UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Commission file number 1-7201

AVX CORPORATION
(Exact name of registrant as specified in its charter)

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

AVX CORPORATION
INDEX

2

See accompanying notes to consolidated financial statements.

3

See accompanying notes to consolidated financial statements.

4

See accompanying notes to consolidated financial statements.

5

[Table of Contents]

AVX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in thousands, except per share data)

1. Basis of Presentation:

The consolidated financial statements of AVX Corporation and subsidiaries ("AVX" or the "Company") include all accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. The accompanying financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. These consolidated financial statements are unaudited, and in the opinion of management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation of the consolidated balance sheets, operating results and cash flows for the periods presented. Operating results for the three and six months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2005 due to the cyclical nature of our business and other factors. Certain information and fo otnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004. Certain prior period amounts have been reclassified to conform to the current period presentation.

Critical Accounting Policies and Estimates:

The Company has 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 Company's Notes to the Consolidated Financial Statements and Item 7, "Critical Accounting Policies and Estimates", in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004. Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004. During the three and six-month periods ended September 30, 2004, there were no significant changes to any critical accounting policies, judgments involved in applying those policies or to the methodology used in determining estimates including those related to rev enue recognition, bad debts, inventories, property and equipment, goodwill, restructuring costs, income taxes and contingencies.

In September 2004, the EITF reached a consensus (EITF 04-10) with regard to applying Paragraph 19 of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information and Related Information, in determining whether to aggregate operating segments that do not meet the quantitative thresholds.

Paragraph 19 of FAS 131 provides guidance for combining information about operating segments that do not individually meet the quantitative thresholds to be reportable segments. These operating segments may only be combined if they share a majority of the aggregation criteria listed in Paragraph

6

17 of FAS 131. Paragraph 17 permits two or more operating segments to be aggregated into a single operating segment if aggregation is consistent with the objectives and basic principles of FAS 131, if the segments have similar economic characteristics, and if the segments are similar in each of the following areas:

1. The nature of the products and services.
2. The nature of the production process.
3. The type or class of customer for their products and services.
4. The methods used to distribute the products or provide their services.
5. If applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

There is diversity in practice regarding how an entity might consider the aggregation criteria listed in Paragraph 17 in applying the guidance in Paragraph 19 to operating segments that do not meet the qualitative thresholds.

At the September 2004 meeting, the task Force reached a consensus that operating segments must always have similar economic characteristics and meet a majority of the remaining five aggregation criteria, items (a) - (e), listed in Paragraph 17, in order to be aggregated under Paragraph 19.

The Task Force agreed that the consensus would be effective no later than fiscal years ending after October 13, 2004. The corresponding information for earlier periods, including interim periods, shall be restated, unless it is impractical to do so. The Company is currently evaluating the impact of EITF 04-10 on our segment reporting information.

Stock-based compensation is accounted for in accordance with Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure, an Amendment of FASB Statement No. 123" ("SFAS 148"). As allowed by SFAS 148, the Company measures stock-based compensation expense using the intrinsic value method in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and its related interpretations. Accordingly, compensation expense for stock option grants is measured as the excess of the quoted market price of common stock at the grant date over the exercise price. The Company's policy is to grant stock options at fair value (market) on the date of grant.

As required under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the pro forma effect of stock-based compensation on net income and earnings (loss) per share for employee stock options granted have been estimated at the date of grant using a Black-Scholes option pricing model. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to pro forma net income over the options' vesting period.

7

The following is the Company's pro forma information for the three and six months ended September 30, 2003 and 2004:

		Three Months					Six Months
		2003		2004			2003		2004
Net income (loss):
As reported	$	(76,996)	$	18,615		$	(92,937)	$	41,507
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of taxes		(1,105)		(784)			(2,149)		(1,805)
Pro forma net income (loss)	$	(78,101)	$	17,831		$	(95,086)	$	39,702
Earnings (loss) per share:
Basic - as reported	$	(0.44)	$	0.11		$	(0.54)	$	0.24
Basic - pro forma	$	(0.45)	$	0.10		$	(0.55)	$	0.23
Diluted - as reported	$	(0.44)	$	0.11		$	(0.54)	$	0.24
Diluted - pro forma	$	(0.45)	$	0.10		$	(0.55)	$	0.23

The following are weighted-average assumptions used for options granted during the three and six-month periods ended September 30, 2003 and 2004:

*No options were issued during this period.

2. Earnings (Loss) Per Share:

Basic earnings (loss) per share are computed by dividing net earnings (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share are computed by dividing net earnings (loss) by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the dilutive effect of potential common stock equivalents during the period. Stock options are the only common stock equivalents currently used by the Company and are computed using the treasury stock method.

