10-K/A 1 avx-20140331x10ka.htm 10-K/A b6b59a33e5a94db

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K/A

Amendment No. 1

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2014

 

[  ] 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

AVX Corporation No Kyocera 300dpi

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

 

33‑0379007

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. employer identification number)

 

 

 

1 AVX Boulevard, Fountain Inn, South Carolina

 

29644

(Address of principal executive offices)

 

(Zip Code)

(864) 967-2150

(Registrant's telephone number, including area code)

Securities registered Pursuant to Section 12(b) of the Act:

 

 

Title of each class

Name of each exchange on which registered

Common Stock, $.01 par value per share

New York Stock Exchange 

 

 

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ X ]   No [    ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act.

Yes [   ]     No [ X ]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ X ]      No [      ]

 

Indicate 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).  Yes [ X ]      No [      ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K.    [    ]  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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.

 

 

 

 

 

Large accelerated filer

[  ]

 

Accelerated filer

[X]

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).  Yes [   ]  No  [X]

 

Based on the closing sales price of $13.13 on September 30, 2013, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the common stock held by non‑affiliates of the registrant as of that date was $613,503,228.    

 


 

As of May 15, 2014, there were 168,228,905 shares of the registrant’s common stock, par value $.01 per share, outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s definitive proxy statement for the 2014 Annual Meeting of Stockholders, which will be filed within 120 days of March 31, 2014, are incorporated by reference into Part III.

 

EXPLANATORY NOTE

 

AVX Corporation is filing this Amendment No. 1 on Form 10-K/A (“Form 10-K/A”) to its Annual Report on Form 10-K for the fiscal year ended March 31, 2014 as filed with the Securities and Exchange Commission on May 21, 2014 (the “Original Filing”) to provide new Section 906 Certifications for the period ended March 31, 2014.  The Company inadvertently referred to the period ended March 31, 2013 in its Certifications provided pursuant to Section 906 in the Original Filing. The Company has also revised the signature page of its Form 10-K to reflect our principal financial and accounting officer’s signature in the format required by Form 10-K.  In addition, as required by Rule 12b−15 under the Securities Exchange Act of 1934, as amended, new Section 302 Certifications by our principal executive officer and principal financial officer are filed as Exhibits 31.1 and 31.2 to this Form 10-K/A.

 

This Form 10-K/A speaks as of the filing date of the Original Filing, except for the Section 302 and Section 906 Certifications (Exhibits 31.1, 31.2 and 32.1), which speak as of the filing date of this Form 10-K/A.  Except indicated above, the information contained in this Form 10-K/A has not been modified or updated. This Form 10-K/A does not reflect events occurring or trends arising after the filing date of the Original Filing. This Form 10-K/A should be read in conjunction with the Original Filing and our other filings with the SEC.

 

 

 

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TABLE OF CONTENTS

 

 

 

Part I

 

Page

Item 1.

Business

Item 1A.

Risk Factors

12 

Item 1B.

Unresolved Staff Comments 

18 

Item 2.

Properties 

19 

Item 3.

Legal Proceedings 

20 

Item 4.

Mine Safety Disclosures 

20 

Part II

 

 

 

 

Item 5.

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

20 

Item 6.

Selected Financial Data

22 

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations 

24 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

36 

Item 8.

Financial Statements and Supplementary Data

37 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

37 

Item 9A.

Controls and Procedures 

37 

Item 9B.

Other Information

38 

Part III

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

38 

Item 11.

Executive Compensation 

39 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

39 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

39 

Item 14.

Principal Accounting Fees and Services 

39 

Part IV

 

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

39 

Signatures 

42 

 

Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities

Litigation Reform Act of 1995

The following discussion and analysis should be read in conjunction with the consolidated financial statements, including the notes thereto, appearing elsewhere herein.  Statements in this Annual Report on Form 10-K that reflect projections or expectations of future financial or economic performance of AVX Corporation, and statements of the Company's plans and objectives for future operations, including those contained in Business, “Risk Factors”,  Managements Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures about Market Risk, or relating to the Companys outlook for overall volume and pricing trends, end market demands, cost reduction strategies and their anticipated results, and expectations for research, development, and capital expenditures, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Words such as expects,  anticipates,  approximates,  believes,  estimates,  intends, and hopes and variations of such words and similar expressions are intended to identify such forward-looking statements.  No assurance can be given that actual results or events will not differ materially from those projected, estimated, assumed, or anticipated in any such forward-looking statements.  Important factors that could result in such differences, in addition to the other factors noted with such forward-looking statements and in “Risk Factors” in this Annual Report on Form 10-K, include:  general economic conditions in the Company's market, including inflation, recession, interest rates, and other economic factors; casualty to or other disruption of the Company's facilities and equipment; potential environmental liabilities; and other factors that generally affect the business of manufacturing and supplying electronic components and related products. Forward looking statements are intended to speak only as of the date they are made and AVX Corporation does not undertake to update or revise any forward-looking statement contained in this Annual Report on Form 10-K to reflect new events or circumstances unless and to the extent required by applicable law.

3


 

PART I

 

 

 

Item 1.

Business

 

General

 

AVX Corporation (together with its consolidated subsidiaries, AVX or the Company) is a leading worldwide manufacturer and supplier of a broad line of passive electronic components, interconnect devices, and related products.  Virtually all types of electronic devices use our passive component products to store, filter, or regulate electric energy.

 

Our passive electronic component products include ceramic and tantalum capacitors, film capacitors, varistors, filters,  and other components manufactured in our facilities throughout the world and passive components manufactured by Kyocera Corporation of Japan (Kyocera), a public company and our majority stockholder, which  owns approximately 72% of our outstanding common stock, and other manufacturing suppliers.  We also manufacture and sell electronic connectors and inter-connect systems and distribute and sell certain electronic connectors manufactured by Kyocera. 

 

We are organized by product line with five main product groups.  Our reportable segments are based on the types of products from which we generate revenues.    We have three reportable segments:  Passive Components, Kyocera Electronic Devices (KED Resale), and Interconnect.  The product groups of Ceramic Components, Advanced Components and Tantalum Components have been aggregated into the Passive Components reportable segment.  Segment revenue and profit information is presented in Note 15 to the consolidated financial statements.  The Passive Components segment consists primarily of surface mount and leaded ceramic capacitors, RF thick and thin film components, surface mount and leaded tantalum capacitors, surface mount and leaded film capacitors, ceramic and film power capacitors, super capacitors, EMI filters (bolt in and surface mount), thick and thin film packages of multiple passive integrated components, 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 AVX Interconnect automotive, telecom, and memory connectors manufactured by AVX.  In addition, we have a corporate administration group consisting of finance, legal, EHS, and administrative activities. 

 

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, transportation, energy harvesting, defense and aerospace electronic systems, and consumer electronics.

 

Our principal strategic advantages include:

 

Creating Technology Leadership.    We have research and development locations in the United States, United Kingdom, Czech Republic, France, Israel, and Japan.    We developed numerous new products and product extensions during fiscal 2014 and won several awards that recognize our technology leadership.  These new products add to the broad product line we offer to our customers.  Due to our broad product offering, none of our products individually represent a material portion of our revenues.  Our scientists are working to develop product solutions to the challenges facing our customers as consumers and businesses demand more advanced electronic solutions to manage their everyday lives and businesses.  Our engineers are continually working to enhance our manufacturing processes to improve capability, capacity, and yield, while continuing to reduce manufacturing costs.

 

Providing a Broad Product Line.    We believe that the breadth and quality of our product line and our ability to quickly respond to our customers design and delivery requirements make us the provider of choice for our multi-national customer base.  We differentiate ourselves by providing our customers with substantially complete passive component solutions.  This broad array of products allows our customers to streamline their purchasing and supply organization.

 

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Maintaining the Lowest Cost, Highest Quality Manufacturing Organization.  We have invested approximately $120 million over the past three fiscal years to upgrade and enhance our worldwide manufacturing capabilities, with respect to the manufacture of ceramic, tantalum, and advanced components as well as Interconnect devices.  In order to continually reduce the cost of production, our strategy has included the transfer to and expansion of manufacturing operations in countries such as El Salvador, Malaysia, Mexico, China, and the Czech Republic. 

 

Globally Coordinating our Marketing, Distribution, and Manufacturing Facilities.  We believe that our global presence is an important competitive advantage as it allows us to provide quality products on a timely basis to our multi-national customers.  We provide enhanced services and responsiveness to our customers by maintaining significant manufacturing operations in locations where we market the majority of our productsOur 21 manufacturing facilities are located in 11 different countries around the world.  As our customers continue to expand their global production capabilities, we are ideally situated to meet their design and supply requirements.

 

Products

 

We offer an extensive line of passive components designed to provide our customers with one-stop shopping for substantially all of their passive component needs.  Passive components do not require power to operate.  These components adjust and regulate voltage and current, store energy, and filter frequencies.  Sales of Passive Components represented approximately 66% of our net sales in fiscal 2014.  KDP and KCD Resale represented approximately 20%, and Interconnect products, including KCP Resale Connectors, represented approximately 14% of our net sales in fiscal 2014.  The table below presents revenues for fiscal 2012, 2013 and 2014 by product group.  Financial information concerning our Passive Components, KED Resale, and Interconnect segments is set forth in Note 15 to the consolidated financial statements elsewhere herein.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended March 31,

Sales revenue (in thousands)

 

2012

 

2013

 

2014

Ceramic Components

 

$

179,984 

 

$

173,315 

 

$

193,978 

Tantalum Components

 

 

393,468 

 

 

330,209 

 

 

394,119 

Advanced Components

 

 

378,843 

 

 

346,543 

 

 

357,900 

Total Passive Components

 

 

952,295 

 

 

850,067 

 

 

945,997 

KDP and KCD Resale

 

 

410,419 

 

 

377,707 

 

 

293,048 

KCP Resale Connectors

 

 

54,765 

 

 

61,809 

 

 

64,680 

Total KED Resale

 

 

465,184 

 

 

439,516 

 

 

357,728 

Interconnect

 

 

127,775 

 

 

124,817 

 

 

138,879 

Total Revenue

 

$

1,545,254 

 

$

1,414,400 

 

$

1,442,604 

 

 

 

 

 

 

 

 

 

 

 

Passive Components

 

We manufacture and resell a full line of multi-layered ceramic and solid tantalum capacitors in many different sizes and configurations.  Our strategic focus on the growing use of passive components is reflected in our investment of approximately $81 million in facilities and equipment used to manufacture passive components during the past three fiscal years.  We also added passive component manufacturing capacity with the February 2013 acquisition of the Tantalum Components division of Nichicon Corporation (“Asia Tantalum”) for $81.2 million.  We believe that sales of passive components will continue to be among the most rapidly growing in the worldwide electronics market because technological advances have been constantly expanding the number and type of applications for these products.

 

Tantalum and Ceramic components are commonly used in conjunction with integrated circuits and are best suited for applications requiring low to medium capacitance values.  Capacitance is the measure of the capacitor's ability to store electric energy.  Generally, ceramic capacitors are more cost-effective at lower capacitance values, and tantalum capacitors are more cost-effective at medium capacitance values.  The net sales of tantalum and ceramic capacitors accounted for approximately 62% of our passive component net sales in fiscal 2014.

