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 beginning after December 15, 2016, and interim periods within those annual periods. Management is currently evaluating the impact of this guidance on our consolidated financial statements.
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 adop
tion.
2. Earnings Per Share:
Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share are computed by dividing net earnings by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the dilutive effect of potential common stock equivalents during the period. Stock options are the only common stock equivalents currently used in our calculation and are computed using the treasury stock method.
The table below represents the basic and diluted
earnings per share and sets forth the
weighted average number of shares of common st
ock outstanding
and
the dilutive effect of
potential common stock equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
December 31,
|
|
|
December 31,
|
|
|
2015
|
|
2016
|
|
|
2015
|
|
2016
|
Net income
|
|
$
|
5,374
|
|
$
|
35,519
|
|
|
$
|
68,870
|
|
$
|
91,928
|
Computation of Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding used in Computing Basic EPS
|
|
|
167,655
|
|
|
167,418
|
|
|
|
167,883
|
|
|
167,399
|
Basic earnings per share
|
|
$
|
0.03
|
|
$
|
0.21
|
|
|
$
|
0.41
|
|
$
|
0.55
|
Computation of Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding used in Computing Basic EPS
|
|
|
167,655
|
|
|
167,418
|
|
|
|
167,883
|
|
|
167,399
|
Effect of stock options
|
|
|
178
|
|
|
438
|
|
|
|
200
|
|
|
265
|
Weighted Average Shares used in Computing Diluted EPS
(1)
|
|
|
167,833
|
|
|
167,856
|
|
|
|
168,083
|
|
|
167,664
|
Diluted earnings per share
|
|
$
|
0.03
|
|
$
|
0.21
|
|
|
$
|
0.41
|
|
$
|
0.55
|
(1) Common stock equivalents not included in the computation of diluted earnings per share because the impact would have been antidilutive were
2,725
shares and
776
shares for the three months ended
Dec
ember
3
1
, 20
1
5
and 201
6
, respectivel
y,
and
2,548
shares
and
1,580
shares
for the nine
months
ended Dec
ember 3
1
, 2015 and 2016, respectively.
3. Trade Accounts Receivable:
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|
|
|
|
|
March 31, 2016
|
|
December 31, 2016
|
Gross Accounts Receivable - Trade
|
$
|
183,871
|
|
$
|
201,417
|
Less:
|
|
|
|
|
|
Allowances for doubtful accounts
|
|
423
|
|
|
1,205
|
Stock rotation and ship from stock and debit
|
|
14,314
|
|
|
17,565
|
Sales returns and discounts
|
|
6,681
|
|
|
7,396
|
Total allowances
|
|
21,418
|
|
|
26,166
|
|
$
|
162,453
|
|
$
|
175,251
|
Charges related to allowances for doubtful accounts are charged to selling, general and administrative expenses. Charges related to stock rotation, ship from stock and debit, sales returns
,
and sales discounts are reported as deductions from revenue.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
December 31,
|
|
|
December 31,
|
|
2015
|
|
2016
|
|
|
2015
|
|
2016
|
Allowances for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
$
|
732
|
|
$
|
1,160
|
|
|
$
|
659
|
|
$
|
423
|
Charges
|
|
-
|
|
|
45
|
|
|
|
81
|
|
|
782
|
Applications
|
|
(343)
|
|
|
-
|
|
|
|
(351)
|
|
|
-
|
Ending Balance
|
$
|
389
|
|
$
|
1,205
|
|
|
$
|
389
|
|
$
|
1,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
December 31,
|
|
|
December 31,
|
|
2015
|
|
2016
|
|
|
2015
|
|
2016
|
Stock rotation and ship from stock and debit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
$
|
16,171
|
|
$
|
18,803
|
|
|
$
|
16,378
|
|
$
|
14,314
|
Charges
|
|
7,309
|
|
|
5,362
|
|
|
|
22,157
|
|
|
19,649
|
Applications
|
|
(8,511)
|
|
|
(6,600)
|
|
|
|
(23,566)
|
|
|
(16,398)
|
Ending Balance
|
$
|
14,969
|
|
$
|
17,565
|
|
|
$
|
14,969
|
|
$
|
17,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
December 31,
|
|
|
December 31,
|
|
2015
|
|
2016
|
|
|
2015
|
|
2016
|
Sales returns and discounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
$
|
6,430
|
|
$
|
6,138
|
|
|
$
|
6,186
|
|
$
|
6,681
|
Charges
|
|
7,305
|
|
|
4,698
|
|
|
|
17,903
|
|
|
12,079
|
Applications
|
|
(6,958)
|
|
|
(3,388)
|
|
|
|
(17,341)
|
|
|
(11,307)
|
Translation and other
|
|
(20)
|
|
|
(52)
|
|
|
|
9
|
|
|
(57)
|
Ending Balance
|
$
|
6,757
|
|
$
|
7,396
|
|
|
$
|
6,757
|
|
$
|
7,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Fair Value:
Fair Value Hierarchy:
The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to value the assets or liabilities.
Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
|
-
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|
Level 1
: Unadjusted quoted prices in active markets for identical assets and liabilities.
|
|
-
|
|
Level 2
: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
|
|
-
|
|
Level 3
: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
|
During the three
and nine
month period
s
ended
Dec
ember
3
1
,
201
5 and 2016
, there have been no transfers of assets or liabilities between levels within the fair value hierarchy.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
prices
|
|
Other
|
|
|
|
|
|
|
in active
|
|
observable
|
|
Unobservable
|
|
Fair Value at
|
|
markets
|
|
inputs
|
|
inputs
|
|
March 31, 2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
Assets held in the non-qualified deferred
compensation program
(1)
|
$
|
4,961
|
|
$
|
3,710
|
|
$
|
1,251
|
|
$
|
-
|
Foreign currency derivatives
(2)
|
|
1,409
|
|
|
-
|
|
|
1,409
|
|
|
-
|
Total
|
$
|
6,370
|
|
$
|
3,710
|
|
$
|
2,660
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
prices
|
|
Other
|
|
|
|
|
|
|
in active
|
|
observable
|
|
Unobservable
|
|
Fair Value at
|
|
markets
|
|
inputs
|
|
inputs
|
|
March 31, 2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
Obligation related to assets held in the non-qualified deferred compensation program
(1)
|
$
|
4,961
|
|
$
|
3,710
|
|
$
|
1,251
|
|
$
|
-
|
Foreign currency derivatives
(2)
|
|
1,350
|
|
|
-
|
|
|
1,350
|
|
|
-
|
Total
|
$
|
6,311
|
|
$
|
3,710
|
|
$
|
2,601
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
prices
|
|
Other
|
|
|
|
|
|
|
in active
|
|
observable
|
|
Unobservable
|
|
Fair Value at
|
|
markets
|
|
inputs
|
|
inputs
|
|
December 31, 2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
Assets held in the non-qualified deferred
compensation program
(1)
|
$
|
5,862
|
|
$
|
4,370
|
|
$
|
1,492
|
|
$
|
-
|
Foreign currency derivatives
(2)
|
|
1,946
|
|
|
-
|
|
|
1,946
|
|
|
-
|
Total
|
$
|
7,808
|
|
$
|
4,370
|
|
$
|
3,438
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
prices
|
|
Other
|
|
|
|
|
|
|
|
|
in active
|
|
|
observable
|
|
|
Unobservable
|
|
Fair Value at
|
|
|
markets
|
|
inputs
|
|
inputs
|
|
December 31, 2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
Obligation related to assets held in the non-qualified deferred compensation program
(1)
|
$
|
5,862
|
|
$
|
4,370
|
|
$
|
1,492
|
|
$
|
-
|
Foreign currency derivatives
(2)
|
|
4,073
|
|
|
-
|
|
|
4,073
|
|
|
-
|
Total
|
$
|
9,935
|
|
$
|
4,370
|
|
$
|
5,565
|
|
$
|
-
|
(1) The market value of the assets held in the trust for the non-qualified deferred compensation program is included as an asset and as a liability as the trust’s assets are both assets of the Company and also a liability as they are available to general creditors in certain circumstances.
(2)
Foreign currency derivatives in the form of forward contracts are included in
prepaid and other
and accrued expenses
in the consolidated balance sheets. Unrealized gains and losses on derivatives classified as cash flow hedges are recorded in other comprehensive income (loss).