8

The table below represents the basic and diluted weighted average number of shares of common stock and potential common stock equivalents outstanding for the three and six months ended September 30, 2003 and 2004:

Common stock equivalents, not included in the computation of diluted earnings (loss) per share because the option's exercise price was greater than the average market price of the common shares, for the three and six months ended September 30, 2003 and 2004, were:

Common stock equivalents, not included in the computation of diluted earnings (loss) per share because the effect would have been antidilutive, for the three and six months ended September 30, 2003 and 2004, were:

3. Trade Accounts Receivable:

Trade accounts receivable consisted of:

9

Charges related to allowances for doubtful accounts are charged to selling, general and administrative expenses. Charges related to sales returns, distributor adjustments and discounts are reported as deductions from revenue.

Charges for allowances for doubtful accounts were approximately $0 and $(679), and applications to such allowances were approximately $(13) and $169 for the three months ended September 30, 2003 and 2004, respectively. Charges for allowances for doubtful accounts were approximately $0 and $(679), and applications to such allowances were approximately $(2) and $334 for the six months ended September 30, 2003 and 2004, respectively.

Charges for distributor ship from stock and debit and stock rotation programs were approximately $10,751 and $10,712, and applications to such allowances were approximately $10,196 and $11,291 for the three months ended September 30, 2003 and 2004, respectively. Charges for distributor ship from stock and debit and stock rotation programs were approximately $21,537 and $20,201, and applications to such allowances were approximately $19,550 and $20,366 for the six months ended September 30, 2003 and 2004, respectively.

Charges for distributor price concessions were approximately $727 and $0, and applications to price concessions were approximately $973 and $44 for the three months ended September 30, 2003 and 2004, respectively. Charges for distributor price concessions were approximately $1,372 and $0, and applications to price concessions were approximately $2,150 and $44 for the six months ended September 30, 2003 and 2004, respectively.

The charges for sales returns and discounts were approximately $6,759 and $7,479, and applications to sales returns and discounts were approximately $6,590 and $6,979 for the three months ended September 30, 2003 and 2004, respectively. The charges for sales returns and discounts were approximately $12,337 and $14,076, and applications to sales returns and discounts were approximately $14,045 and $13,036 for the six months ended September 30, 2003 and 2004, respectively.

4. Inventories:

Inventories consisted of:

5. Materials Charge:

As a result of the cost of tantalum materials under the long-term supply contract and the continued decline in selling prices for tantalum product, during the quarter ended September 30, 2003, the Company determined, after identifying and monitoring key indicators of forecasted demand and average tantalum capacitor selling prices, that the weight of evidence regarding the sustained decline in average

10

selling prices was sufficient to support a write-down to net realizable value the carrying value of the Company's then current raw materials and work in process inventory and future purchase commitments under the long-term supply agreement for tantalum materials. Based on the Company's finished goods standard for tantalum products, finished goods were already recorded at net realizable value since the purchase price variances were not capitalized. Accordingly, the Company recorded a pre-tax charge of $87,720 to cost of sales for the write-down of the then current tantalum materials and future material purchase commitments. The Company records inventory at the lower of cost or market (realizable value). Estimated losses, included in the charge above, associated with the Company's then current inventory of tantalum materials (primarily raw materials) were $48,279. Also included in the charge above, the Company recorded estimated future losses from its commitment to purchase additional t antalum materials of $39,441 which consisted of $21,638 related to purchase commitments within twelve months and $17,803 related to purchase commitments exceeding twelve months. These accruals were reflected in the balance sheet as current and non-current liabilities, respectively. At September 30, 2004 the Company had remaining accruals reflected as current and non-current liabilities of $14,852 and $3,713, respectively.

The materials charge involved significant judgments on the Company's part, including assumptions and estimates as to the future prices of finished products using these materials, additional cost to manufacture, and the timing and use of the Company's current supply of tantalum material and future purchases under the long-term supply agreement. If prices for tantalum products were to recover in the future, the Company would not reverse the write-downs that we have taken on our materials inventory or the charges that we have taken against future purchase commitments. Therefore, the costs of materials will continue to reflect these write-downs and charges regardless of future price increases for tantalum products. This could have the effect of increasing future earnings from what they would be had we not taken the charge in the period that it was taken. The Company could also be required to take additional write-downs in the future if tantalum product selling prices experience further dec lines. Additionally, gross profit is impacted in the period in which the inventory write-down occurs and in future periods as the Company uses materials purchased under the long-term supply agreement. Due to the large number of products containing tantalum, the number of production locations, the variety of specific raw materials purchased under the contract (i.e., unprocessed material, processed material, tantalum wire, and different grades and prices of material within each category), the mix of these and other purchased materials used in any one period, the status of these materials (i.e., raw materials, work in process or finished goods) at any point in time, and the production yields, the Company cannot reasonably estimate the impact of the materials charge on gross profit in any individual reporting period.