 

5


 

We also offer a line of advanced passive component products to fill the special needs of our customers.  Our family of passive components also includes film capacitors, high energy/voltage power capacitors, and varistors.  Our advanced products engineers work with some customers in-house technical staffs to design and manufacture customized products to meet the specifications of particular applications.  The manufacture of custom products permits us, through our research and development activities, to make technological advances, provide customers with design solutions to fit their needs, gain a marketing inroad with customers with respect to our complete product line, and, in some cases, develop products that can be sold to additional customers in the future.  Sales of advanced products accounted for approximately 38% of passive component net sales in fiscal 2014.

 

KED Resale

 

We have a non-exclusive license to distribute and sell certain Kyocera-manufactured electronic component and connector products to certain customers and in certain territories outside of Japan.  Our distribution and sale of certain Kyocera products broadens our range of products and further facilitates our ability to offer one-stop shopping for our customers' electronic components needs.  The Kyocera KDP and KCD electronic components we sell include ceramic capacitors, RF modules, frequency control devices, SAW devices, sensor products, actuators, and acoustic devices. Resale product sales also include connectors manufactured by Kyocera.  Sales of these products accounted for approximately 25% of net sales in fiscal 2014.    For additional information regarding the Company’s relationship with Kyocera see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Relationship with Kyocera and Related Transactions.”

 

Interconnect

 

We manufacture and resell high-quality electronic connectors and interconnect systems for use in various industries.  Our product lines include a variety of industry-standard connectors as well as products designed specifically for our customers' unique applications.  An expanding portion of the electronics market for AVX Interconnect products is the automotive market, with applications throughout a vehicle, including engine control, transmission control, audio, brakes, and stability and safety control systems.  We produce fine pitch connectors used in portable devices such as smart phones, other cell phones, notebook computers, tablets, GPS, and other hand held devices.  In addition, we offer specialty connectors designed to address customer specific applications across a wide range of products and end markets, including the expanding LED and LCD markets.  We have invested approximately $28 million in facilities, tooling, and equipment over the past three years,  as we continue to focus on new product development and enhancement of production capabilities for our Interconnect business.  Sales of Interconnect products, including KCP Resale connector products, accounted for approximately 14% of net sales in fiscal 2014.   Approximately 32% of combined Interconnect and KCP Resale Connector net sales in fiscal 2014 consisted of connectors manufactured by Kyocera. 

 

Marketing, Sales, and Distribution

 

We place a high priority on solving customers electronic component design challenges and responding to their needs.  To better serve our customers we frequently designate teams consisting of marketing, field application engineering, research and development, and manufacturing personnel to work with customers to design and manufacture products to suit their specific requirements.  Costs related to these activities are expensed as incurred.

 

Approximately 28%, 26%, and 46% of our net sales for fiscal 2014 were to our customers in the Americas, Europe, and Asia, respectively.  Financial information for these geographic regions is set forth in Note 15 to our consolidated financial statements elsewhere herein.  A discussion of risks associated with our foreign operations can be found in “Risk Factors” herein.

 

Our products are marketed worldwide by our own dedicated direct sales personnel that serve our major OEM and EMS customers. We also have a large network of independent electronic component distributors and independent manufacturers’ representatives who sell our products throughout the world.  We have regional sales and design application personnel in strategic locations to provide technical and sales support for these independent manufacturers representatives and independent electronic component distributors.  We believe that this combination of sales channels provides a high level of market penetration and efficient coverage of our customers on a cost-effective basis.

 

6


 

Our products are used in a wide variety of applications by numerous customers.  In order to maximize our opportunities, our engineering and sales teams maintain close relationships with OEM, EMS, and electronic component distributor customers.  Our largest customers may vary from year to year, and no customer has a long-term commitment to purchase our productsDuring the fiscal year ended March 31, 2014, no single customer accounted for more than 10% of our sales.  One customer comprised 13% of sales for the fiscal year ended March 31, 2013.  No single customer accounted for more than 10% of sales during the year ended March 31, 2012.  As of March 31, 2014, one customer represented 15% of the Company’s accounts receivable balance.    No  single customer accounted for more than 10% of the Company’s accounts receivable as of March 31, 2013Because we are a supplier to several significant manufacturers in the broad based electronic devices industries and because of the cyclical nature of these industries, the significance of any one customer can vary from one period to the next.

 

We also have qualified products under various specifications approved and monitored by the United States Defense Electronic Supply Center (DSCC) and European Space Agency (ESA), and approved under certain foreign military specifications.

 

Typically, independent electronic component distributors handle a wide variety of products and fill orders for many customers.  The sales terms under non-exclusive agreements with independent electronic component distributors may vary by distributor, and by geographic region.  In the United States, Europe, and Asia, such agreements may include stock rotation and ship-from-stock and debit (“ship and debit”) programs.  Stock rotation is a program whereby distributors are allowed to return for credit qualified inventory, semi-annually, equal to a certain percentage, primarily limited to 5%, of the previous six months net sales.  In the United States, we may use a ship and debit program under which pricing adjustments may be granted by us to assist distributors in meeting competitive prices in the marketplace on sales to their end customers.  Ship and debit programs require a request from the distributor for a pricing adjustment for a specific part for a sale to the distributor’s end customer from the distributor’s stock.  In addition, certain agreements with distributors may include special incentive discounts based on amount of product ordered or shipped.   Our agreements with independent electronic component distributors generally also require that we repurchase qualified inventory from the distributor in the event that we terminate the distributor agreement or discontinue a product offering. 

 

We had a backlog of orders of approximately $236 million at March 31, 2012, $247 million at March 31, 2013 and $270 million at March 31, 2014.  Firm orders, primarily with delivery dates within six months of order placement, are included in backlog.  Many of our customers encounter uncertain and changing demand for their products.  Customer provided forecasts of product usage and anticipated usage of inventory at consignment locations are not included in backlog.  If demand falls below customers’ forecasts, or if customers do not effectively control their inventory, they may cancel or reschedule their planned shipments that are included in our backlog, in many instances without any penalty.  Backlog fluctuates from year to year due, in part, to changes in customer inventory levels, changes to consignment inventory arrangements, order patterns, and product delivery lead times in the industry.  Accordingly, the backlog outstanding at any point in time is not necessarily indicative of the level of business to be expected in any ensuing period since many orders are placed and delivered within the same period.  In addition, the increased use of vendor managed inventory and similar consignment type arrangements tend to limit the significance of backlog as future use and sale of such inventory is not typically reflected in backlog.

 

Research, Development, and Engineering

 

Our emphasis on research and development is evidenced by the fact that most of our manufactured products and manufacturing processes have been designed and developed by our own engineers and scientists.  Our research and development activities are carried out at facilities located in the United States, United Kingdom,  Czech Republic, France, Israel, and Japan.

 

Our research and development effort and our operational level engineering effort place a priority on the design and development of product extensions, innovative new products and improved manufacturing processes as well as engineering advances in existing product lines and manufacturing operations.  Other areas of emphasis include material synthesis and the integration of passive components for applications requiring reduced size and lower manufacturing costs associated with board assembly.  Research, development, and engineering expenditures were approximately $26 million, $30 million, and $26 million during fiscal 2012, 2013, and 2014, respectively.  The level of such spending can fluctuate as new products are transferred to full scale production and process enhancements are implemented.

 

We own United States patents as well as corresponding patents in various other countries, and also have patent applications pending, although patents are not in the aggregate material to the successful operation of our business.  For discussion regarding our license arrangement with Kyocera, see Managements Discussion and Analysis of Financial Condition and Results of Operations – Relationship with Kyocera and Related Transactions.

 

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Raw Materials

 

Although most materials incorporated in our products are available from a number of sources, certain materials are available only from a relatively limited number of suppliers.  For the ten years prior to our participation in “Solutions for Hope”, we had a policy of not using tantalum sourced from the Democratic Republic of Congo (DRC) or any other area in which insurgents or similar groups benefit from the sale of minerals.  We have conducted extensive supply chain investigations relating to tantalum and are a participant in “Solutions for Hope, which is a program designed to ensure that tantalum sourced from the DRC does not derive from conflict areas.  “Solutions for Hope” incorporates the independently-validated Conflict-Free Smelter program.  As a result, AVX was the first in its industry to validate a “closed tantalum pipe” process, assuring all tantalum products contain only conflict-free tantalum in accordance with the principles of the Dodd-Frank legislation and the current Organisation for Economic Cooperation and Development (“OECD”) guidelines.

 

Since December 2011, AVX has only sourced tantalum powder and wire used in its tantalum capacitors from smelters that are compliant with the EICC/GeSI conflict-free smelter program.   In 2013, AVX began using Validated Conflict-Free Tantalum, which comes from verified sources in the DRC and surrounding countries.

 

Our participation in “Solutions for Hope” is intended to affirm our commitment to supply conflict-free minerals to our customers and to fully comply with the OECD guidelines and United States Securities and Exchange Commission (“SEC”) regulations.  Some of our major OEM customers and automotive suppliers have joined us in the “Solutions for Hope” project.

 

The costs of our products are influenced by a wide variety of raw materials, including tantalum and other metals such as platinum, palladium, silver, nickel, gold, and copper used in our manufacturing processes.  The cost of these materials is subject to price fluctuation.  In some cases, increases in the cost of raw materials may be offset by selling price increases, productivity improvement, and cost savings programs, but that is not always the case.

 

We are a major consumer of the world’s annual production of tantalum.  Tantalum powder and wire are principal materials used in the manufacture of tantalum capacitor products.  These materials are purchased from suppliers in various parts of the world at prices that are subject to periodic adjustment and variations in the market.  The tantalum required to manufacture our products has generally been available in sufficient quantity.  The limited number of tantalum material suppliers that process tantalum ore into capacitor grade tantalum powder has led to higher prices during periods of increased demand and/or limited mining output

 

Competition

 

Markets for our products are highly competitive.  We encounter aggressive and able competition in our various product lines from both domestic and foreign manufacturers.  Competitive factors in the markets include product quality and reliability, breadth of product line, customer service, technological innovation, global production presence, timely delivery, and price.  We believe we are competitively positioned on each of these factors.  The breadth of our product offering enables us to strengthen our market position by providing customers with one of the broadest selections of passive electronic components and interconnect products available from any one source.  Our major competitors for passive electronic components include: Murata Manufacturing Company Ltd., TDK Corporation, KEMET Corporation, Yageo Corporation, Taiyo Yuden Co. Ltd., Samsung Electro-Mechanics, and Vishay Intertechnology, Inc.  Our major competitors for certain electronic interconnect products include: Tyco Electronics, Amphenol Corporation, Molex Incorporated, FCI Electronics, and Erni Electronics.  There are many other companies that produce products in the markets in which we compete.

 

Employees

 

As of March 31, 2014,  we employed approximately 10,900 full-time employees.  Approximately 1,500 of these employees are employed in the United States, of which,  approximately 300 are covered by collective-bargaining arrangements.  In addition, some foreign employees are members of trade and government-affiliated unions.  Our relationship with our employee union groups is generally good.  However, no assurance can be given that, in response to changing social and economic conditions and our actions, labor unrest or strikes will not occur. 