Realized gains and losses on derivatives classified as cash flow hedges
are recorded in the consolidated statement of operations as revenues and costs of sales
,
and gains and losses on derivatives not designated as
cash flow
hedges are recorded in
other income.
Valuation Techniques:
The following describes valuation techniques used to appropriately value our assets held in the non-qualified deferred compensation plan and derivatives.
Assets held in the non-qualified deferred compensation plan
Assets valued using Level 1
and Level 2
inputs in the table above represent assets from our non-qualified deferred compensation program.
The funds in the non-qualified deferred compensation program are valued based on the number of shares in the funds using a price per share traded in an active market.
Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. If the cost of an investment exceeds its fair value, among other factors, we evaluate general market conditions, the duration and extent to which the fair value is less than cost, and whether or not we expect to recover the security's entire amortized cost basis. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in
the investment is established.
Derivatives
We primarily use forward contracts, with maturities generally less than four months, designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in our forecasted transactions related to purchase commitments and sales, denominated in various currencies. We also use derivatives not designated as hedging instruments to hedge foreign currency balance sheet exposures.
These derivatives are used to offset currency changes in the fair value of the hedged assets and liabilities. Fair values for all of our derivative financial instruments are valued by adjusting the market spot rate by forward points, based on the date of the contract.
The spot rates and forward points used are an average rate from an actively traded market. At March 31, 201
6
and
December
3
1
, 201
6
, all of our forward contracts are
valued using
Level 2 measurements.
5. Financial Instruments and Investments in Securities:
At March 31, 2016 and Dec
ember
3
1
, 2016, we classified investments in debt securities and time deposits
as held-to-maturity securities.
Our long-term and short-term investment securities are accounted for as held-to-maturity securities and are carried at amortized cost. We have the ability and intent to hold these investments until maturity. All income generated from the held-to-maturity securities investments a
re recorded as interest income.
Investments in held-to-maturity securities, recorded at amortized cost, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
Estimated
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
$
|
494,594
|
|
$
|
296
|
|
$
|
-
|
|
$
|
494,890
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
85,577
|
|
|
39
|
|
|
(28)
|
|
|
85,588
|
|
$
|
580,171
|
|
$
|
335
|
|
$
|
(28)
|
|
$
|
580,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
Estimated
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
10,233
|
|
$
|
-
|
|
$
|
(7)
|
|
$
|
10,226
|
Time deposits
|
|
614,408
|
|
|
274
|
|
|
-
|
|
|
614,682
|
|
$
|
624,641
|
|
$
|
274
|
|
$
|
(7)
|
|
$
|
624,908
|
The amortized cost and estimated fair value of h
eld
-to-maturity investments at Dec
ember
3
1
, 2016, by contractual maturity, are shown below. The estimated fair value of these investments are based on valuation inputs that include benchmark yields, reported trades, broker and dealer quotes, issuer spreads, two-sided markets, benchmark securities bids, offers, and reference data, which are Level 2 inputs in the fair value hierarchy. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
Amortized
|
|
Estimated
|
|
|
|
|
Cost
|
|
Fair Value
|
Due in one year or less
|
|
|
|
$
|
624,641
|
|
$
|
624,908
|
Due after one year through five years
|
|
|
|
|
-
|
|
|
-
|
Total
|
|
|
|
$
|
624,641
|
|
$
|
624,908
|
6. Inventories:
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2016
|
Finished goods
|
$
|
85,617
|
|
$
|
78,374
|
Work in process
|
|
101,436
|
|
|
102,303
|
Raw materials and supplies
|
|
297,215
|
|
|
282,653
|
|
$
|
484,268
|
|
$
|
463,330
|
7
. Commitments and Contingencies:
We have been identified by the United States Environmental Protection Agency (“EPA”), state governmental agencies or other private parties as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or equivalent state or local laws for clean-up and response costs associated with certain sites at which remediation is required with respect to prior contamination. Because CERCLA or such state statutes authorize joint and several liability, the EPA or state regulatory authorities could seek to recover all clean-up costs from any one of the PRPs at a site despite the involvement of other PRPs. At certain sites, financially responsible PRPs other than AVX also are, or have been, involved in site investigation and clean-up activities. We believe that liability resulting from these sites will be apportioned between AVX and other PRPs.
To resolve our liability at the sites at which we have been named a PRP, we have entered into various administrative orders and consent decrees with federal and state regulatory agencies governing the timing and nature of investigation and remediation. As is customary, the orders and decrees regarding sites where the PRPs are not themselves implementing the chosen remedy contain provisions allowing the EPA to reopen the agreement and seek additional amounts from settling PRPs in the event that certain contingencies occur, such as the discovery of significant new information about site conditions.
O
n 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. Agreements with the state regulatory authorities have yet to be concluded but are likely to include additional groundwater
and soil
remediation.
W
e have a remaining accrual of
$
1
5,
083
a
t
Dec
ember
3
1
, 201
6
,
including a
$3,600
charge
recorded
in the quarter
ended June 30, 2016
,
representing our estimate
of the potential liability related to the remaining performance of environmental remediation actions at the Site
using certain assumptions
regarding the plan of remediation
.
Since additional sampling and analysis may cause the state regulatory authority, the Massachusetts Department of Environmental Protection, to require
a
more extensive and costly
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
$
1
6,809
and $
19,720
a
t March 31, 201
6
and
Dec
ember
3
1
, 201
6
, respectively, related to various
environmental
matters
, including the site discussed above.
These reserves are classified in the Consolidated Balance Sheets as
$
7,409
and $
4,226
in accrued expenses at March 31, 201
6
and
Dec
ember
3
1
, 201
6
, respectively,
and
$9,400
and $
15,494
in other non-current liabilities at March 31, 201
6
and
Dec
ember
3
1
,
201
6
, respectively
. The amount
s
recorded for
these
iden
tified contingent liabilities are
based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional legal and technical information that becomes available. Also, uncertainties about the status of laws, regulations, regulatory actions, technology, and information related to individual sites make it difficult to develop an estimate of the reasonably possible aggregate environmental remediation exposure. 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
,
as well as others
,
as responsible parties with respect to a location in Hamilton, Ontario that was 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 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.
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
(“Greatbatch”)
. This case alleged that certain AVX products infringe on one or more of
s
i
x
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 found damages to Greatbatch in the amount of
$37,500
. AVX is reviewing this initial verdict, consulting with its legal advisors on what action AVX may take in response, and continuing to litigate the rest of 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
for
the District of Delaware captioned
Presidio Components, Inc. v. American Technical Ceramics Corp.
This case
alleged
that certain products of ATC’s 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
$2,168
.
On August 17, 2016, the
c
ourt issued a permanent injunction prohibiting ATC from manufacturing or selling the related product 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
C
ourt granted AVX’s request for a stay of the permanent injunction whereby AVX may 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
.
AVX is
taking a
n 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.
AVX
has appealed
the verdict.
We had total reserves of
$39,668
and
$
67,800
as of March 31, 2016 and Dec
ember 3
1
, 2016, respectively, related
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 the quarter ended September 30, 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 and British Columbia
alleging violations of United States, Canadian, and state antitrust laws asserting that AVX and numerous other companies
we
re 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.
During the quarter ended December 31, 2014,
additional
Canadian cases
were
filed in the provinces of Quebec, Ontario
, British Columbia, Saskatchewan
and
Manitoba
and these cases are at the initial stages
.
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, management believes, based upon a review with legal counsel, that none of these proceedings will have a material impact on our financial position, results of operations, comprehensive income (loss), or cash flows.
However, we cannot be certain of the eventual outcome, and any adverse result in these or other matters that may arise from time to time, may harm our financial position, results of operations, comprehensiv
e income (loss), or cash flows.
8
. Comprehensive Income (Loss):
Comprehensive income (loss) represents changes in equity during a period except those resulting from investments by and distributions to shareholders. The specifi
c components include net income
, pension liability and other post-retirement benefit adjustments, deferred gains and losses resulting from foreign currency translation adjustments
and
unrealized gains and losses on qualified foreign currency cash flow hedges.
