10-K 1 avx20180331_10k.htm FORM 10-K avx20180331_10k.htm
 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

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

For the fiscal year ended March 31, 2018

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to__________

 

Commission File Number: 1-7201

(Exact name of registrant as specified in its charter)

     

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 ☒ No ☐

 

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

Yes ☐    No ☒

 

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 ☒ 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 ☒ 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, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

     

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Based on the closing sales price of $18.23 on September 30, 2017, 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 $847,283,677.

 

As of May 15, 2018, there were 168,512,387 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 2018 Annual Meeting of Stockholders, which will be filed within 120 days of March 31, 2018, are incorporated by reference into Part III.

 

 

 

TABLE OF CONTENTS 

 

Part I

 

Page

     

Item 1.

Business

4

Item 1A.

Risk Factors

12

Item 1B.

Unresolved Staff Comments

19

Item 2.

Properties

20

Item 3.

Legal Proceedings

21

Item 4.

Mine Safety Disclosures

21
     

Part II

   
     

Item 5.

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

22

Item 6.

Selected Financial Data

24

Item 7.

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

25

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 8.

Financial Statements and Supplementary Data

40

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

40

Item 9A.

Controls and Procedures

41

Item 9B.

Other Information

42
     

Part III

   
     

Item 10.

Directors, Executive Officers and Corporate Governance

42

Item 11.

Executive Compensation

42

Item 12.

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

42

Item 13.

Certain Relationships and Related Transactions, and Director Independence

42

Item 14.

Principal Accounting Fees and Services

42
     

Part IV

   
     

Item 15.

Exhibits and Financial Statement Schedules

43

Signatures

45

 

 

 

Cautionary Statement Regarding Forward-Looking Statements

 

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, but not limited to, those contained in “Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures about Market Risk,” or relating to the Company’s 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,” "could," "should," "continue," and “hopes” and variations of such words and similar expressions are intended to identify such forward-looking statements, although not all forward-looking statements contain such language. 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 in connection 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; changes in regulations related to our industry, trade regulations or environmental regulations; 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. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon forward-looking statements as predictions of future events.

 

 

PART I

 

Item 1.

Business

 

General

 

AVX Corporation (together with its consolidated subsidiaries, “AVX” or the “Company”) is a leading worldwide manufacturer, supplier, and reseller of a broad line of electronic components, interconnect, sensing and control devices, and related products. Electronic components and connector, sensing and control products manufactured or resold by AVX are used in many types of end use products, including those in telecommunications, automotive, transportation, energy harvesting, consumer electronics, military/aerospace, medical, computer, and industrial markets.

 

Our electronic component products include ceramic and tantalum capacitors, film capacitors, varistors, filters, passive and active electronic antennas, and other components manufactured in our facilities throughout the world, other manufacturing suppliers and, through March 31, 2018, components manufactured by Kyocera Corporation of Japan (“Kyocera”), a public company and our majority stockholder which owns approximately 72% of our outstanding common stock. We also sell electronic interconnect, sensing and control devices manufactured in our facilities and other manufacturing suppliers.

 

We are organized by product line with five main product groups: Ceramic Components; Tantalum Components; Advanced Components; Interconnect, Sensing and Control Devices; and Kyocera Electronic Devices (“KED”). Our reportable segments are based on the types of products from which we generate revenues and how management assesses performance and makes operating decisions related to these products. We had three reportable segments as of March 31, 2018: Electronic Components; Interconnect, Sensing and Control Devices; and KED Resale. Segment revenue and profit information is presented in Note 16 to the consolidated financial statements. The product groups of Ceramic Components, Tantalum Components and Advanced Components have been aggregated into the Electronic Components reportable segment. The Electronic 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 integrated components, varistors, thermistors, inductors, resistive products, and passive and active electronic antennas manufactured by us or purchased from other manufacturers for resale. The Sensing and Control Devices business acquired during fiscal 2018 has been included in the Interconnect, Sensing and Control Devices segment. The Ethertronics business acquired during fiscal 2018 has been included in the Advanced Components product group within the Electronic Components segment. The reportable segments have been presented in accordance with the United States Securities and Exchange Commission's (the "SEC") aggregation criteria and quantitative thresholds. The aggregation criteria consist of similar economic characteristics, products and services, production processes, customer classes, and distribution channels. Sales and operating results from these reportable segments are shown in the tables below. In addition, we have a corporate administration group consisting of finance, legal, environmental, health & safety (“EH&S”), and administrative functions.

 

Our customers consist of 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 Czechia, France, Germany, India, Israel, Japan, Malaysia, South Korea, the United Kingdom and the United States, although a certain level of innovation occurs at every one of our manufacturing sites. We developed numerous new products and product extensions during fiscal 2018 in addition to those added through our acquisition activity. These new products add to the broad product line we offer to our customers. Our research scientists and design engineers 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 reducing manufacturing costs.

 

 

Providing a Broad Product Line. We believe that the breadth and quality of our product line and our ability to respond quickly to our customers’ design and delivery requirements make us a provider of choice for our multi-national customer base. We differentiate ourselves by providing our customers with a broad line of electronic component and interconnect, sensing and control solutions. This array of products allows our customers to streamline their purchasing and supply organization. Due to our broad product offering, none of our products individually represents a material portion of our revenues.

 

Maintaining the Lowest Cost, Highest Quality Manufacturing Organization. Excluding our acquisition activity, we have invested approximately $215 million over the past three fiscal years to upgrade and enhance our worldwide manufacturing facilities and capabilities with respect to the manufacture of ceramic, tantalum, and advanced components as well as interconnect, sensing and control devices. In order to reduce the cost of production, our strategy has included the transfer to, and expansion of, manufacturing operations in countries such as China, Czechia, El Salvador, India, Malaysia, Mexico, Romania, and Vietnam.

 

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 global customers. We provide enhanced services and responsiveness to our customers by maintaining significant manufacturing and warehouse operations in regions where we market the majority of our products. As of March 31, 2018, we had 33 manufacturing facilities located in 16 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 electronic component products providing passive and active component solutions for our customers. Passive electronic components do not require power to operate. Such components adjust and regulate voltage and current, store energy, and filter frequencies. Active electronic components, which include amplifying components such as our active antenna components, require power in some way to make them function. In fiscal 2018, sales of Electronic Components represented approximately 60% of our net sales, Interconnect, Sensing and Control Devices, together with KCP Resale Connectors, represented approximately 23% of our net sales, and KDP and KCD Resale represented approximately 17% of our net sales. The table below presents revenues for fiscal 2016, 2017 and 2018 by product group. Financial information concerning our Electronic Components, Interconnect, Sensing and Control Devices, and KED Resale segments is set forth in Note 16 to the consolidated financial statements included elsewhere herein.

 

 

 

   

Fiscal Year Ended March 31,

 

Sales revenue (in thousands)

 

2016

   

2017

   

2018

 

Ceramic Components

  $ 176,502     $ 188,568     $ 226,204  

Tantalum Components

    311,888       314,723       366,194  

Advanced Components

    333,693       372,279       346,459  

Total Electronic Components

    822,083       875,570       938,857  

Interconnect, Sensing and Control Devices

    111,609       118,163       327,301  

KCP Resale Connectors

    23,751       30,027       36,090  

KDP and KCD Resale

    238,086       288,901       260,226  

Total KED Resale

    261,837       318,928       296,316  

Total Revenue

  $ 1,195,529     $ 1,312,661     $ 1,562,474  

 

Electronic Components

 

Our strategic focus on the growing use of electronic components is reflected in our investment, excluding the cost of business acquired, of approximately $149 million in facilities and equipment used to manufacture electronic components during the past three fiscal years. Electronic Components accounted for approximately 60% of our net sales in fiscal 2018. We believe that sales of electronic components will continue to expand in the worldwide electronics market because technological advances in the markets that we serve have been constantly expanding the number and type of applications for these products.

 

 

We manufacture and resell a broad line of ceramic and tantalum electrolytic capacitors in many different sizes and configurations. Tantalum and ceramic components are commonly used in conjunction with integrated circuits and are best suited for applications requiring low to medium capacitance values. However, with current capacitance range extensions, we are seeing more demand for higher capacitance (“High CV”) products that increase the demand for certain products we sell. 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 63% of our Electronic Component segment net sales in fiscal 2018.

 

We also manufacture and resell a broad line of advanced electronic components to fill the special needs of our customers. Our family of advanced components includes specialized ceramic, tantalum and film capacitors, high energy/voltage power capacitors, passive and active antennas and varistors. Our advanced product 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 electronic components accounted for approximately 37% of Electronic Component segment net sales in fiscal 2018.

 

Interconnect, Sensing and Control

 

We manufacture and resell high-quality electronic connectors, interconnect systems, and sensing and control devices 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 Interconnect, Sensing and Control products is the automotive market, with applications throughout a vehicle, including engine control, transmission control, audio, brakes, lighting, 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, LCD, and medical devices and hardware markets. Excluding acquisition related spending, we have invested approximately $61 million in facilities and equipment over the past three years, as we continue to focus on new product development and enhancement of production capabilities for our Interconnect, Sensing and Control business. Sales of Interconnect, Sensing and Control products, including KCP Resale connector products, accounted for approximately 23% of net sales in fiscal 2018. Approximately 10% of combined Interconnect, Sensing and Control and KCP Resale connector net sales in fiscal 2018 consisted of connectors manufactured by Kyocera. See below “AVX and Kyocera – Resale Sales Channel Changes” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Relationship with Kyocera and Related Transactions” for additional information regarding the Company’s relationship with Kyocera.

 

KED Resale

 

We had a non-exclusive license to distribute and sell select Kyocera-manufactured electronic component and connector products to our customers in certain geographical regions outside of Japan that terminated on January 1, 2018. The Kyocera KDP, KCP and KCD electronic components we marketed and sold included ceramic capacitors, RF modules, frequency control devices, SAW devices, sensor products, actuators, and acoustic devices. Sales of these products accounted for approximately 19% of net sales in fiscal 2018. For additional information regarding the Company’s relationship with Kyocera see below “AVX and Kyocera – Resale Sales Channel Changes” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Relationship with Kyocera and Related Transactions.”

 

AVX and Kyocera – Resale Sales Channel Changes

 

In December 2016, Kyocera notified AVX pursuant to the Products Supply and Distribution Agreement of its intent, effective January 1, 2018, to market its manufactured electronic and interconnect products globally using Kyocera’s sales force rather than continuing to have AVX resell such products in the Americas, Europe and Asia. Kyocera will pay commissions to AVX on sales by Kyocera, in the applicable territories, of products designed into customer applications by AVX prior to January 1, 2018 of 2.0% in calendar year 2018, 1.5% in calendar year 2019, and 1.0% in calendar year 2020. Sales of Kyocera resale products by AVX were $296.3 million and related operating profit was $18.2 million for the fiscal year ended March 31, 2018.

 

 

In February 2017, AVX notified Kyocera pursuant to the Products Supply and Distribution Agreement of its intent, effective April 1, 2018, to market its manufactured products in Japan using AVX’s sales force rather than continuing to have Kyocera resell such products in this territory. AVX will pay commissions to Kyocera on sales by AVX, in the applicable territory, of products designed into customer applications by Kyocera prior to April 1, 2018 of 2.0% in fiscal year 2019, 1.5% in fiscal year 2020, and 1.0% in fiscal year 2021. Sales of AVX resale products by Kyocera were $21.9 million for the fiscal year ended March 31, 2018.

 

Marketing, Sales, and Distribution

 

We place a high priority on solving customers’ electronic component design challenges and responding to their needs. In order 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. We expense costs related to these activities as incurred.

 

Approximately 26%, 37%, and 37% of our net sales for fiscal 2018 were to our customers in the Americas, Europe, and Asia, respectively. Financial information for these geographic regions is set forth in Note 16 to our consolidated financial statements included elsewhere herein. The section “Risk Factors,” contained herein, provides a discussion of risks associated with our non-U.S. operations.

 

We market our products worldwide through 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.

 

Our customers use our products in a wide variety of applications. In order to maximize growth 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 products. During the fiscal years ended March 31, 2016, March 31, 2017 and March 31, 2018, no single customer accounted for more than 10% of our sales. As of March 31, 2017 and March 31, 2018, one customer represented 12% and 8%, respectively, of the Company’s accounts receivable balance. Because we are a supplier to several significant manufacturers across a broad-base of 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 U.S. and non-U.S., foreign military specifications.

 

Typically, independent electronic component and interconnect device distributors handle a wide variety of products and fill orders for many customers. The sales terms under non-exclusive agreements with independent electronic component and interconnect device distributors may vary by distributor and by geographic region. 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 qualified inventory semi-annually, for credit 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 we may grant pricing adjustments 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 of 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 the amount of product ordered or shipped. Our agreements with independent electronic component and interconnect device distributors generally also require that we repurchase qualified inventory from the distributor in the event that we terminate the distributor agreement or discontinue a particular product offering.

 

We had a backlog of orders of approximately $224 million at March 31, 2016, $280 million at March 31, 2017, and $535 million at March 31, 2018. 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, product delivery lead times in the industry, and the completion of acquisitions. Accordingly, the backlog outstanding at any point in time is not necessarily indicative of the level of business 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 Czechia, France, Germany, India, Israel, Japan, Malaysia, South Korea, the United Kingdom and the United States, although a certain level of innovation occurs at all of our manufacturing sites.

 

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 components for applications requiring reduced size and lower manufacturing costs associated with circuit board assembly. Research, development, and engineering expenditures were approximately $28 million, $31 million, and $42 million during fiscal 2016, 2017, and 2018, respectively. The 2018 expenditures include the impact of the two businesses acquired during the year. 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 no individual patent or family of patents is material to the successful operation of our business. For discussion regarding our licensing arrangement with Kyocera, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Relationship with Kyocera and Related Transactions.”

 

Raw Materials

 

The costs of our products are influenced by a wide variety of raw materials, including tantalum and other minerals such as platinum, palladium, silver, nickel, gold, and copper as well as other chemicals and chemical mixes used in our manufacturing processes. The costs of these materials are subject to significant price fluctuation as well as occasional shortages. In some cases, raw materials cost increases may be offset by selling price increases, productivity improvements, and cost savings programs.

 

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. We purchase tantalum raw materials as well as processed powder and wire 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, at times, led to higher prices during periods of increased demand and/or limited mining output.

 

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. Historically, we had a policy of not using tantalum sourced from the conflict areas of the Democratic Republic of Congo (“DRC”), or any other area in which insurgents or similar groups benefit from the sale of minerals. As a key participant in Solutions for Hope, AVX was the first in its industry to validate a “closed tantalum pipe” process from the mine site to the customer. Furthermore, the “closed pipe” was validated under the Conflict-Free Smelter program in accordance with the principles of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank" Act) and the current Organization for Economic Cooperation and Development (“OECD”) guidelines. During 2017 and in the spirit of continuous improvement envisioned and enshrined by the OECD Due Diligence guidance, AVX continued to improve supply chain sustainability and reduce compliance cost by field-testing a new alternate traceability platform (“BSP”) and proof of concept of a geological science technique for mineral matching (Geological Passporting) in the DRC region. The result of the BSP pilot demonstrated that a new compliance model is possible using technology for the reporting, analysis, chain of custody and Geo Passporting for validation. AVX has obtained the patent for this technology and invested in equipment at its facility, thus mitigating supply chain risk by reducing cost and time required to validate the minerals and deliver them for manufacturing. Please refer to the Solutions for Hope website for more information.

 

Since December 2011, AVX has only sourced tantalum powder and wire used in its tantalum capacitors from smelters that are compliant with the RBA/GeSI conflict-free smelter program. In 2012, AVX began using Validated Conflict-Free Tantalum, which comes from verified sources in the DRC and surrounding countries. AVX also observes the rules for other conflict minerals governed by the Dodd-Frank Act (tin, tungsten, and gold). AVX has implemented a Due Diligence Policy on Conflict Minerals, and actively engages in industry initiatives, including the Responsible Sourcing Initiative (“RMI”), the ITRI Tin Supply Chain Initiative (“iTSCi”), and the Tantalum-Niobium International Study Center (“TIC”). AVX’s program for conflict minerals compliance has been independently audited as required by SEC rules annually since 2015. Further details of this effort are available in AVX’s annual Form SD filings under the Dodd-Frank Act at www.sec.gov.

