
|
|
|
Interconnect |
|
|
|
|
|
|
Research & development |
|
|
|
|
|
|
Cash, A/R, and investments in securities |
|
|
|
|
|
|
Goodwill - Passive components |
|
|
|
|
|
|
Goodwill - Interconnect |
|
|
|
|
|
|
Corporate administration |
|
|
|
|
|
|
Total |
$ |
|
|
$ |
|
The following geographic data is based upon net sales generated by operations located within particular geographic are as:
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
||||
|
|
2011 |
|
2012 |
||
|
Net sales: |
|
|
|
|
|
|
Americas |
$ |
|
|
$ |
|
|
Europe |
|
|
|
|
|
|
Asia |
|
|
|
|
|
|
Total |
$ |
|
|
$ |
|
16
11. Pension Plans:
Net periodic pension cost for our defined benefit plans consisted of the following for the three months ended June 30 , 2011 and 2012 :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
International Plans |
||||||||
|
|
Three Months Ended June 30, |
|
Three Months Ended June 30, |
||||||||
|
|
2011 |
|
2012 |
|
2011 |
|
2012 |
||||
|
Service cost |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
|
|
|
|
|
- |
|
|
- |
|
Recognized actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Based on current actuarial computations, during the quarter ended June 30, 2012 , we made contributions of $1, 9 72 to the international plans. We expect to make additional contributions of approximately $ 5, 91 6 to the international plans over the remainder of fiscal 2013 . We made no contributions to the U.S. p lans during the current quarter due to their funding status , and we do not anticipate making any contributions during the remainder of the fiscal year.
12. Derivative Financial Instruments:
We are exposed to foreign currency exchange rate fluctuations in the normal course of business and use 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 asset s and liabilities. We do not enter into any trading or speculative positions with regard to derivative instruments.
We primarily use forward contracts, with maturities less than four months, designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in our 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 our statement of operations. At March 31, 2012 and June 3 0, 2012 , respectively , the following forward contracts were entered into to hedge against the volatility of foreign currency exchange rates for certain forecasted sales and purchases.
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012 |
||||||
|
|
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 |
$ |
|
|
Accrued expenses |
$ |
|
17
|
|
|
|
|
|
|
|
|
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June 30, 2012 |
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Fair Value of Derivative Instruments |
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Asset Derivatives |
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Liability Derivatives |
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Balance |
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Sheet |
Fair |
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Sheet |
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Foreign exchange contracts |
Prepaid and other |
$ |
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Accrued expenses |
$ |
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For these derivatives designated as hedging instruments , during the three months ended June 30 , 2012 , net pretax losses of $ 463 were recognize d in other comprehensive loss . In addition, during the t hr ee months ended June 30 , 2012 , net pretax losse s of $ 1,1 88 were reclassified from accumulated other comprehensive income into cost of sale s (for hedging purchases), and net pretax gain s of $ 672 were reclassified from accumulated other compr ehensive income into sales (for hedging sales) in the accompanying Statement of Operations. During the quarter s ended June 30, 2011 and 2012 , we discontinue d an immaterial amount of cash flow hedges for which it was probable that a forecasted transaction would not occur.
Derivatives not designated as hedging instruments consist primarily of forwards 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 recogn ized in other income in the same period as the remeasurement gain s and loss es of the related foreign currency denominated assets and liabilities and thus naturally offset these gains and losses. At March 31, 2012 and June 3 0 , 20 12 , we had the following forward contracts that were entered into to hedge against these exposures.
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March 31, 2012 |
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Fair Value of Derivative Instruments |
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Asset Derivatives |
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Liability Derivatives |
||||
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Balance |
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Balance |
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Sheet |
Fair |
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Sheet |
Fair |
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Caption |
Value |
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Caption |
Value |
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Foreign exchange contracts |
Prepaid and other |
$ |
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Accrued expenses |
$ |
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June 30, 2012 |
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Fair Value of Derivative Instruments |
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Asset Derivatives |
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Liability Derivatives |
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Balance |
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Balance |
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Sheet |
Fair |
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Sheet |
Fair |
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Caption |
Value |
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Caption |
Value |
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Foreign exchange contracts |
Prepaid and other |
$ |
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Accrued expenses |
$ |
|
18
For these derivatives not designated as hedging inst ruments during the three months ended June 30 , 2012 , losse s of $ 11 on hedging contracts were reco gnized in other income , which offset the approximately $ 1 , 758 in exchange losse s that were recognized in other income in the accompanying Statement of Operations.