Other comprehensive income (loss) includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31,
|
|
2015
|
|
2016
|
|
Pre-tax
|
|
Net of Tax
|
|
Pre-tax
|
|
Net of Tax
|
Foreign currency translation adjustment
|
$
|
(7,213)
|
|
$
|
(7,213)
|
|
$
|
(28,157)
|
|
$
|
(28,157)
|
Foreign currency cash flow hedges adjustment
|
|
(231)
|
|
|
(159)
|
|
|
(3,061)
|
|
|
(2,453)
|
Pension liability adjustment
|
|
(62)
|
|
|
(47)
|
|
|
22
|
|
|
16
|
Other comprehensive income (loss)
|
$
|
(7,506)
|
|
$
|
(7,419)
|
|
$
|
(31,196)
|
|
$
|
(30,594)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
December 31,
|
|
2015
|
|
2016
|
|
Pre-tax
|
|
Net of Tax
|
|
Pre-tax
|
|
Net of Tax
|
Foreign currency translation adjustment
|
$
|
3,033
|
|
$
|
3,033
|
|
$
|
(26,363)
|
|
$
|
(26,363)
|
Foreign currency cash flow hedges adjustment
|
|
(436)
|
|
|
(334)
|
|
|
(2,440)
|
|
|
(1,926)
|
Pension liability adjustment
|
|
(358)
|
|
|
(271)
|
|
|
(1,013)
|
|
|
(765)
|
Other comprehensive income (loss)
|
$
|
2,239
|
|
$
|
2,428
|
|
$
|
(29,816)
|
|
$
|
(29,054)
|
|
|
|
|
|
|
|
|
|
|
|
|
A
mounts reclassified out of accumulated other comprehensive income (loss) into net income
include
those that pertain to the Company
’
s pension and postretirement benefit plans
and realized gains and losses on derivative instruments designated as cash flow hedges
. Please see Note 1
0
for additional information
related to
the amortization of prior service cost and the
recognized
actuarial losses
, which
amounts are
reclassified from accumulated other comprehensive income (loss) into net income and are
included in selling, general and administrative expenses in the
s
tatement of
o
perations
during the three
and nine
month
period
s
ended
Dec
ember
3
1
, 201
5
and 201
6
.
Please see Note 1
1
for additional information related to realized gains and losses
on derivative instruments
reclassified from accumulated other comprehensive income (loss) into net income during the three
and nine
month period
s
ended
Dec
ember
3
1
, 201
5
and 201
6
.
9
. Segment and Geographic Information:
Our operating segments are based on the types of products from which we generate revenues.
We are organized into a product line organization with five main product groups and
three reportable segments: Passive Components, KED Resale, and Interconnect. The product groups of Ceramic, Advanced, and Tantalum have been aggregated into the Passive Components reportable segment in accordance with the
SEC’s
aggregation criteria and quantitative thresholds. The aggregation criteria consist of similar economic characteristics, products and services, production processes, customer classes, and distribution channels. The Passive Components segment consists primarily of surface mount and leaded ceramic capacitors, RF thick and thin film components, surface mount and leaded tantalum capacitors, surface mount and leaded film capacitors, ceramic and film power capacitors, super capacitors, EMI filters (bolt in and surface mount), thick and thin film packages of multiple passive integrated components, varistors, thermistors, inductors, and resistive products manufactured by
AVX
or purchased from other manufacturers for resale.
The Interconnect segment consists primarily of automotive, telecom, and memory connectors manufactured by or for AVX Interconnect.
The KED Resale segment consists primarily of ceramic capacitors, frequency control devices, SAW devices, sensor products, RF modules, actuators, acoustic devices, and connectors produced by Kyocera and resold by AVX. In addition, we have a corporate administration group consisting of finance, legal, EHS, and administrative activities.
We evaluate performance of our segments based upon sales and operating profit. There are no intersegment revenues.
We allocate the costs of shared resources between segments based on each segment
’
s usage of the shared resources.
Cash, accounts receivable, investments in securities, and certain other assets, which are centrally managed, are not readily allocable to operating segments.
The tables below present information about reported segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
December 31,
|
|
|
December 31,
|
Sales Revenue:
|
2015
|
|
2016
|
|
|
2015
|
|
2016
|
Ceramic Components
|
$
|
45,617
|
|
$
|
49,235
|
|
|
$
|
130,495
|
|
$
|
145,907
|
Tantalum Components
|
|
75,344
|
|
|
78,113
|
|
|
|
234,905
|
|
|
234,245
|
Advanced Components
|
|
75,155
|
|
|
103,686
|
|
|
|
248,681
|
|
|
275,975
|
Total Passive Components
|
|
196,116
|
|
|
231,034
|
|
|
|
614,081
|
|
|
656,127
|
AVX Interconnect
|
|
26,656
|
|
|
28,128
|
|
|
|
83,270
|
|
|
87,785
|
KCP Resale Connectors
|
|
5,211
|
|
|
7,780
|
|
|
|
17,622
|
|
|
22,362
|
KDP and KCD Resale
|
|
59,064
|
|
|
73,857
|
|
|
|
176,951
|
|
|
216,809
|
Total KED Resale
|
|
64,275
|
|
|
81,637
|
|
|
|
194,573
|
|
|
239,171
|
Total Revenue
|
$
|
287,047
|
|
$
|
340,799
|
|
|
$
|
891,924
|
|
$
|
983,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
December 31,
|
|
|
December 31,
|
|
2015
|
|
2016
|
|
|
2015
|
|
2016
|
Operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Passive Components
|
$
|
43,625
|
|
$
|
61,497
|
|
|
$
|
145,766
|
|
$
|
148,557
|
Interconnect
|
|
4,215
|
|
|
3,929
|
|
|
|
15,125
|
|
|
13,672
|
KED Resale
|
|
4,264
|
|
|
3,777
|
|
|
|
13,396
|
|
|
13,376
|
Corporate activities
|
|
(54,777)
|
|
|
(18,262)
|
|
|
|
(90,539)
|
|
|
(57,126)
|
Total
|
$
|
(2,673)
|
|
$
|
50,941
|
|
|
$
|
83,748
|
|
$
|
118,479
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
March 31, 2016
|
|
December 31, 2016
|
Assets:
|
|
|
|
|
|
Passive Components
|
$
|
618,642
|
|
$
|
573,775
|
Interconnect
|
|
49,646
|
|
|
48,211
|
KED Resale
|
|
30,179
|
|
|
29,325
|
Cash, A/R, and investments in securities
|
|
1,203,051
|
|
|
1,288,377
|
Goodwill - Passive components
|
|
202,774
|
|
|
202,774
|
Goodwill - Interconnect
|
|
10,277
|
|
|
10,277
|
Corporate activities
|
|
295,250
|
|
|
294,700
|
Total
|
$
|
2,409,819
|
|
$
|
2,447,439
|
The following geographic data is based upon net sales generated by operations located within particular geographic are
as. Substantially all of the sales in the Americas region were generated in the United States.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
December 31,
|
|
|
December 31,
|
|
2015
|
|
2016
|
|
|
2015
|
|
2016
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
84,522
|
|
$
|
101,668
|
|
|
$
|
266,317
|
|
$
|
287,470
|
Europe
|
|
81,752
|
|
|
85,339
|
|
|
|
253,179
|
|
|
261,018
|
Asia
|
|
120,773
|
|
|
153,792
|
|
|
|
372,428
|
|
|
434,595
|
Total
|
$
|
287,047
|
|
$
|
340,799
|
|
|
$
|
891,924
|
|
$
|
983,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Pension Plans:
Net periodic pension cost for our defined benefit plans consisted of the follow
ing for the three and nine months ended Dec
ember
3
1
, 2015 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
|
Three Months Ended
|
|
Three Months Ended
|
|
December 31,
|
|
December 31,
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
Service cost
|
$
|
49
|
|
$
|
42
|
|
$
|
244
|
|
$
|
218
|
Interest cost
|
|
385
|
|
|
364
|
|
|
1,358
|
|
|
1,089
|
Expected return on plan assets
|
|
(528)
|
|
|
(445)
|
|
|
(1,651)
|
|
|
(1,377)
|
Recognized actuarial loss
|
|
396
|
|
|
456
|
|
|
541
|
|
|
294
|
Net periodic pension cost
|
$
|
302
|
|
$
|
417
|
|
$
|
492
|
|
$
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
December 31,
|
|
December 31,
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
Service cost
|
$
|
148
|
|
$
|
126
|
|
$
|
737
|
|
$
|
685
|
Interest cost
|
|
1,154
|
|
|
1,093
|
|
|
4,116
|
|
|
3,494
|
Expected return on plan assets
|
|
(1,585)
|
|
|
(1,336)
|
|
|
(5,004)
|
|
|
(4,425)
|
Recognized actuarial loss
|
|
1,188
|
|
|
1,368
|
|
|
1,640
|
|
|
944
|
Net periodic pension cost
|
$
|
905
|
|
$
|
1,251
|
|
$
|
1,489
|
|
$
|
698
|
Based on current actua
rial computations, during the nine months ended Dec
ember
3
1
, 2016, we made contributions of $
5,122
to the international plans. We expect to make additional contributions of approximately
$1,600
to the international plans over the remainder of fiscal 2017. We made
$3,001
in
contributions
to the U.S. plans
during the
nine months ended Dec
ember
3
1
, 2016
. W
e
do not
anticipate making
any contributions to the U.S. plans during the remainder of the fiscal year.