 

 

Our continued efforts affirm our commitment to supply conflict-free minerals to our customers and to comply fully with the OECD guidelines and SEC regulations.

 

Competition

 

Markets for our products are highly competitive. We encounter aggressive and able competition in our various product lines from many domestic and non-U.S. 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 electronic components and interconnect, sensing and control devices available from any one source.

 

Employees

 

As of March 31, 2018, we employed approximately 14,920 full-time employees. Approximately 1,430 of these employees are employed in the United States, of which, approximately 110 are covered by collective-bargaining arrangements. In addition, some non-U.S. 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.

 

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, storage 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 to 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 compliance with applicable environmental laws and regulations.

 

We have been identified by the United States Environmental Protection Agency (“EPA”), state governmental agencies or other private parties as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), or equivalent non-U.S., 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 non-U.S. and state statutes authorize joint and several liability, the 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.

 

 

On June 3, 2010, AVX entered into an agreement with the EPA and the City of New Bedford, pursuant to which AVX is required to perform environmental remediation at a site referred to as the “Aerovox Site” (the “Site”), located in New Bedford, Massachusetts. AVX has substantially completed its obligations pursuant to such agreement with the EPA and the City of New Bedford with respect to the satisfaction of AVX’s federal law requirements. The Massachusetts Department of Environmental Protection has jurisdiction over the balance of the environmental remediation at the Site. AVX has submitted its proposed remedy, but until the state has approved such proposal, AVX cannot determine if additional groundwater and soil remediation will be required, if substantial material will have to be disposed of offsite, or if additional remediation techniques will be required, any of which could result in a more extensive and costly plan of remediation. Further, the Site and the remediation may be subject to additional scrutiny under other statutory procedures which could also add to the cost of remediation. We have a remaining accrual of $14.2 million at March 31, 2018, representing our current estimate of the potential liability related to the remaining performance of environmental remediation actions at the Site and neighboring properties using certain assumptions regarding the plan of remediation. Until all parties agree and remediation is complete, we cannot be certain there will be no additional cost relating to the Site.

 

We had total reserves of approximately $19.2 million and $18.6 million at March 31, 2017 and March 31, 2018, respectively, related to various environmental matters and sites, including those discussed above. These reserves are classified in the Consolidated Balance Sheets as $3.9 million and $3.3 million in accrued expenses at March 31, 2017 and March 31, 2018, respectively, and $15.3 million in other non-current liabilities at both March 31, 2017 and March 31, 2018. The amounts recorded for identified environmental liabilities are based on estimates. Periodically, we review amounts recorded and adjust them based upon additional legal and technical information that becomes available. 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.

 

On April 19, 2016, the Canadian Ministry of the Environment and Climate Change (the “MoE”) issued a Director’s Order naming AVX Corporation, and others, as responsible parties with respect to a location in Hamilton, Ontario that was at one time the site of operations of Aerovox Canada, a former subsidiary of Aerovox Corporation, a predecessor of AVX. This Director’s Order follows a draft order issued on November 4, 2015. AVX has taken the position that any liability of Aerovox Canada for such site under the laws of Canada cannot be imposed on AVX. At present, it is unclear whether the MoE will seek to enforce such Canadian order against AVX, or one of the other responsive parties will initiate a private suit, and whether, in such an event, AVX will have any liability under applicable law. AVX intends to contest any such course of action that may be taken by the MoE.

 

We also operate, or did at one time, on other sites that may have potential future environmental issues as a result of activities at sites during AVX’s long history of manufacturing operations or prior to the start of operations by AVX. Even though we may have rights of indemnity for such environmental matters at certain sites, regulatory agencies in those jurisdictions may require us to address such issues. Once it becomes probable that we will incur costs in connection with remediation of a site and such costs can be reasonably estimated, we establish reserves or adjust our reserves for our projected share of these costs. A separate account receivable is recorded for any indemnified costs. Our environmental reserves are not discounted and do not reflect any possible future insurance recoveries, which are not expected to be significant, but do reflect a reasonable estimate of cost sharing at multiple party sites or indemnification of our liability by a third party.

 

We are not involved in any pending or threatened environmental 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 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. New environmental regulations may be enacted 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 SEC’s 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. In addition, 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 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 including, but not limited to 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 “Investors,” then to “SEC Filings.”

 

The following corporate governance related documents, as well as others, are also available free of charge 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 and select “About,” followed by “Corporate Information,” and then “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. Each officer holds office until the next annual appointment of officers or until a successor has been duly appointed and qualified, or until the officer’s 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 Sarvis

 

68

 

Chief Executive Officer and President

Jeffrey Schmersal

 

49

 

Chief Operating Officer

Kurt P. Cummings

 

62

 

Executive Vice President, Chief Financial Officer, and Treasurer

John Lawing

 

67

 

Senior Vice President and Chief Technology Officer

S. Willing King

 

55

 

Senior Vice President of Tantalum Products

Eric Pratt

 

58

 

Senior Vice President of Marketing

Evan Slavitt

 

60

 

Senior Vice President, General Counsel, and Corporate Secretary

Steven Sturgeon

 

49

 

Senior Vice President of Connector Products

Peter Venuto

 

65

 

Senior Vice President of Corporate Development

 

John Sarvis

 

Chief Executive Officer and President since April 2015. Chairman of the Board since 2016. Vice President of Ceramic Products from 2005 to 2015. Divisional Vice President – Ceramics Division from 1998 to 2005. Prior to 1998, held various Marketing and Operational positions. Employed by the Company since 1973.

 

Jeffrey Schmersal

 

Chief Operating Officer since April 2018. Senior Vice President since 2017. Divisional Vice President of Specialty Products from 2014 to 2017. Global Business Manager of various product groups from 2006 to 2014. Prior to 2006, held various Quality and Supply Chain positions. Employed by the Company since 1994.

 

Kurt P. Cummings

 

Executive Vice President since 2016. Chief Financial Officer and Treasurer since 2000. Senior Vice President from 2015 to 2016. Vice President from 2000 to 2015. Corporate Secretary from 1997 to 2016. Corporate Controller from 1992 to 2000. Prior to 1992, Partner with Deloitte & Touche LLP.

 

 

John Lawing

 

Senior Vice President and Chief Technology Officer since 2015. Vice President and Chief Technology Officer from April 2014 to 2015. 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.

 

S. Willing King

 

Senior Vice President of Tantalum Products since 2015. Vice President of Tantalum Products from 2013 to 2015. Deputy General Manager of Tantalum Products from 2012 to 2013. Vice President of Product Marketing from 2004 to 2012. Director of Product Marketing from 2000 to 2004. Prior to 2000, held positions in Technical Service, Sales, and Marketing. Employed by the Company since 1984.

 

Eric Pratt

 

Senior Vice President of Marketing since April 2017. Vice President of Kyocera Electronic Devices from 2015 to April 2017. Director of Marketing for Kyocera International Inc. from 2013 to 2015. Prior to 2013, held multiple positions in Sales and Marketing for the Company over 16 years.

 

Evan Slavitt

 

Senior Vice President, General Counsel and Secretary since 2016. Vice President of Business and Legal Affairs from 2007 to 2016. Trial lawyer in private practice in Massachusetts from 1987 to 2006. Assistant United States Attorney for the District of Massachusetts from 1983 to 1987. Trial Attorney with the Antitrust Division of the U.S. Department of Justice from 1981 to 1983.

 

Steven Sturgeon

 

Senior Vice President of Connector Products since April 2017. Divisional Vice President of Connector Products from 2015 to April 2017. Director of Corporate Strategic Planning from 2013 to 2015. Engineering Manager Corporate Strategic Planning from 2011 to 2013. Prior to 2011, held various Engineering and Operational positions. Employed by the company since 1995.

 

Peter Venuto

 

Senior Vice President of Corporate Development since May 2018. Senior Vice President of Sales since 2015. Vice President of Sales from 2009 to 2015. 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 to 2000. Director of Strategic Accounts from 1990 to 1997. Director of Business Development from 1987 to 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 us 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 affect 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, in the past, resulted in, and may in the future result in, significant fluctuations in demand for our products, selling prices, and our profitability. Most of our customers operate in cyclical industries. Their requirements for electronic components and interconnect, sensing and control devices fluctuate significantly as a result of changes in general economic conditions, technological changes, customer demand, and other factors. During periods of increasing demand, our customers 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 affect our unit manufacturing costs and affect 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.

 

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

 

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 operating cost regions we have incurred restructuring costs in the past and are likely to incur restructuring costs in the future in response to competitive pressures. 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 sales levels, financial condition, and operating results.

 

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

 

Our strategy is aimed at achieving significant production cost savings through the transfer to and expansion of manufacturing operations in countries with lower operating costs, such as China, Czechia, El Salvador, India, Malaysia, Mexico, Romania, and Vietnam. During this process, we may experience under-utilization of certain 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 overall 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 due to lay-offs or termination of our employees in higher-cost countries.

 

Our global operations subject us to many different and complex laws and rules

 

Due to our global operations, we are subject to many laws governing international relations (including but not limited to the Foreign Corrupt Practices Act, the U.S. Export Administration Act the EU General Data Protection Regulation, and the U.K. Modern Anti-Slavery 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, what personal information we can transfer, 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. Acquisitions of new businesses in new non-U.S. jurisdictions may also subject us to new regulations and laws, and we may face difficulties ensuring compliance with these new requirements.

 

 

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 may not have adequate facilities to satisfy future increases in demand for our products

 

Our business is cyclical and in periods of a rising economy, we may experience intense demand for our products. During such periods, we may have difficulty expanding our manufacturing to satisfy demand. Factors that could limit such expansion include delays in procurement of manufacturing equipment, shortages of skilled personnel, physical constraints on expansion of our facilities, and shortages from our suppliers. If we are unable to meet our customers' requirements and our competitors sufficiently expand production, we could lose customers and/or market share. These losses could have an adverse effect on our financial condition and results of operations. Also, capacity that we add during upturns in the business cycle may result in excess capacity during periods when demand for our products recedes, resulting in inefficient use of capital which could also adversely affect us.

 

If we are unable to attract and retain qualified personnel, especially our design and technical personnel, we may not be able to execute our business strategy effectively.

 

Our future success depends on our ability to retain, attract and motivate qualified personnel, including our management, sales and marketing, finance, and especially our design and technical personnel. As the source of our technological and product innovations, our design and technical personnel represent a significant asset. Any inability to retain, attract or motivate such personnel could have a material adverse effect on our business and results of operations.

 

We must continue to develop new products and technology to remain competitive

 

Many of the fundamental technologies used in the electronics industry have been available for a long time. The market is subject to rapid changes in product designs and technological advances 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 address 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 changing customer specifications. Non-customized commodity products are especially vulnerable to price pressure, but customized products have also experienced selling price pressure over time. We have traditionally addressed 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.

 

In addition to our own research and development initiatives, we may invest in technology start-up enterprises, in which we may acquire a controlling or non-controlling interest but whose technology would be available to be commercialized by us. There are numerous risks in investments of this nature, including the limited operating history of such start-up entities, their need for capital, their limited or absence of production experience, as well as the risk that their technologies may prove ineffective or fail to gain acceptance in the marketplace. There can be no assurance that our current and future investments in start-up enterprises will prove successful.

 

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 increased 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 sales margins for the products in which they are used. For periods in which sales margins are declining, we may be required, as has occurred in the past, to write down our inventory carrying cost of these raw materials and products. Depending on the extent of the difference between market price and our carrying cost, the write-down could have a significant adverse effect on our results of operations.

 

 

We resell products manufactured by other component and interconnect product manufacturers. Should these manufacturers experience difficulties 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 because 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 or source 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 products 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 includes growth through acquisitions, which may involve significant risks

 

From time to time, we 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 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; (9) future impairments of goodwill and other intangible assets of an acquired business; (10) unanticipated legal and regulatory issues in the jurisdictions of the acquired business; (11) liabilities for activities of the acquired businesses, including environmental, tax, and other known and unknown liabilities; and (12) additional costs related to plant closures, employee terminations, etc. could be incurred to create operating inefficiencies for AVX and a newly acquired entity.

 

Changes in our environmental liability and compliance obligations may adversely affect 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, or did at one time, at sites that may have potential future environmental issues as a result of activities at such 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 reasonably estimated. Nevertheless, there can be no assurance we will not be obligated to address environmental matters that could have a material adverse impact on our operations or financial condition. In addition, new environmental regulations may be enacted 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 compliance obligations may adversely affect our operations

 

The Dodd-Frank Act, signed into law on July 21, 2010, includes Section 1502, which required 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. The SEC issued a final rule on August 22, 2012. The minerals 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. We have incurred and will continue to incur additional costs to comply with these 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.

 

Historically, and 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 continue to conduct extensive supply chain investigations to reduce risk and support supply chain sustainability in the region using the OECD guiding principles. AVX was the first in its industry to validate a “closed tantalum pipe” process, assuring all tantalum products contain only tantalum from smelters that have been independently verified under the Conflict Free Smelter program 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 RBC/GeSI conflict-free smelter program. In 2012, AVX began using Validated Conflict-Free Tantalum, which comes from verified sources in the DRC and surrounding countries. During 2016 and in the spirit of continuous improvement envisioned and enshrined by the OECD Due Diligence guidance, AVX continues to improve supply chain sustainability and reduce compliance cost by field-testing a new alternate traceability platform (“BSP”) and proof of concept of a geological science technique for mineral matching (Geological Passporting) in the DRC region. The result of the BSP pilot demonstrated that a new compliance model is possible using technology for the reporting, analysis, chain of custody and Geo Passporting for validation. Please refer to the Solutions for Hope website for more information.

 

Our continued efforts affirm our commitment to supply products with conflict-free minerals to our customers and to comply fully with the OECD guidelines and SEC regulations. The implementation of Rule 1502 has not had a material adverse effect on our ability to source raw materials or manufacture products containing the “3TG” metals. We filed our most recent Form SD with the SEC on May 25, 2017.

 

We use significant amounts of electrical energy and processed ores in our production processes. 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 changes in response to the potential impacts of climate change that would limit and reduce greenhouse gas emissions. 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 our operations are highly uncertain, and will be particular to the geographic circumstances. These effects may adversely influence the cost, production, and financial performance of our operations.

 

The European Union has adopted Regulation 2016/679 of the European Parliament and of the Council on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (General Data Protection Regulation) (“GDPR”), which will become effective on May 25, 2018. Other nations are similarly enacting new or updated privacy laws and regulations. It is still unclear how these privacy laws will impact our operations, but we expect that substantial resources will be required to conform our operations to comply with these laws.

 

Brexit adds additional uncertainty in one of our key markets

 

On June 23, 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the E.U., commonly referred to as “Brexit” and the U.K. Prime Minister has delivered a notice of withdrawal to the E.U. As a result, the British government is negotiating the terms of the U.K.’s future relationship with the E.U.  Although it is unknown what those terms will be, it is possible that there will be greater restrictions on imports and exports between the U.K. and E.U. countries and increased regulatory complexities. These changes may adversely affect our operations and financial results.

 

 

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 affect our sales, gross margins, and stockholders’ equity both positively and negatively. 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.

 

A significant portion of our cash, cash equivalents, and short-term investments are held by our non-U.S. subsidiaries

 

We generate a significant amount of cash and profits from our non-U.S. subsidiaries. Approximately 71% of our cash and investment securities are held by our foreign subsidiaries.

 

The Tax Cuts and Jobs Act (“TCJA”), enacted on December 22, 2017, transitions the U.S. from a worldwide tax system to a territorial tax system. Under previous law, companies could indefinitely defer U.S. income taxation on unremitted foreign earnings. The TCJA imposes a one-time transition tax on deferred foreign earnings of 15.5% for liquid assets and 8% for illiquid assets, payable in defined increments over eight years. As a result of this requirement, we expect to pay approximately $75.7 million over an eight year period, net of estimated applicable foreign tax credits.

 

As a result, previously deferred foreign earnings may now be repatriated to the United States without additional U.S. federal taxation. However, any such repatriation could incur withholding and other foreign taxes in the source and intervening foreign jurisdiction.

 

Our operating results may be adversely affected by non-U.S. 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, changes in trade, import or export laws and regulations, 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.