At March 3 1, 2012 and June 30, 2012 , we had outstanding foreign exchange contracts with no tional amounts totaling $2 2 8 , 206 and $ 187 , 864 , respectively , denominated primarily in euros, Czech korunas, British pounds , and Japanese yen .
13. Subsequent Event :
On July 2 3 , 2012 , the Board of Di rectors of the Company declared a $0.0 7 5 dividend per share of common stock with respect to the quarter ended June 30, 201 2 . The dividend will be paid to stockholders of record on August 6 , 201 2 an d will be disbursed on August 17 , 2012 .
19
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF |
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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 2013 , 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 , 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.
Any forward-looking statements by the Company are intended to speak as of the date thereof. We do 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 our 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 . During the three month period ended June 30, 2012 , 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.
20
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 Interc onnect. 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 an d resold by AVX. The Interconnect segment consists of Elco automotive, telecom , and memory connectors manufactured by AVX Interconnect and K CP Resale connector products.
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 elec tronics.
Results of Operations - Three Months Ended June 30, 2012 and 2011
Our n et loss for the quarter ended June 30, 2012 was $ (136.8) million, or $ (0.81) per share , compared to net income of $ 67.6 million, or $0.40 per share , for the quarter ended June 30, 2011 . The net loss for the quarter includes a n environmental charge of $266 million, or $ ( 0.98 ) per share on an after-tax basis , related to environmental issues at the New Bedford Harbor Superfund site in Massachusetts. This decrease is a result of the factors set forth below.
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(in thousands, except per share data) |
Three Months Ended June 30, |
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2011 |
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2012 |
||
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Net Sales |
$ |
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$ |
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Gross Profit |
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Operating Income (Loss) |
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Net Income (Loss) |
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Diluted Earnings (Loss) per Share |
$ |
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$ |
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Net sales in the three months ended June 30, 201 2 de creased $ 83.2 million, or 1 9 .1%, to $ 353.2 million compared to $ 436.4 million in the three months ended June 30, 2011 . This de crease is a result of decreased volumes across most of the markets we serve , reflecting weaker global demand for commercial and consumer electronic products and our customers ’ efforts to manage inventory as a result of the overall market un predictability in light of uncertain global economic conditions when compared to the same period last year . Compared to the same period last year, s upply chain inventory levels have decreased as distributor customers and product manufacturers decreased purchases in light of weaker end market demand and economic uncertainty . Overall sales prices for our commodity components declined du ring this first qua rter when compared to the same quarter in the prior year as demand waned and pricing pressure increased .
21
The table below represents product group revenues for the three-month periods ended June 30, 2011 and June 30, 2012 .
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Sales Revenue |
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Three Months Ended June 30, |
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$(000's) |
2011 |
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2012 |
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Ceramic Components |
$ |
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$ |
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Tantalum Components |
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Advanced Components |
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Total Passive Components |
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KDP and KCD Resale |
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KCP Resale |
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Total KED Resale |
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AVX Interconnect |
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Total Revenue |
$ |
|
|
$ |
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Passive Component sales de creased $ 62.4 million, or 22.6 %, to $ 213.8 million in the three months ended June 30, 2012 from $ 276.2 million during the same quarter last year as we saw declines in most of the markets that we serve, with the exception of automotive , aerospace, and component sales related to higher end smart phones . The sales de crease in Passive Components reflects the overall weaker demand for electronics across global markets as consumers reduced inventory replenishment and consumers and manufacturers decreased spending when compared to the same quarter last year . Funding for global “green energy” products also decreased compared to the same quarter last year. The decrease in sales of Tantalum Components is the result of lower sales unit volume in addition to lower average selling prices reflective of increased market competition and general concerns about the economy . The decrease in sales of Ceramic Components reflects a lower volume of unit sales resulting from a decrease in the sale of commodity type components in addition to an overall decline due to a weake r global economy and market uncertainty .