6. Restructuring Charges:

The Company recorded $4,106 of restructuring charges during the six months ended September 30, 2003, for employee separations covering approximately 300 production, technical, administrative and support employees in all geographic regions, of which $1,295 was incurred during the three months ended September 30, 2003 covering approximately 140 production, technical, administrative and support employees in all geographic regions.

11

The Company recorded $27,213 of restructuring charges for the fiscal year ended March 31, 2004. This total includes $357 of charges for programs initiated in fiscal year 2002 and $26,856 of charges for programs initiated in fiscal year 2004. The $26,856 of restructuring charges initiated in fiscal year 2004 were comprised of $16,795 for employee separation costs covering approximately 855 production, technical, administrative and support employees in all geographic regions, $5,756 for long-lived asset impairment write-downs of building and equipment at closed facilities in France and Taiwan to fair market value based on quoted market price, and $4,305 related primarily to current asset write-offs and other facility closure costs in France, Taiwan and Mexico. All asset impairment charges were related to the passive components segment. As of September 30, 2004, approximately 849 of the related positions have been eliminated and $15,526 of the severance costs has been paid. As of Septemb er 30, 2004, approximately $2,644 of the facility closure costs remain to be paid with $1,163 to be paid in long-term commitments and the remainder expected to be paid within the next twelve months.

Activity related to these costs is as follows:

The Company recorded $24,646 of restructuring charges during the fiscal year ended March 31, 2002, comprised of $11,146 for employee separation costs covering approximately 6,110 production, technical, administrative and support employees in all geographic regions and $13,500 for facility closures primarily in the passive components segment. During the quarter ended September 30, 2003, the facility closures cost estimate was increased by $357. As of June 30, 2004, all related positions were eliminated. As of September 30, 2004, $10,510 of the severance costs has been paid. The remaining accrual of $636 includes $256 of long-term payments to be paid under an early retirement program, with the remainder expected to be paid within the next twelve months. As of June 30, 2004, all of the facility closures costs were paid.

12

Activity related to these costs is as follows:

7. Commitments and Contingencies:

The Company has been named as a potentially responsible party in state and federal administrative proceedings seeking contribution for costs associated with the correction and remediation of environmental conditions at various waste disposal and operating sites. The Company also operates on sites that may have potential future environmental issues. Once it becomes probable that the Company will incur costs in connection with remediation of a site and such costs can be reasonably estimated, the Company establishes reserves or adjusts its reserve for its projected share of these costs. Management believes that, as of September 30, 2004, its reserves of approximately $2,377 are adequate with respect to these matters. Actual costs may vary from these estimated reserves, but such costs are not expected to have a material adverse effect on the Company's financial condition or results of operations.

During the fiscal year ended March 31, 2001, the Company entered into a tantalum supply agreement for a portion of its anticipated tantalum usage. Under the agreement, quantities to be delivered were fixed for the next five years. Prices were fixed for the first two years and are subject to downward price adjustments based upon market conditions for the remaining three years. Downward price adjustments are contingent upon the grade, quantity and price of tantalum materials sold by the supplier to third parties. Accordingly, there is no guarantee as to the future realizability of any downward price adjustments and amounts currently received may not be indicative of amounts that may be received in the future. Downward price adjustments are recorded as reductions in the costs of the related inventory when received. The Company received $2,281 and $3,909 of downward price adjustments during the three-month periods ended September 30, 2003 and 2004, respectively, and $4,427 and $6,298 of downward price adjustments for the six-month periods ended September 30, 2003 and 2004, respectively. At September 30, 2004, future purchase commitments under the tantalum supply agreement are approximately $34,394 during the balance of fiscal 2005 and $48,099 in fiscal 2006. During the quarter ended September 30, 2003, the Company recorded a materials charge in connection with the tantalum supply agreement. In connection with the materials charge, the Company

13

has remaining accruals of $18,565 at September 30, 2004 for the write-down of future purchase commitments under the tantalum supply agreement. The remaining accrued net losses will be used as we satisfy our remaining purchase commitments under the tantalum supply agreement. At September 30, 2004, the Company had $75,667 million of tantalum raw materials inventory that we expect will be used in the normal course of production.