 

8


 

Environmental Matters

 

We are subject to federal, state, and local laws and regulations concerning the environment in the United States and to the environmental laws and regulations of the other countries in which we operate.  These regulations include limitations on discharges into air and water; remediation requirements; chemical use and handling restrictions; pollution control requirements; waste minimization considerations; and hazardous materials transportation, treatment, and disposal restrictions.  If we fail to comply with any of the applicable environmental regulations we may be subject to fines, suspension of production, alteration of our manufacturing processes, sales limitations, and criminal and civil liabilities.  Existing or future regulations could require us to procure expensive pollution abatement or remediation equipment, to modify product designs, or to incur expenses to comply with environmental regulations.  Any failure to control the use, disposal, or storage, or adequately restrict the discharge of hazardous substances could subject us to future liabilities and could have a material adverse effect on our business.  Based on our periodic reviews of the operating policies and practices at all of our facilities, we believe that our operations are currently in substantial compliance, in all material respects, with all applicable environmental laws and regulations and that the cost of continuing compliance will not have a material effect on our financial condition or results of operations. 

 

We have been identified by the United States Environmental Protection Agency (“EPA”), state governmental agencies or other private parties as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or equivalent state or local laws for clean-up and response costs associated with certain sites at which remediation is required with respect to prior contamination.  Because CERCLA or such state statutes authorize joint and several liability, the EPA or state regulatory authorities 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 activities.  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 we have been named a PRP, we have entered into various administrative orders and consent decrees with federal and state regulatory agencies governing the timing and nature of investigation and remediation.  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 $66.0 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.

 

On April 18, 2012, the EPA issued a Unilateral Administrative Order (“UAO”) directing us to perform certain remedial actions for the harbor clean-up pursuant to the reopener provisions.    

 

On October 10, 2012, the EPA, the United States, and the Commonwealth of Massachusetts and AVX announced that they had reached a financial settlement with respect to the EPA’s ongoing clean-up of the harbor. That agreement is contained in a Supplemental Consent Decree that modifies certain provisions of the 1992 Consent Decree, including elimination of the governments’ right to invoke the clean-up reopener provisions in the future.  Under the terms of the settlement, AVX was obligated to pay $366.3 million, plus interest computed from August 1, 2012, in three installments over a two-year period for use by the EPA and the Commonwealth to complete the clean-up of the harbor.  The settlement also required the EPA to withdraw the UAO, which was done.  The United States District Court approved the settlement and entered the Supplemental CD on September 19, 2013.  On October 18, 2013, we paid the initial settlement installment of $133.4 million, plus accrued interest on the entire settlement amount through that dateOn March 26, 2014, we prepaid the second settlement installment of $110.8 million,  plus accrued interest on the remaining settlement amount through that date.

   

We had reserves of approximately $380.6 million and $135.4 million at March 31, 2013 and 2014, respectively, related to the various environmental matters.  These reserves are classified in the consolidated balance sheets as $147.7 million and $4.4 million in accrued expenses at March 31, 2013 and 2014, respectively, and $232.9 million and $131.0 million in other non-current liabilities at March 31, 2013 and March 31, 2014, respectively.  The amount recorded for identified liabilities is based on estimates.  Amounts recorded are reviewed periodically and adjusted to reflect additional legal and technical information when it 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.  Accordingly, these costs could differ from our current estimates.

 

9


 

On November 27, 2007, a suit was filed in South Carolina State Court by individuals as a class action pending with respect to property adjacent to our Myrtle Beach, South Carolina factory claiming property values have been negatively impacted by alleged migration of certain pollutants from our property.  We intend to defend vigorously the claims asserted in this lawsuit.  At this stage of the litigation, there has not been a determination as to the nature of the liability or the amount, if any, of damages.  Based on our estimate of potential outcomes, we have accrued $1.0 million with respect to this case as of March 31, 2014.

 

On March 1, 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 this case on our financial position, results of operations, comprehensive income (loss), and cash flows cannot be determined at this time.

 

AVX has received a demand for approximately $11.0 million from the City of New Bedford arising from contamination at the City’s New Bedford Railyard. AVX believes it has meritorious defenses and intends to defend vigorously the demand. 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 this demand 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. 

 

We are not involved in any pending or threatened proceedings that would require curtailment of our operations.  We continually expend funds to ensure that our facilities comply with applicable environmental regulations.  While we believe that we are in material compliance with applicable environmental laws, we cannot accurately predict future developments and do not necessarily have knowledge of all past occurrences on sites that we currently occupy.  More stringent environmental regulations may be enacted in the future and we cannot determine the modifications, if any, in our operations that any such future regulations might require, or the cost of compliance with such regulations.  Moreover, the risk of environmental liability and remediation costs is inherent in the nature of our business and, therefore, there can be no assurance that material environmental costs, including remediation costs, will not arise in the future.

 

Company Information and Website

 

We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC under the Securities Exchange Act of 1934 (the “Exchange Act”).  The public may read and copy any materials that we file with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.  The public can obtain any documents that we file with the SEC at http://www.sec.gov.

 

In addition, our Company website can be found on the Internet at www.avx.com.  Copies of each of our filings with the SEC on Form 10-K, Form 10-Q, and Form 8-K, and all amendments to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC.  To view the reports from our website, go to Corporate Information, then Investor Relations, then Financial Reports.

 

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The following corporate governance related documents are also available free on our website:

 

·

Code of Business Conduct and Ethics

·

Code of Business Conduct and Ethics Supplement Applicable to the Chief Executive Officer, Chief Financial Officer, Controllers and Financial Managers

·

Corporate Governance Guidelines

·

Audit Committee Charter

·

Compensation Committee Charter

·

Special Advisory Committee Charter

·

Contact the Board – Whistleblower and Ethics Hotline Procedures

 

To review these documents, go to our website, click on Corporate Information, then on click Corporate Governance.

 

Executive Officers of the Registrant

 

Our executive officers are appointed annually by our Board of Directors or, in some cases, appointed in accordance with our bylaws and each officer holds office until the next annual appointment of officers or until a successor has been duly appointed and qualified, or until the officers death or resignation, or until the officer has otherwise been removed in accordance with our bylaws.  The following table provides certain information regarding the current executive officers of the Company:

 

 

 

 

 

 

Name

 

Age

 

Position

John S. Gilbertson.................

 

70 

 

Chief Executive Officer

John Lawing.........................

 

63 

 

Vice President, Chief Technology Officer

Kurt P. Cummings.................

 

58 

 

Vice President, Chief Financial Officer, Treasurer and Secretary

Kathleen Kelly.....................

 

60 

 

Vice President of Human Resources

John Sarvis...........................

 

64 

 

Vice President of Ceramic Products

Keith Thomas.......................

 

59 

 

Vice President, President of Kyocera Electronic Devices

Peter Venuto.........................

 

61 

 

Vice President of Sales

 

John S. Gilbertson

 

Chief Executive Officer since 2001.  President from 1997 to 2013.  Chief Operating Officer from 1994 until 2001 and a member of the Board since 1990.  Executive Vice President from 1992 to 1997, Senior Vice President from 1990 to 1992 and employed by the Company since 1981.  Managing Director of Kyocera since 1999.  Director of Kyocera since 1995.  Member of the Board of Directors of Kyocera International, Inc., a United States subsidiary of Kyocera, since 2001.

 

John Lawing

 

Vice President, Chief Technology Officer since April 2014.  President and Chief Operating Officer from 2013 to March 2014.  Vice President of Advanced Products from 2005 to April 2013. Divisional Vice President of Advanced Products from 2002 to 2005 and Divisional Vice President of Leaded Products from 1997 to 2002. Prior to 1997, held positions in Engineering, Technical, Operational, and Plant management.  Employed by the Company since 1981. 

 

Kurt P. Cummings

 

Vice President, Chief Financial Officer, and Treasurer since 2000.  Secretary since 1997.  Corporate Controller from 1992 to 2000.  Prior to 1992, Partner with Deloitte & Touche LLP.

 

Kathleen Kelly

 

Vice President of Human Resources since 2010. Prior to the acquisition of American Technical Ceramics by the Company in 2007, served as Vice President – Administration and as Corporate Secretary of American Technical Ceramics from November, 1989.

 

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John Sarvis

 

Vice President of Ceramic Products since 2005. Divisional Vice President – Ceramics Division from 1998 to 2005. Prior to 1998, held various Marketing and Operational positions. Employed by the Company since 1973.

 

Keith Thomas

 

Vice President since 2001. President of Kyocera Electronic Devices since 2004.  Vice President of Kyocera Developed Products from 2001 to 2004.  Divisional Vice President of Kyocera Developed Products from 1992 until 2001.  Employed by the Company since 1980.

 

Peter Venuto

 

Vice President of Sales since 2009. Vice President of North American and European Sales from 2004 to 2009. Vice President of North American Sales from 2001 to 2004. Divisional Vice President of Strategic Accounts from 1998 until 2000.  Director of Strategic Accounts from 1990 until 1997.  Director of Business Development from 1987 until 1989.  Employed by the Company since 1987.

 

 

 

 

Item 1A.

Risk Factors

 

From time to time, information provided by us, including, but not limited to, statements in this report, or other statements made by or on our behalf, may contain “forward-looking” information within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements involve a number of risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those anticipated. 

 

Our businesses routinely encounter and address risks, some of which will cause our future results to be different – sometimes materially different – than we presently anticipate.  Discussion about the important operational risks that our businesses encounter can also be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.  We wish to caution the reader that the following important risk factors and those factors described elsewhere in this report or other documents that we file or furnish to the SEC could cause our actual results to differ materially from those stated in forward-looking statements contained in this document and elsewhere.  Below, we have described our current view of certain important strategic risks.  These risks are not presented in order of importance or probability of occurrence.  Our reactions to material future developments as well as our competitors’ reactions to those developments will impact our future results. 

 

We operate in a cyclical business, which could result in significant fluctuations in demand for our products

 

Cyclical changes in our customers’ businesses have resulted in, and may in the future result in, significant fluctuations in demand for our products, selling prices, and our resulting profitability.  Most of our customers operate in cyclical industries.  Their requirements for passive components and interconnect products fluctuate significantly as a result of changes in general economic conditions and other factors.  During periods of increasing demand they typically seek to increase their inventory of our products to avoid production bottlenecks.  When demand for their products peaks and begins to decline, as has happened in the past, they tend to reduce or cancel orders for our products while they use up accumulated inventory.  Business cycles vary somewhat in different geographical regions and customer industries.  Significant fluctuations in sales of our products impact our unit manufacturing costs and impact our profitability by making it more difficult for us to predict our production, raw materials, and shipping needs.  Changes in demand mix, needed technologies, and end-use markets may adversely affect our ability to match our products, inventory, and capacity to meet customer demand and could adversely affect our operating results and financial condition.  We are also vulnerable to general economic events or trends beyond our control, and our sales and profits may suffer in periods of weak demand.

 

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We must consistently reduce costs to remain competitive and to combat downward price trends

 

To remain competitive and to combat the impact of potential downward price trends we must consistently reduce the total costs of our products.  Our industry is intensely competitive, and prices for existing products tend to decrease over their life cycle.  To remain competitive, we must achieve continuous cost reductions through process and material improvements.  We must also be in a position to minimize our customers’ inventory financing costs and to meet their other goals for supply chain management.  In addition, as a result of our efforts to streamline manufacturing and logistics operations and to enhance operations in lower cost regions, we have incurred restructuring costs in the past and could incur restructuring costs in the future in response to changes in global economic and market conditions.  If we are unsuccessful in implementing restructuring or other cost reduction plans, we may experience disruptions in our operations and incur higher ongoing costs, which may adversely affect our business, financial condition, and operating results.