11
. Derivative Financial Instruments:
We are exposed to foreign currency exchange rate fluctuations in the normal course of business. We use derivative instruments (forward contracts) to hedge certain foreign currency exposures as part of our risk management strategy. The objective is to offset gains and losses resulting from these exposures with gains and losses on the forward contracts used to hedge them, thereby reducing volatility of earnings or protecting fair values of assets and liabilities. We do not enter into any trading or speculative positions with regard to derivative instruments.
We primarily use forward contracts, with maturities less than
four
months, designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in our forecasted transactions related to purchase commitments and sales, denominated in various currencies. These derivative instruments are designated and qualify as cash flow hedges.
The effectiveness of the cash flow hedges is determined by comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the fair value of the hedged transaction, both of which are based on forward rates. The effective portion of the gain or loss on these cash flow hedges is initially recorded in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity. Once the hedged transaction is recognized, the gain or loss is recognized in our statement of operations. At March 31, 201
6
and Dec
ember
3
1
, 201
6
, respectively, the following forward contracts were entered into to hedge against the volatility of foreign currency exchange rates for certain forecasted sales and purchases.
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Fair Value of Derivative Instruments
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Balance
|
|
|
|
Balance
|
|
|
|
Sheet
|
Fair
|
|
Sheet
|
Fair
|
|
Caption
|
Value
|
|
Caption
|
Value
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid and other
|
$
|
1,125
|
|
Accrued expenses
|
$
|
869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Fair Value of Derivative Instruments
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Balance
|
|
|
|
Balance
|
|
|
|
Sheet
|
Fair
|
|
Sheet
|
Fair
|
|
Caption
|
Value
|
|
Caption
|
Value
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid and other
|
$
|
1,737
|
|
Accrued expenses
|
$
|
3,922
|
For these derivatives designated as hedging instruments, during the three
and nine months ended Dec
ember
3
1
, 201
6
, net pre-tax
gains
(losses)
of $
(3,002)
and
$(2,972)
, respectively,
were recognized in other comprehensive income
(loss)
. In addition, during the three
and nine months ended Dec
ember
3
1
, 201
6
, net pre-tax
gain
s
(losses)
of $
(1,258)
and
$
(2,084)
, respectively,
were reclassified from accumulated other comprehensive income into cost of sales (for hedging purchases), and net pretax
gains
of $
1,507
and
$
1,331
, respectively,
were reclassified from accumulated other comprehensive income into sales (for hedging sales) in the accompanying statement of operations.
Derivatives not designated as cash flow hedging instruments consist primarily of forwards used to hedge foreign currency balance sheet exposures. These hedging instruments are used to offset foreign currency changes in the fair values of the underlying assets and liabilities. The gains and losses on these foreign currency forward contracts are recognized in other income in the same period as the remeasurement gains and losses of the related foreign currency denominated assets and liabilities and thus naturally offset these gains and losses. At March 31, 201
6
and Dec
ember
3
1
, 201
6
, we had the following forward contracts that were entered into to hedge against these exposures.
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Fair Value of Derivative Instruments
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Balance
|
|
|
|
Balance
|
|
|
|
Sheet
|
Fair
|
|
Sheet
|
Fair
|
|
Caption
|
Value
|
|
Caption
|
Value
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid and other
|
$
|
284
|
|
Accrued expenses
|
$
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Fair Value of Derivative Instruments
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Balance
|
|
|
|
Balance
|
|
|
|
Sheet
|
Fair
|
|
Sheet
|
Fair
|
|
Caption
|
Value
|
|
Caption
|
Value
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid and other
|
$
|
209
|
|
Accrued expenses
|
$
|
151
|
For these derivatives not designated as cash flow hedging instruments during the three
and nine
month
s ended Dec
ember
3
1
, 201
6
,
gain
s
(losses)
of $
(9)
and
431
, respectively
,
o
n hedging contracts were recognized in other income, along with the approximately
$671
and
$(1,686)
in exchange
gains (
losse
s
)
that were recognized in other income in the accompanying statement of operations.
At March 31, 201
6
and Dec
ember
3
1
, 201
6
, we had outstanding foreign exchange contracts with notional amounts totaling $
204,372
and $
230,425
, respectively, denominated primarily in
E
uros, Czech
K
orunas, British
P
ounds, and Japanese
Y
en.
12
. Subsequent Events:
On
February 8, 2017,
the Board of Directors of the Company declared a $
0.
1
1
dividend per share of common stock with r
espect to the quarter ended
Dec
ember
3
1
, 201
6
. The dividend will be paid to stockholders of record on
February 24
, 201
7
and will be disbursed on
March 6
, 201
7
.
|
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
|
|
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains
“
forward-looking
”
information within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position made in this Quarterly Report on Form 10-Q are forward-looking. The forward-looking information may include, among other information, statements concerning our outlook for fiscal year 201
7
, overall volume and pricing trends, cost reduction and acquisition strategies and their anticipated results,
and
expectatio
ns for research and development
and capital expenditures. There may also be other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Forward-looking statements reflect management
’
s expectations and are inherently uncertain.
Our expectations and assumptions are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that such forward-looking statements will materialize or prove to be correct as forward-looking statements are inherently subject to known and unknown risks, uncertainties and other factors which may cause actual future results, performance or achievements to differ materially from the future results, performance or achievements expressed in or implied by such forward-looking statements. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by the forward-looking statements for a variety of reasons, including without limitation, changes in the global economy or the economy of any locality in which we conduct business; changes in general industry and market conditions or regional growth or declines; loss of business from increased competition; higher raw material costs or raw material shortages; changes in consumer and customer preferences for end products; customer losses; changes in regulatory conditions; unfavorable fluctuations in currencies or interest rates among the various jurisdictions in which we operate; market acceptance of our new products; possible adverse results of pending or future litigation or infringement claims; our ability to protect our intellectual property rights; negative impacts of environmental investigations or other governmental investigations and associated litigation; tax assessments by governmental authorities and changes in our effective tax rate; dependence on and relationships with customers and suppliers; and other risks and uncertainties
discussed in our Annual Report on Form 10-K for the fiscal year ended March 31, 201
6
. Forward-looking statements should be read in context with, and with the understanding of, the various other disclosures concerning the Company and its business made elsewhere in this quarterly report as well as other public reports filed by the Company with the SEC. You should not place undue reliance on any forward-looking statements as a prediction of actual results or developments.
Any forward-looking statements by the Company are intended to speak
only
as of the date thereof.
We do not intend to update or revise any forward-looking statement contained in this quarterly report to reflect new events or circumstances unless and to the extent required by applicable law. All forward-looking statements contained in this quarterly report constitute
“
forward-looking statements
”
within the meaning of Section 21E of the United States Securities Exchange Act of 1934 and, to the extent it may be applicable by way of incorporation of statements contained in this quarterly report by reference or otherwise, Section 27A of the United States Securities Act of 1933, each of which establishes a safe-harbor from private actions for forward-looking statements as defined in those statutes.
Critical Accounting Policies and Estimates
“
Management
’
s Discussion and Analysis of Financial Condition and Results of Operations
”
is based upon our unaudited Consolidated Financial Statements and Notes thereto
contained in this Form 10-Q
, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets
,
liabilities
,
the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. On an ongoing basis, management evaluates its estimates and judgments, including those related to investment securities, revenue recognition, inventories, property and equipment, goodwill, intangible assets, income taxes
,
and contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.