AVX filed a complaint on July 29, 2002, against Cabot Corporation ("Cabot") in U.S. District Court for the District of Massachusetts (the "Federal Court") with respect to the existing supply agreement with Cabot for tantalum powder, ore and wire, alleging violations of a federal law known as the Robinson-Patman Act. Just before the dismissal of that case by stipulation on jurisdictional grounds on March 28, 2003, Cabot filed a court action in the Superior Court for Suffolk County, Commonwealth of Massachusetts (the "State Court") on March 18, 2003, seeking a declaratory judgment to determine the rights and obligations of each party. AVX then filed a counterclaim against Cabot in the State Court on April 17, 2003, restating the affirmative claims asserted in the Federal Court action for money damages for unfair and deceptive trade practices by Cabot, breach of contract and other related matters. In particular, AVX asserts that in fiscal 2001 Cabot took advantage of a shortage of tantalum on the market to induce AVX to execute a long-term contract at inflated prices by threatening to breach the contract then in effect between the parties, and that Cabot made false or misleading assertions during the course of those dealings. AVX has also filed claims for breach of the long-term contract because of defective product and delayed deliveries. AVX seeks, pursuant to the action, injunctive relief, actual and treble damages in amounts to be determined at trial and attorney's fees. On June 18, 2004, the Superior Court judge dismissed that portion of the AVX state case that related to the allegations concerning the formation of the challenged contract. The allegations of breach of contract still survive.

On March 8, 2004, AVX filed a second action in Federal Court against Cabot alleging certain violations of the federal antitrust laws. The facts alleged in this action relate to the same contracts, but in this action AVX alleged Cabot engaged in conduct that violated federal anti-trust laws known as the Sherman Anti-Trust Act. AVX seeks, pursuant to this action, injunctive relief, actual and treble damages in amounts to be determined at trial and attorney's fees. Cabot has filed its initial motions to dismiss which are still pending. AVX is not subject to any loss contingency resulting from the claims against Cabot.

8. Comprehensive Income:

Comprehensive income represents total non-shareholder changes in equity during a period except those resulting from investments by and distributions to shareholders. The specific components include net income (loss), pension liability adjustments, deferred gains and losses resulting from foreign currency translation adjustments and qualified foreign currency cash flow hedges.

14

Comprehensive income for the three and six months ended September 30, 2003 and 2004 includes the following components:

		Three Months						Six Months
		2003			2004			2003			2004
Net income (loss)	$	(76,996)		$	18,615		$	(92,937)		$	41,507
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		(6,782)			(2,151)			28,534			2,482
Foreign currency cash flow hedges		450			(1,050)			1,357			(448)
Comprehensive income (loss)	$	(83,328)		$	15,414		$	(63,046)		$	43,541

9. Segment and Geographic Information:

On April 1, 2004, the Company reorganized into a product line organization with six main product groups. The Company's reportable segments are based on the types of products from which the Company generates revenues. In accordance with the requirements of Statement of Financial Accounting Standards 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), the Company has three reportable segments: Passive Components, Kyocera Electronic Devices ("KED") Resale and AVX Connectors. The operating segments of Ceramic, Advanced MLC, Tantalum and TPC have been aggregated into the Passive Component reportable segment in accordance with the aggregation criteria and quantitative thresholds in SFAS 131. 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 and tantalum capacito rs, film and power capacitors and varistors. The KED Resale segment consists primarily of capacitors, oscillators, filters and connectors produced by our majority stockholder, Kyocera Corporation ("Kyocera"), and resold by AVX. The AVX Connectors segment consists primarily of Elco automotive, telecom and memory connectors produced by AVX. Sales and operating results from these reportable segments are shown in the tables below. In addition, the Company has a corporate administration group consisting of finance and administrative activities and a separate Research and Development group.

The Company evaluates performance of its segments based upon sales and operating profit. There are no intersegment revenues. The Company allocates the costs of shared resources between segments based on each segment's usage of the shared resources. Cash, accounts receivable, investments in securities and certain other assets, which are centrally managed, are not readily allocable to operating segments. Prior year reportable segment information has been restated based on the above Company reorganization and new applicable segments.

15

The tables below present information about reported segments for the three and six months ended September 30, 2003 and 2004:

		Three Months							Six Months
		2003			2004				2003			2004
Net sales:
Passive Components	$	188,129		$	207,748			$	376,896		$	431,468
KED Resale		67,276			105,522				122,761			210,582
AVX Connectors		11,881			16,713				24,284			32,951
Total	$	267,286		$	329,983			$	523,941		$	675,001

		Three Months							Six Months
		2003			2004				2003			2004
Operating profit (loss):
Passive Components	$	(106,986)		$	28,468			$	(122,062)		$	59,265
KED Resale		5,560			6,663				9,358			13,658
AVX Connectors		547			2,118				1,152			4,395
Research & development		(3,428)			(2,907)				(7,051)			(5,783)
Corporate administration		(3,947)			(7,312)				(9,520)			(13,784)
Total	$	(108,254)		$	27,030			$	(128,123)		$	57,751