 

We attempt to improve profitability by operating in countries in which manufacturing costs are lower; but the shift of operations to these regions may entail considerable expense

 

Our strategy is aimed at achieving significant production cost savings through the transfer to and expansion of manufacturing operations in countries with lower productions costs, such as the Czech Republic, Malaysia, Mexico, China, and El Salvador. During this process, we may experience under-utilization of certain plants and factories in higher-cost regions and capacity constraints in plants and factories located in lower-cost regions.  This under-utilization may result initially in production inefficiencies and higher costs. These costs also include those associated with compensation in connection with work force reductions and plant closings in the higher-cost regions, and start-up expenses, equipment relocation costs, manufacturing and construction delays, and increased depreciation costs in connection with the initiation or expansion of production in lower-cost regions.  In addition, as we implement transfers of certain of our operations, we may experience labor strikes or other types of disruption as a result of lay-offs or termination of our employees in higher-cost countries.

 

Due to our global operations, we are subject to many laws governing international relations (including but not limited to the Foreign Corrupt Practices Act and the U.S. Export Administration Act), which prohibit improper payments to government officials and restrict where and how we can do business, what information or products we can supply to certain countries, and what information we can provide to a non-U.S. government.  Although we have procedures and policies in place that should mitigate the risk of violations of these laws, there is no guarantee that they will be sufficiently effective.  If and when we acquire new businesses we may not be able to ensure that the pre-existing controls and procedures meant to prevent violations of the rules and laws were effective and we may not be able to implement effective controls and procedures to prevent violations quickly enough when integrating newly acquired businesses.

 

We encounter competition in substantially all areas of our business

 

We compete primarily on the basis of technology, product quality, price, sales terms, customer service, and delivery time.  Competitors include large, diversified companies, some of which have substantial assets and financial resources, as well as medium to small companies.  There can be no assurance that additional competitors will not enter into our existing markets, nor can there be any assurance that we will be able to compete successfully against existing or new competition.

 

We must continue to develop new products to remain competitive

 

Most of the fundamental technologies used in the passive components industry have been available for a long time.  The market is nonetheless typified by rapid changes in product designs and technological advantages allowing for better performance and/or lower cost. New applications are frequently found for existing technologies, and new technologies occasionally replace existing technologies for some applications or open up new business opportunities in other areas of application.  Successful innovation is critical for maintaining profitability in the face of potential erosion of selling prices for existing products.  To combat downward selling price pressure for our products and to meet market requirements, we must continue to develop innovative products and production techniques.  Sustaining and improving our profitability depends a great deal on our ability to develop new products quickly and successfully meet customer specifications. Non-customized commodity products are especially vulnerable to price pressure, but customized products have also experienced price pressure in recent years.  We have traditionally combated downward pricing trends in part by offering products with new technologies or applications that offer our customers advantages over older products.  We also seek to maintain profitability by developing products to our customers’ specifications that are not readily available from competitors.  Developing and marketing these products requires start-up costs that may not be recouped if those new products or production techniques are not successful.  There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological change or that we will be unable to develop and market new products and applications in a timely fashion to satisfy customer demands.  If this occurs, we could lose customers and experience adverse effects on our results of operations.

 

13


 

Our operating results are sensitive to raw material and resale product availability, quality, and cost

 

Many of our products require the use of raw materials that are available from only a limited number of regions around the world, are available from only a limited number of suppliers, or may be subject to significant fluctuations in market prices.  Our results of operations may be adversely affected if we have difficulty obtaining these raw materials, our key suppliers experience financial difficulties, the quality of available raw materials deteriorates, or there are significant price increases for these raw materials.  For example, the prices for tantalum, platinum, silver, nickel, gold, copper, palladium, and other raw materials that we use in the manufacture of our products are subject to fluctuation and have experienced significant variability in the past.  Our inability to recover costs through increased sales prices could have an adverse impact on our results of operations.  For periods in which the prices for these raw materials rise, we may be unable to pass on the increased cost to our customers, which would result in decreased margins for the products in which they are used.  For periods in which margins are declining, we may be required, as has occurred in the past, to write down our inventory carrying cost of these raw materials.  Depending on the extent of the difference between market price and our carrying cost, the write-down could have an adverse effect on our results of operations.

 

From time to time there have been short-term market shortages of raw materials.  While these shortages have not historically adversely affected our ability to increase production of products, they have historically resulted in higher raw material costs for us.  There can be no assurance that any of these market shortages in the future would not adversely affect our ability to increase production, particularly during periods of growing demand for our products.

 

We resell products manufactured by Kyocera, as well as other component and interconnect product manufacturers.  Should these manufacturers experience difficulties in supplying the products that we resell, or such suppliers use other channels to market their products, we could experience lower sales which could have an adverse effect on our results of operations.

 

Our sales to distribution sales channel customers may fluctuate

 

Selling products to our customers in the electronic component distribution sales channel has associated risks, including, without limitation, that sales can be negatively impacted on a short-term basis as a result of changes in distributor inventory levels; these changes may be unrelated to the purchasing trends by the end customer.  In the past, we have gone through cycles of inventory correction as distributors increase or decrease their supply chain inventories based upon their anticipated market needs and economic conditions.

 

Our backlog is subject to customer cancellation

 

We generally do not obtain firm, long-term purchase commitments from our customers.  Uncertain economic and geopolitical conditions have resulted in, and may continue to result in, some of our customers delaying the delivery of products that we manufacture for them and placing purchase orders for lower volumes of products than previously anticipated.  Many of the orders that comprise our backlog may be canceled by our customers without penalty.  Our customers may, on occasion, order components from multiple sources to ensure timely delivery when delivery lead times are particularly long and product delivery is a concern.  They may cancel orders when business is weak and inventories are excessive, a situation that we have experienced during periods of economic slowdown.  Therefore, we cannot be certain that the amount of our backlog does not exceed the level of sales that will ultimately be made.  Our results of operations could be adversely impacted if customers cancel a material portion of orders in our backlog.

 

Our growth strategy may include growth through acquisitions, which may involve significant risks 

 

We may, from time to time, make strategic acquisitions of other companies or businesses as we believe such acquisitions can help to position us to take advantage of growth opportunities.  Such acquisitions could introduce significant risks and uncertainties, including risks related to integrating the acquired businesses and achieving benefits from the acquisitions.  More particularly, risks and uncertainties of an acquisition strategy could include: (1) difficulties in integrating newly-acquired businesses and operations in an efficient and effective manner; (2) challenges in achieving strategic objectives, cost savings, and other benefits from acquisitions; (3) risk that our markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in those markets; (4) potential loss of key employees of the acquired businesses; (5) risk of diverting the attention of senior management from our operations; (6) risks of entering new markets in which we have limited experience; (7) risks associated with integrating financial reporting and internal control systems; (8) difficulties in expanding information technology systems and other business processes to accommodate the acquired businesses; and (9) future impairments of goodwill and other intangible assets of an acquired business.

 

14


 

Changes in our environmental liability and compliance obligations may adversely impact our operations or financial condition

 

Our manufacturing operations, products, and/or product packaging are subject to environmental laws and regulations governing air emissions; wastewater discharges; the handling, disposal, and remediation of hazardous substances, wastes, and certain chemicals used or generated in our manufacturing process; employee health and safety; labeling or other notifications with respect to the content or other aspects of our processes, products, or packaging; restrictions on the use of certain materials in or on design aspects of our products or product packaging; and responsibility for disposal of products or product packaging.  We also operate on sites that may have potential future environmental issues as a result of activities at sites during the long history of manufacturing operations of AVX or its corporate predecessor, 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.  We establish reserves for specifically identified potential environmental liabilities when the liabilities are probable and can be reasonably estimated.  Nevertheless, there can be no assurance we will not be obligated to address environmental matters that could have an adverse impact on our operations or financial condition.  In addition, more stringent environmental regulations may be enacted in the future, and we cannot presently determine the modifications, if any, in our operations that any such future regulations might require, or the cost of compliance with these regulations.  In order to resolve liabilities at various sites, we have entered into various administrative orders and consent decrees, some of which may be, under certain conditions, reopened or subject to renegotiation.  See “Environmental Matters” in Item 1 elsewhere in this Form 10-K for additional information.

 

Changes in regulatory and environmental compliance obligations of critical suppliers may adversely impact our operations

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank” Act), signed into law on July 21, 2010, includes Section 1502, which requires the SEC to adopt additional disclosure requirements related to the source of certain “conflict minerals” for issuers for which such “conflict minerals” are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by that issuer.  A final rule was issued by the SEC on August 22, 2012.  The metals covered by the rules are commonly referred to as “3TG” and include tin, tantalum, tungsten, and gold.  We use many of these materials in our production processes.  The rule requires companies to perform due diligence, disclose, and report whether or not such minerals originate from the DRC and adjoining countries. However, the implementation of these new requirements could adversely affect the sourcing, availability, and pricing of such minerals if they are found to be used in the manufacture of our products.  In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products.  Global supply chains are complicated with multiple layers and suppliers between the mine and the final product.

 

For the ten years prior to our participation in “Solutions for Hope”, we had a policy of not using tantalum sourced from the DRC or any other area in which insurgents or similar groups benefit from the sale of minerals.  We have conducted extensive supply chain investigations relating to tantalum and are a participant in “Solutions for Hope, which is a program designed to ensure that tantalum sourced from the DRC does not finance or benefit armed groups in the DRC or adjoining countries.  “Solutions for Hope” incorporates the independently-validated Conflict-Free Smelter program.  As a result, AVX was the first in its industry to validate a “closed tantalum pipe” process, assuring all tantalum products contain only conflict-free tantalum in accordance with the principles of the Dodd-Frank legislation and the current OECD guidelines.

 

Since December 2011, AVX has only sourced tantalum powder and wire used in its tantalum capacitors from smelters that are compliant with the EICC/GeSI conflict-free smelter program.   In 2013, AVX began using Validated Conflict-Free Tantalum, which comes from verified sources in the DRC and surrounding countries.

 

Our participation in “Solutions for Hope” is intended to affirm our commitment to supply conflict-free minerals to our customers and to fully comply with the OECD guidelines and SEC regulations.  At this time, we do not expect the implementation of Rule 1502 will have a material adverse effect on our ability to source raw materials or manufacture products containing the “3TG” metals.

 

15


 

We use significant amounts of electrical energy and processed ores in our production process.  Although its status is uncertain, the Kyoto Protocol is an international agreement that purports to set binding targets for signatory industrialized countries for reducing greenhouse gas emissions.  Further, a number of governments or governmental bodies have introduced or are contemplating legislative and regulatory change in response to the potential impacts of climate change including pending U.S. legislation that, if enacted, would limit and reduce greenhouse gas emissions through a “cap and trade” system of allowances and credits, among other provisions.  There is also current and emerging regulation in other countries in which we or our customers operate, such as the mandatory renewable energy target in Australia.  Any significant, sustained increase in energy costs could result in increases in our capital expenditures, operating expenses, and costs of important raw materials resulting in an adverse effect on our results of operations and financial condition. 

 

The potential physical impacts of climate change on the company’s operations are highly uncertain, and will be particular to the geographic circumstances.  These effects may adversely impact the cost, production, and financial performance of our operations. 