We have identified the accounting policies and estimates that are critical to our business operations and understanding the Company
’
s results of operations. Those policies and estimates can be found in Note 1,
“
Summary of Significant Accounting Policies
,
”
of the Notes to Consolidated Financial Statements and in
“
Critical Accounting Policies and Estimates
,
”
in “Management
’
s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 201
6
and in Note 1,
“
Critical Accounting Policies and Estimates
,
”
in the Notes to Consolidated Financial Statements in this Form 10-Q. Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended March 31, 201
6
. During the three
and
nine
month period
s
ended
Dec
ember
3
1
, 201
6
, there were no significant changes to any critical accounting policies, judgments involved in applying those policies, or the methodology used in determining estimates
.
Business Overview
AVX is a leading worldwide manufacturer and supplier of a broad line of passive electronic components.
Virtually all types of electronic devices use our passive component products to store, filter, or regulate electric energy. We also manufacture and supply high-quality electronic connectors and interconnect systems for use in electronic products.
We have manufacturing, sales, and distribution facilities located throughout the world, which are divided into three main geographic regions: the Americas, Asia, and Europe. AVX is organized into five main product groups with three reportable segments: Passive Components, Interconnect
, and KED Resale
. The Passive Components segment consists primarily of surface mount and leaded ceramic capacitors, RF thick and thin film components, surface mount and leaded tantalum capacitors, surface mount and leaded film capacitors, ceramic and film power capacitors, super capacitors, EMI filters (bolt in and surface mount), thick and thin film packages of multiple passive integrated components, varistors, thermistors, inductors, and resistive products
manufactured by
AVX
or purchased from other manufacturers for resale
.
The Interconnect segment consists primarily of automotive, telecom, and memory connectors manufactured by or for AVX.
The
KED Resale segment consists primarily of ceramic capacitors, frequency control devices, SAW devices, sensor products, RF modules, actuators, acoustic devices, and connectors produce
d by Kyocera and resold by AVX.
Our customers are multi-national original equipment manufacturers, or OEMs, independent electronic component distributors, and electronic manufacturing service providers, or EMSs. We market our products through our own direct sales force and independent manufacturers
’
representatives, based upon market characteristics and demands. We coordinate our sales, marketing, and manufacturing organizations by strategic customer account and globally by region.
We sell our products to customers in a broad array of industries, such as telecommunications, information technology hardware, automotive electronics, medical devices and instrumentation, industrial instrumentation,
transportation, energy harvesting, defense and aerospace electronic systems, and consumer electronics
.
Results of Operations - Three Months Ended
Dec
ember
3
1
, 201
5
and 201
6
Our net income for the quarter ended
Dec
ember
3
1
, 201
6
was $
35.5
million,
or $
0.21
per share, compared to $
5.4
million,
or $
0.03
per share, for the q
uarter ended
Dec
ember
3
1
, 201
5
.
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31,
|
(in thousands, except per share data)
|
2015
|
|
2016
|
Net sales
|
$
|
287,047
|
|
$
|
340,799
|
Gross profit
|
|
66,043
|
|
|
79,391
|
Operating income (loss)
|
|
(2,673)
|
|
|
50,941
|
Net income
|
|
5,374
|
|
|
35,519
|
Diluted earnings per share
|
$
|
0.03
|
|
$
|
0.21
|
Net sales in the three months ended
Dec
ember
3
1
, 201
6
in
creased $
53.8
million
or
18.7%
, to $
340.8
million
compared to $
287.0
million
in the three months ended
Dec
ember
3
1
, 201
5
.
The increase in revenue was attributable to higher volumes
across all of
our
product groups,
Ceramic Components
,
Interconnect
, and
KED
Resale
products
,
resulting from
improved
glo
bal market conditions reflective of
higher overall demand, primarily in the cellular telecommunications
, consumer,
and automotive markets. In addition,
sales were favorably impacted by $1.7 million as
a result of
currency exchange due to
the strength of the Japanese
Y
en
against the U.S. Dollar
, partially offset by weaker European currencies,
when compared to the same period last year.
Profit from operations for the three month period e
nded Dec
ember 3
1
, 2016 includes charges of $12.
9
million related to previously disclosed intellectual property damages awards resulting from litigation with respect to a patent infringement case filed in the United States District Court for the District of Delaware by Presidio Components, Inc.
(“Presidio”).
Net sales for t
he three month period ended Dec
ember 3
1
, 2016 includes $
1
2.
5
million from increased sales prices related to the affected products which have the effect of partially offsetting the effect of the intell
ectual property damages awards.
Profit
from operations for the
three month period ended Dec
ember 3
1
, 2015 reflects a charge of $
37.5
million related to
litigation with respect to
a
n intellectual property dispute.
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
(“Greatbatch”)
,
the jury returned a verdict in favor of the plaintiff and found damages to the plaintiff in the amount of $37.5 million.
The table below represents product group revenues for the quarters ended
Dec
ember
3
1
,
201
5
and 201
6
.
|
|
|
|
|
|
|
Three Months Ended
|
(in thousands)
|
December 31,
|
Sales Revenue
|
2015
|
|
2016
|
Ceramic Components
|
$
|
45,617
|
|
$
|
49,235
|
Tantalum Components
|
|
75,344
|
|
|
78,113
|
Advanced Components
|
|
75,155
|
|
|
103,686
|
Total Passive Components
|
|
196,116
|
|
|
231,034
|
AVX Interconnect
|
|
26,656
|
|
|
28,128
|
KCP Resale Connectors
|
|
5,211
|
|
|
7,780
|
KDP and KCD Resale
|
|
59,064
|
|
|
73,857
|
Total KED Resale
|
|
64,275
|
|
|
81,637
|
Total Revenue
|
$
|
287,047
|
|
$
|
340,799
|
P
assive Components sales increased $
34.9
million,
or
17.8%
,
to $
231.0
million in the three months ended
December
3
1
, 2016 compared to sales of $
196.1
million during the same quarter last year. The sales increase in Passive Components product sales was driven by increased volume for our Ceramic Components as a result of
improved
global market conditions,
primarily
in the cellular telecommunications, consumer, and automotive markets in addition to our focus on the sale of higher value capacitance components. The sales increase in our Advanced Components was primarily attributable to the increased sales of certain advanced ceramic capacitors, including $12.5 million from increased sales prices, resulting from increased demand by customers in light of the intellectual property litigation discussed above as customers sought to purchase product prior to the March 17, 2017 injunction.
Th
e
increase
in sales of our Tantalum Components is primarily driven by increased demand in the cellular telecommunications and consumer markets.
Total Interconnect product sales, including AVX Interconnect manufactured and KCP Resale connectors, increased $
4.0
million
, or
12.7%
, to $
35.9
million in the three months ended
December
3
1
, 2016 compared to $
31.9
m
illion during the same period last year.
This increase is attributable to increased demand in the U.S.
and European automotive
and industrial
markets.
KDP and KCD Resale sales increased $
14.8
million
, or
25.0%
, to $
73.9
million
in the three months ended
December
3
1
, 2016 compared to $
59.1
million during the same period last year.
This increase is primarily a result of higher demand from our cellular device customers
in addition to a favorable currency impact on reported revenues when compared to the same period last year
as the Japanese Yen strenghthened against the U.S. Dollar
.
Geographically, compared to the same period last year, sales
in
creased in all regions, primarily reflecting
higher
demand
resulting from steadily improving global market conditions
in the electronics market.
Sales in the Asian, American and European markets represented
45.1%
,
29.8%
and
25.0%
of total sales, respe
cti
vely, for the quarter ended Dec
ember
3
1
, 201
6
. This compares to
42.1%
,
29.4%
and
28.5%
of total sales for the Asian, American, and European regions in the same period last year, respectively.
Our sales to independent electronic distributor customers represented
43.7%
of total sales for the three months ended
Dec
ember
3
1
, 201
6
, compared to
45.1%
for the three months ended
Dec
ember
3
1
, 201
5
. Overall
,
distributor
sales
in
creased
when compared to the same period last year
as distributors increase
d order activity and inventory intake
during the quarter
. This
in
crease 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
. Such allowance charges were $
5.4
million,
or
3.6%
of gross sales to distributor customers for the three mon
ths ended
Dec
ember
3
1
, 201
6
,
and $
7.3
million,
or
5.6%
of gross sales to distributor customers, for the three months ended
Dec
ember
3
1
, 201
5
reflecting a tighter pricing environment resulting from increased demand
.
Applications under such programs for the quarters ended
Dec
ember
3
1
, 201
6
and 201
5
wer
e approximately $
6.6
million
and $
8.5
milli
on
,
respectively. This decrease in applications is
primarily
due to
a recent
system implementation at one of our major distribution customers
.