		March 31, 2004			September 30, 2004
Assets:
Passive Components	$	559,538		$	610,120
KED Resale		20,006			28,068
AVX Connectors		24,737			28,384
Research & development		8,372			9,485
Cash, A/R and investments in securities		891,181			873,504
Goodwill		69,747			69,656
Corporate administration		94,296			76,441
Total	$	1,667,877		$	1,695,658

The following geographic data is based upon net sales generated by operations located within particular geographic areas for the three and six months ended September 30, 2003 and 2004:

		Three Months							Six Months
		2003			2004				2003			2004
Net sales:
Americas	$	89,845		$	113,336			$	181,606		$	223,801
Europe		70,000			83,656				140,885			172,955
Asia		107,441			132,991				201,450			278,245
Total	$	267,286		$	329,983			$	523,941		$	675,001

16

10. Pension Plans:

In December 2003, the Financial Accounting Standards Board revised Statement of Financial Accounting Standard No. 132, "Employers' Disclosures about Pensions and Other Post Retirement Benefits" ("Revised SFAS 132"). Revised SFAS 132 retains the disclosures required by the original SFAS 132, which standardized the disclosure requirements for pensions and other postretirement benefits to the extent practicable and required additional information on changes in the benefit obligations and fair values of plan assets. Revised SFAS 132 requires disclosures in addition to those required by the original SFAS 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The Company has adopted the disclosure requirements required by the Revised SFAS 132, as reflected in the Form 10-K for the fiscal year ended March 31, 2004. The interim disclosures are presented below.

The following table shows the components of the net periodic pension cost for the three and six months ended September 30, 2003 and 2004 for the U.S. defined benefit plans:

		Three Months							Six Months
		2003			2004				2003			2004
Service cost	$	81		$	91			$	162		$	182
Interest cost		406			404				812			808
Expected return on plan assets		(378)			(392)				(756)			(784)
Amortization of prior service cost		37			44				74			88
Net periodic pension cost	$	146		$	147			$	292		$	294

The following table shows the components of the net periodic pension cost for the three and six months ended September 30, 2003 and 2004 for the non-U.S. defined benefit plans:

		Three Months							Six Months
		2003			2004				2003			2004
Service cost	$	371		$	282			$	742		$	564
Interest cost		1,241			1,302				2,482			2,604
Expected return on plan assets		(1,024)			(1,122)				(2,048)			(2,244)
Amortization of prior service cost		15			15				30			30
Recognized actuarial loss		372			323				744			646
Net periodic pension cost	$	975		$	800			$	1,950		$	1,600

11. Acquisition:

On April 2, 2004, the Company completed its acquisition of certain sales and marketing subsidiaries from Kinseki Ltd. of Japan ("KSS"), a wholly owned subsidiary of our majority stockholder, Kyocera. We now have the right to distribute crystal components previously sold by Kinseki in the Americas, Europe and parts of Asia. Annual sales of these products in these regions were approximately $80,000 for the fiscal year ended March 31, 2004. The purchase was accounted for under the purchase accounting method in accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations".

17

In August 2004, the Company sold a portion of the acquired goodwill associated with certain Japanese customers in Asia transferred to Kyocera Asia Pacific Ltd., a subsidiary of Kyocera Corporation, for $198. This resulted in an adjustment to the purchase price and associated goodwill. As a result of the above transaction, the purchase price of the KSS acquisition, as adjusted, of $11,793 was based on $9,617 of purchased net assets and $2,176 of goodwill, which was recorded as a decrease in equity as required for entities under common control. The results of operations related to this acquisition are included in the accompanying financial statements beginning April 2, 2004.

12. Subsequent Event:

On October 22, 2004, the Board of Directors of the Company declared a $0.0375 dividend per share of common stock with respect to the quarter ended September 30, 2004. The dividend will be paid to stockholders of record on November 8, 2004 and will be disbursed on November 15, 2004.

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 the Quarterly Report on Form 10-Q are forward-looking. The forward-looking information may include, among other information, statements concerning the Company's outlook for fiscal year 2005, overall volume and pricing trends, cost reduction strategies and their anticipated results, expectations for research and development, and capital expenditures. There may also be other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Forward-looking statements reflect management's expectations and are inherently uncertain. The forward-looking information and state ments in this report are subject to risks and uncertainties, including those discussed in the Company's Annual Report on Form 10-K for fiscal year ended March 31, 2004, that could cause actual results to differ materially from those expressed in or implied by the information or statements. 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 with the United States Securities and Exchange Commission ("SEC"). You should not place undue reliance on any forward-looking statements as a prediction of actual results or developments.