 

In addition to specific country risks, our operations and sales are dependent on an integrated global operation. As a result, disruptions resulting from inter-governmental trade disputes, imposition of tariffs, imposition of trade sanctions, and direct conflict in locations such as the Korean peninsula could adversely affect our operations, growth, or profitability.

 

Our products are subject to stringent specifications and operating tolerances

 

All of our products are built to specifications and tested 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.

 

Our ability to maintain our competitiveness depends, in part, on our maintaining the proprietorship of our technology

 

We will protect our proprietary rights as long as our proprietary technologies are maintained as trade secrets or are covered by recognized patents. We properly apply for, and will continue to apply for, patents covering our technologies. However, each patent application may not result in a successful patent issuance and competitors may develop similar, alternative, or new technologies, which reduce the positive impact of our patents. In addition, competitors may challenge our patents, as has happened in the past, or seek to invalidate them, or operate in certain countries who do not recognize our legal patent rights. The protection of intellectual property involves multiple legal and factual issues, which makes the process difficult and potentially expensive.

 

 

We will vigorously defend our patent and intellectual property rights and may be involved in future litigation alleging our infringement of such rights from others. We may seek various remedies to resolve these claims, including the offering or purchasing of licenses in an acceptable manner. An unfavorable outcome regarding these rights could have an adverse effect on our business and 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, poor 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.

 

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 and 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. In some cases, we have master netting agreements that help reduce the risk of counterparty exposures. We do not hold or issue derivative financial instruments for trading or speculative purposes. Nevertheless, 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 that could have an adverse effect on our financial condition and operating results.

 

Returns on pension and retirement plan assets and interest rate changes could affect our operating results

 

The funding position of our defined benefit pension plans is influenced 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 affected the value of the assets in our defined benefit pension plans. In addition, lower discount rates for actuarial purposes may result in increased pension contributions and expense.

 

Funding obligations are generally determined under government regulations and measured periodically based on the value of the assets and liabilities determined on a specific date. If the financial markets do not provide the expected long-term returns, 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 at any 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 liabilities 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 sheet.

 

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 provisions for certain foreign and domestic 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 foreign tax authorities regarding the amount of taxes due. These challenges may result in adjustments to 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 influence 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 affect 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 resulting in an increase in our effective tax rate and have an adverse impact on future operating results.

 

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 and we could incur significant costs and reputational harm as a result

 

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 us globally have been in place for many years and not all hardware and software is currently supported by vendors. These information technology systems are 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 affected, and we could experience delays in reporting our financial results.

 

Third-party service providers, such as distributors, subcontractors, vendors, and data processors have access to certain portions of our sensitive data. In the event that these service providers do not appropriately protect our data, the result could be a security breach or loss of our data. Any such loss of data by our third-party service providers could have a material adverse impact on our business and results of operations.

 

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.

 

We are also in the process of converting certain information technology networks and systems and consolidating certain global systems. If such projects fail, or if unexpected technical difficulties arise, our operations and financial systems could be adversely affected. Further, we could incur additional costs or require additional technical support to resolve such difficulties.

 

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

 

The following factors beyond our control could adversely affect 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.

 

 

Regional conflicts or actions, including, but not limited to, armed conflict and trade wars that could affect our, or our customer's or vendor's, production and delivery capabilities.

 

 

Unforeseen interruptions to our business with our significant customers and suppliers resulting from labor strikes, financial instabilities, computer malfunctions, environmental disruptions, natural disasters, inventory excesses or other unforeseen events or circumstances.

 

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.

 

 

 

Item 2.

Properties

 

Our fixed assets include manufacturing plants, warehouses, and machinery and equipment. In many instances, the machinery and equipment have been manufactured to our specifications and/or have 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. Excluding acquisition related spending, our capital expenditures for plant and equipment were $48.1 million in fiscal 2016, $66.3 million in fiscal 2017 and $100.5 million in fiscal 2018.

 

We believe that our facilities are suitable and adequate for the business conducted therein and are being utilized appropriately 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 construct, acquire, or lease additional facilities and/or dispose of existing facilities.

 

AVX manufactures products worldwide to support the Commercial, Automotive, Aerospace, Medical, and other markets. The appropriate ISO standard based on market requirements are in place and include but are not limited to ISO9001, AS9100 and ISO13485.

 

Virtually all of our manufacturing, research and development, and warehousing facilities could at any time be involved in the manufacturing, sale, or distribution of electronic components, interconnect, sensing and control device products or resale products. The following is a list of our significant facilities and related information.

 

Location

Approximate

Square Footage

 

Type of

Interest

 

Description of Use

UNITED STATES

 

 

 

 

 

Fountain Inn, SC

370,000

 

Owned

 

Headquarters/Manufacturing/Warehouse/Research

Biddeford, ME

72,000

 

Owned

 

Manufacturing

Huntington Station, NY

73,600

 

Owned

 

Manufacturing/Research

Jacksonville, FL

100,000

 

Owned

 

Manufacturing

Myrtle Beach, SC

150,000

 

Owned

 

Manufacturing

 

 

 

 

 

 

NON U.S.

 

 

 

 

 

Salzburg, Austria

80,800

 

Owned

 

Warehouse/Research/Development

Tianjin, China

520,000

 

Owned

 

Manufacturing

Bzenec, Czechia

200,000

 

Owned

 

Manufacturing

Lanskroun, Czechia

542,000

 

Owned

 

Manufacturing/Research

Uherske Hradiste, Czechia

336,000

 

Owned

 

Manufacturing

San Salvador, El Salvador

420,000

 

Owned

 

Manufacturing

Saint-Apollinaire, France

322,000

 

Leased

 

Manufacturing/Research

Betzdorf, Germany

111,000

 

Owned

 

Manufacturing

Werne, Germany

192,000 

 

Owned

 

Manufacturing/Research/Development

Jerusalem, Israel

88,000

 

Leased

 

Manufacturing/Research

Adogawa, Japan

206,000

 

Owned

 

Manufacturing/Research/Warehouse

Penang, Malaysia

190,000

 

Owned

 

Manufacturing/Research

Juarez, Mexico

218,000

 

Owned

 

Manufacturing

Coleraine, N. Ireland

185,000

 

Owned

 

Manufacturing/Research

Timisoara, Romania

172,400

 

Leased

 

Manufacturing/Warehouse

Bac Ninh, Vietnam

108,500

 

Leased

 

Manufacturing/Administration

 

In addition to the foregoing, we have many other less significant manufacturing, research, warehouse, sales office, and administrative office locations throughout the world. 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. Business" elsewhere in this Form 10-K for a discussion of our involvement as a PRP at certain environmental clean-up sites.

 

On April 25, 2013, 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 alleged that certain AVX products infringe on one or more of six Greatbatch patents. On January 26, 2016, the jury returned a verdict in favor of the plaintiff in the first phase of a segmented trial and a mixed verdict in the second phase of a segmented trial, and found damages to Greatbatch in the amount of $37.5 million. The damages award was later vacated by the court on March 30, 2018.  Profit from operations for the year ended March 31, 2018 reflects a favorable accrual adjustment of $1.5 million related to this patent infringement case.  The amount of damages will be subject to further legal proceedings including a potential trial on damages, which we would expect to occur in fiscal 2019. AVX is continuing to litigate the case.

 

On September 2, 2014, a subsidiary of AVX, American Technical Ceramics (“ATC”), was named as a defendant in a patent infringement case filed in the United States District Court of the Southern District of California captioned Presidio Components, Inc. v. American Technical Ceramics Corp. This case alleged that certain ATC products infringe on a Presidio patent. On April 18, 2016, the jury returned a verdict in favor of the plaintiff and found damages to Presidio. On August 17, 2016, the court issued a permanent injunction prohibiting ATC from manufacturing or selling the related products after November 16, 2016. Subsequently, on October 21, 2016, the Federal Circuit Court granted AVX’s request for a stay of the permanent injunction whereby ATC was allowed to continue to sell the disputed product until March 17, 2017 to anyone who was a customer prior to June 17, 2016. Any sales subsequent to November 16, 2016 pursuant to the stay of the permanent injunction were subject to court mandated intellectual property damages for each product sold. In December, 2017, a panel of the Federal Circuit vacated the damage award to Presidio, vacated the injunction, and remanded the case for further proceedings to determine damages limited to “reasonable royalties” and to reconsider the requested injunction in light of its opinion and any additional facts.

 

As of March 31, 2018, we had total reserves of $76.5 million plus accrued interest in accrued expenses with respect to the two intellectual property cases discussed above. The amounts recorded are based on estimated outcomes. Amounts recorded are reviewed periodically and adjusted to reflect additional information that becomes available. Accordingly, the actual costs related to these cases could differ from our current estimates.

 

During calendar year 2014, AVX was named as a co-defendant in a series of cases filed in the United States and in the Canadian provinces of Quebec, Ontario, British Columbia, Saskatchewan and Manitoba alleging violations of United States, state and Canadian antitrust laws asserting that AVX and numerous other companies were participants in alleged price-fixing in the capacitor market. The cases in the United States were consolidated into the Northern District of California on October 2, 2014. Some plaintiffs have broken off from the United States class action and filed actions on their own, although AVX is not named in all of these independent actions. The cases in Canada have not been consolidated. All of these cases are still in progress. AVX believes it has meritorious defenses and intends to vigorously defend the cases.

 

We are involved in other disputes, warranty claims, and legal proceedings arising in the normal course of business. While we cannot predict the outcome of these other disputes and proceedings, we believe, based upon a review with legal counsel, that none of these other disputes or proceedings will have a material impact on our financial position, results of operations, comprehensive income (loss), or cash flows. However, we cannot be certain of the eventual outcome in these or other matters that may arise and their potential impact on 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 Registrant’s 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 15, 2018, there were 282 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, 2017 and March 31, 2018. Future dividends, if any, will be determined by the Company’s Board of Directors and may depend on the Company’s future profitability and anticipated operating cash requirements.

 

 

 

   

Common Stock Price Range

   

Dividends Declared

 
   

2017

   

2018

   

Per Share

 
   

High

   

Low

   

High

   

Low

   

2017

   

2018

 

First Quarter

  $ 14.24     $ 11.77     $ 17.72     $ 15.85     $ 0.105     $ 0.110  

Second Quarter

    14.14       13.04       18.44       16.12       0.105       0.110  

Third Quarter

    16.07       13.58       20.22       16.92       0.110       0.115  

Fourth Quarter

    16.65       15.38       19.55       16.25       0.110       0.115  

 

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

 

The American Stock Transfer and Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

1-718-921-8300

 

 

Stock Performance Graph

 

The following chart shows, from the end of fiscal year 2013 to the end of fiscal year 2018, 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 two companies whose businesses are representative of our business segments. The companies in the peer group are Kemet Corporation and Vishay Intertechnology, Inc.

 

Cumulative Total Return

 
   

3/31/13

   

3/31/14

   

3/31/15

   

3/31/16

   

3/31/17

   

3/31/18

 

AVX - NYSE

  $ 100     $ 114     $ 127     $ 115     $ 155     $ 161  

S & P 500

  $ 100     $ 122     $ 137     $ 140     $ 164     $ 187  

Peer Group

  $ 100     $ 108     $ 99     $ 85     $ 138     $ 168  

 

Purchases of Equity Securities by the Issuer

 

On October 17, 2007, the Board of Directors of the Company authorized the repurchase of up to 5,000,000 shares of our common stock from time to time on the open market. The repurchased shares are held as treasury stock and are available for general corporate purposes. The Company did not repurchase any shares during fiscal 2018. As of March 31, 2018, there were 3,067,074 shares that may be repurchased under this program.

 

 

 

Item 6.

Selected Financial Data

 

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

 

 

Selected Financial Data

(in thousands, except per share data)

 

 

 

 

   

Fiscal Year Ended March 31,

 
   

2014

   

2015

   

2016

   

2017

   

2018

 

OPERATING RESULTS DATA:

                                       

Net sales

  $ 1,442,604     $ 1,353,228     $ 1,195,529     $ 1,312,661     $ 1,562,474  

Cost of sales

    1,163,770       1,024,659       906,460       1,027,906       1,243,612  

Gross profit

    278,834       328,569       289,069       284,755       318,862  

Selling, general and administrative expenses

    119,670       115,820       119,767       117,598       140,528  

Legal and environmental charges

    -       -       45,318       3,600       (1,500 )

Profit from operations

    159,164       212,749       123,984       163,557       179,834  

Interest income

    4,899       4,554       5,003       7,381       12,778  

Other, net

    (706 )     1,296       3,165       4,011       (299 )

Income before income taxes

    163,357       218,599       132,152       174,949       192,313  

Provision for (benefit from) income taxes

    36,320       (7,272 )     30,617       49,164       187,403  

Net income

  $ 127,037     $ 225,871     $ 101,535     $ 125,785     $ 4,910  
                                         

Income per share:

                                       

Basic

  $ 0.75     $ 1.34     $ 0.61     $ 0.75     $ 0.03  

Diluted

  $ 0.75     $ 1.34     $ 0.60     $ 0.75     $ 0.03  

Weighted average common shares outstanding:

                                       

Basic

    168,473       168,148       167,797       167,506       168,262  

Diluted

    168,658       168,402       167,961       167,837       168,925  

Cash dividends declared per common share

  $ 0.37     $ 0.41     $ 0.42     $ 0.43     $ 0.45  

 

   

As of March 31,

 
   

2014

   

2015

   

2016

   

2017

   

2018

 

BALANCE SHEET DATA:

                                       

Working capital

  $ 1,606,789     $ 1,478,243     $ 1,506,589     $ 1,620,337     $ 1,407,161  

Total assets

    2,384,988       2,459,015       2,409,819       2,477,413       2,672,766  

Stockholders' equity

    2,047,685       2,131,963       2,177,106       2,216,479       2,243,443  

 

   

Fiscal Year Ended March 31,

 
   

2014

   

2015

   

2016

   

2017

   

2018

 

OTHER DATA:

                                       

Capital expenditures

  $ 26,805     $ 26,599     $ 48,103     $ 66,288     $ 100,537  

Research, development and engineering expenses

    26,240       25,390       28,300       30,946       41,778  

 

 

 

Item 7.

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

 

Overview

 

AVX Corporation is a leading worldwide manufacturer, supplier, and reseller of a broad line of electronic components and interconnect, sensing and control devices, and related products. These products manufactured or resold by AVX are used in virtually all types of end use 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, Sensing and Control Devices (formerly AVX Interconnect); and Kyocera Electronic Devices (“KED”). These product lines are organized into three reportable segments: Electronic Components, Interconnect, Sensing and Control Devices, and KED Resale.

 

Consolidated revenues for the fiscal year ended March 31, 2018 were $1,562.5 million compared to consolidated revenues of $1,312.7 million for the fiscal year ended March 31, 2017. During fiscal 2018, we saw an increase in sales due to a number of factors, including the effect of acquisitions and higher volumes across almost all of our product groups resulting from improved global market conditions reflective of higher overall demand, primarily in the automotive, defense, industrial, and networking markets. The increase in revenue includes sales of $193.3 million in our Interconnect, Sensing and Control Devices segment and $12.7 million in our Electronic Components segment that are attributable to our acquisition of the AB Electronic sensing and control business ("S&C") and Ethertronics, Inc. ("Ethertronics"), respectively. In addition, approximately $42.5 million of the increase in revenues is a result of the currency movement due to the strength of the Japanese Yen and Euro in relation to the U.S. Dollar when compared to the same period last year.

 

Profit from operations for the year ended March 31, 2018 reflects a favorable accrual adjustment of $1.5 million related to an ongoing patent infringement case.

 

Profit from operations for the fiscal year ended March 31, 2017 includes post judgment charges of $34.9 million related to intellectual property damages awards resulting from litigation with respect to a patent infringement case filed in the United States District Court for the Southern District of California by Presidio Components, Inc. (“Presidio”). Net sales for the fiscal year ended March 31, 2017 includes $21.4 million from increased sales prices related to the affected products which have the effect of partially offsetting the effect of court awarded damages on all pre- and post-verdict sales of the product subject to the intellectual property damages awards, resulting in a net impact on profit from operations of $13.5 million for fiscal 2017.

 

Additionally, profit from operations for the fiscal year ended March 31, 2017 reflects a charge of $3.6 million related to estimated environmental remediation costs resulting from legacy environmental issues at an inactive property.