Gross profit in the three months ended
Dec
ember
3
1
, 201
6
was
23.3%
of sales, or $
79.4
million,
compared to a gross profit margin of
23.0%
, or $
66.0
million,
in the three months ended
Dec
ember
3
1
, 201
5
.
This overall
in
crease
in dollars
and percent
is primarily attributable to
an improved
product mix
as a result of our focus on the sale of better margin value added capacitance components in addition to the increased sales of
certain advanced ceramic
capacitors related to the intellectual property damages award discussed above. We also continue to focus on manufacturing cost reductions and process improvements to reduce our manufacturing costs. Charges of
$12.
9
million
related to the
intellectual property damages award for t
he three month period ended Dec
ember 3
1
, 2016
were almost fully
offset by $
1
2.
5
million from increased sales prices
for those capacitors.
Costs due to currency movement
were favorably impacted by $5.
1
million
when comparing th
e three month periods ended Dec
ember 3
1, 2016 and Dec
ember 3
1
, 2015 primarily due to w
e
aker European currencies against the U.S. Dollar.
Selling, general and administrative expenses in the three months ended
Dec
ember
3
1
, 201
6
were $
28.5
million,
or
8.3%
of net sales, compared to $
31.2
million,
or
10.9%
of net sales, in the three months ended
Dec
ember
3
1
,
201
5
.
The overall
de
crease in these expenses
is primarily due to
lower litigation costs partially offset by
higher s
elling expenses
resulting from the increase in sales
when compared to the same period last
year
.
I
ncome from operations was $
50.9
million
in the three months ended
Dec
ember
3
1
, 201
6
compared to
a loss of
$
2.7
million
in the three months ended
Dec
ember
3
1
, 201
5
.
This
in
crease was a result of the factors described above
.
Other income, net was
$1.4
mi
llion for the
three months
ended Dec
ember
3
1
, 2016 compared to
$2.1
million for the
three months ended December 31, 2015
. This de
crease was primarily due to foreign exchange
losse
s resulting from significant currency fluctua
tions dur
i
ng the current quarter.
Our
tax expense
for the three months ended
Dec
ember
3
1
, 201
6
was $16.8
million
compared to
a tax benefit of $6.0 million
for the three months ended
Dec
ember
3
1
, 2015
.
The
increase in tax expense is primarily due to the tax benefit of $12.1 million related to the litigation charges incurred during the three month
s
ended December 31, 2015.
As a result of the factors discussed above, net income for the three month
s
ended
Dec
ember
3
1
, 201
6
was $
35.5
million
compared to $
5.4
million
for the
three months ended December 31, 2015.
Results of Operations
–
Nine
Months Ended
Dec
ember 3
1
, 2015 and 2016
Our net income for the
nine
months ended
Dec
ember 3
1
, 2016 was
$91.9
million, or
$0.55
per share, compared to
$68.9
million, or
$0.41
per share, for the
nine months ended Dec
ember 3
1
, 2015.
|
Nine Months Ended
|
|
December 31,
|
(in thousands, except per share data)
|
2015
|
|
2016
|
Net sales
|
$
|
891,924
|
|
$
|
983,083
|
Gross profit
|
|
214,994
|
|
|
211,053
|
Operating income
|
|
83,748
|
|
|
118,479
|
Net income
|
|
68,870
|
|
|
91,928
|
Diluted earnings per share
|
$
|
0.41
|
|
$
|
0.55
|
Net sales in the
nine months ended Dec
ember 3
1,
2016 increased
$91.2
million or
10.2%
, to
$983.1
million compared to
$891.9
million in the
nine months ended Dec
ember 3
1
, 2015.
The increase in revenue was attributable to higher volumes in our Ceramic Components and
KED
Resale products resulting from
improved
global market conditions reflecting higher overall demand, primarily in the cellular telecommunications
, consumer
and automotive markets. In addition, this increase is partially a result of the currency fluctuations
throughout the year resulting
from the annoucement of the vote on the Referendum of the United Kingdom’s (U.K.) Membership of the European Union (E.U.) (referred to as “Brexit”)
as well as the impact of other geopolitical issues which have resulted in a stronger
Japanese Yen against the U.S. Dollar
and weaker European currencies against the U.S. Dollar. The net impact of currency movement against the U.S. Dollar was a favorable impact on
sales across all product lines by
$6.3
million when compared to the same
nine month
period last year.
Profit from operations for the
nine month period ended Dec
ember 3
1
, 2016 includes charges of $
28.1
million related to
a
previously disclosed intellectual property damages award resulting from litigation with respect to
the Presidio
patent infringement case discussed above.
Profit from operations for the nine month period ended December 31, 2016 also reflects a charge of $3.6 million related to estimated environmental remediation costs resulting from legacy environmental issues at an inactive property.
Net sales for
the
nine
month period ended Dec
ember 3
1
, 2016 includes $
15.3
million from increased sales prices related to the affected products which have the effect of partially offsetting the effect of the intellectual property damages awards.
P
rofit from operations was
further
impacted by the accrual of estimated environmental remediation costs and the settlement of certain litigation during the
nine
month
s
ended Dec
ember 3
1
, 2015
, including
charge
s
of $43.7
million
,
of which $37.5 million relates to previously mentioned amounts awarded in
the
Greatbatch
patent infringement case
, discussed
above
,
and $6.2 million
related to the settlement of certain litigation involving legacy environmental issues.
The table below represents product group revenues for the
nine months ended Dec
ember 3
1
, 2015 and 2016.
|
|
|
|
|
|
|
Nine Months Ended
|
(in thousands)
|
December 31,
|
Sales Revenue
|
2015
|
|
2016
|
Ceramic Components
|
$
|
130,495
|
|
$
|
145,907
|
Tantalum Components
|
|
234,905
|
|
|
234,245
|
Advanced Components
|
|
248,681
|
|
|
275,975
|
Total Passive Components
|
|
614,081
|
|
|
656,127
|
AVX Interconnect
|
|
83,270
|
|
|
87,785
|
KCP Interconnect Resale
|
|
17,622
|
|
|
22,362
|
KDP and KCD Resale
|
|
176,951
|
|
|
216,809
|
Total KED Resale
|
|
194,573
|
|
|
239,171
|
Total Revenue
|
$
|
891,924
|
|
$
|
983,083
|
Passive Components sales increased
$42.0
million, or
6.8%
to
$656.1
million in the
nine months ended Dec
ember 3
1
, 2016 compared to sales of
$614.1
million during the same
nine
months last year. The increase in Passive Components product sales was driven by increased volume for our Ceramic Components
primarily in the cellular telecommunications, consumer and automotive markets
as a result of
improved
global market conditions
and
our focus on the sale of higher
value
capacitance components, in addition to a favorable currency impact on reported revenues when compared to the same period last year.
This increase was partially offset by
a slightly
lower volume
of
sales in our Tantalum Components from lower volumes in the computer, medical, industrial and telecom
markets.
Increased
sales in our Advanced Components products were
primarily due to
increased sales of
certain advanced ceramic
capacitors resulting from increased demand by customers in light of the intellectual property litigation discussed above as customers sought to purchase product prior to the
March 17, 2017
injunction.
Total Interconnect product sales, including AVX Interconnect manufactured and KCP Resale connectors, increased
$9.3
million, or
9.2%
, to
$110.2
million in the
nine months ended Dec
ember 3
1
, 2016 compared to
$100.9
million during the same period last year.
This increase is primarily attributable to increased demand in the U.S. and European automotive markets.
KDP and KCD Resale sales increased
$39.8
million, or
22.5%
, to
$216.8
million in the
nine months ended Dec
ember 3
1
, 2016 compared to
$177.0
million during the same period last year.
This increase is primarily a result of higher demand from our cellular device customers
in addition to a favorable currency impact on reported revenues when compared to the same period last year
.
Geographically, compared to the same period last year, sales increased in all regions, primarily reflecting higher demand resulting from steadily improving global market conditions in the electronics market and a favorable currency impact due to the strength of the Japanese Yen compared to the U.S. Dollar. Sales in the Asian, American and European markets represented
44.2%
,
29.2%
and
26.6%
of total sales, respectively, for the
nine months ended Dec
ember 3
1
, 2016. This compares to
41.8%
,
29.9%
and
28.3%
of total sales for the Asian, American, and European regions in the same period last year, respectively.