 

Our results may be negatively affected by foreign currency exchange rates

 

We conduct business in several international currencies through our worldwide operations and, as a result, are subject to foreign exchange exposure due to changes in exchange rates of the various currencies.  Volatility in exchange rates can positively or negatively affect our sales, gross margins, and stockholder’s equity.  In order to minimize the effects of movements in currency exchange rates, we enter into forward exchange contracts to hedge external and intercompany foreign currency transactions.  In addition, we attempt to minimize currency exposure risk by producing our products in the same country or region in which the products are sold, thereby generating revenues and incurring expenses in the same currency.  There can be no assurance that our approach will be successful, especially in the event of a significant and sudden decline in the value of any of the international currencies of our worldwide operations. We do not engage in purchasing forward exchange contracts for speculative purposes.

 

Our operating results may be adversely affected by foreign operations

 

We have significant international operations and our operating results and financial condition could be adversely affected by economic, political, health, regulatory, and other circumstances existing in foreign countries in which we operate.  International manufacturing and sales are subject to inherent risks, including production disruption by employee union or works council actions, changes in local economic or political conditions, the imposition of currency exchange restrictions, unexpected changes in regulatory environments, potentially adverse tax law changes, and the exchange rate risk discussed above. Further, we have operations, suppliers, and customers in countries that are in the Pacific Basin which may be more susceptible to certain natural disasters, including earthquakes, tsunamis, and typhoons.  Although we have operations around the world, a significant natural event could disrupt supply or production or significantly affect the market for some or all of our products.  There can be no assurance that these factors will not have an adverse impact on our production capabilities or otherwise adversely affect our business and operating results.

 

Our products are subject to stringent specifications and operating tolerances

 

All of our products are built to specifications and tested by us for adherence to such specifications before shipment to customers. We warrant that our products will meet such specifications. In the past, we have not incurred significant warranty claims.  However, we have seen an increasing trend in the marketplace for claims related to end market product application failures or end-user recall or damage claims related to product defects, which could result in future claims that have an adverse impact on our results of operations.  

 

Fluctuations in the market values of our investment portfolio could adversely affect our financial condition and operating results

 

Although we have not recognized any material losses related to our cash equivalents, short-term investments, or long-term investments, future declines in the market values of such investments could have an adverse effect on our financial condition and operating results.  Given the global nature of our business, we have investments both domestically and internationally.  Additionally, a portion of our overall investment portfolio includes investment securities in the financial sector.  If the issuers of such investments default on their obligations or their credit ratings are negatively impacted by liquidity, credit deterioration or losses, financial results, or other factors, the value of our cash equivalents,  short-term investments, and long-term investments could decline and have an adverse effect on our financial condition and operating results.   In addition, our ability to find investments that are both safe and liquid and that provide a reasonable return may be impaired.  This could result in lower interest income and/or higher other-than-temporary impairments.

 

16


 

Credit risk on our accounts receivable could adversely affect our financial condition and operating results

 

Our outstanding trade receivables are not covered by collateral or credit insurance.  While we have procedures to monitor and limit exposure to credit risk on our trade receivables, there can be no assurance such procedures will effectively limit our credit risk and avoid losses, which could have an adverse effect on our financial condition and operating results.

 

Counterparty non-performance to derivative transactions could adversely affect our financial condition and operating results

 

We evaluate the credit quality of potential counterparties to derivative transactions and only enter into agreements with those deemed to have minimal credit risk at the time the agreements are executed.  Our foreign exchange hedge portfolio is diversified across several credit line banks. We carefully monitor the amount of exposure we have with any given bank.  We also periodically monitor changes to counterparty credit quality as well as our concentration of credit exposure to individual counterparties.  We do not hold or issue derivative financial instruments for trading or speculative purposes.   A credit crisis could have an impact on our hedging contracts if our counterparties are forced to file for bankruptcy or are otherwise unable to perform their obligations.  If we are required to terminate hedging contracts prior to their scheduled settlement dates, we may be required to recognize losses.  In some cases, we have master netting agreements that help reduce the risk of counterparty exposures.

 

Returns on pension and retirement plan assets and interest rate changes could affect our earnings in future periods

 

The funding position of our pension plans is impacted by the performance of the financial markets, and the discount rate used to calculate our pension obligations for funding and expense purposes.  In the past, declines in the financial markets have negatively impacted the value of the assets in our defined benefit pension plans.  In addition, lower bond yields may reduce our discount rates, resulting in increased pension contributions and expense.

 

Funding obligations are determined under government regulations and measured each year based on the value of the assets and liabilities on a specific date.  If the financial markets do not provide the long-term returns that are expected, we could be required to make larger contributions.  The financial markets can be, and in the recent past have been, very volatile, and therefore our estimate of future contribution requirements can change in relatively short periods of time.  In a low interest rate environment, the likelihood of higher contributions in the future increases.

 

We may not generate sufficient future taxable income, which may require additional valuation allowances against our deferred tax assets

 

As part of the process of preparing our consolidated financial statements, we are required to estimate our tax assets and liabilities in each of the jurisdictions in which we operate.  This process involves management estimating the actual current tax exposure together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes.  These differences result in deferred tax assets and liabilities that are included within our consolidated balance sheets.  We assess the likelihood that our deferred tax assets will be recoverable as a result of future taxable income and, to the extent we believe that recovery is not more likely than not, we establish a valuation allowance.

 

We have recorded valuation allowances due to uncertainties related to our ability to realize some of our deferred tax assets, primarily consisting of certain net operating losses carried forward before they expire.  The valuation allowances are based on our estimates of future taxable income over the periods that our deferred tax assets will be recoverable. 

 

We also record a provision for certain international, federal, and state tax contingencies based on the likelihood of obligation, when needed.  In the normal course of business, we are subject to challenges from U.S. and non-U.S. tax authorities regarding the amount of taxes due.  These challenges may result in adjustments of the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions.  Further, during the ordinary course of business, other changing facts and circumstances may impact our ability to utilize tax benefits as well as the estimated taxes to be paid in future periods.  In the event that actual results differ from our estimates, we may need to adjust tax accounts and related payments, which could materially impact our financial condition and results of operations.

 

If we are unable to generate sufficient future taxable income in certain jurisdictions, or if there is a significant change in the actual tax rates or the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowances against our deferred tax assets resulting in an increase in our effective tax rate and an adverse impact on future operating results.

 

17


 

Liquidity requirements could necessitate transfers of existing cash balances between our subsidiaries which may be subject to restrictions or cause unfavorable tax or earnings consequences

 

Approximately 70% of our cash and investment securities are held by international subsidiaries.  While we intend to use cash held overseas to fund our international operations and growth, if we encounter a significant need for liquidity domestically or at a particular location that we cannot fulfill through other internal or external sources, we may experience unfavorable tax and earnings consequences due to cash transfers.  These adverse consequences would occur, for example, if the transfer of cash into the United States is taxed and no offsetting foreign tax credit is available to offset the U.S. tax liability, resulting in lower earnings. 

 

We are increasingly dependent on information technology, and if we are unable to protect against service interruptions, data corruption, cyber-based attacks, or network security breaches, our operations could be disrupted 

 

We rely on information technology networks and systems, including the internet, to process, transmit, and store electronic and financial information; to manage a variety of business processes and activities; and to comply with regulatory, legal, and tax requirements. We also depend on our information technology infrastructure for digital marketing and sales activities and for electronic communications among our locations, personnel, customers, and suppliers around the world.  Many of the information technology systems used by the Company globally have been in place for many years and not all hardware and software may be currently supported by vendors. These information technology systems may be susceptible to damage, disruptions, or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors, or catastrophic events. If our information technology systems suffer severe damage, disruption, or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition, and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.

 

In addition, if we are unable to prevent security breaches, we may suffer financial and reputational damage or penalties because of the unauthorized disclosure of confidential information belonging to us or to our customers or suppliers. In addition, the disclosure of non-public sensitive information through external media channels could lead to the loss of intellectual property or damage our reputation and brand image.

 

Changes in global geopolitical and general economic conditions and other factors beyond our control may adversely impact our business

 

The following factors beyond our control could adversely impact our business:

 

·

A global economic slowdown affecting any one, or all, of our markets.

 

·

Rapid escalation of the cost of regulatory compliance and litigation.

 

·

Unexpected government policies and regulations affecting us or our significant customers’ sales or production facilities.

 

·

Unforeseen regional conflicts or actions, including, but not limited to, armed conflict and trade wars that could impact us or our customers’ production capabilities.

 

·

Unforeseen interruptions to our business with our significant customers and suppliers resulting from, but not limited to, labor strikes, financial instabilities, computer malfunctions, environmental disruptions, natural disasters, or inventory excesses.

 

We operate in a continually changing business environment and new factors emerge from time to time. Other unknown and unpredictable factors also could have either adverse or positive effects on our future results of operations or financial condition.

 

 

 

 

Item 1B.

Unresolved Staff Comments

 

None.

18


 

 

 

 

Item 2.

Properties

 

Our fixed assets include certain plants and warehouses and a substantial quantity of machinery and equipment, most of which is general purpose machinery and equipment, using tools and fixtures.   In many instances the machinery and equipment have automatic control features and special adaptations.  Our plants, warehouses, machinery, and equipment are in good operating condition and are well maintained. Substantially all of our facilities are in regular use.  We consider the present level of fixed assets, along with planned capital expenditures, as suitable and adequate for our operations in the current business environment.  Our capital expenditures for plant and equipment were $49.2 million in fiscal 2012, $43.7 million in fiscal 2013 and $26.8 million in fiscal 2014.

 

We believe that our facilities are suitable and adequate for the business conducted therein and are being appropriately utilized for their intended purposes. Utilization of the facilities varies based on demand for the products.  We continuously review our anticipated requirements for facilities and, based on that review, may from time to time acquire or lease additional facilities and/or dispose of existing facilities.

 

We conduct manufacturing operations throughout the world.  Most of our operations are certified to the ISO 9000 quality standard, a set of fundamental quality system standards developed by the International Organization for Standardization.  Some of our facilities are also qualified and registered under the more stringent QS 9000, a comprehensive quality system for continuous improvement developed by the U.S. automotive industry.

 

Virtually all of our manufacturing, research and development, and warehousing facilities could at any time be involved in the manufacturing, sale, or distribution of passive components (PC) and interconnect products (CP).  The following is a list of our facilities, their approximate square footage, whether they are leased or owned, and a description of their use.

 

 

 

 

 

 

 

 

Location

Approximate

Square

Footage

 

Type of Interest

 

Description

of Use

UNITED STATES

 

 

 

 

 

Fountain Inn, SC

300,000 

 

Owned

 

Headquarters/Manufacturing/Warehouse – PC

Myrtle Beach, SC

308,000 

 

Owned

 

Manufacturing/Research — PC

 

 

 

 

 

 

Olean, NY

113,000 

 

Owned

 

Manufacturing — PC

Jacksonville, FL

100,000 

 

Owned

 

Manufacturing — PC

Huntington Station, NY

94,000 

 

Owned

 

Manufacturing/Research— PC

Biddeford, ME

72,000 

 

Owned

 

Manufacturing — PC

Conway, SC

71,000 

 

Owned

 

Manufacturing — PC 

Sun Valley, CA

25,000 

 

Leased

 

Manufacturing — PC

Colorado Springs, CO

15,000 

 

Owned

 

Manufacturing — PC

 

 

 

 

 

 

NON U.S.