 

Profit from operations for the fiscal year ended March 31, 2016 reflects charges of $45.3 million, of which $37.8 million is related to amounts awarded in patent infringement cases and $7.5 million is related to the settlement of certain litigation involving legacy environmental issues.

 

In fiscal 2018, we generated $195.5 million of cash from operating activities. We used cash generated from operations to fund $83.1 million of general working capital requirements and $100.5 million of property and equipment purchases. We continued to use our resources to provide value to our stockholders by paying $290.3 million, net of cash and debt acquired, in connection with the two business acquisitions and dividends of $75.7 million during fiscal year 2018. Our financial position remains strong with approximately $827.2 million of cash, cash equivalents, and securities investments and no borrowings as of March 31, 2018.

 

We remain committed to investing in new products and improvements to our production facilities, manufacturing capacity and processes as well as continued investment in research, development, and engineering in order to provide our customers with new generations of electronic component and interconnect, sensing and control solutions. We are currently producing sophisticated electronic components and other devices necessitated by the breadth and increase in functionality of the electronics included in products such as cellular phones, wearable electronic devices, tablets, ultrabooks, netbooks, automobiles, planes, industrial equipment, medical devices, and renewable energy products that are manufactured by our customers. We have continued to focus on the sale of value-added electronic components and interconnect, sensing and control solutions to serve these expanding markets and enhance our operating margins. We are also focused on controlling and reducing costs to accommodate market sales price forces and offset rising operating costs. 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 enable us to adapt quickly and benefit as market conditions change in order to provide stockholder value.

 

 

During the fiscal year ended March 31, 2018 we completed two acquisitions. We may consider additional strategic acquisitions of other companies or businesses in the future in order to expand our product offerings or otherwise improve our market position and cost structure. We evaluate potential acquisitions in order to position ourselves to take advantage of profitable growth opportunities.

 

Outlook

 

Near-Term:

 

With uncertain global geopolitical and economic conditions, it is difficult to quantify expectations for fiscal 2019. 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 as well as our effectiveness in integrating our acquisitions. Looking ahead, visibility is low and forecasting is a challenge in this uncertain and volatile market. We expect to see typical sales price 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 use products. 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.

 

In December 2016, Kyocera notified AVX pursuant to the Products Supply and Distribution Agreement of its intent, effective January 1, 2018, to market its manufactured electronic and interconnect products globally using Kyocera’s sales force rather than continuing to have AVX resell such products in the Americas, Europe and Asia. Kyocera will pay commissions to AVX on sales by Kyocera, in the applicable territories, of products designed into customer applications by AVX prior to January 1, 2018 of 2.0% in calendar year 2018, 1.5% in calendar year 2019, and 1.0% in calendar year 2020. Sales of Kyocera resale products were $296.3 million and related operating profit was $18.2 million for the fiscal year ended March 31, 2018.

 

In February 2017, AVX notified Kyocera pursuant to the Products Supply and Distribution Agreement of its intent, effective April 1, 2018, to market its manufactured products in Japan using AVX’s sales force rather than continuing to have Kyocera resell such products in this territory. AVX will pay commissions to Kyocera on sales by AVX, in the applicable territory, of products designed into customer applications by Kyocera prior to April 1, 2018 of 2.0% in fiscal year 2019, 1.5% in fiscal year 2020, and 1.0% in fiscal year 2021. Sales of AVX resale products by Kyocera were $21.9 million for the fiscal year ended March 31, 2018.

 

On October 2, 2017, AVX completed its acquisition of S&C for $162.1 million, net of cash acquired. The purchase includes S&C’s subsidiaries located in Austria, China, Germany, India, Mexico, Romania, South Korea, the U.K., and the U.S., including R&D, manufacturing and sales office locations.

 

On January 31, 2018, AVX completed its acquisition of Ethertronics for $128.2 million in cash, net of cash and debt acquired, subject to customary post-closing adjustments. Ethertronics operates facilities in six locations in China, South Korea, Vietnam, France, Taiwan, and the Americas, comprising R&D, manufacturing and sales office locations.

 

Long-Term:

 

Although there is uncertainty in the near-term market as a result of the current global geopolitical and economic conditions, we continue to see opportunities for long-term growth and profitability improvement due to: (a) a projected increase in the long-term worldwide demand for more sophisticated electronic end use products, which require electronic components and interconnect, sensing and control devices such as the ones we sell, (b) cost reductions and improvements in our production processes, and (c) opportunities for growth in our Electronic Components and Interconnect, Sensing and Control Devices product lines due to advances in component design and our production capabilities and capacity. We have fostered our financial health and the strength of our balance sheet putting us in a good position to react to changes in the marketplace as they occur. We remain confident that our strategies will enable our continued long-term success.

 

 

Results of Operations

 

Year Ended March 31, 2018 compared to Year Ended March 31, 2017

 

Net sales for the fiscal year ended March 31, 2018 were $1,562.5 million compared to $1,312.7 million for the fiscal year ended March 31, 2017.

 

The table below represents product group revenues for the fiscal years ended March 31, 2016, 2017, and 2018.

 

 

   

Fiscal Year Ended March 31,

 

Sales revenue (in thousands)

 

2016

   

2017

   

2018

 

Ceramic Components

  $ 176,502     $ 188,568     $ 226,204  

Tantalum Components

    311,888       314,723       366,194  

Advanced Components

    333,693       372,279       346,459  

Total Electronic Components

    822,083       875,570       938,857  

Interconnect, Sensing and Control Devices

    111,609       118,163       327,301  

KCP Resale Connectors

    23,751       30,027       36,090  

KDP and KCD Resale

    238,086       288,901       260,226  

Total KED Resale

    261,837       318,928       296,316  

Total Revenue

  $ 1,195,529     $ 1,312,661     $ 1,562,474  

 

Electronic Component sales were $938.9 million for the fiscal year ended March 31, 2018 compared to $875.6 million during the fiscal year ended March 31, 2017. The sales increase in Electronic Components product sales was driven by increased volume in our Ceramic and Tantalum Components across most markets resulting from favorable global market conditions and increased demand for our electronic component products resulting from technological advances across a broad range of industries, including Internet of Things related products, industrial, telecommunications and automotive markets. Fiscal year 2018 sales also included $12.7 million of Ethertronics product sales. These increases were partially offset by sales decreases in our Advanced Components group primarily due to a reduction in sales of certain advanced ceramic capacitors which were the subject of intellectual property litigation whereby our sales of those products essentially ended in March of 2017.

 

Total Interconnect, Sensing and Control Devices product sales, including KCP Resale connectors, were $363.4 million in the fiscal year ended March 31, 2018 compared to $148.2 million during the fiscal year ended March 31, 2017. This increase is attributable to the additional sales resulting from our S&C acquisition which accounted for $193.3 million of the increased sales and increased demand in the U.S. and European automotive markets when compared to the fiscal year ended March 31, 2017.

 

KDP and KCD Resale sales were $260.2 million for the fiscal year ended March 31, 2018 compared to $288.9 million during the fiscal year ended March 31, 2017. This decrease is primarily a result of the planned phase out of KDP and KCD Resale products resulting from the previously announced decision by Kyocera to market its manufactured electronic component and interconnect products globally using Kyocera’s sales force rather than continuing to have AVX resell such products starting January 1, 2018.

 

Our sales to independent electronic distributors represented 42.7% of total net sales for the fiscal year ended March 31, 2018, compared to 44.5% for fiscal year ended March 31, 2017. Our S&C device sales are primarily direct to OEM customers, which led to the decrease in our distributor sales percentage when compared to the same period last year. Overall, distributor sales activity increased when compared to the same period last year as distributors increased order activity throughout the year in response to improved end-market demand and extended product delivery lead times. This increase in distributor activity is reflective of the increased customer demand, a more balanced inventory pipeline, and steadily improving market conditions. Our sales to distributor customers involve specific ship and debit and stock rotation programs for which sales allowances are recorded as reductions in sales. As a result of the increased distributors’ customer sales volume, such allowance charges increased to $30.5 million, or 4.6% of gross sales to distributor customers, for the fiscal year ended March 31, 2018 compared to $25.5 million, or 4.4% of gross sales to distributor customers, for the fiscal year ended March 31, 2017. Applications under such programs for fiscal years ended March 31, 2018 and 2017 were approximately $29.4 million and $24.9 million, respectively.

 

 

With the addition of S&C, whose sales are currently concentrated in Europe, the regional sales percentages of our total sales in the fiscal year ended March 31, 2018 decreased in the Asian and American regions while increasing in the European region compared to the fiscal year ended March 31, 2017. Sales in the Asian, American, and European regions represented 37.2%, 25.6% and 37.2% of total sales, respectively, for the fiscal year ended March 31, 2018. This compares to 44.1%, 29.1% and 26.8% of total sales for the Asian, American, and European regions in the prior year, respectively. As a result of the movement of the U.S. dollar against certain foreign currencies, reported sales for the fiscal year ended March 31, 2018 were favorably impacted by approximately $42.5 million when compared to the prior year.

 

Gross profit in the fiscal year ended March 31, 2018 was $318.9 million, compared to gross profit of $284.8 million in the fiscal year ended March 31, 2017. This overall increase in dollars is primarily attributable to higher sales. Gross profit as a percentage of sales for the fiscal year ended March 31, 2017 was 21.7% compared to 20.4% for the fiscal year ended March 31, 2018. The decline in gross profit as a percentage of sales is reflective of the sale of higher margin advanced ceramic capacitors during the fiscal year ended March 31, 2017 which were the subject of intellectual property litigation and were not being sold by us during the fiscal year ended March 31, 2018. For the fiscal year ended March 31, 2017, gross profit was negatively impacted by charges of approximately $34.9 million related to sales of those advanced ceramic capacitors subject to the intellectual property litigation discussed above, partially offset by $21.4 million from increased sales prices related to the affected products. In addition, we incurred increased costs of $4.2 million during the second half of the fiscal year ended March 31, 2018 for the effects of purchase accounting adjustments to inventory and fixed assets related to the S&C and Ethertronics acquisitions. For the fiscal year ended March 31, 2018, gross profit due to currency movement were unfavorably impacted by approximately $1.2 million when compared to the previous fiscal year.

 

Selling, general, and administrative expenses for the fiscal year ended March 31, 2018 were $140.5 million, or 9.0% of net sales, compared to $117.6 million, or 9.0% of net sales, for the fiscal year ended March 31, 2017. The overall increase in these expenses is primarily due to higher selling expenses resulting from the increase in sales and $3.6 million of amortization of intangible assets related to the S&C and Ethertronics acquisitions.

 

On September 2, 2014, a subsidiary of AVX, American Technical Ceramics (“ATC”), was named as a defendant in a patent infringement case filed in the United States District Court of the Southern District of California captioned Presidio Components, Inc. v. American Technical Ceramics Corp. This case alleged that certain ATC products infringe on a Presidio patent. On April 18, 2016, the jury returned a verdict in favor of the plaintiff and found damages to Presidio. On August 17, 2016, the court issued a permanent injunction prohibiting ATC from manufacturing or selling the related products after November 16, 2016. Subsequently, on October 21, 2016, the Federal Circuit Court granted AVX’s request for a stay of the permanent injunction whereby ATC was allowed to continue to sell the disputed product until March 17, 2017 to anyone who was a customer prior to June 17, 2016. Any sales subsequent to November 16, 2016 pursuant to the stay of the permanent injunction were subject to court mandated intellectual property damages for each product sold. In December, 2017, a panel of the Federal Circuit vacated the damage award to Presidio, vacated the injunction, and remanded the case for further proceedings to determine damages limited to “reasonable royalties” and to consider the requested injunction in light of its opinion and any additional facts. The case is ongoing.

 

Additionally, on January 26, 2016, in a patent infringement case filed in the United States District Court for the District of Delaware captioned Greatbatch, Inc. v. AVX Corporation the jury returned a verdict in favor of the plaintiff and found damages to the plaintiff in the amount of $37.5 million, which was recorded in fiscal 2016. That verdict was later vacated by the Court on March 30, 2018. Profit from operations for the year ended March 31, 2018 reflects a favorable accrual adjustment of $1.5 million related to this patent infringement case. The amount of damages will be subject to further legal proceedings including a potential trial on damages some time in fiscal 2019. In addition, during the fiscal year ended March 31, 2017, we accrued a $3.6 million estimated charge related to new environmental remediation activities related to a legacy environmental issue at a site referred to as the “Aerovox Site,” located in New Bedford, Massachusetts.

 

Profit from operations for the fiscal year ended March 31, 2018 increased $16.2 million to $179.8 million compared to $163.6 million for the fiscal year ended March 31, 2017. This increase is a result of the factors above.

 

Other income, net was $12.5 million in fiscal year 2018 compared to $11.4 million in fiscal year 2017. This increase is primarily attributable to foreign exchange gains resulting from currency fluctuations during the period, other income, net for the period ended March 31, 2017 includes a gain on the sale of an idle facility of $1.6 million in the fiscal year ended March 31, 2017.

 

The tax rate for the fiscal year ended March 31, 2018 was 97.4% compared to 28.1% for the fiscal year ended March 31, 2017. For the fiscal year ended March 31, 2018, compared to the fiscal year ended March 31, 2017, the increase in the tax rate is primarily a result of the Tax Cuts and Jobs Act (the “Act”) enacted in the U.S. on December 22, 2017. Among numerous other provisions, the Act reduced the statutory U.S. corporation income tax rate from 35% to 21%, effective January 1, 2018.  Excluding discrete items, the tax rate for the fiscal year ended March 31, 2018 was 28.0% compared to 27.8% for the fiscal year ended March 31, 2017.

 

 

The provision for income tax expense for the fiscal year ended March 31, 2018 was $187.4 million compared to $49.2 million for the fiscal year ended March 31, 2017. On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the U.S. Among numerous other provisions, the Act reduced the statutory U.S. corporation income tax rate from 35% to 21%, effective January 1, 2018. The Act also reduced or eliminated certain corporate tax deductions and provided for a transition from a worldwide to a modified territorial tax system for resident corporations and related corporate group members.  The transition is accompanied by a one-time tax, effective December 31, 2017, on all U.S.-based corporate groups’ accumulated foreign earnings as yet untaxed by the U.S., assessed at a 15.5% rate on all such earnings held in cash or liquid asset positions and at an 8% rate on all other non-liquid asset positions. This estimated one-time tax was recorded in the results for the quarter ended December 31, 2017, and was approximately $75.7 million, which is payable in eight annual installments over an eight-year period, beginning in 2018. Also, in consideration of the Act, we have determined that it is no longer necessary to assert that cash and profits generated by our foreign subsidiaries will continue to be reinvested locally indefinitely. Accordingly, in addition to the one-time tax estimate noted above, we also provided for estimated foreign withholding taxes of approximately $13.6 million related to the potential distribution of such foreign earnings.

 

In addition, on December 21, 2017, the French Parliament enacted the Finance Law for 2018, which reduces France’s statutory corporate tax rate from its present 33.33% to 25%, in stages over the next five years.  This rate decrease resulted in an estimated net decrease in AVX’s French net deferred tax assets and liabilities of $14.2 million, which is also reflected as a discrete charge for the fiscal year ended March 31, 2018.

 

As a result of the factors discussed above, net income for the fiscal year ended March 31, 2018 was $4.9 million compared to $125.8 million for the fiscal year ended March 31, 2017.

 

Year Ended March 31, 2017 compared to Year Ended March 31, 2016

 

Net sales for the fiscal year ended March 31, 2017 were $1,312.7 million compared to $1,195.5 million for the fiscal year ended March 31, 2016.

 

The table below represents product group revenues for the fiscal years ended March 31, 2015, 2016, and 2017.