Our sales to independent electronic distributor customers represented
45.1%
of total sales for the
nine months ended Dec
ember 3
1
, 2016, compared to
45.4%
for the
nine months ended Dec
ember 3
1
, 2015. Overall, distributor
sales
activity increased when compared to the same period last year as distributors increased order activity and inventories. 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. Such allowance charges were
$19.6
million, or
4.4%
of gross sales to distributor customers
,
for the
nine months ended Dec
ember 3
1
, 2016, and
$22.2
million, or
5.5%
of gross sales to distributor customers, for the
nine
months ended
December 31
, 2015
,
reflecting a tighter pricing environment resulting from increased demand
. Applications under such programs for the
nine
months ended
Dec
ember 3
1
, 2016 and 2015 were approximately
$16.4
million and
$23.6
million,
respectively. This decrease in applications is due
primarily
to
a recent system implementation
at one of our major distribution customers
.
Gross profit in the
nine
months ended
Dec
ember 3
1
, 2016 was
21.5%
of sales, or
$211.1
million, compared to a gross profit margin of
24.1%
, or
$215.0
million, in the
nine
months ended
Dec
ember 3
1
, 2015. This overall decrease in dollars and percent is primarily attributable to
increases to
estimated intellectual property damages awards costs related to the ongoing litigation discussed above. The negative impact of the intellectual property damages awards costs were partially offset by
increased sales of certain advanced ceramic capacitors related to the intellectual property damages award in addition to
an improved
product mix reflective of
our focus on the sale of higher margin value added capacitance components
,
as well as our continued focus on manufacturing cost reductions and process improvements.
The
impact of the
$
28.
1
million intellectual property damages award
costs
in
the
nine
month period ended
Dec
ember
31,
2016
was
partially offset by $
15.3
million from increased sales prices related to the affected products
. The net result was a
negative
impact
on
our gross profit marg
in percentage by approximately 3
%. D
uring the
nine
months ended
Dec
ember 3
1
, 2016
, costs
were unfavorably impacted by approximately $9.3 million when compared to the same period last year
due
to
the movement of the
Japanese Yen
and various European currencies
against the U.S. Dollar,
primarily in reaction to Brexit
and other geopolitical actions.
Selling, general and administrative expenses in the
nine
months ended
Dec
ember 3
1
, 2016 were
$89.0
million, or
9.1%
of net sales, compared to
$87.6
million, or
9.8%
of net sales, in the
nine
months ended
Dec
ember 3
1
, 2015. The overall increase in these expenses is primarily due to higher selling expenses resulting from the increase in sales when compared to the same p
eriod last year
,
partially offset by
lower
litigation costs.
During the
nine
months ended
Dec
ember 3
1
, 2016, we recorded a
$3.6
million charge related to estimated environmental remediation costs resulting from legacy environmental issues at an inactive property.
Income from operations was
$118.5
million in the
nine
months ended
Dec
ember 3
1
, 2016 compared to
$83.7
million in the
nine
months ended
Dec
ember 3
1
, 2015.
This in
crease was a result of the factors described above.
Other income, net was
$9.2
million for the
nine
months ended
Dec
ember 3
1
, 2016 compared to
$5.1
million for the same period last year. This increase was primarily due to foreign exchange gains resulting from significant currency fluctuations dur
ing
the period in addition to a gain on the sale of
an
idle facilit
y
of $
1.6
million.
Our effective tax rate for the
nine
months ended
Dec
ember 3
1
, 2016 was
28.0%
compared to
22.5%
for the
nine
months ended
Dec
ember 3
1
, 2015. The in
crease in the effective tax rate is principally due to
the
higher
tax benefit related to litigation settlements and awards
during the nine month period ended December 31, 2015.
As a result of the factors discussed above, net income for the
nine
month period ended
Dec
ember 3
1
, 2016 was
$91.9
million compared to
$68.9
million for the same
nine
month period last year.
Outlook
Near-Term:
With uncertain global geopolitical and economic conditions, it is difficult to quantify expectations for the remainder of fiscal 201
7
. Near-term results for us will depend on the impact of the overall global geopolitical and economic conditions and their impact on telecommunications, information technology hardware, automotive, consumer electronics, and other electronic markets. Looking ahead, visibility is low and forecasting is a challenge in this uncertain and volatile market. We expect to see typical pricing pressure in the markets we serve due to competitive activity. In response to anticipated market conditions, we expect to continue to focus on cost management and product line rationalization to maximize earnings potential.
We also continue to focus on process improvements and enhanced production capabilities in conjunction with our focus on the sales of value-added electronic components to support today’s advanced electronic devices. If current global geopolitical and economic conditions worsen, the overall impact on our customers as well as end user demand for electronic products could have a significant adverse impact on our near-term results
.
Long-Term:
Although there is uncertainty in the near-term market as a result of the current global geopolitical and economic conditions, we continue to see opportunities for long-term growth and profitability improvement due to: (a) a projected increase in the long-term worldwide demand for more sophisticated electronic devices, which require electronic components such as the ones we sell, (b) cost reductions and improvements in our production processes,
and (c) opportunities for growth in our Advanced Component and Interconnect product lines due to advances in component design and our production capabilities.
We have fostered our financial health and the strength of our balance sheet
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.
On December 26, 2016, Kyocera provided notice to AVX pursuant to the Products Supply and Distribution Agreement of its intent, effective January 1, 2018, to market its manufactured products globally using Kyocera’s sales force rather than continuing to have AVX resell such products in the Americas, Europe, and Asia. Sales of Kyocera resale products were $239.2 million and related operating profit was $13.4 million for the nine month period ended December 31, 2016. Sales of Kyocera resale products were $261.8 million and related operating profit was $16.7 million for the fiscal year ended March 31, 2016.
AVX cannot currently predict what transition costs and expenses, if any, it will incur as a result of this notice nor can it determine whether such change will have an adverse impact on its relationships with any customers. At present, Kyocera continues to distribute AVX products in Japan.
AVX has reviewed and continues to monitor the impact of
Brexit.
Beyond the immediate impact to currencies around the world, t
he announcement and resulting effects of Brexit
on AVX and its operations
are difficult to predict
as future trade agreements and other related issues are resolved
.
During the early part of the year, t
he announcement of Brexit caused significant volatility in global stock markets and currency exchange rates that resulted in the
weake
ning of the U.S. Dollar against certain foreign currencies
, primarily the Japanese Yen,
in which we conduct business
.
Our international sales are denominated in both the U.S. Dollar and curr
encies other than U.S. Dollars.
A fluctuation of currency exchange rates may expose us to gains and losses on non
-
U.S. currency transactions. In addition, we translate sales and other results denominated in foreign currencies into U.S. Dollars for our financial statements.
Our reported international sales and earnings could be negatively impacted during periods of foreign currency fluctuation compared to the U.S. Dollar.
Liquidity and Capital Resources
Liquidity needs arise primarily from working capital requirements, dividend payments, capital expenditures, and acquisitions. Historically, we have satisfied our liquidity requirements through funds from operations and investment income from cash, cash equivalents, and investments in securities. As of
Dec
ember
3
1
, 201
6
, we had a current ratio of
8.5
to 1, $
1,105.5
million
of cash, cash equivalents, and short-term and long-term investments in securities, $
2,189.7
million
of stockholders’ equity, and no debt.
Net cash
provided by
operating activities was $
160.3
million
in the
nine
months ended
Dec
ember
3
1
, 201
6
compared to $
102.7
million
of cash
provided by
operating activities in the
nine
months ended
Dec
ember
3
1
, 201
5
.
In addition to normal changes in working capital, t
he
in
crease in operating cash flow compared to the same period last year was primarily a result
of
a final
payment of $1
22.1 million
made on
May 26, 2015,
related to
a financial settlement with respect to the EPA’s ongoing clean-up of the New Bedford Harbor in the Commonwealth of Massachusetts
.
Purchases of property and equipment were $
45.6
million
in the
nine
month period ended
Dec
ember
3
1
, 201
6
and
$
33.8
million
in the
nine
month period ended
Dec
ember
3
1
, 201
5
.