 

 

 

 

Tianjin, China

520,000 

 

Owned

 

Manufacturing — PC 

San Salvador, El Salvador

420,000 

 

Owned

 

Manufacturing — PC

Saint-Apollinaire, France

322,000 

 

Leased

 

Manufacturing/Research — PC             

Lanskroun, Czech Republic

500,000 

 

Owned

 

Manufacturing/Warehouse/Research — PC

Lanskroun, Czech Republic

70,000 

 

Leased

 

Manufacturing/Warehouse — PC

Uherske Hradiste, Czech Republic

470,000 

 

Owned

 

Manufacturing — PC

Uherske Hradiste, Czech Republic

139,000 

 

Leased

 

Warehouse — PC

Bzenec, Czech Republic

194,000 

 

Owned

 

Manufacturing — CP

Penang, Malaysia

190,000 

 

Owned

 

Manufacturing — PC

Coleraine, N. Ireland

185,000 

 

Owned

 

Manufacturing/Research — PC

Betzdorf, Germany

111,000 

 

Owned

 

Manufacturing — CP

Juarez, Mexico

116,000 

 

Owned

 

Manufacturing — PC — CP

Jerusalem, Israel

88,000 

 

Leased

 

Manufacturing/Research — PC

Adogawa, Japan

206,000 

 

Owned

 

Manufacturing/Research — PC

Hong Kong

30,000 

 

Owned

 

Warehouse — PC — CP

Hong Kong

21,000 

 

Leased

 

Warehouse/Office – PC – CP

 

19


 

In addition to the foregoing, we own and lease a number of sales offices throughout the world.  In the opinion of management, our properties and equipment generally are in good operating condition and are adequate for our present needs.  We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities if necessary.

 

 

 

 

Item 3.

Legal Proceedings

 

See “Environmental Matters” in Item 1 elsewhere in this Form 10-K for a discussion of our involvement as a PRP at certain environmental clean-up sites and certain pending lawsuits involving other environmental disputes.

 

On March 1, 2010, AVX was named as a defendant in a patent infringement case filed in the United States District Court for the District of Delaware captioned Greatbatch, Inc. v. AVX Corporation.  This case alleges that certain AVX products infringe on one or more of the six Greatbatch patents.  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 this case on our financial position, results of operations, comprehensive income (loss), and cash flows cannot be determined at this time. 

 

We are involved in disputes and legal proceedings arising in the normal course of business.  While we cannot predict the outcome of these proceedings, we believe, 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.  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.

 

 

 

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

PART II

 

 

 

Item 5.

Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market for Common Stock

 

Our common stock is listed on the New York Stock Exchange and trades under the symbol  AVX.    At May 12, 2014, there were 323 holders of record of the Company's common stock.  In addition, there were numerous beneficial holders of the common stock, representing persons whose stock is held in nominee or street name accounts through brokers.  The following table presents the high and low sale prices for our common stock on the New York Stock Exchange and the dividends declared per common share for each quarter for the fiscal years ended March 31, 2013 and March 31, 2014On May 16, 2014, our Board of Directors declared a $0.095 dividend per share of common stock with respect to the quarter ended March 31, 2014.  Future dividends, if any, will be determined by the Company’s Board of Directors and may depend on the Companys future profitability and anticipated operating cash requirements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Price Range

 

Dividends Declared

 

 

2013

 

2014

 

Per Share

 

 

High

 

Low

 

High

 

Low

 

2013

 

2014

First Quarter

 

$

13.36 

 

$

10.32 

 

$

12.26 

 

$

11.16 

 

$

0.0750 

 

$

0.0875 

Second Quarter

 

 

10.85 

 

 

9.32 

 

 

13.51 

 

 

12.04 

 

 

0.0750 

 

 

0.0875 

Third Quarter

 

 

10.91 

 

 

9.20 

 

 

14.09 

 

 

12.90 

 

 

0.0750 

 

 

0.0950 

Fourth Quarter

 

 

12.05 

 

 

10.80 

 

 

13.76 

 

 

12.57 

 

 

0.0875 

 

 

0.0950 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20


 

The name, address, and phone number of our stock transfer agent and registrar is:

 

The American Stock Transfer and Trust Company

59 Maiden Lane, Plaza Level

New York, New York 10038

1-800-937-5449

 

Stock Performance Graph

 

The following chart shows, from the end of fiscal year 2009 to the end of fiscal year 2014, changes in the value of $100 invested in each of the Company’s common stock, Standard & Poor’s 500 Composite Index, and a peer group consisting of three companies whose businesses are representative of our business segments.  The companies in the peer group are: Kemet Corporation, Vishay Intertechnology, Inc., and International Rectifier Corp.

 

Picture 2

21


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative Total Return

 

 

3/31/09

 

3/31/10

 

3/31/11

 

3/31/12

 

3/31/13

 

3/31/14

AVX - NYSE

 

$

100 

 

$

159 

 

$

169 

 

$

153 

 

$

141 

 

$

161 

S & P 500

 

$

100 

 

$

150 

 

$

173 

 

$

188 

 

$

214 

 

$

264 

Peer Group

 

$

100 

 

$

221 

 

$

388 

 

$

267 

 

$

264 

 

$

307 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of Equity Securities by the Issuer

 

The following table provides information regarding purchases by the Company, during the fourth quarter ended March 31, 2014, of equity securities that are registered pursuant to Section 12 of the Exchange Act:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

Total Number of Shares Purchased (1)

 

Average Price Paid Per Share

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)

 

Maximum Number of Shares that may yet be Purchased Under the Plans or Programs (1)

1/1/14 - 1/31/14

 

53,100 

 

$

12.99 

 

53,100 

 

4,775,389 

2/1/14 - 2/28/14

 

66,000 

 

 

12.76 

 

66,000 

 

4,709,389 

3/1/14 - 3/31/14

 

 -

 

 

 -

 

 -

 

4,709,389 

Total

 

119,100 

 

$

12.86 

 

119,100 

 

4,709,389 

 

 

 

 

 

 

 

 

 

 

 

(1)

On October 17, 2007, the Board of Directors of the Company authorized the repurchase of 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.

 

 

 

 

 

Item 6.

Selected Financial Data

 

The following table sets forth selected consolidated financial data for AVX for the five fiscal years ended March 31, 2014.  The selected consolidated financial data for the five fiscal years ended March 31, 2014 are derived from AVXs  audited consolidated financial statements.  The consolidated financial data set forth below should be read in conjunction with AVXs consolidated financial statements and the notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K.

22


 

 

Selected Financial Data

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended March 31,

 

 

2010

 

2011

 

2012

 

2013

 

2014

OPERATING RESULTS DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,304,966 

 

$

1,653,176 

 

$

1,545,254 

 

$

1,414,400 

 

$

1,442,604 

Cost of sales

 

 

1,027,368 

 

 

1,195,790 

 

 

1,153,295 

 

 

1,150,630 

 

 

1,163,770 

Vendor settlement

 

 

(5,000)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Restructuring charges

 

 

4,397 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Gross profit

 

 

278,201 

 

 

457,386 

 

 

391,959 

 

 

263,770 

 

 

278,834 

Selling, general and administrative expenses

 

 

108,527 

 

 

123,887 

 

 

116,408 

 

 

117,365 

 

 

119,670 

Environmental charges

 

 

 -

 

 

8,575 

 

 

100,000 

 

 

266,250 

 

 

 -

Restructuring charges

 

 

2,509 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Other operating income

 

 

(3,519)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Profit (loss) from operations

 

 

170,684 

 

 

324,924 

 

 

175,551 

 

 

(119,845)

 

 

159,164 

Interest income

 

 

7,120 

 

 

6,569 

 

 

6,798 

 

 

7,021 

 

 

4,899 

Interest expense

 

 

(111)

 

 

 -

 

 

(707)

 

 

(2,262)

 

 

(2,432)

Other, net

 

 

(1,336)

 

 

2,766 

 

 

(1,737)

 

 

1,764 

 

 

1,726 

Income (loss) before income taxes

 

 

176,357 

 

 

334,259 

 

 

179,905 

 

 

(113,322)

 

 

163,357 

Provision for (benefit from) income taxes

 

 

33,499 

 

 

90,256 

 

 

27,100 

 

 

(49,010)

 

 

36,320 

Net income (loss)

 

$

142,858 

 

$

244,003 

 

$

152,805 

 

$

(64,312)

 

$

127,037 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.84 

 

$

1.44 

 

$

0.90 

 

$

(0.38)

 

$

0.75 

Diluted

 

$

0.84 

 

$

1.43 

 

$

0.90 

 

$

(0.38)

 

$

0.75 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

170,247 

 

 

170,025 

 

 

169,886 

 

 

169,124 

 

 

168,473 

Diluted

 

 

170,274 

 

 

170,390 

 

 

170,134 

 

 

169,124 

 

 

168,658 

Cash dividends declared per common share

 

$

0.16 

 

$

0.19 

 

$

0.28 

 

$

0.31 

 

$

0.37 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31,

 

 

2010

 

2011

 

2012

 

2013

 

2014

BALANCE SHEET DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

1,123,085 

 

$

1,366,450 

 

$

1,430,072 

 

$

1,614,656 

 

$

1,606,789 

Total assets

 

 

2,051,492 

 

 

2,319,482 

 

 

2,468,012 

 

 

2,601,995 

 

 

2,384,988 

Stockholders' equity

 

 

1,801,007 

 

 

2,039,417 

 

 

2,120,753 

 

 

1,972,930 

 

 

2,047,685 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended March 31,

 

 

2010

 

2011

 

2012

 

2013

 

2014

OTHER DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

28,888 

 

$

27,470 

 

$

49,201 

 

$

43,705 

 

$

26,805 

Research, development and engineering expenses

 

 

24,667 

 

 

23,683 

 

 

26,328 

 

 

30,467 

 

 

26,240 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23


 

 

 

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

AVX Corporation is a leading worldwide manufacturer and supplier of a broad line of passive electronic components and interconnect products.  Electronic components and connector products manufactured or resold by AVX are used in virtually all types of electronic products, including those in telecommunications, automotive, transportation, energy harvesting, consumer electronics, military/aerospace, medical, computer, and industrial markets.  We have five main product groups: Ceramic Components, Tantalum Components, Advanced Components, Interconnect Products, and Kyocera Electronic Devices.  These product lines are organized into three reportable segments: Passive Components, Interconnect, and KED Resale. 

 

Consolidated revenues for the fiscal year ended March 31, 2014 were $1,442.6 million with net income of $127.0 million compared to consolidated revenues of $1,414.4 million with  a net loss of $64.3 million for the fiscal year ended March 31, 2013.  During fiscal 2014 we saw an increase in volumes across most of the markets we serve,  primarily in automotive, aerospace, networking and component sales related to higher end smart phones and tablet devices, compared to fiscal 2013.  This trend reflected an improved global demand for commercial and consumer electronic products and our customers’ efforts to bring inventory levels in line with demand.  Our electronic distributor customers generally increased their level of inventory throughout the fiscal year to meet increased demandOverall sales prices for our commodity component products declined during 2013 as lower immediate delivery demand in the marketplace led to increased sales price pressure compared to the prior year.  Gross margins improved slightly when compared to the prior year, primarily attributable to an improved product mix of higher added value components coupled with a lower proportion of commodity and KED Resale products partially offset by lower selling prices.   We continued to proactively take actions to improve our production efficiencies and tightly control our spending to help offset utility and material cost increases and unfavorable sales price pressure. 

 

In fiscal 2014,  we used  $70.6 million of cash to fund operating activities.  We used cash generated from operations to pay $246 million of environmental liabilities and other general working capital requirements.  In addition, to enhance shareholder value, we repurchased shares of our common stock and paid increased dividends during fiscal year 2014.   Our financial position remains strong with $899 million of cash, cash equivalents, and securities investments and no borrowings as of March 31, 2014.