 

 

 

   

Fiscal Year Ended March 31,

 

Sales revenue (in thousands)

 

2015

   

2016

   

2017

 

Ceramic Components

  $ 202,719     $ 176,502     $ 188,568  

Tantalum Components

    355,974       311,888       314,723  

Advanced Components

    359,315       333,693       372,279  

Total Electronic

    918,008       822,083       875,570  

AVX Interconnect

    134,610       111,609       118,163  

KCP Resale Connectors

    70,741       23,751       30,027  

KDP and KCD Resale

    229,869       238,086       288,901  

Total KED Resale

    300,610       261,837       318,928  

Total Revenue

  $ 1,353,228     $ 1,195,529     $ 1,312,661  

 

Electronic Component sales were $875.6 million for the fiscal year ended March 31, 2017 compared to $822.1 million during the fiscal year ended March 31, 2016. The sales increase in Electronic Components product sales was driven by increased volume across all of our electronic component groups as a result of improved global market conditions compared to the same period last year. Our Ceramic Components sales improvement is primarily due to increased activity in the cellular telecommunications and automotive markets in addition to our focus on the sale of higher value capacitance components. Much of the sales increase in our Advanced Components was primarily attributable to the accelerated sales, including $21.4 million from increased sales prices, of certain advanced ceramic capacitors at the request of our customers. These advanced ceramic capacitors were the subject of intellectual property litigation discussed below. The increase in sales of our Tantalum Components is primarily driven by increased demand in the telecommunications and industrial markets.

 

Total connector sales, including AVX Interconnect products and KCP Resale Connectors, were $148.2 million in the fiscal year ended March 31, 2017 compared to $135.4 million during the fiscal year ended March 31, 2016. This increase is attributable to increased demand in the U.S. and European automotive and industrial markets.

 

 

KDP and KCD Resale sales were $288.9 million for the fiscal year ended March 31, 2017 compared to $238.1 million during the fiscal year ended March 31, 2016. This increase is primarily attributable to higher demand from our cellular device customers, in addition to a favorable currency impact on reported revenues when compared to the same period in fiscal 2016 as the Japanese Yen strengthened against the U.S. Dollar.

 

Our sales to independent electronic distributors represented 44.5% of total net sales for the fiscal year ended March 31, 2017, compared to 45.0% for fiscal year ended March 31, 2016. Overall, distributor sales increased when compared to the same period last year as distributors increased order activity and inventory intake during the year. This increase is reflective of the distributors’ customer demand, a more balanced inventory pipeline and steadily improving market conditions. Our sales to distributor customers involve specific ship and debit and stock rotation programs for which sales allowances are recorded as reductions in sales. As a result of the increased distributors’ customer demand and a more balanced inventory pipeline, such allowance charges decreased to $25.5 million, or 4.4% of gross sales to distributor customers, for the fiscal year ended March 31, 2017 compared to $29.4 million, or 5.5% of gross sales to distributor customers, for the fiscal year ended March 31, 2016. Applications under such programs for fiscal years ended March 31, 2017 and 2016 were approximately $24.9 million and $31.5 million, respectively.

 

Geographically, compared to the prior fiscal year, regional sales as a percentage of total sales for the fiscal year ended March 31, 2017 remained relatively consistent in all regions. Sales in Asia increased to 44.1% of total sales, while sales in the Americas decreased slightly to 29.1% and sales in Europe decreased to 26.8% of total sales. This compares to 41.6%, 30.0%, and 28.4% of total sales for the Asian, American, and European regions in fiscal 2016, respectively. As a result of the movement of the U.S. dollar against certain foreign currencies, reported sales for the fiscal year ended March 31, 2017 were favorably impacted by approximately $6.3 million when compared to fiscal 2016.

 

Gross profit margin in the fiscal year ended March 31, 2017 decreased to 21.7% of sales, or $284.8 million, compared to a gross profit margin of 24.2% of sales, or $289.1 million, in the fiscal year ended March 31, 2016. This overall decrease in dollars and percent is primarily attributable to charges of $34.9 million related to sales of those advanced ceramic capacitors subject to the intellectual property litigation discussed above, partially offset by $21.4 million from increased sales prices related to the affected products. In addition, for the fiscal year ended March 31, 2017, the currency impact of the movement of the U.S. dollar against certain foreign currencies unfavorably impacted our gross profit by approximately $3.0 million when compared to the same period last year.

 

Selling, general, and administrative expenses for the fiscal year ended March 31, 2017 were $117.6 million, or 9.0% of net sales, compared to $119.8 million, or 10.0% of net sales, for the fiscal year ended March 31, 2016. The overall decrease in these expenses is primarily due to lower litigation costs partially offset by higher selling expenses resulting from the increase in sales for the fiscal year ended March 31, 2017 when compared to the fiscal year ended March 31, 2016.

 

On September 2, 2014, a subsidiary of AVX, American Technical Ceramics (“ATC”), was named as a defendant in a patent infringement case filed in the United States District Court of the Southern District of California captioned Presidio Components, Inc. v. American Technical Ceramics Corp. This case alleged that certain ATC products infringe on a Presidio patent. On April 18, 2016, the jury returned a verdict in favor of the plaintiff and found damages to Presidio in the amount of $2.2 million. On August 17, 2016, the court issued a permanent injunction prohibiting ATC from manufacturing or selling the related products after November 16, 2016 and awarded Presidio damages related to ATC’s sale of such products from February 21, 2016 through November 16, 2016. Subsequently, on October 21, 2016, the Federal Circuit Court granted AVX’s request for a stay of the permanent injunction whereby AVX was allowed to continue to sell the disputed product until March 17, 2017 to anyone who was a customer prior to June 17, 2016. Any sales subsequent to November 16, 2016 pursuant to the stay of the permanent injunction are subject to court mandated intellectual property damages for each product sold. Accordingly, in addition to the $2.2 million jury verdict award above, we recorded during fiscal year 2017 an estimated reserve for damages on all pre- and post-verdict sales of product subject to that litigation in the event that the verdict withstands future challenges. As of March 31, 2017, we had reserved $34.9 million related to the pre- and post-verdict sales of such product. On September 1, 2016, we filed an appeal with the Federal Circuit to appeal this verdict.

 

Additionally, on January 26, 2016, in a patent infringement case filed in the United States District Court for the District of Delaware captioned Greatbatch, Inc. v. AVX Corporation, the jury returned a verdict in favor of the plaintiff and found damages to the plaintiff in the amount of $37.5 million, which was recorded in fiscal 2016. In addition, during the fiscal year ended March 31, 2017, we accrued a $3.6 million estimated charge related to new environmental remediation activities related to a legacy environmental issue at a site referred to as the “Aerovox Site,” located in New Bedford, Massachusetts.

 

Profit from operations for the fiscal year ended March 31, 2017 increased $39.6 million to $163.6 million compared to $124.0 million for the fiscal year ended March 31, 2016. This increase is a result of the factors above.

 

 

Other income increased $3.2 million to $11.4 million in fiscal 2017 compared to $8.2 million in fiscal 2016. This increase is primarily attributable to foreign exchange gains resulting from currency fluctuations during the period in addition to a gain on the sale of an idle facility of $1.6 million.

 

The tax rate for the fiscal year ended March 31, 2017 was 28.1% compared to 23.2% for the fiscal year ended March 31, 2016. For the fiscal year ended March 31, 2017, compared to the fiscal year ended March 31, 2016, the increase in the tax rate is caused principally by an increase in our U.S. taxable income and an adverse U.S. federal audit adjustment, partially offset by increased U.S. foreign tax credits and the release of the valuation allowance against deferred tax assets at a Japanese subsidiary. Excluding discrete items, the tax rate for the fiscal year ended March 31, 2017 is 27.8% compared to 26.5% for the fiscal year ended March 31, 2016.

 

As a result of the factors discussed above, net income for the fiscal year ended March 31, 2017 was $125.8 million compared to $101.5 million for the fiscal year ended March 31, 2016.

 

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 operating liquidity requirements through funds from operations, investment income from cash and investments in securities, and cash on hand. As of March 31, 2018, we had a current ratio of 5.8 to 1, $827.2 million of cash, cash equivalents, and investments in securities, $2,243.4 million of stockholders' equity and no borrowings. On December 22, 2017, the Act was enacted in the U.S. Among numerous other provisions, the Act reduced or eliminated certain corporate tax deductions and provided for a transition from a worldwide to a territorial tax system for resident corporations and related corporate group members. The transition is accompanied by a one-time tax, effective December 31, 2017, on all U.S.-based corporate groups’ accumulated foreign earnings as yet untaxed by the U.S., assessed at a 15.5% rate on all such earnings held in cash or liquid asset positions and at an 8% rate on all other non-liquid asset positions. This tax, approximately $75.7 million for us, is payable in installments over an eight-year period beginning in 2018.

 

As of March 31, 2018, we had cash, cash equivalents, and short-term investments in securities of $827.2 million, of which $585.8 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 outside the U.S. are generally used for local on-going working capital, capital expenditure needs, and to support regional acquisitions. In consideration of the Act, we have determined that it is no longer necessary to assert that cash and profits generated by our foreign subsidiaries will continue to be reinvested locally indefinitely. Accordingly, in addition to the U.S. taxes on such earnings noted above, we also provided for estimated foreign withholding taxes of approximately $13.6 million related to the potential distribution of such foreign earnings. As a result of the Act we will have greater flexibility to redirect our global cash resources where they are needed.

 

Net cash provided by operating activities was $195.5 million for the fiscal year ended March 31, 2018, compared to cash provided by operations of $195.0 million for the fiscal year ended March 31, 2017 and cash provided by operations of $166.4 million for the fiscal year ended March 31, 2016.

 

Purchases of property and equipment totaled $100.5 million in fiscal 2018, $66.3 million in fiscal 2017, and $48.1 million in fiscal 2016. The increase in expenditures during fiscal 2018 was primarily made in connection with strategic building expansion and equipment purchase activities in our Fountain Inn, South Carolina facilities and our plants in the Czechia, Germany, El Salvador, and Malaysia. We expect to continue to make strategic capital investments in our Electronic Component and Interconnect, Sensing and Control Devices product lines and estimate that we will incur capital expenditures of approximately $85 million in fiscal 2019. The actual amount of capital expenditures will depend upon the outlook for end market demand and timing of capital projects.

 

On October 2, 2017, AVX completed its acquisition of S&C for $162.1 million, net of cash acquired. The purchase comprises S&C’s subsidiaries located in Austria, China, Germany, India, Mexico, Romania, South Korea, the U.K., and the U.S., including R&D, manufacturing and sales office locations.

 

During the quarter ending March 31, 2018, AVX completed its acquisition of Ethertronics for $128.2 million in cash, net of debt acquired, subject to customary post-closing adjustments. Ethertronics operates facilities in six locations in China, South Korea, Vietnam, France, Taiwan, and the Americas, comprising R&D, manufacturing and sales office locations.

 

 

Historically, our operating funding has been internally generated through operations, investment income from cash, cash equivalents, and investments in securities and cash on hand. We have assessed the condition of our financial resources and our current business and believe that, based on our financial condition as of March 31, 2018, 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, expenses related to ongoing litigation, pension plan funding, research, development, and engineering expenses, and dividend payments or stock repurchases to be made during the next twelve months. 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. In addition, potential acquisitions, depending upon their size, could require us to utilize our current cash resources, or use external borrowings. 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 2018, 2017, and 2016, dividends of $75.7 million, $72.0 million, and $70.5 million, respectively, were paid to stockholders.

 

On October 17, 2007, the Board of Directors of the Company authorized the repurchase of up to 5,000,000 shares of our common stock. We did not purchase any shares during fiscal 2018. We purchased 356,364 shares at a cost of $4.8 million during fiscal 2017, and 761,145 shares at a cost of $10.2 million during fiscal 2016. The repurchased shares are held as treasury stock and are available for general corporate purposes. As of March 31, 2018, there were 3,067,074 shares that may yet be repurchased under this program.

 

At March 31, 2018, we had contractual obligations for the construction of plants and acquisition of equipment aggregating approximately $51.2 million.

 

We make contributions to our U.S. and foreign defined benefit plans as required under various pension funding regulations. Contributions are based on a percentage of pensionable wages or requirements necessary to satisfy long-term funding obligations. We made contributions of $0.3 million to our U.S. and $6.1 million to our foreign defined benefit plans during the fiscal year ended March 31, 2018. We expect to make contributions of approximately $6.6 million for our foreign defined benefits plans for the fiscal year ending March 31, 2019. We do not anticipate making contributions to the U.S. plans in fiscal 2019. We have funded actuarially computed pension assets of approximately $12.9 million related to these defined benefit pension plans as of March 31, 2018.

 

During the fiscal year ended March 31, 2018, we made contributions of $4.4 million to Company sponsored retirement savings plans. Our contributions are partially based on employee contributions as a percentage of their salaries. Certain of our contributions to these savings plans are discretionary and are determined by the Board of Directors each year. We expect that our contributions for the fiscal year ending March 31, 2019 will be approximately $4.4 million.

 

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, 2018, were approximately $21.6 million.

 

Occasionally 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 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 non-U.S., state or local laws, for clean-up and response costs associated with certain sites at which remediation is or may be required with respect to prior contamination. Because CERCLA or such state statutes authorize joint and several liability, the EPA or non-U.S., state or local 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.

 

 

On June 3, 2010, AVX entered into an agreement with the EPA and the City of New Bedford, pursuant to which AVX is required to perform environmental remediation at a site referred to as the “Aerovox Site” (the “Site”), located in New Bedford, Massachusetts. AVX has substantially completed its obligations pursuant to such agreement with the EPA and the City of New Bedford with respect to the satisfaction of AVX’s federal law requirements. The Massachusetts Department of Environmental Protection has jurisdiction over the balance of the environmental remediation at the Site. AVX has submitted its proposed remedy, but until the state has approved such proposal, AVX cannot determine if additional groundwater and soil remediation will be required, if substantial material will have to be disposed of offsite, or if additional remediation techniques will be required, any of which could result in a more extensive and costly plan of remediation. Further, the Site and the remediation may be subject to additional scrutiny under other statutory procedures which could also add to the cost of remediation. We have a remaining accrual of $14.2 million at March 31, 2018, representing our current estimate of the potential liability related to the remaining performance of environmental remediation actions at the Site and neighboring properties using certain assumptions regarding the plan of remediation. Until all parties agree and remediation is complete, we cannot be certain there will be no additional cost relating to the Site.

 

We had total reserves of approximately $19.2 million and $18.6 million at March 31, 2017 and March 31, 2018, respectively, related to various environmental matters and sites, including those discussed above. These reserves are classified in the Consolidated Balance Sheets as $3.9 million and $3.3 million in accrued expenses at March 31, 2017 and March 31, 2018, respectively, and $15.3 million in other non-current liabilities at both March 31, 2017 and March 31, 2018. The amounts recorded for identified environmental liabilities are based on estimates. Periodically, we review amounts recorded and adjust them to reflect additional legal and technical information that becomes available. 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.

 

On April 19, 2016, the Canadian Ministry of the Environment and Climate Change (the “MoE”) issued a Director’s Order naming AVX Corporation, and others, as responsible parties with respect to a location in Hamilton, Ontario that was at one time the site of operations of Aerovox Canada, a former subsidiary of Aerovox Corporation, a predecessor of AVX. This Director’s Order follows a draft order issued on November 4, 2015. AVX has taken the position that any liability of Aerovox Canada for such site under the laws of Canada cannot be imposed on AVX. At present, it is unclear whether the MoE will seek to enforce such Canadian order against AVX, and whether, in the event it does so, AVX will have any liability under applicable law. AVX intends to contest any such course of action that may be taken by the MoE.

 

We also operate, or did at one time, on other sites that may have potential future environmental issues as a result of activities at sites during AVX’s long history of manufacturing operations or prior to the start of operations by AVX. Even though we may have rights of indemnity for such environmental matters at certain sites, regulatory agencies in those jurisdictions may require us to address such issues. Once it becomes probable that we will incur costs in connection with remediation of a site and such costs can be reasonably estimated, we establish reserves or adjust our reserves for our projected share of these costs. A separate account receivable is recorded for any indemnified costs. Our environmental reserves are not discounted and do not reflect any possible future insurance recoveries, which are not expected to be significant, but do reflect a reasonable estimate of cost sharing at multiple party sites or indemnification of our liability by a third party.

 

We are not involved in any pending or threatened environmental 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 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. New environmental regulations may be enacted 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.

 

On April 25, 2013, 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 alleged that certain AVX products infringe on one or more of six Greatbatch patents. On January 26, 2016, the jury returned a verdict in favor of the plaintiff in the first phase of a segmented trial and a mixed verdict in the second phase of a segmented trial, and found damages to Greatbatch in the amount of $37.5 million, which was recorded in fiscal 2016. The verdict was later vacated by the court on March 30, 2018. Profit from operations for the year ended March 31, 2018 reflects a favorable accrual adjustment of $1.5 million related to this patent infringement case. The amount of damages will be subject to further legal proceedings including a potential trial on damages, which we expect to occur in fiscal 2019.