The Company is not obligated 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 the way of the 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.

"Management's Discussion and Analysis of Financial Condition and Results of Operations" is based upon the Company's Consolidated Financial Statements and Notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, bad debts, inventories, property and equipment, goodwill, restructuring costs, 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.

19

The Company has 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 Company's Notes to the Consolidated Financial Statements and Item 7, "Critical Accounting Policies and Estimates", in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004 and in Note 1, "Critical Accounting Policies and Estimates", in our Notes to Consolidated Financial Statements in this Form 10-Q. Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004. During the three and six-month periods ended September 30, 2004, there were no significant changes to any critical accounting policies, judgments involved in applying those policies or to the methodology used in determining estimates including those related to revenue recognition, bad debts, inventories, property and equipment, goodwill, restructuring costs, income taxes and contingencies.

AVX is a leading worldwide manufacturer and supplier of a broad line of passive electronic components and related products. Virtually all types of electronic devices use our passive component products to store, filter or regulate electric energy. We also manufacture and supply high-quality electronic connectors and inter-connect systems for use in electronic products. In addition to AVX manufactured products, we also sell and distribute certain Kyocera manufactured electronic component and connector products to customers in certain territories outside Japan.

We have manufacturing, sales and distribution facilities located throughout the world which are divided into three main geographic regions: the Americas, Asia and Europe. On April 2, 2004, we completed our acquisition of certain sales and marketing subsidiaries from Kinseki Ltd. of Japan ("KSS"), a wholly owned subsidiary of Kyocera. Effective April 1, 2004, we reorganized into a product line organization with six main product groups. As a result of this reorganization, we have revised our segment reporting in accordance with Statement of Financial Accounting Standards 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). Effective April 1, 2004, we began reporting segment information in three reportable segments: Passive Components, KED Resale and AVX Connectors.

Our products are marketed worldwide and are primarily sold to original equipment manufacturers, independent electronic component distributors and contract equipment manufacturers through our own direct sales force and independent manufacturers' representatives.

Net sales in the three months ended September 30, 2004 increased $62.7 million, or 23.5%, to $330.0 million compared to $267.3 million in the three months ended September 30, 2003.

20

The table below represents product group revenues from external customers for the three-month periods ended September 30, 2003 and September 30, 2004.

Passive component sales increased $19.6 million, or 10.4%, to $207.7 million from $188.1 million. The sales increase in passive components was primarily due to an increase in customer orders resulting from a continuing recovery in the electronics business end markets and increased demand partly due to the continued complexity and increased functionality of electronic products. Compared to the same period last year, passive component unit volumes increased approximately 10.0%, reflecting the increased demand discussed above, and average selling prices increased by approximately 1.0%. The Company saw continued pricing pressure in the three months ended September 30, 2004 on commodity related products resulting from the industry's production capacity exceeding demand. Advanced component sales include 37.0% and 26.3% of tantalum advanced component sales and 63.0% and 73.7% of ceramic advanced component sales during the periods ended September 30, 2003 and September 30, 2004, respectively.< /P>

KED resale sales, excluding KEC resale connectors discussed below, increased $40.3 million, or 79.2%, to $91.1 million compared to $50.9 million during the same period last year. The increase is attributable to product mix and improved volumes resulting from the overall improvement in the electronics business end markets, in addition to approximately $31.8 million of sales of KSS crystal components from our April 2, 2004 acquisition of KSS.

Compared to the same period last year, total connector sales, including AVX manufactured and KEC resale connectors, increased $2.8 million, or 9.9%, to $31.1 million from $28.3 million. This increase was primarily attributable to product mix and increased volume due to sales from new customer programs and improved end market conditions.

The Company's sales to independent electronic distributors represented 38.0% of total sales for the period ended September 30, 2004, compared to 37.2% for the period ended September 30, 2003. The Company's sales to distributors involve specific ship and debit, price concession and stock rotation programs for which sales allowances are recorded as reductions in sales. Such allowance charges were $10.7 million, or 7.9% of gross sales to distributors, for the three months ended September 30, 2004 and $11.5 million, or 10.3% of gross sales to distributors, for the three months ended September 30, 2003. This reduction is reflective of the improved demand in the electronics business end markets, resulting in a more stable pricing environment. Applications under such programs for the quarter ended September 30, 2004 and 2003 were approximately $11.3 million and $11.2 million, respectively.

21

Geographically, compared to the same period last year, sales in the Americas, Asia and Europe as a percentage of total sales were virtually unchanged. Compared to the same period last year, sales in the Americas, Asia and Europe increased 26.1%, 23.8% and 19.5%, respectively.