 

We remain committed to investing in new products and improvements to our production processes as well as continued investment in research, development, and engineering in order to provide our customers with new generations of passive component and interconnect product solutions.  We are currently producing more sophisticated electronic component parts necessitated by the breadth and increase in functionality of the electronic devices and increased electronic content in products such as smart phones, tablets, ultrabooks, netbooks, automobiles, and renewable energy products that are manufactured by our customers.  As a result, we have continued our focus on value-added advanced products and interconnect solutions to serve this expanding market.  We are also focused on controlling and reducing costs to accommodate market forces and offset rising costs of energy and materials.  We do this by investing in automated manufacturing technologies, enhancing manufacturing materials and efficiencies, and rationalizing our production capabilities around the world.  We believe that these strategies will enable us to adapt quickly and benefit as market conditions change and provide shareholder value.

 

In addition, we may, from time to time, consider strategic acquisitions of other companies or businesses in order to expand our product offerings or otherwise improve our market position.  We evaluate potential acquisitions in order to position ourselves to take advantage of profitable growth opportunities.

 

24


 

Outlook

 

Near-Term:

 

With continuing uncertain global geopolitical and economic conditions, it is difficult to quantify expectations for fiscal 2015.  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 due to competitive activity.  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.

 

Kyocera gave notice to AVX in February, 2014 of its intent, effective April 1, 2015 to market its connector products in Asia using Kyocera’s sales force rather than continuing to have AVX resell such products in Asia.  Sales of Kyocera connector products in Asia were approximately $44 million with operating profit of approximately $3 million for the fiscal year ended March 31, 2014.  For more information regarding AVX’s relationship with Kyocera, see “Relationship with Kyocera and Related Transactions” below. 

 

Long-Term:

 

Although there is uncertainty and caution 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.

 

 

Results of Operations

 

Year Ended March 31, 2014 compared to Year Ended March 31, 2013

 

Net sales for the fiscal year ended March 31, 2014 were $1,442.6 million compared to $1,414.4 million for the fiscal year ended March 31, 2013.

 

The table below represents product group revenues for the fiscal years ended March 31, 2012, 2013, and 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended March 31,

Sales revenue (in thousands)

 

2012

 

2013

 

2014

Ceramic Components

 

$

179,984 

 

$

173,315 

 

$

193,978 

Tantalum Components

 

 

393,468 

 

 

330,209 

 

 

394,119 

Advanced Components

 

 

378,843 

 

 

346,543 

 

 

357,900 

Total Passive Components

 

 

952,295 

 

 

850,067 

 

 

945,997 

KDP and KCD Resale

 

 

410,419 

 

 

377,707 

 

 

293,048 

KCP Resale Connectors

 

 

54,765 

 

 

61,809 

 

 

64,680 

Total KED Resale

 

 

465,184 

 

 

439,516 

 

 

357,728 

Interconnect

 

 

127,775 

 

 

124,817 

 

 

138,879 

Total Revenue

 

$

1,545,254 

 

$

1,414,400 

 

$

1,442,604 

 

 

 

 

 

 

 

 

 

 

 

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Passive Component sales were $946.0 million for the fiscal year ended March 31, 2014 compared to $850.1 million during the fiscal year ended March 31, 2013.  The sales increase in Passive Components reflects the demand increase for electronics across global markets as customers increased inventory levels in response to increased spending by consumers and manufacturers when compared to last year, particularly in the automotive sector and component sales related to higher-end smart phones, tablet devices and telecommunications hardware.   The impact of the Asia Tantalum acquisition, which was completed in February 2013, accounted for $52.6 million of increased sales of our tantalum products.  The increase in sales of Ceramic Components reflects a higher volume of unit sales resulting partially from an increase in the sale of higher capacitance components compared to the prior fiscal year, partially offset by lower selling prices.    

 

KDP and KCD Resale sales were $293.0 million for the fiscal year ended March 31, 2014 compared to $377.7 million during the fiscal year ended March 31, 2013.  When compared to the prior year, the decrease during the fiscal year ended March 31, 2014 is primarily attributable to lower sales to telecommunications and computer manufacturers as they changed design specifications and managed supply chain inventory levels in response to consumer demand trends and new product introduction cycles.

 

Total connector sales, including AVX Interconnect products and KCP Resale Connectors, were $203.6 million in the fiscal year ended March 31, 2014 compared to $186.6 million during the fiscal year ended March 31, 2013.   This increase was primarily attributable to an increased demand in the automotive sector reflective of the increased electronic content in today’s automobiles.

 

Our sales to independent electronic distributors represented 42.1% of total net sales for the fiscal year ended March 31, 2014, compared to 38.8% for fiscal year ended March 31, 2013.   Overall, distributor activity increased when compared to the same period in the prior year reflective of their end customer demand improvements.   Our sales to distributor customers may involve specific ship and debit and stock rotation programs for which sales allowances are recorded as reductions in sales.  Such allowance charges increased to  $40.7 million, or 6.7% of gross sales to distributor customers, for the fiscal year ended March 31, 2014 compared to  $34.3 million, or 6.3% of gross sales to distributor customers, for the fiscal year ended March 31, 2013, reflecting increased pricing pressure in the marketplace.  Applications under such programs for fiscal years ended March 31, 2014 and 2013 were approximately $38.3 million and  $33.9 million, respectively.

 

Geographically, compared to the fiscal year ended March 31, 2013, sales increased in the Americas and Europe while Asia saw  a slight decrease. The Asian market sales reflect the lower KED Resale product sales in the telecommunications markets.  Sales in Asia decreased to 45.7% of total sales while sales in the Americas increased to 28.0% and sales in Europe increased to 26.3% of total sales, respectively.   This compares to 47.5%, 27.6%, and 24.9% of total sales for the Asian, American, and European regions in the prior year, respectively.  As a result of the strength of the U.S. dollar against certain foreign currencies, sales for the year ended March 31, 2014 were unfavorably impacted by approximately $22.3 million when compared to the prior year.

 

Gross profit margin in the fiscal year ended March 31, 2014 increased to 19.3% of sales, or $278.8 million, compared to a gross profit margin of 18.6% of sales, or $263.8 million, in the fiscal year ended March 31, 2013.  This overall increase is primarily attributable to an improved product mix of higher margin components coupled with a lower proportion of commodity and KED Resale products partially offset by lower selling prices.  When compared to the prior fiscal year, costs were favorably impacted by approximately $40.0 million due to the strength of the U.S. dollar against certain foreign currencies.

 

Selling, general, and administrative expenses for the fiscal year ended March 31, 2014 were $119.7 million, or 8.3% of net sales, compared to $117.4 million, or 8.3% of net sales, for the fiscal year ended March 31, 2013.  The overall increase in selling, general and administrative expenses reflects the impact of higher sales volumes when compared to prior year.    

 

Research, development, and engineering expenditures, which encompass the personnel and related expenses devoted to developing new products and maintaining existing products, processes, and technical innovations, were approximately $26.2 million and $30.5 million in fiscal 2014 and 2013, respectively.  Research and development costs included therein increased in fiscal 2014 to $10.5 million compared to $7.2 million in fiscal 2013.  Engineering expenses decreased $7.6 million to $15.7 million in fiscal 2014 compared to $23.3 million in fiscal 2013 as we decreased activity related to production moves when compared to the prior year

 

Profit (loss) from operations for the fiscal year ended March 31, 2014 increased $279.0 million to $159.2 million compared to $(119.8) million for the fiscal year ended March 31, 2013.   This increase is a result of the factors above, and the recognition of a $266.3 million environmental charge in 2013 related to remediation issues at the New Bedford Harbor Superfund Site in Massachusetts.  See Note 12 to our consolidated financial statements elsewhere herein and “Environmental Matters” in Item 1 for further discussion related to this environmental charge.

 

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Other income decreased $2.3 million to $4.2 million in fiscal 2014 compared to $6.5 million in fiscal 2013.  This decrease is primarily attributable to lower interest income resulting from lower effective interest rates and a decrease in the balance of our cash and investments.

The effective tax rate for the fiscal year ended March 31, 2014 was 22.2% compared to an effective tax rate of 43.2% for the fiscal year ended March 31, 2013.   The lower effective rate for fiscal 2014 is primarily due to a favorable impact of approximately $6.6 million relating to the release of certain reserves for uncertain tax positions due to the expiration of tax periods allowed for the audit of certain prior year income tax returns and one-time adjustments of approximately $4.5 million related to prior period income tax accruals.  Excluding such discrete items recorded during the fiscal year, the effective tax rate would have been 29.9%.  For fiscal 2013, the higher effective rate is primarily due to the effects of the environmental charge recognized in fiscal 2013 related to the New Bedford Harbor Superfund Site in Massachusetts and the loss of a U.S. federal tax deduction for fiscal 2013 due to annual taxable income limitations.  Excluding such discrete items recorded during the fiscal year, the effective tax rate would have been 30.6%.

As a result of the factors discussed above, net income for the fiscal year ended March 31, 2014 was $127.0 million compared to  a net loss of  $(64.3) million for the fiscal year ended March 31, 2013.

 

Year Ended March 31, 2013 Compared to Year Ended March 31, 2012

 

Net sales for the fiscal year ended March 31, 2013 were $1,414.4 million compared to $1,545.3 million for the fiscal year ended March 31, 2012.

 

The table below represents product group revenues for the fiscal years ended March 31, 2011, 2012, and 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended March 31,

Sales revenue (in thousands)

 

2011

 

2012

 

2013

Ceramic Components

 

$

211,998 

 

$

179,984 

 

$

173,315 

Tantalum Components

 

 

419,792 

 

 

393,468 

 

 

330,209 

Advanced Components

 

 

410,110 

 

 

378,843 

 

 

346,543 

Total Passive Components

 

 

1,041,900 

 

 

952,295 

 

 

850,067 

KDP and KKC Resale

 

 

440,050 

 

 

410,419 

 

 

377,707 

KEC Resale Connectors

 

 

66,088 

 

 

54,765 

 

 

61,809 

Total KED Resale

 

 

506,138 

 

 

465,184 

 

 

439,516 

Interconnect

 

 

105,138 

 

 

127,775 

 

 

124,817 

Total Revenue

 

$

1,653,176 

 

$

1,545,254 

 

$

1,414,400 

 

 

 

 

 

 

 

 

 

 

 

Passive Component sales were $850.1 million for the fiscal year ended March 31, 2013 compared to $952.3 million during the fiscal year ended March 31, 2012.  The sales decrease in Passive Components reflects the overall weaker demand for electronics across global markets as customers remained cautious and reduced or limited inventory levels in response to decreased spending by consumers and manufacturers when compared to prior year.  Funding for global “green energy” products also decreased compared to prior year, which primarily impacted the Advanced Components product lines.  The decrease in sales of Tantalum Components was the result of lower sales unit volume in addition to lower average selling prices reflective of increased market competition and reduced concerns about product availability.  Compared to the same period in the prior year, we saw lower sales in most of the markets we serve, with the exception of automotive, aerospace, networking, and component sales related to higher end smart phones and tablet devices.

 

KDP and KCD Resale sales were $377.7 million for the fiscal year ended March 31, 2013 compared to $410.4 million during the fiscal year ended March 31, 2012.  When compared to the same period in the prior year, the decrease during the fiscal year ended March 31, 2013 is primarily attributable to a decrease in unit sales volume, particularly in the Asian and European regions due to lower demand for such circuit and crystal devices in the telecommunications and consumers markets.