Expenditures
in the
current
year
are
primarily made in connection with the strategic investments in our
corporate headquarters
and plant expansion activities
. We
expect to incur capital expenditures of approximately $
1
5
.0
million
in
the remainder of
fiscal 201
7
. The actual amount of capital expenditures will depend upon the outlook for end-market demand
and timing of capital projects
. Proceeds from property, plant and equipment dispositions are primarily due to the sale of an idle manufacturing facility in China
.
The majority of our funding is internally generated through operations and investment income from cash, cash equivalents, and investments in securities. Since March 31, 201
6
, there have been no material changes in our contractual obligations or commitments for the acquisition or construction of plant and equipment or future minimum lease commitments under noncancellable operating leases. Based on our financial condition as of
Dec
ember
3
1
, 201
6
, we believe that cash on hand
,
cash expected to be generated from operating activities and investment income from cash, cash equivalents, and investments in securities will be sufficient to satisfy our anticipated financing needs for working capital, capital expenditures, environmental clean-up costs,
pension plan funding,
research, development and engineering expenses,
a
cquisitions of businesses, and any dividend payments or stock repurchases to be made during the
next twelve months
. Changes in demand may have an impact on our future cash requirements; however, changes in those requirements are mitigated by our ability to adjust manufacturing capabilities to meet increases or decreases in customer demand. We do not anticipate any significant changes in our ability to generate
capital
or meet our liquidity needs in the
foreseeable future
.
From time to time we enter into delivery contracts with selected suppliers for certain precious metals used in our production processes. The delivery contracts represent routine purchase orders for delivery within three months and payment is due upon receipt. As of
Dec
ember
3
1
, 201
6
, we did not have any significant delivery contracts outstanding.
In addition to the items described below, w
e 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 proceedings, we believe, based upon our review with legal counsel, that none of these proceedings will have a material impact on our financial position, results of operations, comprehensive income (loss), or cash flows.
However, we cannot be certain o
f the eventual outcome and any adverse result in these or other matters that may arise from time to time may harm our financial position, results of operations, comprehensive income (loss), or cash flows.
O
n
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. Agreements with the state regulatory authorities have yet to be concluded but are likely to include additional groundwater
and soil
remediation. We have a remaining accrual of $1
5.
1
million
at
Dec
ember
31,
201
6
,
includin
g a $3.6 million charge
recorded
in the
quarter
ended June 30, 2016
,
representing our estimate
of the potential liability related to the remaining performance of environmental remediation actions at the Site using certain assumptions regarding the plan of remediation. Since additional sampling and analysis may cause the state regulatory authority, the Massachusetts Department of Environmental Protection, to require a more extensive and costly 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 $1
6.8
million
and
$
19.7
million
at March 31, 201
6
and
Dec
ember
3
1
, 201
6
, respectively, related to various
environmental
matters
, including the site discussed above.
These reserves are classified in the Consolidated Balance Sheets as $
7.4
million
and $
4.
2
million
in accrued expenses at March 31, 201
6
and
Dec
ember
31,
201
6
, respectively, and $
9.4 million
and $15.5 million
in other non-current liabilities at March 31, 201
6
and
Dec
ember
3
1
, 201
6
, respectively
. The amounts recorded for
these
identified contingent liabilities are based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional legal and technical information that becomes available. Also, uncertainties about the status of laws, regulations, regulatory actions, technology, and information related to individual sites make it difficult to develop an estimate of the reasonably possible aggregate environmental remediation exposure. 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
,
as well as others
,
as responsible parties with respect to a location in Hamilton, Ontario that was 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 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.
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
found damages
to
Greatbatch in the amount of $37.5 million. AVX is reviewing this initial verdict, consulting with its legal advisors on what action AVX may take in response, and continuing to litigate the rest of
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 for the District of Delaware captioned
Presidio Components, Inc. v. American Technical Ceramics Corp.
This case alleged that certain products of ATC’s 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
c
ourt issued a permanent injunction prohibiting ATC from manufacturing or selling the related product 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
C
ourt granted AVX’s request for a stay of the permanent injunction whereby AVX may 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
.
AVX is taking a
n 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. AVX
has appealed
the verdict.
We had total r
eserves of $39.7 million and $67
.
8
million a
s of
March 31, 2016 and
Dec
ember
3
1
, 2
016,
respectively, related
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 the quarter ended September 30, 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 and British Columbia alleging violations of United States, Canadian, and state antitrust laws asserting that AVX and numerous other companies
we
re 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. During the quarter ended December 31, 2014, additional Canadian cases were filed in the provinces of Quebec, Ontario, British Columbia,
Saskatchewan and Manitoba
and these cases are at the initial stages. AVX believes it has meritorious defenses and intends to vigorously defend the cases.
New Accounting Standards
Information related to new Statement of Financial Accounting Standards and Financial Accounting Standards Board Staff Positions that we have recently adopted or are currently reviewing can be found in Note 1, “Summary of Significant Accounting Policies
,”
of the Notes to Consolidated Financial Statements and in “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the Annual Report on Form 10-K for the fiscal year ended March 31, 201
6
, as well as in Note 1, “Critical Accounting Policies and Estimates
,
” in the Notes to the Consolidated Financial Statements in this Form 10-Q
. Accordingly, th
is
Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended March 31, 201
6
.
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Our sales are denominated in various foreign currencies in addition to the U.S.
D
ollar. Certain manufacturing and operating costs denominated in local currencies are incurred in Europe, Asia, Mexico, and Central and South America.
Additionally, purchases of resale products from Kyocera may be denominated in Yen. As a result, fluctuations in currency exchange rates affect our operating results and cash flow. In order to minimize the effect of movements in currency exchange rates, we periodically enter into forward exchange contracts to hedge external and intercompany foreign currency transactions.
We do not hold or issue derivative financial instruments for speculative purposes. Accordingly, we have hedging commitments to cover a portion of our exchange risk on purchases, operating expenses, and sales. There have been no material net changes in our exposure to foreign currency exchange rate as reflected in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended March 31, 201
6
. See Note 1
1
of our Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for further discussion of derivative financial instruments
.
|
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the
“
Exchange Act
”
), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered in this report, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclo
sed by us in the reports that we
file or submit 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 our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
In addition, there were no changes in our internal control over
financial reporting during
the
third
quarter
of fiscal 201
7
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting
.
PART II:
|
OTHER INFORMATION
|
|
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
Please refer to Note
7
, “Commitments and Contingencies
,
” in our Notes to Consolidated Financial Statements in Part I, Item 1 to this Form 10-Q for a discussion of our
involvement in certain environmental and other pending legal proceedings.
|
|
ITEM 1A.
|
RISK FACTORS
|
Please refer to Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended March 31, 201
6
for information regarding factors that could affect our results of operations, financial condition, and liquidity. For an update of risk factors relating to our potential environmental liabilities as described under the caption “Changes in our environmental liability and compliance obligations may adversely impact our operations” in the Risk Factors
section on our Annual Report on Form 10-K
, see Note
7
, “Commitments and Contingencies
,
” in our Notes to Consolidated Financial Statements in Part I, Item 1 to this Form 10-Q
.
|
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Issuer Purchases of Equity Securities
On October 17, 2007, the Board of Directors of the Company authorized the repurchase of
5,000,000
shares of our common stock from time to time in the open market. The repurchased shares are held as treasury stock and are available for general corporate purposes.
We did not make any repurchases in the quarter ended December 31, 2016.
|
|
ITEM 6.
|
EXHIBITS
|
10.1
31.1
|
Technology Disclosure Agreement, effective as of October 7, 2016, between the Company and Kyocera Corporation.
Certification of John
Sarvis
,
Chairman,
Chief Executive Officer
and President
, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated
February
9
, 2017
.
|
31.2
|
Certification of Kurt P. Cummings,
Executive Vice President,
Chief Financial Officer
and Treasurer
, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated
February 9
, 2017
.
|
32.1
|
Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - John S
arvis
and Kurt P. Cummings
.
|
101
|
The following financial information from our Quarterly Report on Form 10-Q for the quarter ended
Dec
ember
3
1
, 201
6
, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operation, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements.
|
|
S
ignature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, and the undersigned also
has
signed this report in
his
capacity as the registrant’s Vice President of Corporate Finance (Principal Accounting Officer).
Date:
February 9
, 2017
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AVX Corporation
|
|
|
|
|
|
|
By:
|
/s/ Michael E. Hufnagel
|
|
|
|
|
|
|
|
Michael E. Hufnagel
|
|
|
|
Vice President of Corporate Finance
|
|
|
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