 

 

On September 2, 2014, a subsidiary of AVX, American Technical Ceramics (“ATC”), was named as a defendant in a patent infringement case filed in the United States District Court of the Southern District of California captioned Presidio Components, Inc. v. American Technical Ceramics Corp. This case alleged that certain ATC products infringe on a Presidio patent. On April 18, 2016, the jury returned a verdict in favor of the plaintiff and found damages to Presidio. On August 17, 2016, the court issued a permanent injunction prohibiting ATC from manufacturing or selling the related products after November 16, 2016. Subsequently, on October 21, 2016, the Federal Circuit Court granted AVX’s request for a stay of the permanent injunction whereby ATC was allowed to continue to sell the disputed product until March 17, 2017 to anyone who was a customer prior to June 17, 2016. Any sales subsequent to November 16, 2016 pursuant to the stay of the permanent injunction were subject to court mandated intellectual property damages for each product sold. In December, 2017, a panel of the Federal Circuit vacated the damage award to Presidio, vacated the injunction, and remanded the case for further proceedings to determine damages limited to “reasonable royalties” and to reconsider the requested injunction in light of its opinion and any additional facts.

 

As of March 31, 2018, we had total reserves of $76.5 million plus accrued interest in accrued expenses with respect to the two intellectual property cases discussed above. The amounts recorded are based on estimated outcomes. Amounts recorded are reviewed periodically and adjusted to reflect additional information that becomes available. Accordingly, these costs could differ from our current estimates.

 

During calendar year 2014, AVX was named as a co-defendant in a series of cases filed in the United States and in the Canadian provinces of Quebec, Ontario, British Columbia, Saskatchewan and Manitoba alleging violations of United States, state and Canadian antitrust laws asserting that AVX and numerous other companies were participants in alleged price-fixing in the capacitor market. The cases in the United States were consolidated into the Northern District of California on October 2, 2014. Some plaintiffs have broken off from the United States class action and filed actions on their own, although AVX is not named in all of these independent actions. The cases in Canada have not been consolidated. These cases are still in progress. AVX believes it has meritorious defenses and intends to vigorously defend the cases.

 

We are involved in other disputes, warranty, and legal proceedings arising in the normal course of business. While we cannot predict the outcome of these other disputes and proceedings, we believe, based upon a review with legal counsel, that none of these other disputes or proceedings will have a material impact on our financial position, results of operations, comprehensive income (loss), or cash flows. However, we cannot be certain of the eventual outcome in these or other matters that may arise and their potential impact on our financial position, results of operations, comprehensive income (loss), or cash flows.

 

Disclosures about Contractual Obligations and Commitments

 

The Company has the following contractual obligations and commitments as of March 31, 2018 as noted below.

 

 

                   

FY 2020 -

   

FY 2022-

         

Contractual Obligations (in thousands)

 

Total

   

FY 2019

   

FY 2021

   

FY 2023

   

Thereafter

 

Operating Leases

  $ 21,605     $ 6,803     $ 8,242     $ 4,283     $ 2,277  

Plant and Equipment

  $ 51,195     $ 49,302     $ 1,640     $ 253     $ -  

 

 

During the fiscal year ended March 31, 2018, we made contributions of $4.4 million to our Company sponsored retirement savings plans. Our contributions are partially based on employee contributions as a percentage of their salaries. Certain contributions by us are discretionary and are determined by the Board of Directors each year. We expect that our contributions for the fiscal year ending March 31, 2019 will be approximately $4.4 million.

 

During the fiscal year ended March 31, 2018, we made contributions of $0.3 million and $6.1 million to our U.S. and international defined benefit plans, respectively. Contributions are based on a percentage of pensionable wages or requirements necessary to satisfy funding obligations. We expect to make contributions of approximately $6.6 million for our international defined benefit plans for the fiscal year ending March 31, 2019. We do not anticipate making contributions to the U.S. plans in fiscal 2019.

 

Occasionally 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. As of March 31, 2018, we had no material outstanding purchase commitments.

 

We have a $3.2 million liability recorded at March 31, 2018 related to our uncertain tax positions. Due to the nature of the underlying liabilities and the extended time often needed to resolve income tax uncertainties, we cannot reasonably estimate the amount or timing of cash payments that may be required to settle these liabilities beyond 2018. For additional information, refer to Note 9.

 

 

Critical Accounting Policies and Estimates

 

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods.

 

On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, warranties, inventories, pensions, income taxes, and contingencies. Management bases its estimates, judgments, and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. While we base our estimates and assumptions on our knowledge of current events and actions that we may undertake in the future, there can be no assurance that actual results will not differ from these estimates and assumptions. On an ongoing basis, we evaluate our accounting policies and disclosure practices. In management’s opinion, the critical accounting policies and estimates, as defined below, are more complex in nature and require a higher degree of judgment than the remainder of our accounting policies described in Note 1 to our consolidated financial statements elsewhere herein.

 

Revenue Recognition

 

All of our products are built to specification and tested by us or our suppliers for adherence to such specification before shipment to customers. We ship products to customers based upon firm orders, or sales occur when the customers pull inventory from consignment locations. Shipping and handling costs are included in cost of sales. We recognize revenue when the sales process is complete. This occurs when products are shipped to, or used by, the customer in accordance with the terms of an agreement of sale, there is a fixed or determinable selling price, title and risk of loss have been transferred, and collectability is reasonably assured. We evaluate gross versus net presentation on revenues from products purchased and resold in accordance with the revenue recognition criteria outlined in FASB ASC 605-45, Principal Agent Considerations. Based on the evaluation of our resale arrangements with Kyocera and others, including consideration of the primary indicators set forth in ASC 605-45-45, we record revenue related to products purchased and resold on a gross basis. Estimates used in determining sales allowance programs described below are subject to the volatilities of the market place. This includes, but is not limited to, changes in economic conditions, sales pricing, product demand, inventory levels in the supply chain, technology, and other variables that might result in adjustments to our estimates. Accordingly, there can be no assurance that actual results will not differ from the estimates recorded.

 

Returns

 

Sales revenue and cost of sales reported in the income statement are reduced to reflect estimated returns. We record an estimated sales allowance for returns at the time of sale based on historical trends, current pricing and volume information, other market specific information, and input from sales, marketing, and other key management personnel. The amount accrued reflects the return of value of the customer’s inventory. These procedures require the exercise of significant judgments. We believe that these procedures enable us to make reliable estimates of future returns. Our actual results have historically approximated our estimates. The customer is given credit against their accounts receivable after the product is returned and verified.

 

Distribution Programs

 

A portion of our sales is to independent electronic component distributors, which are subject to various distributor sales programs. We report provisions for distributor allowances in connection with such sales programs as a reduction in revenue and report distributor allowances in the balance sheet as a reduction in accounts receivable. For the distribution programs described below, we do not track the individual units that we record against specific products sold from distributor inventories, which would allow us to directly compare revenue reduction for credits recorded during any period with credits ultimately awarded in respect of products sold during that period. Nevertheless, we believe that we have an adequate basis to assess the reasonableness and reliability of our estimates for each program.

 

 

Distributor Stock Rotation Program

 

Stock rotation is a program whereby distributors are allowed to return qualified inventory semi-annually and receive credit equal to a certain percentage, primarily limited to 5% of the previous six months net sales. We record an estimated sales allowance for stock rotation at the time of sale based on a percentage of distributor sales using historical trends, current pricing and volume information, other market specific information, and input from sales, marketing, and other key management personnel. These procedures require the exercise of significant judgment. We believe that these procedures enable us to make reliable estimates of future returns under the stock rotation program. Our actual results have historically approximated our estimates. When the product is returned and verified, the distributor is given credit against their accounts receivable.

 

Distributor Ship-from-Stock and Debit Program

 

Ship-from-Stock and Debit (“ship and debit”) is a program designed to assist distributor customers 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. Ship and debit authorizations may cover current and future distributor activity for a specific part for sale to their customer. At the time we record sales to the distributors, we provide an allowance for the estimated future distributor activity related to such sales since it is probable that such sales to distributors will result in ship and debit activity. We record an estimated sales allowance based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends we see in our direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing, and other key management personnel. These procedures require the exercise of significant judgment. We believe that these procedures enable us to make reliable estimates of future credits under the ship and debit program. Our actual results have historically approximated our estimates. At the time the distributor ships the part from stock, the distributor debits us for the authorized pricing adjustment.

 

Special Incentive Programs

 

We may offer special incentive discounts based on amount of product ordered or shipped. At the time we record sales under these agreements, we provide an allowance for the discounts on the sales for which the customer is eligible to take. The customer then debits us for the authorized discount amount.

 

Inventories

 

We determine the cost of raw materials, work in process, and finished goods inventories by the first-in, first-out (“FIFO”) method. Manufactured inventory costs include material, labor, and manufacturing overhead. Inventories are valued at the lower of cost or market (net realizable value). We value inventory at its market value where there is evidence that the utility of goods will be less than cost and that such write-down should occur in the current period. Accordingly, at the end of each period, we evaluate our inventory and adjust to net realizable value the carrying value and excess quantities. We review and adjust the carrying value of our inventories based on historical usage, customer forecasts received from marketing and sales personnel, customer backlog, certain date code restrictions, technology changes, demand increases and decreases, market directional shifts, and obsolescence and aging.

 

Income Taxes

 

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 based on all available evidence, both positive and negative. 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 allowance is based on our estimates of future taxable income over the periods that our deferred tax assets will be recoverable. We continue to evaluate countries where we have a valuation allowance on our deferred tax assets due to historical operating losses and when such positive evidence outweighs negative evidence, we will release such valuation allowance as appropriate.

 

 

We also record a provision for certain foreign, 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 foreign 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 affect our ability to utilize tax benefits as well as the estimated taxes to be paid in future periods. We believe that any potential tax exposures have been sufficiently provided for in the consolidated financial statements. In the event that actual results differ from these estimates, we may need to adjust tax accounts and related payments, which could materially affect our financial condition and results of operations.

 

We account for uncertainty in income taxes recognized in our financial statements. We recognize in our financial statements the impact of a tax position, if that position would “more likely than not” be sustained on audit, based on the technical merits of the position. Accruals for estimated interest and penalties are recorded as a component of interest expense.

 

We record deferred tax liabilities for temporary differences associated with deductions for foreign branch losses claimed by us in our U.S. income tax returns, as these deductions are subject to recapture provisions in the U.S. income tax code. When the recapture period expires for these deductions, the liabilities are removed and the tax benefit is recognized in the income tax provision.

 

In relation to critical estimates for income taxes, the Tax Cuts and Jobs Act (the "Act") was enacted into law in the U.S. on December 22, 2017. Among numerous other provisions, the Act reduced the statutory U.S. corporation income tax rate from 35% to 21%, effective January 1, 2018. This was the primary reason for a change in AVX's global tax rate estimate for the fiscal year ending March 31, 2018, resulting in a blended, estimated global tax rate of 27% for fiscal 2018. The Act also resulted in an estimated net decrease in the valuation of U.S. net current and deferred tax assets and liabilities of $24.7 million. The Act reduced or eliminated certain corporate tax deductions and provided for a transition from a worldwide to a modified territorial tax system for resident corporations and related corporate group members accompanied by a one-time tax, effective December 31, 2017, on all U.S.-based corporate groups' accumulated foreign earnings as yet untaxed by the U.S. This one-time tax is assessed at a 15.5% rate on all such earnings held in cash or liquid asset positions, and at an 8% rate on all other non-liquid asset positions. This one-time tax was recorded in the results for the quarter ended December 31, 2017, and was approximately $75.7 million, which is payable in installments over an eight-year period beginning in 2018. Based on our interpretation of the Act, we made reasonable estimates to record provisional adjustments during fiscal 2018.

 

The Act also puts in place several new tax laws that are generally effective prospectively from January 1, 2018, including, but not limited to: a base erosion and anti-abuse tax; elimination of U.S. federal taxes on substantially all dividends from foreign subsidiaries; a lower U.S. tax rate on certain revenues from sources outside the U.S.; and, implementation of a new provision to tax certain global intangible low-taxed income of foreign subsidiaries.

 

We will continue to assess all of the other relevant aspects of the Act, including additional guidance under the Act, among other things which might impact our income tax provision. 

 

In consideration of the Act, the Company has determined that it is no longer necessary to assert that cash and profits generated by our foreign subsidiaries will continue to be reinvested locally indefinitely. Accordingly, we provided for estimated foreign withholding taxes and associated foreign tax credits related to the potential distribution of such earnings. Therefore, in addition to the one-time tax noted above, we also provided for estimated foreign withholding taxes of approximately $13.6 million related to the potential distribution of such foreign earnings.

 

Pension Assumptions

 

Pension benefit obligations and the related effects on operations are calculated using actuarial models. Two critical assumptions, discount rate and expected rate of return on plan assets, are important elements of plan expense and/or liability measurement. We evaluate these assumptions at least annually. The discount rate enables us to state expected future cash flows at a present value on the measurement date. To determine the discount rate, we apply the expected cash flows from each individual pension plan to specific yield curves at the plan’s measurement date and determine a level equivalent yield that may be unique to each plan. A lower discount rate increases the present value of benefit obligations and increases pension expense. To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. Other assumptions involve demographic factors such as retirement, mortality, and turnover. These assumptions are evaluated periodically and are updated to reflect our experience. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors. In such cases, the differences between actual results and actuarial assumptions are amortized over future periods.

 

Environmental Compliance

 

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. Based on our periodic review of the operating policies and practices at all of our facilities, we believe that our operations are currently in compliance with applicable environmental laws and regulations. Regarding sites identified by the EPA at which remediation is required, our ultimate liability in connection with environmental claims will depend on many factors, including our volumetric share of non-environmentally safe waste, the total cost of remediation, and the financial viability of other companies having liability. Additionally, we operate on sites that may have potential future environmental issues as a result of activities at sites during the long history of manufacturing operations by 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 recognize liabilities for environmental exposures when analysis indicates that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. When a range of loss can be estimated, we accrue the most likely amount. In the event that no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. Amounts recorded are reviewed periodically and adjusted to reflect additional legal and technical information that becomes available. The uncertainties about the status of laws, regulations, regulatory actions, technology, and information related to individual sites make it difficult to develop an estimate of the reasonably possible aggregate environmental remediation exposure; therefore, these costs could differ from our current estimates. Our environmental reserves are not discounted and do not reflect any possible future insurance recoveries, which are not expected to be significant, but do reflect a reasonable estimate of cost sharing at multiple party sites or indemnification of our liability by a third party.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This guidance modifies how an entity will determine the measurement of revenue and timing of when it is recognized. The guidance provides for a five-step approach in applying the standard: 1) identifying the contract with the customer, 2) identifying separate performance obligations in the contract, 3) determining the transaction price, 4) allocating the transaction price to separate performance obligations, and 5) recognizing the revenue when the performance obligation has been satisfied. The new guidance requires enhanced disclosures for the nature, amount, timing, and uncertainty of revenue that is being recognized. The guidance is effective for public companies for interim and annual reporting periods beginning after December 15, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. We have assessed the impact of the new standard and anticipate no material impact from adopting ASU 2014-09 in how we recognize revenue. We identified a change in how we recognize right-of-return liabilities which impact Current Assets and Current Liabilities. We will adopt ASU 2014-09 using the modified retrospective approach in the first quarter of fiscal year 2019. 

 

 

In February 2016, FASB issued ASU 2016-02, “Leases.” This guidance changes the requirements for inclusion of certain right-of-use assets and the associated lease liabilities to be included in a statement of financial position. The classification criteria maintains the distinction between finance leases and operating leases. Regarding finance leases, lessees are required to 1) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position, 2) recognize interest on the lease liability separate from the amortization of the right-of-use asset in the statement of comprehensive income, and 3) classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. Regarding operating leases, lessees are required to 1) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position, 2) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and 3) classify all cash payments within operating activities in the statement of cash flows. This guidance is effective for public companies for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. We previously disclosed prior to our recent acquisitions that we anticipated no material impact from adopting ASU 2016-02. However, we are in the process of updating our assessment to include the impact of our recently acquired companies.