KDP and K CD Resale sales de creased $ 20.4 million, or 18.0 % , to $ 92.9 million in the three months ended June 30, 2012 compared to $ 113.3 million during the same period last year. When compared to t he same period last year , the de crease during the quarter ended June 30, 2012 is primarily attributable to a de crease in unit sales volume , particularly in the Asian and European region s due to lower end user demand in the telecommunications market .
Total connector sales, inc luding AVX Interconnect manufactured and K CP Resale connectors, de creased $ 0 .5 million, or 1.1 %, to $ 46.5 million in the three months ended June 30, 2012 compared to $ 47.0 million during the same period last year. This de crease was primarily attributable to a n in crease d demand in the automotive sector reflective of the increased electronic content in today’s automobiles , offset by a weaker demand for telecommunications products , particularly in the Asian market .
Our sales to independent electronic distributor customers represented 38.9 % of total sales for the three months ended June 30, 201 2 , compared to 42.0 % for the three months ended June 30, 201 1 . Overall distributor inventories de creased as distributors limit ed purchases to manage their inventory levels due to decreased end user demand resulting from economic uncertainty when compared to the same period last year. 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 $ 9.1 million, or 6.6 % of gross sales to distributor customers, for the three months ended June 30, 201 2 and $ 7.8 million, or 4. 1 % of gross sales to distributor customers, for the three months ended June 30, 201 1 . This increase in activity is reflective of the tighter market conditions and increased pricing pressure resulting from the weaker economy when compared to the same period last year. Applications under such programs for the quarters ended June 30, 201 2 and 201 1 were approximately $ 8.6 million and $ 7.7 million , respectively.
22
Geographically, compared to the same period last year, sales de creased in all regions. In Europe , sales declined 2.4% to 25.2 % of total sales as a result of weaker demand due to uncertain economic and political conditions in Europe. Sales in the Asia n market were 46.3% of total sales and sales in the Americas were 28.4% of total sales compared to 44.7% and 27.6% of total sales in the same period last year, respectively . The movement of the U.S. dollar against certain f oreign currencies resulted in a n un f avorable impact on sales of approximately $ 7.6 million when compared to the same quarter last year.
Gross profit in the three months ended June 30, 2012 was 19.5 % of sales, or $ 69.0 million, compared to a gross profit margin of 28.6 %, or $ 124.7 million, in the three months ended June 30, 2011 . This overall decrease is primarily attributable to lower sales and sellin g prices reflective of the weaker dema nd in the global marketplace. In addition, lower production and higher energy and material costs negatively impacted ma rgins when compared to the same period last year . Costs due to currency movement of the U.S. dollar against certain foreign currencies were favorab ly impacted in the current quarter by approximately $ 1.6 million when compared to the same quarter last year.
Selling, general and administrative expenses in the three months ended June 30, 2012 were $ 29.7 million, or 8.4 % of net sales, compared to $ 31.1 million, or 7. 1 % of net sales, in the three months ended June 30, 2011 . The overall increase in selling, general and administrative expenses as a percentage of sales reflects the impact o f lower sales volumes when compared to the same period last year. The lower total selling, general and administrative costs reflect a decrease in selling costs due to decreased revenue when compared to the same quarter last year.
Income (l oss ) from operations was $ (227.0) million in the three months ended June 30, 2012 compared to $ 93.6 million in the three months ended June 30, 2011 . This decrease is a result of the factors set fo rth above and the recognition of a $266 million charge related to environmental issues at the New Bedford Harbor Superfund site in Massachusetts. See Note 8 to our consolidated financial statements elsewhere herein for further discussion related to this environmental charge.
Income taxes for the per iod ended June 30, 2012 resulted in a tax benefit of $88.3 million, or 39.2 % , compared to income tax expense of $27.6 million, or 29.0 % , for the same period last year . Excluding the tax benefit of $99.8 million related to the environmental charge, the effective tax rate was 28.0% for the quarter ended June 30, 2012 .