Gross profit in the three months ended September 30, 2004 increased $139.6 million to $52.9 million compared to $(86.7) million in the three months ended September 30, 2003. Gross profit for the three-month period ended September 30, 2003 was negatively affected by the $87.7 million materials charge discussed below. Cost of sales for the three months ended September 30, 2004 reflect improved manufacturing efficiencies as a result of increased volumes, lower manufacturing costs as a result of moving production into lower cost regions, lower material costs and lower depreciation expense of $4.1 million due to lower capital spending during the past two fiscal years. Overall material expense, excluding the materials charge, decreased $27.0 million as a result of lower material costs, in part due to the tantalum materials charge taken in fiscal 2004. Lower material costs were partially offset by increased material usage due to higher production volumes.

As a result of the cost of tantalum materials under the long-term supply contract and the continued decline in selling prices for tantalum product, during the quarter ended September 30, 2003, the Company determined, after identifying and monitoring key indicators of forecasted demand and average tantalum capacitor selling prices, that the weight of evidence regarding the sustained decline in average selling prices was sufficient to support a write-down to net realizable value the carrying value of the Company's then current raw materials and work in process inventory and future purchase commitments under the long-term supply agreement for tantalum materials. Based on the Company's finished goods standard for tantalum products, finished goods were already recorded at net realizable value since the purchase price variances were not capitalized. Accordingly, the Company recorded a pre-tax charge of $87.7 million, (or $61.4 million and $0.35 per share on an after-tax basis), to cost of sales for the write-down of the then current tantalum materials and future material purchase commitments. The Company records inventory at the lower of cost or market (realizable value). Estimated losses, included in the charge above, associated with the Company's then current inventory of tantalum materials (primarily raw materials) were $48.3 million. Also, included in the charge above, the Company recorded estimated future losses from its commitment to purchase additional tantalum materials of $39.4 million which consisted of $21.6 million related to purchase commitments within twelve months and $17.8 million related to purchase commitments exceeding twelve months. These accruals were reflected in the balance sheet as current and non-current liabilities, respectively. At September 30, 2004 the Company had remaining accruals reflected as current and non-current liabilities of $14.9 million and $3.7 million, respectively.

22

The materials charge involved significant judgments on the Company's part, including assumptions and estimates as to the future prices of finished products using these materials, additional cost to manufacture, and the timing and use of the Company's current supply of tantalum material and future purchases under the long-term supply agreement. If prices for tantalum products were to recover in the future, the Company would not reverse the write-downs that we have taken on our materials inventory or the charges that we have taken against future purchase commitments. Therefore, the costs of materials will continue to reflect these write-downs and charges regardless of future price increases for tantalum products. This could have the effect of increasing future earnings from what they would be had we not taken the charge in the period that it was taken. The Company could also be required to take additional write-downs in the future if tantalum product selling prices experience further dec lines. Additionally, gross profit is impacted in the period in which the inventory write-down occurs and in future periods as the Company uses materials purchased under the long-term supply agreement. Due to the large number of products containing tantalum, the number of production locations, the variety of specific raw materials purchased under the contract (i.e., unprocessed material, processed material, tantalum wire, and different grades and prices of material within each category), the mix of these and other purchased materials used in any one period, the status of these materials (i.e., raw materials, work in process or finished goods) at any point in time, and the production yields, the Company cannot reasonably estimate the impact of the materials charge on gross profit in any individual reporting period.

Selling, general and administrative expenses in the three months ended September 30, 2004 were $25.9 million, or 7.8% of net sales, compared with $19.9 million, or 7.4% of net sales, in the three months ended September 30, 2003. Direct selling expenses increased $1.3 million primarily due to higher sales commissions paid to independent manufacturers' representatives and higher freight costs due to higher sales. Professional fees increased $1.1 million primarily due to the increased costs related to public company compliance and the implementation of the Sarbanes - Oxley Act of 2002.

Research, development and engineering expenditures, which encompass the personnel and related expenses devoted to developing new and maintaining existing products, processes and technical innovations, were approximately $9.4 million and $8.7 million in the three months ended September 30, 2003 and 2004, respectively. Research and development costs for the development of new products and processes are primarily classified in selling, general and administrative expenses, while engineering costs in connection with existing products and processes are primarily included in cost of sales.

The decline in research and development expenses was partially due to the transfer from development to production of certain new products. The costs were incurred as we continue to enhance existing product lines, develop new products, convert to the use of base metals in the manufacture of components and develop high capacitance capacitors.

23

The Company recorded $4,106 of restructuring charges during the six months ended September 30, 2003, for employee separations covering approximately 300 production, technical, administrative and support employees in all geographic regions, of which $1,295 was incurred during the three months ended September 30, 2003 covering approximately 140 production, technical, administrative and support employees in all geographic regions.