 

In March 2016, the FASB issued ASU 2016-09, “Compensation — Stock Compensation.” The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The guidance is effective for public companies for annual reporting periods that began after December 15, 2016, and interim periods within those annual periods. The standard became effective for the interim reporting period ending June 30, 2017 and has not had a material impact on our consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other.” This guidance simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of goodwill. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU also removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment, and if it fails that qualitative test to perform Step 2 of the goodwill impairment test. Companies are to apply the standard on a prospective basis. The guidance is effective for public companies that are an SEC filer for fiscal years beginning after December 15, 2019. Early adoption is permitted and management elected to adopt this guidance beginning with the interim period ending June 30, 2017. The adoption of this standard has not had a material impact on our consolidated financial statements.

 

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging.” The standard aims to align the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results for cash flow and fair value hedge accounting with risk management activities. The guidance is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted in any interim period after issuance. Management is currently evaluating the impact this guidance will have on our consolidated financial statements.

 

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income." This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted for any interim and annual financial statements that have not yet been issued. We are currently evaluating the potential impact on our consolidated financial statements and disclosures.

 

We have reviewed other newly issued accounting pronouncements and concluded that they are either not applicable to our business or that no material effect is expected on our consolidated financial statements as a result of future adoption.

 

Relationship with Kyocera and Related Transactions

 

Kyocera is the majority stockholder of AVX. As of May 18, 2018, Kyocera owned beneficially and of record 121,800,000 shares of AVX common stock, representing approximately 72% of our outstanding shares.

 

From January 1990 through August 15, 1995, AVX was wholly owned by Kyocera. On August 15, 1995, Kyocera sold 22.9%, or 39,300,000 shares of AVX's common stock, and AVX sold an additional 4,400,000 shares of common stock, in a public offering. In February 2000, Kyocera sold an additional 10,500,000 shares of its AVX common stock.

 

Our business includes transactions with Kyocera. Such transactions involve the purchase of resale inventories, raw materials, supplies and equipment, the sale of products for resale, raw materials, supplies and equipment, the payment of dividends, subcontracting activities, and commissions. See Note 15 to our consolidated financial statements elsewhere herein for more information on the related party transactions.

 

 

In December 2016, Kyocera notified AVX pursuant to the Products Supply and Distribution Agreement of its intent, effective January 1, 2018, to market its manufactured electronic and interconnect products globally using Kyocera’s sales force rather than continuing to have AVX resell such products in the Americas, Europe and Asia. Kyocera will pay commissions to AVX on sales by Kyocera, in the applicable territories, of products designed into customer applications by AVX prior to January 1, 2018 of 2.0% in calendar year 2018, 1.5% in calendar year 2019, and 1.0% in calendar year 2020. Sales of Kyocera resale products by AVX were $296.3 and related operating profit was $18.2 million for the fiscal year ended March 31, 2018.

 

In February 2017, AVX notified Kyocera pursuant to the Products Supply and Distribution Agreement of its intent, effective April 1, 2018, to market its manufactured products in Japan using AVX’s sales force rather than continuing to have Kyocera resell such products in this territory. AVX will pay commissions to Kyocera on sales by AVX, in the applicable territory, of products designed into customer applications by Kyocera prior to April 1, 2018 of 2.0% in fiscal year 2019, 1.5% in fiscal year 2020, and 1.0% in fiscal year 2021. Sales of AVX resale products by Kyocera were $21.9 million for the fiscal year ended March 31, 2018.

 

The exchange of information with Kyocera relating to the development and manufacture of multi-layer ceramic capacitors and various other ceramic products benefits AVX. AVX and Kyocera have executed several agreements that govern the foregoing transactions and which are described below.

 

The Special Advisory Committee of our Board, comprised of our independent directors (currently Messrs. Stach, DeCenzo, and Christiansen), reviews and approves any significant agreements between AVX and Kyocera and any significant transactions between AVX and Kyocera not covered by such agreements. The committee is also responsible for reviewing and approving any agreements and transactions between AVX and any other related party that are or may be within the scope of applicable rules, regulations and guidance of the New York Stock Exchange and Item 404 of Regulation S-K, if they arise. The Special Advisory Committee operates under a written charter that sets forth the policies and procedures for such approvals. In approving any such agreement or transaction pursuant to those procedures, the Special Advisory Committee must determine that, in its judgment, the terms thereof are equivalent to those to which an independent unrelated party would agree at arm’s-length or are otherwise in the best interests of the Company and its stockholders generally. Each of the agreements described below contains provisions requiring that the terms of any transaction under such agreement be equivalent to those to which an independent unrelated party would agree at arm's-length.

 

Disclosure and Option to License Agreement. Pursuant to the Disclosure and Option to License Agreement (the “License Agreement”), AVX and Kyocera exchange confidential information relating to the development and manufacture of multi-layered ceramic capacitors and various other ceramic products, as well as the license of technologies in certain circumstances. The License Agreement has a term of one year with automatic one-year renewals, subject to the right of termination by either party at the end of the then current term upon at least six months prior written notice.

 

Materials Supply Agreement. Pursuant to the Materials Supply Agreement (the “Supply Agreement”), AVX and Kyocera will, from time to time, supply the other party with certain raw and semi-processed materials used in the manufacture of capacitors and other electronic components. The Supply Agreement has a term of one year, with automatic one-year renewals, subject to the right of termination by either party at the end of the then current term upon at least six months prior written notice.

 

Machinery and Equipment Purchase Agreement. Pursuant to the Machinery and Equipment Purchase Agreement (the “Machinery Purchase Agreement”), AVX and Kyocera will, from time to time, design and manufacture for the other party certain equipment and machinery of a proprietary and confidential nature used in the manufacture of capacitors and other electronic components. The Machinery Purchase Agreement has a term of one year, with automatic one-year renewals, subject to the right of termination by either party at the end of the then current term upon at least six months prior written notice.

 

Products Supply and Distribution Agreement. Pursuant to the Products Supply and Distribution Agreement (the “Distribution Agreement”) (i) AVX will act as the non-exclusive distributor of certain Kyocera-manufactured products to certain customers in certain territories outside of Japan and (ii) Kyocera will act as the non-exclusive distributor of certain AVX-manufactured products within Japan. Each party has the ability to appoint a replacement distributor of its products with a minimum one year’s notice period. The Distribution Agreement has a term of one year, with automatic one-year renewals, subject to the right of termination by either party at the end of the then current term upon at least three months prior written notice. As a result of the December 2016 and January 2017 notices referred to above, this agreement effectively terminated effective April 1, 2018.

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

Foreign Currency

 

 We are exposed to foreign currency exchange risk with respect to our sales, profits, and assets and liabilities denominated in currencies other than the U.S. dollar. Although we use financial instruments to hedge certain foreign currency risks, we are not fully protected against foreign currency fluctuations and our reported results of operations could be affected by changes in foreign currency exchange rates. International revenues and expenses transacted by our foreign subsidiaries may be denominated in local currency. See Note 14 to the consolidated financial statements elsewhere herein for further discussion of derivative financial instruments.

 

For fiscal 2018, our exposure to foreign currency exchange risk was estimated using a sensitivity analysis, which illustrates a hypothetical change in the average foreign currency exchange rates used during the year. Actual changes in foreign currency exchange rates may differ from this hypothetical change. Based on a hypothetical increase or decrease of 10% in the exchange rates, assuming no hedging against foreign currency rate changes, we would have incurred an additional foreign currency gain or loss of approximately $53.4 million in fiscal 2018.

 

Materials

 

We are at risk to fluctuations in prices for commodities used to manufacture our products, primarily tantalum, palladium, platinum, silver, nickel, gold, and copper.

 

Tantalum powder and wire are principal materials used in the manufacture of tantalum capacitor products. The tantalum required to manufacture our products has generally been available in sufficient quantity. The limited number of tantalum material suppliers has led to higher prices during periods of increased demand. 

 

 

Item 8.

Financial Statements and Supplementary Data

 

The following consolidated financial statements of the Company and its subsidiaries, together with the Report of Independent Registered Public Accounting Firm thereon, are presented beginning on page 46 of this report:

 

   

Consolidated Balance Sheets, March 31, 2017 and 2018 

46

Consolidated Statements of Operations, Years Ended March 31, 2016, 2017, and 2018

47

Consolidated Statements of Comprehensive Income (Loss), Years Ended March 31, 2016, 2017, and 2018

48

Consolidated Statements of Stockholders’ Equity, Years Ended March 31, 2016, 2017, and 2018

49

Consolidated Statements of Cash Flows, Years Ended March 31, 2016, 2017, and 2018

50

Notes to Consolidated Financial Statements

51

Report of Independent Registered Public Accounting Firm 

80

 

All financial statement schedules are omitted because of the absence of the conditions under which they are required or because the information required is shown in the consolidated financial statements or notes thereto.

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

 

Item 9A.

Controls and Procedures

 

Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

 

In connection with the preparation of this Annual Report on Form 10-K, as of March 31, 2018, an evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures. Based on the evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2018 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the CEO and CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosures.

 

Management’s Report on Internal Control over Financial Reporting

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2018. In making its assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on the results of this assessment, management, including the CEO and CFO, has concluded that the Company’s internal control over financial reporting was effective as of the end of its fiscal year ended March 31, 2018.

 

The scope of management’s assessment of the effectiveness of internal control over financial reporting includes all of the Company’s consolidated operations except for the operations of S&C and Ethertronics, which the Company acquired on October 2, 2017 and January 31, 2018, respectively. S&C’s and Ethertronics’ operations represent 12.4% and 0.8%, respectively, of the Company’s consolidated revenues for the fiscal year ended March 31, 2018, and assets associated with S&C’s and Ethertronics’ operations represent 7.9% and 0.1%, respectively, of the Company’s consolidated total assets, as of March 31, 2018.

 

PricewaterhouseCoopers LLP, our independent registered public accounting firm, has issued an attestation report on the Company’s internal control over financial reporting as of March 31, 2018, as stated in their report, which appears in this Form 10-K.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

Item 9B.

Other Information

None.

PART III

 

Item 10.

Directors, Executive Officers, and Corporate Governance

 

Information required by this item with respect to our directors, the committees of the Board of Directors, corporate governance and compliance by our directors, executive officers, and certain beneficial owners of our common stock with Section 16(a) of the Exchange Act is provided by incorporation by reference to information under the captions entitled “Proposal I Election of Directors,” “Board of Directors – Governance,” “Board of Directors – Meetings Held and Committees,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company's definitive proxy statement for the 2018 Annual Meeting of Stockholders (the “Proxy Statement”) and perhaps elsewhere therein. Information required by this item relating to our executive officers also appears in Item 1 of Part I of this Form 10-K under the caption “Executive Officers of the Registrant.”

 

Code of Business Conduct and Ethics

 

As discussed above in “Company Information and Website” in Item 1 of Part I of this Annual Report on Form 10-K, our Code of Business Conduct and Ethics and the Code of Business Conduct and Ethics Supplement Applicable to the Chief Executive Officer, Chief Financial Officer, Controllers and Financial Managers have been posted on our website. We will post on our website any amendments to, or waivers from, a provision of the Code of Business Conduct and Ethics or the Supplement Applicable to the Chief Executive Officer, Chief Financial Officer, Controllers and Financial Managers that applies to our principal executive officer, principal financial officer, principal accounting officer, or controller, or persons performing similar functions, and that relates to any of the following: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications made by us; (iii) compliance with applicable governmental laws, rules, and regulations; (iv) the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; or (v) accountability for adherence to the code.

 

Item 11.

Executive Compensation

 

The information required by this item is provided by incorporation by reference to information under the captions entitled “Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report,” “Compensation Discussion and Analysis,” and “Executive Compensation” in the Proxy Statement and perhaps elsewhere therein.

 

Item 12.

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

 

The information required by this item is provided by incorporation by reference to information under the captions entitled “Ownership of Securities by Directors, Director Nominees and Executive Officers,” “Security Ownership of Certain Beneficial Owners,” and “Equity Compensation Plan Information” in the Proxy Statement and perhaps elsewhere therein.

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

The information required by this item is provided by incorporation by reference to information under the caption “Relationship with Kyocera and Related Transactions” and “Board of Directors – Governance” in the Proxy Statement and perhaps elsewhere therein.

 

Item 14.

Principal Accounting Fees and Services

 

The information required by this item is provided by incorporation by reference to information under the caption entitled “Report of the Audit Committee – Principal Independent Registered Public Accounting Firm Fees” in the Proxy Statement and perhaps elsewhere therein.

 

 

PART IV

 

Item 15.

Exhibits and Financial Statement Schedules

 

 

(a)

Financial Statements and Financial Statement Schedules - See Index to Consolidated Financial Statements at Item 8 of this report.

   

(b)

Exhibits:

   
 

As indicated below, certain of the exhibits to this report are hereby incorporated by reference from other documents on file with the Securities and Exchange Commission.

   

3.1

Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 (File No. 33-94310) of the Company (the “Form S-1”)).

   

3.2

By-laws of AVX Corporation as Amended and Restated May 7, 2012 (incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 11, 2012).

   

10.1

Products Supply and Distribution Agreement by and between Kyocera Corporation and AVX Corporation (incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K of the Company for the year ended March 31, 2000).

   

*10.2

AVX Nonqualified Supplemental Retirement Plan Amended and Restated effective January 1, 2008 (the AVX Corporation SERP was merged into this plan effective January 1, 2005) (incorporated by reference to Exhibit 10.4 to the Annual Report on Form10-K of the Company for the year ended March 31, 2009).

   

*10.3

Amendment to AVX Nonqualified Supplemental Retirement Plan, effective December 15, 2014. (incorporated by reference to Exhibit 10.4 to the Annual Report on Form10-K of the Company for the year ended March 31, 2015).

   

*10.4

AVX Corporation 2004 Stock Option Plan as amended through July 23, 2008 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2008).

   

*10.5

AVX Corporation 2004 Non-Employee Directors’ Stock Option Plan as amended through July 28, 2008 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2008).

   

*10.6

Form of Notice of Grant of Stock Options and Option Agreement for awards pursuant to AVX Corporation 2004 Stock Option Plan and AVX Corporation 2004 Non-Employee Directors’ Stock Option Plan (incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K of the Company for the year ended March 31, 2013).

   

10.7

Machinery and Equipment Purchase Agreement by and between Kyocera Corporation and AVX Corporation (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K of the Company for the year ended March 31, 2005).

   

10.8

Materials Supply Agreement by and between Kyocera Corporation and AVX Corporation (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K of the Company for the year ended March 31, 2005).

   

10.9

 

Disclosure and Option to License Agreement effective as of April 1, 2008 by and between Kyocera Corporation and AVX Corporation (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on March 25, 2008).

   

10.10

Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K of the Company for year ended March 31, 2010).

   

10.11

Supplemental Consent Decree with Defendant AVX Corporation containing agreement among the Company, the United States Environmental Protection Agency and the Commonwealth of Massachusetts, dated October 10, 2012 (incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on October 11, 2012).

   

*10.12

AVX Corporation 2014 Stock Option Plan (incorporated by reference to Exhibit 10.17 of the Annual Report on Form 10K/A of the Company for the year ended March 31, 2013).

   

*10.13

AVX Corporation 2014 Non-Employee Directors’ Stock Option Plan as amended May 12, 2016 (incorporated by reference to Exhibit 10.13 of the Annual Report on Form 10-K of the Company for the year ended March 31, 2016).

   

*10.14

Form of Notice of Grant of Stock Options and Option Agreement for awards pursuant to AVX Corporation 2014 Stock Option Plan and AVX Corporation 2014 Non-Employee Directors’ Stock Option Plan (incorporated by reference to Exhibit 10.19 of the Annual Report on Form 10-K of the Company for the year ended March 31, 2014).

 

 

*10.15

AVX Corporation 2014 Restricted Stock Unit Plan (incorporated by reference to Exhibit 99.1 of Form S-8 filed with the Securities and Exchange Commission on August 6, 2014.)

   

*10.16

AVX Corporation 2014 Management Incentive Plan, as amended August 2, 2017, and effective April 1, 2017 (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2017).

   

*10.17

Form of Notice of Grant of Restricted Stock Units for awards pursuant to AVX Corporation 2014 Restricted Stock Unit Plan (incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2016).