As a result of the factors discussed above, net income (loss) for the three month period ended June 30, 2012 was $(136.8) million compared to $67.6 million for the same three month period last year.
Outlook
Near-Term:
With uncertain global geopolitical and economic conditions, we are uncertain what to expect for the remainder of fiscal 2013. Near- term results for us will depend on the impact of the overall global geopolitical and economic conditions and their impact on telecommunications, information technology hardware, automotive, consumer electronics, and other electronic markets . Looking ahead, visibility is low and forecasting is a challenge in this uncertain and volatile market. We expect to see typical pricing pressure in the markets we serve as electronic component product supply comes more in balance with demand. In response to anticipated market conditions, we expect to continue to focus on cost management and product line rationalization to maximize earnings potential. 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 current global geopolitical and economic conditions worsen , the overall impact on our customers as well as end user demand for electronic products could have a significant adverse impact on our near-term results.
23
Long-Term:
Although there is uncertainty in the near-term market as a result of the current global geopolitical and economic conditions, we continue to see opportunities for long-term growth and profitability improvement due to: (a) a projected increase in the long-term worldwide demand for more sophisticated 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 Interconnect 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 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 , cash equivalents, and investments in securities. As of June 30, 2012 , we had a current ratio of 5.5 to 1 , $1, 091.3 million of cash, cash equivalents , and short-term and long-term investments in securities, $ 1,951.8 million of stockholders’ equity , and no debt.
Net cash provided by operating activities was $ 66.5 million in the three months ended June 30, 2012 compared to $ 35.4 million of cash provided by operating activities in the three months ended June 30, 20 11 . The in crease in operating cash flow compared to the same period last year was primarily a result of lower working capital requirements resulting from the lower volume of sales and related production , as well as lower inventory levels due to decreased purchases of raw materials , offset by lower net income (loss) . Increased operating cash flows resulting from lower accounts receivable, accounts payable and inventory levels were offset by changes in deferred income taxes primarily due to the environmental charge related to the New Bedford Harbor Superfund site in Massachusetts .
Purchases of property and equipment were $ 10.7 million in the three month period ended June 30, 2012 compared to $ 15.3 million in the three month period ended June 30, 2011 . Expenditures were primarily made in connection with the expansion of interconnect manufacturing operations and process improvements in passive component product lines. We continue to make strategic investments in our advanced passive component and interconnect product lines and expect to incur capital expenditures of approximately $40 - $50 million in fiscal 2013 . 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 , cash equivalents, and investments in securities. Since March 31, 2012 , 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 June 30, 2012 , we believe that cash on hand and cash expected to be generated from operating activities and investment income from cash , cash equivalents, 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. Changes in demand may have an impact on our future cash requirements ; however, 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. As of June 30, 2012 , we did not have any significant delivery contracts outstanding.
24
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, comprehensive income (loss) , 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, comprehensive income (loss) , or cash flows.
In 1991, in connection with a consent decree, we paid $66 million, plus interest, toward the environmental conditions at, and remediation of, New Bedford Harbor in the Commonwealth of Massachusetts (“the harbor”) in settlement with the United States and the Commonwealth of Massachusetts, subject to reopener provisions, including a reopener if certain remediation costs for the site exceed $130.5 million. In 2007, we received notification from the EPA and the Department of Justice indicating that the United States was preparing to exercise the cost reopener. In March 2011, the EPA issued the Fourth Explanation of Significant Differences (“ESD #4”) that explains the planned changes to the existing remedial action plan for the harbor to include the use of a confined aquatic disposal (“CAD”) cell, along with interim off-site transportation and disposal of certain contaminated dredge spoils, and the continued use of long-term on-site storage for other contaminated dredge spoils. ESD #4 provides future cost estimates under the new remedial action plan (in addition to costs incurred to date) ranging from $362 million to $401 million, net present value, based on certain criteria included in the ESD #4. The EPA has indicated that remediation costs through December 31, 2011 were approximately $456 million, not all of which are subject to the reopener provisions.