 

Total connector sales, including AVX Interconnect products and KCP Resale Connectors, were $186.6 million in the fiscal year ended March 31, 2013 compared to $182.5 million during the fiscal year ended March 31, 2012. This increase was primarily attributable to an increased demand in the automotive sector reflective of the increased electronic content in today’s automobiles.

 

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Our sales to independent electronic distributors represented 38.8% of total net sales for the fiscal year ended March 31, 2013, compared to 38.0% for fiscal year ended March 31, 2012.  Overall distributor inventories declined when compared to the same period in the prior year. This was primarily a result of continued uncertainty in the global markets and cautious inventory management by our distributors.  Our sales to distributor customers may involve specific ship and debit and stock rotation programs for which sales allowances are recorded as reductions in sales.  Such allowance charges increased to $34.3 million, or 6.3% of gross sales to distributor customers, for the fiscal year ended March 31, 2013 compared to $29.6 million, or 4.8% of gross sales to distributor customers, for the fiscal year ended March 31, 2012, reflecting the increased pricing pressure resulting from lower demand in the marketplace. Applications under such programs for fiscal years ended March 31, 2013 and 2012 were approximately $33.9 million and $28.8 million, respectively.

 

Geographically, compared to the fiscal year ended March 31, 2012, sales decreased in all regions, tracking the overall global macroeconomic conditions.  Sales in the Asian market increased to 47.5% of total sales while sales in the Americas decreased to 27.6% and sales in Europe decreased to 24.9% of total sales, respectively.  This compares to 44.9%, 27.8%, and 27.3% of total sales for the Asian, American, and European regions in the prior year, respectively.  As a result of the strength of the U.S. dollar against certain foreign currencies, sales for the year ended March 31, 2013 were unfavorably impacted by approximately $24.5 million when compared to the prior year.

 

Gross profit margin in the fiscal year ended March 31, 2013 decreased to 18.6% of sales or $263.8 million compared to a gross profit margin of 25.4% of sales or $392.0 million in the fiscal year ended March 31, 2012.  This overall decrease is primarily attributable to lower sales and lower selling prices, particularly for Passive Components products, reflective of the weaker demand in the global marketplace and resulting market pricing pressure.  In addition, lower production and higher energy and material costs negatively impacted margins when compared to the prior year. These higher costs were partially offset by our emphasis on spending controls and cost reductions in light of the weaker global demand for electronic component parts.  When compared to the prior fiscal year, costs were favorably impacted by approximately $23.3 million due to the strength of the U.S. dollar against certain foreign currencies.

 

Selling, general, and administrative expenses for the fiscal year ended March 31, 2013 were $117.4 million, or 8.3% of net sales, compared to $116.4 million, or 7.5% of net sales, for the fiscal year ended March 31, 2012.  The overall increase in selling, general and administrative expenses as a percentage of sales reflects the impact of lower sales volumes when compared to the prior year. 

 

Research, development, and engineering expenditures, which encompass the personnel and related expenses devoted to developing new products and maintaining existing products, processes, and technical innovations, were approximately $30.5 million and $26.3 million in fiscal 2013 and 2012, respectively.  Research and development costs included therein decreased in fiscal 2013 to $7.2 million compared to $7.7 million in fiscal 2012.  Engineering expenses increased to $23.3 million in fiscal 2013 compared to $18.6 million in fiscal 2012. 

 

Profit (loss) from operations for the fiscal year ended March 31, 2013 decreased $295.4 million to $(119.8) million compared to $175.6 million for the fiscal year ended March 31, 2012. This decrease is a result of the factors above, and the recognition of a $266.3 million environmental charge in 2013 related to remediation issues at the New Bedford Harbor Superfund Site in Massachusetts.  During the fiscal year ended March 31, 2012 we recognized a $100.0 million charge for remediation issues related to the New Bedford Harbor Superfund Site.  See Note 12 to our consolidated financial statements elsewhere herein and “Environmental Matters” in Item 1 for further discussion related to these environmental charges.

 

Other income increased $2.1 million to $6.5 million in fiscal 2013 compared to $4.4 million in fiscal 2012. This increase is attributable to higher net foreign currency gains, partially offset by an increase in interest expense resulting from accrued interest associated with the proposed settlement of the New Bedford Harbor Superfund Site remediation issues referred to above.

 

The effective tax rate for the fiscal year ended March 31, 2013 was 43.2% compared to an effective tax rate of 15.1% for the fiscal year ended March 31, 2012.  This higher effective tax rate is primarily due to one-time income tax benefits primarily attributable to the utilization of U.S foreign tax credits relating to our South American and European operations recognized in fiscal 2012.  The change in the effective tax rate was also attributable to the tax benefit related to the New Bedford Harbor environmental charges recognized during each period.  Excluding the one-time income tax benefits and the tax benefit related to the environmental charges, the effective tax rate for the fiscal year ended March 31, 2013 was 30.6% compared to 27.2% for the fiscal year ended March 31, 2012.

 

As a result of the factors discussed above, net income (loss) for the fiscal year ended March 31, 2013 was a net loss of $(64.3) million compared to net income of $152.8 million for the fiscal year ended March 31, 2012.

 

 

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Financial Condition

 

Liquidity and Capital Resources

 

Our liquidity needs arise primarily from working capital requirements, dividends, capital expenditures, and acquisitions.  Historically, we have satisfied our liquidity requirements through funds from operations and investment income from cash and investments in securities.  As of March 31, 2014, we had a current ratio of 10.9  to 1, $899.3 million of cash, cash equivalents, and investments in securities, $2,047.7 million of stockholders' equity and no borrowings.

 

As of March 31, 2014, we had cash, cash equivalents, and short-term and long-term investments in securities of $899.3 million, of which $632.4 million was held outside the U.S.  Liquidity is subject to many factors, such as normal business operations as well as general economic, financial, competitive, legislative, and regulatory factors that are beyond our control.  Cash balances generated and held in foreign locations are used for on-going working capital, capital expenditure needs, and to support acquisitions.  These balances are currently expected to be permanently reinvested outside the U.S.  If these funds were needed for general corporate purposes in the U.S., we would incur significant income taxes to repatriate to the U.S. cash held in foreign locations.  In addition, local government regulations may restrict our ability to move funds among various locations under certain circumstances.  Management does not believe such restrictions would limit our ability to pursue our intended business strategies.

 

Net cash used in operating activities was $70.6 million for the fiscal year ended March 31, 2014, compared to cash provided by operations of $194.8 million for the fiscal year ended March 31, 2013 and $148.4 million for the fiscal year ended March 31, 2012.  During the fiscal year, we made two installment payments with respect to the settlement, approved by the United States District court on September 19, 2013, with the EPA and the Commonwealth of Massachusetts related to the Harbor.  October 18, 2013, we paid the initial settlement installment of $133.4 million, plus accrued interestWe prepaid a second settlement installment of $110.8 million, plus accrued interest on the remaining settlement amount on March 26, 2014.

 

Purchases of property and equipment totaled  $26.8 million in fiscal 2014, $43.7 million in fiscal 2013, and $49.2 million in fiscal 2012.  Expenditures primarily related to expanding the production capabilities of the passive component and interconnect product lines, expanding production capacity in lower cost regions, as well as the implementation of improved manufacturing processes.  We continue to make strategic capital investments in our advanced and specialty passive component and interconnect products and expect to incur capital expenditures of approximately $30 million in fiscal 2015.  The actual amount of capital expenditures will depend upon the outlook for end market demand.

 

On February 6, 2013,  we acquired Asia Tantalum for a net of  $81.2 million in cash.  Asia Tantalum designs, develops, manufactures and markets tantalum electronic components.  Asia Tantalum’s products are used in a broad range of commercial applications. The acquisition enhances our leadership position in the passive electronic component industry and provides further opportunities for expansion in the Asian region and tantalum manufacturing efficiencies.

 

The majority of our funding is internally generated through operations and investment income from cash, cash equivalents, and investments in securities.  We have assessed the condition of the current global credit markets on our current business and believe that, based on our financial condition as of March 31, 2014, 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, pension plan funding, research, development, and engineering expenses, and dividend payments or stock repurchases to be made during the upcoming year.  While changes in customer demand have an impact on our future cash requirements, changes in those requirements are mitigated by our ability to adjust manufacturing capabilities to meet increases or decreases in customer demand.  We do not anticipate any significant changes in our ability to generate cash flows or meet our liquidity needs in the foreseeable future.

 

In fiscal 2012, 2013, and 2014, dividends of $44.2 million, $50.8 million, and $60.3 million, respectively, were paid to stockholders.

 

On October 17, 2007, the Board of Directors of the Company authorized the repurchase of 5,000,000 shares of our common stock.  As of March 31, 2014, there were 4,709,389 shares that may yet be repurchased under this program.

 

We purchased 625,068 shares at a cost of $8.4 million during fiscal 2012,  983,608 shares at a cost of $10.6 million during fiscal 2013, and 799,066 shares at a cost of $10.3 million during fiscal 2014.  The repurchased shares are held as treasury stock and are available for general corporate purposes.

 

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At March 31, 2014, we had contractual obligations for the acquisition or construction of plant and equipment aggregating approximately $9.2 million. 

 

We make contributions to our U.S. and international defined benefit plans as required under various pension funding regulations.  Contributions are based on a percentage of pensionable wages or requirements necessary to satisfy funding obligations.   We made contributions of $9.1 million to our international defined benefit plans during the fiscal year ended March 31, 2014 and estimate that we will make contributions of approximately $9.2 million during the fiscal year ending March 31, 2015.   We have unfunded actuarially computed pension liabilities of approximately $18.8 million related to these defined benefit pension plans as of March 31, 2014.    

 

We are a lessee under long‑term operating leases primarily for office space, plant, and equipment. Future minimum lease commitments under non‑cancelable operating leases as of March 31, 2014, were approximately $28.8 million.

 

From time to time we enter into delivery contracts with selected suppliers for certain metals used in our production processes.  The delivery contracts represent routine purchase orders for delivery within three months and payment is due upon receipt. 

 

We are involved in disputes, warranty, and legal proceedings arising in the normal course of business.  While we cannot predict the outcome of these proceedings, we believe, based upon our review with legal counsel, that none of these proceedings will have a material impact on our financial position, results of operations, 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.

 

We have been identified by the United States Environmental Protection Agency (“EPA”), state governmental agencies or other private parties as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or equivalent state or local laws for clean-up and response costs associated with certain sites at which remediation is required with respect to prior contamination.  Because CERCLA or such state statutes authorize joint and several liability, the EPA or state regulatory authorities 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 activities.  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 we have been named a PRP, we have entered into various administrative orders and consent decrees with federal and state regulatory agencies governing the timing and nature of investigation and remediation.  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 $66.0 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.

 

On April 18, 2012, the EPA issued a Unilateral Administrative Order (“UAO”) directing us to perform certain remedial actions for the harbor clean-up pursuant to the reopener provisions.    

 

On October 10, 2012, the EPA, the United States, and the Commonwealth of Massachusetts and AVX announced that they had reached a financial settlement with respect to the EPA’s ongoing clean-up of the harbor. That agreement is contained in a Supplemental Consent Decree that modifies certain provisions of the 1992 Consent Decree, including elimination of the governments’ right to invoke the clean-up reopener prov