   

10.18

 

Technology Disclosure Agreement, effective as of October 7, 2016, between the Company and Kyocera Corporation (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of the Company for the period ended December 31, 2016).

   

10.19

Sale and Purchase Agreement, dated July 19, 2017, among AVX Limited, AVX Corporation and TT Electronics, PLC related to the acquisition of the Transportation, Sensing and Control division from the U.S. Company, TT Electronics, PLC (incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2017.

   
*10.20 Agreement and Plan of Merger, dated December 29, 2017, by and among AVX Corporation, Armstrong Alpert, Inc., Ethertronics, Inc., and Fortis Advisors LLC (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of the Company for the period ended December 31, 2017).
   
10.21 Share Purchase and Transfer Agreement, dated March 27, 2018 by and among AVX Corporation, AVX INTERCONNECT Europe GmbH, and the Shareholders of  KUMATEC.
   

*10.22

Agreement between AVX Corporation and Kurt P. Cummings dated March 26, 2018

   

21.1

Subsidiaries of the Registrant.

   

23.1

Consent of PricewaterhouseCoopers LLP.

   

24.1

Power of Attorney

   

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer – John Sarvis

   

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer – Kurt P. Cummings

   

32.1

Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - John Sarvis and Kurt P. Cummings

   
101.INS** XBRL Instance
   
101.SCH** XBRL Taxonomy Extension Schema
   
101.CAL** XBRL Taxonomy Extension Calculation
   
101.DEF** XBRL Taxonomy Extension Definition
   
101.LAB** XBRL Taxonomy Extension Labels
   
101.PRE** XBRL Taxonomy Extension Presentation

 

* Agreement relates to executive compensation.

**XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

AVX Corporation

 

by: /s/ Michael E. Hufnagel

MICHAEL E. HUFNAGEL

Vice President of Corporate Finance

 

Dated: May 18, 2018

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

 

Title

Date

       

/s/ John Sarvis

 

Chairman of the Board, Chief Executive Officer and President

May 18, 2018

John Sarvis

 

(Principal Executive Officer)

 
       

/s/ Kurt P. Cummings

 

Executive Vice President, Chief Financial Officer, Treasurer

May 18, 2018

Kurt P. Cummings

 

(Principal Financial Officer)

 
       

/s/ Michael E. Hufnagel

 

Vice President of Corporate Finance

May 18, 2018

Michael E. Hufnagel

 

(Principal Accounting Officer)

 

*

     

Goro Yamaguchi

 

Director

May 18, 2018

*

     

Hideo Tanimoto

 

Director

May 18, 2018

*

     

Shoichi Aoki

 

Director

May 18, 2018

*

     

Koichi Kano

 

Director

May 18, 2018

*

     

Hiroshi Fure

 

Director

May 18, 2018

*

     

Donald B. Christiansen

 

Director

May 18, 2018

*

     

David DeCenzo

 

Director

May 18, 2018

*

     

Joseph Stach

 

Director

May 18, 2018

       

* by: /s/ Kurt P. Cummings

 

           KURT P. CUMMINGS, Attorney-in-Fact for each of the persons indicated.

 

 

 

AVX Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands, except per share data)

 

 

   

As of March 31,

 
   

2017

   

2018

 

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 578,634     $ 547,415  

Short-term investments in securities

    528,748       279,787  

Accounts receivable - trade, net

    176,730       275,259  

Accounts receivable - affiliates

    10,074       9,255  

Inventories, net

    474,128       516,777  

Income taxes receivable

    34,287       2,566  

Prepaid and other

    33,803       70,665  

Total current assets

    1,836,404       1,701,724  

Property and equipment, net

    239,951       418,286  

Goodwill

    213,051       316,298  

Intangible assets, net

    53,650       128,612  

Deferred income taxes

    124,589       75,720  

Other assets

    9,768       32,126  

Total Assets

  $ 2,477,413     $ 2,672,766  

Liabilities and Stockholders' Equity

               

Current liabilities:

               

Accounts payable - trade

  $ 43,778     $ 89,726  

Accounts payable - affiliates

    36,663       26,320  

Income taxes payable

    3,944       8,290  

Accrued payroll and benefits

    32,980       52,044  

Accrued expenses

    98,702       118,183  

Total current liabilities

    216,067       294,563  

Income taxes payable

    -       69,645  

Pensions

    12,663       10,605  

Deferred income taxes

    957       12,895  

Other liabilities

    31,247       41,615  

Total non-current liabilities

    44,867       134,760  

Total Liabilities

    260,934       429,323  

Commitments and contingencies (Note 13)

               

Stockholders' Equity:

               

Preferred stock, par value $.01 per share:

    -       -  

Authorized, 20,000 shares; None issued and outstanding

               

Common stock, par value $.01 per share:

    1,764       1,764  

Authorized, 300,000 shares; issued, 176,369 shares; outstanding, 167,930 and 168,434 shares for 2017 and 2018, respectively

               

Additional paid-in capital

    357,203       360,077  

Retained earnings

    2,033,285       1,962,467  

Accumulated other comprehensive (loss)

    (67,163 )     21,257  

Treasury stock, at cost, 8,439 and 7,935 shares for 2017 and 2018, respectively

    (108,610 )     (102,122 )

Total Stockholders' Equity

    2,216,479       2,243,443  

Total Liabilities and Stockholders' Equity

  $ 2,477,413     $ 2,672,766  

 

See accompanying notes to consolidated financial statements.

 

 

 

AVX Corporation and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

 

 

   

Fiscal Year Ended March 31,

 
   

2016

   

2017

   

2018

 

Net sales

  $ 1,195,529     $ 1,312,661     $ 1,562,474  

Cost of sales

    906,460       1,027,906       1,243,612  

Gross profit

    289,069       284,755       318,862  

Selling, general and administrative expenses

    119,767       117,598       140,528  

Legal and environmental (benefit) charges

    45,318       3,600       (1,500 )

Profit from operations

    123,984       163,557       179,834  

Other income (loss):

                       

Interest income

    5,003       7,381       12,778  

Other, net

    3,165       4,011       (299 )

Income before income taxes

    132,152       174,949       192,313  

Provision for income taxes

    30,617       49,164       187,403  

Net income

  $ 101,535     $ 125,785     $ 4,910  
                         

Income per share:

                       

Basic

  $ 0.61     $ 0.75     $ 0.03  

Diluted

  $ 0.60     $ 0.75     $ 0.03  
                         

Dividends declared (per share)

  $ 0.42     $ 0.43     $ 0.45  

Weighted average common shares outstanding:

                       

Basic

    167,797       167,506       168,262  

Diluted

    167,961       167,837       168,925  

 

See accompanying notes to consolidated financial statements.

 

 

 

AVX Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

 

   

Fiscal Year Ended March 31,

 
   

2016

   

2017

   

2018

 

Net income

  $ 101,535     $ 125,785     $ 4,910  

Other comprehensive income, net of income taxes:

                       

Foreign currency translation adjustment

    14,330       (14,674 )     76,711  

Foreign currency cash flow hedges adjustment

    2       183       (490)  

Pension liabilities adjustment

    8,209       (7,527 )     12,199  

Other post-employment obligations

    (244 )     (777 )     -  

Other comprehensive income (loss), net of income taxes

    22,297       (22,795 )     88,420  

Comprehensive income

  $ 123,832     $ 102,990     $ 93,330  

 

See accompanying notes to consolidated financial statements.

 

 

 

AVX Corporation and Subsidiaries

Consolidated Statements of Stockholders Equity

(in thousands, except per share data)

 

 

                                           

Accumulated

         
   

Common Stock

           

Additional

           

Other

         
   

Number

           

Treasury

   

Paid-In

   

Retained

   

Comprehensive

         
   

Of Shares

   

Amount

   

Stock

   

Capital

   

Earnings

   

Income (Loss)

   

Total

 

Balance at March 31, 2015

    168,191     $ 1,764     $ (104,608 )   $ 352,996     $ 1,948,476     $ (66,665 )   $ 2,131,963  

Net income

    -       -       -       -       101,535       -       101,535  

Other comprehensive income, net of income taxes

    -       -       -       -       -       22,297       22,297  

Dividends of $0.42 per share

    -       -       -       -       (70,499 )     -       (70,499 )

Stock-based compensation expense

    -       -       -       1,229       -       -       1,229  

Stock option activity

    62       -       805       (97 )     -       -       708  

Tax benefit of stock option exercises

    -       -       -       58       -       -       58  

Treasury stock purchased

    (761 )     -       (10,185 )     -       -       -       (10,185 )

Balance at March 31, 2016

    167,492     $ 1,764     $ (113,988 )   $ 354,186     $ 1,979,512     $ (44,368 )   $ 2,177,106  

Net income

    -       -       -       -       125,785       -       125,785  

Other comprehensive loss, net of income taxes

    -       -       -       -       -       (22,795 )     (22,795 )

Dividends of $0.43 per share

    -       -       -       -       (72,012 )     -       (72,012 )

Stock-based compensation expense

    -       -       -       2,327       -       -       2,327  

Stock option activity

    794       -       10,211       (93 )     -       -       10,118  

Tax benefit of stock option exercises

    -       -       -       782       -       -       782  

Treasury stock purchased

    (356 )     -       (4,833 )     -       -       -       (4,833 )

Balance at March 31, 2017

    167,930     $ 1,764     $ (108,610 )   $ 357,203     $ 2,033,285     $ (67,163 )   $ 2,216,479  

Net income

    -       -       -       -       4,910       -       4,910  

Other comprehensive loss, net of income taxes

    -       -       -       -       -       88,420       88,420  

Dividends of $0.45 per share

    -       -       -       -       (75,728 )     -       (75,728 )

Stock-based compensation expense

    -       -       -       3,407       -       -       3,407  

Stock option activity

    504       -       6,488       (10 )     -       -       6,478  
Payments of tax withholding for vested restricted stock units     -       -       -       (523 )     -       -       (523 )

Balance at March 31, 2018

    168,434     $ 1,764     $ (102,122 )   $ 360,077     $ 1,962,467     $ 21,257     $ 2,243,443  

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

AVX Corporation and Subsidiaries

Consolidated Statements of Cash Flows

 (in thousands)

 

 

   

Fiscal Year Ended March 31,

 
   

2016

   

2017

   

2018

 

OPERATING ACTIVITIES:

                       

Net income 

  $ 101,535     $ 125,785     $ 4,910  

Adjustment to reconcile net income to net cash from operating activities:

                       

Depreciation and amortization

    38,951       42,687       59,788  

Stock-based compensation expense

    1,229       2,327       3,407  

Deferred income taxes

    26,722       (2,175 )     43,993  

Gain (loss) on disposal of property and equipment

    87       (1,894 )     267  

Changes in operating assets and liabilities, excluding acquisitions :

                       

Accounts receivable

    20,578       (18,116 )     (26,075 )

Inventories

    55,482       6,798       20,850  

Accounts payable and accrued expenses

    (77,494 )     33,447       (32,981 )

Income taxes payable

    (591 )     (39,272 )     72,112  

Other assets

    8,429       13,219       50,037  

Other liabilities

    (8,487 )     32,205       (811 )

Net cash provided by operating activities

    166,441       195,011       195,497  
                         

INVESTING ACTIVITIES:

                       

Purchases of property and equipment

    (48,103 )     (66,288 )     (100,537 )

Purchase of business, net of cash and debt acquired

    -       -       (290,280 )

Purchases of investment securities

    (771,178 )     (1,449,298 )     (1,724,921 )

Redemptions of investment securities

    803,470       1,500,586       1,978,157  

Proceeds from property, plant & equipment dispositions

    1,084       11,266       36  

Other investing activities

    -       -       (969 )

Net cash used in investing activities

    (14,727 )     (3,734 )     (138,514 )
                         

FINANCING ACTIVITIES:

                       

Dividends paid

    (70,499 )     (72,012 )     (75,728 )

Purchase of treasury stock

    (10,185 )     (4,833 )     -  

Proceeds from exercise of stock options

    708       10,118       5,955  

Principle payments of debt

    -       -       (21,106 )
   Payments of tax withholding for vested restricted stock units     -       -       (523 )

Excess tax benefit from stock-based payment arrangements

    58       782       -  

Net cash used in financing activities

    (79,918 )     (65,945 )     (91,402 )

Effect of exchange rate on cash

    807       (906 )     3,200  

Increase (decrease) in cash and cash equivalents

    72,603       124,426       (31,219 )

Cash and cash equivalents at beginning of period

    381,605       454,208       578,634  

Cash and cash equivalents at end of period

  $ 454,208     $ 578,634     $ 547,415  

 

See accompanying notes to consolidated financial statements.

 

 

AVX Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except per share data)

 

 

1. Summary of Significant Accounting Policies:

 

General:

 

AVX Corporation is a leading worldwide manufacturer, supplier and reseller of a broad line of electronic components and interconnect, sensing and control devices, and related products. The consolidated financial statements of AVX Corporation (“AVX” or “the Company”) include all accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated.

 

From January 1990 through August 15, 1995, we were wholly owned by Kyocera Corporation (“Kyocera”). As of March 31, 2018, Kyocera owned approximately 72% of our outstanding shares of common stock.

 

Use of Estimates:

 

The consolidated financial statements are prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. We base our estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates. On an ongoing basis, we evaluate our accounting policies and disclosure practices.

 

Cash Equivalents and Investments in Securities:

 

We consider all highly liquid investments purchased with an original maturity of three months (90 days) or less to be cash equivalents.

 

Our short-term and long-term investment securities are accounted for as held-to-maturity securities and are carried at amortized cost. We have the ability and intent to hold these investments until maturity. All income generated from the held-to-maturity securities investments are recorded as interest income.

 

Inventories:

 

       We determine the cost of raw materials, work in process, and finished goods inventories by the first-in, first-out (“FIFO”) method. Manufactured inventory costs include material, labor, and manufacturing overhead. Inventories are valued at the lower of cost or market (realizable value) and are valued at market value where there is evidence that the utility of goods will be less than cost and that such write-down should occur in the current period. Accordingly, at the end of each period, we evaluate our inventory and adjust to net realizable value. We review and adjust the carrying value of our inventories based on historical usage, customer forecasts received from marketing and sales personnel, customer backlog, certain date code restrictions, technology changes, demand increases and decreases, market directional shifts, and obsolescence and aging.

 

Property and Equipment:

 

Property and equipment are recorded at cost. Machinery and equipment are depreciated on the double-declining balance and straight-line methods. Buildings are depreciated on the straight-line method. The estimated useful lives used for computing depreciation are as follows: buildings and improvements – 10 to 31.5 years, machinery and equipment – 3 to 10 years. Depreciation expense was $33,918, $37,493 and $50,813 for the fiscal years ended March 31, 2016, 2017 and 2018, respectively.

 

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of any such assets may not be recoverable. If the sum of the undiscounted cash flows is less than the carrying value of the related assets, we recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the assets.

 

The cost of maintenance and repairs is charged to expense as incurred. Upon disposal or retirement, the cost and accumulated depreciation of assets are eliminated from the respective accounts. Any gain or loss is reflected in our results of operations.

 

 

Goodwill and Acquired Intangible Assets:

 

We do not amortize goodwill. We test goodwill for impairment annually or whenever conditions indicate that such impairment could exist. The carrying value of goodwill is evaluated in relation to the operating performance and estimated future discounted cash flows of the related reporting unit. If the sum of the discounted cash flows is less than the carrying value of the related assets, we recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the assets. The estimate of cash flow is based upon, among other things, certain assumptions about expected future operating performance. Our annual goodwill impairment analysis indicated that there was no related impairment for the fiscal years ended March 31, 2016, 2017, or 2018.

 

We have determined that our intangible assets have finite useful lives. Intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense was $5,033, $5,194, and $9,006 for the fiscal years ended March 31, 2016, 2017, and 2018, respectively.

 

 

   

March 31, 2017

   

March 31, 2018

 
   

Gross Carrying Amount

   

Accumulated Amortization

   

Gross Carrying Amount

   

Accumulated Amortization

 

Amortized intangible assets:

                               

Customer relationships

  $ 51,000     $ (26,917 )   $ 96,388     $ (30,819 )

Developed technology and other

    14,521       (12,153 )     43,689       (13,816 )

Trade name and trademarks

    34,000       (6,800 )     43,380       (10,210 )

Total

    99,521       (45,870 )     183,457