On April 18, 2012, the EPA issued to the Company a Unilateral Administrative Order (“UAO”) directing the Company to perform the Remedial Design, the Remedial Action, and Operation and Maintenance for the harbor cleanup. The effective date set forth in the UAO was June 18, 2012, pursuant to which the Company had until June 25, 2012 to inform the EPA if it intends to comply with the UAO. The EPA has extended the effective date of the UAO to October 1 , 2012.
We are continuing to assess the UAO as well as potential defenses and other actions with respect to the site and to engage in mediation with the EPA and the Commonwealth of Massachusetts. Our current estimate of the potential liability is $366 million in connection with this matter. We recognize liabilities for environmental exposures when analysis indicates that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Accordingly, we have recorded a charge for the first quarter ended June 30, 2012 (in addition to the $100 million charge recorded in the quarter ended March 31, 2012) of $266 million with respect to this matter.
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, w e 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 p arty sites or indemnification of our liability by a third party.
We currently have reserves for current remediation, compliance , and legal costs totaling $ 381.9 million at June 30, 2012 . 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.
25
New Accounting Standards
Information related to new Statement of Financial Accounting Standards and Financial Accounting Standards Board Staff Positions that we have recently adopted or are currently reviewing 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 Annual Report on Form 10-K for the fiscal year ended March 31, 2012 . Accordingly, the Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 .
Our 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 our exposure to foreign currency exchange rate as reflected in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 . See Note 12 of our Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for further discussion of derivative financial instruments .
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our 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 man agement, including our 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, we 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, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that it files or submits under the Exchange Act is recorded, pro cessed, summarized , and reported within the time periods specified in the SEC ’ s rules and forms, and is accumulated and communicated to our management , including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure s .
In addition, there were no changes in our internal control over financial reporting during our first quarter of fiscal 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting .
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PART II: |
OTHER INFORMATION |
Please refer to
26
Please refer to Part I, Item 1A., Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended March 3 1, 2012 (the “Annual Report Risk Factors”) for information regarding factors that could affect our results of operations, financial condition , and liquidity. For an update of risk factors relating to our potential environmental liabilities as described under the caption “Changes in our environmental liability and compliance obligations may adversely impact our operations” in the Annual Report Risk Factors, see Note 8, “Commitments and Contingencies”, in our Notes to Consolidated Financial Statements in Part I, Item 1 to this Form 10-Q .
Issuer Purchases of Equity Securities
The following table shows our purchases of common stock during the quarter.
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Total number of |
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Maximum number |
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shares purchased |
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of shares that may |
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Total number |
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as part of publicly |
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yet be purchased |
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of shares |
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Average price |
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announced plans |
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under the plans or |
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Period |
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purchased (1) |
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paid per share |
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or programs (1) (2) |
|
programs (1) (2) |
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04/01/12 - 04/30/12 |
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- |
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$ |
- |
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- |
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05/01/12 - 05/31/12 |
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06/01/12 - 06/30/12 |
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Total |
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$ |
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On October 17, 2007, the Board of Directors of the Company authorized the repurchase of an additional 5,000,000 shares of our common stock from time to time in the open market. The repurchased shares are held as treasury stock and are available for general corporate purposes. |
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ITEM 6. |
EXHIBITS |
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31.1 |
Certification of John S. Gilbertson, Chief Executive Officer , pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 9 , 201 2 . |
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31.2 |
Certification of Kurt P. Cummings, Chief Financial Officer, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 9 , 201 2 . |
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32.1 |
Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - John S. Gilbertson and Kurt P. Cummings |
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101 |
The following financial information from our Quarterly Report on Form 10-Q for the quarter ended June 30, 201 2 , formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operation, (iii) Consolidated Statements of Comprehensive Income (Loss) , (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements. |
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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: August 9 , 201 2
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AVX Corporation |
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By: |
/s/ Kurt P. Cummings |
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Kurt P. Cummings |
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Vice President, |
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Chief Financial Officer, |
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Treasurer and Secretary |
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