The Company recorded $27,213 of restructuring charges for the fiscal year ended March 31, 2004. This total includes $357 of charges for programs initiated in fiscal year 2002 and $26,856 of charges for programs initiated in fiscal year 2004. The $26,856 of restructuring charges initiated in fiscal year 2004 were comprised of $16,795 for employee separation costs covering approximately 855 production, technical, administrative and support employees in all geographic regions, $5,756 for long-lived asset impairment write-downs of building and equipment at closed facilities in France and Taiwan to fair market value based on quoted market price, and $4,305 related primarily to current asset write-offs and other facility closure costs in France, Taiwan and Mexico. All asset impairment charges were related to the passive components segment. As of September 30, 2004, approximately 849 of the related positions have been eliminated and $15,526 of the severance costs has been paid. As of September 30, 2004, approximately $2,644 of the facility closure costs remain to be paid with $1,163 to be paid in long-term commitments and the remainder expected to be paid within the next twelve months.

Activity related to these costs is as follows:

The Company recorded $24,646 of restructuring charges during the fiscal year ended March 31, 2002, comprised of $11,146 for employee separation costs covering approximately 6,110 production, technical, administrative and support employees in all geographic regions and $13,500 for facility closures primarily in the passive components segment. During the quarter ended September 30, 2003, the facility closures cost estimate was increased by $357. As of June 30, 2004, all related positions were eliminated. As of September 30, 2004, $10,510 of the severance costs has been paid. The remaining accrual of $636 includes $256 of long-term payments to be paid under an early retirement program, with the remainder expected to be paid within the next twelve months. As of June 30, 2004, all of the facility closures costs were paid.

24

Activity related to these costs is as follows:

As a result of the above factors, the Company reported income from operations of $27.0 million in the three months ended September 30, 2004 compared to a loss from operations of $108.3 million in the three months ended September 30, 2003.

Other income increased $0.7 million to $3.1 million in the three months ended September 30, 2004 compared to $2.4 million in the prior fiscal year. This increase is due to higher interest income and a $0.3 million gain on the sale of property.

The Company's effective tax rate for the period ended September 30, 2004 was 38.0% compared to a tax benefit of 27.3% for the same period last year. This increase is due to increased taxable income partially offset by tax benefits resulting from operating losses for certain European and Asian operations which were offset by valuation allowances. The Company provides allowances where there is a greater likelihood of not realizing the future tax benefits of net operating losses.

Net income for the three-month period ended September 30, 2004 was $18.6 million compared to a net loss of $77.0 million for the three-month period ended September 30, 2003. The increase in net income was a result of the factors set forth above.

25

Net sales in the six months ended September 30, 2004 increased $151.1 million, or 28.8%, to $675.0 million compared to $523.9 million in the six months ended September 30, 2003.

The table below represents product group revenues from external customers for the six-month periods ended September 30, 2003 and September 30, 2004.

Passive component sales increased $54.6 million, or 14.5%, to $431.5 million from $376.9 million. The sales increase in passive components was primarily due to an increase in customer orders resulting from a continuing recovery in the electronics business end markets and increased demand partly due to the continued complexity and increased functionality of electronic products. Compared to the same period last year, passive component unit volumes increased approximately 17.0%, reflecting the increased demand discussed above. This increase in volume was partially offset by an overall decline in average selling prices of approximately 2.0% resulting from changes in product mix and lower selling prices. The Company saw continued pricing pressure in the first half of the fiscal year on commodity related products resulting from the industry's production capacity exceeding demand. Advanced component sales include 35.7% and 27.1% of tantalum advanced component sales and 64.3% and 72.9% of cer amic advanced component sales during the periods ended September 30, 2003 and September 30, 2004, respectively.

KED resale sales, excluding KEC resale connectors discussed below, increased $83.7 million, or 89.7%, to $177.1 million compared to $93.4 million during the same period last year. The increase is attributable to product mix and improved volumes resulting from the overall improvement in the electronics business end markets, in addition to approximately $56.1 million of sales of KSS crystal components from our April 2, 2004 acquisition of KSS.

Compared to the same period last year, total connector sales, including AVX manufactured and KEC resale connectors, increased $12.7 million, or 23.6%, to $66.4 million from $53.7 million. This increase was primarily attributable to product mix and increased volume due to sales from new customer programs and improved end market conditions.

26

The Company's sales to independent electronic distributors represented 40.4% of total sales for the period ended September 30, 2004, compared to 37.8% for the period ended September 30, 2003. This increase reflects more normalized distribution inventory replenishment and higher sales activity. The Company's sales to distributors involve specific ship and debit, price concession and stock rotation programs for which sales allowances are recorded as reductions in sales. Such allowance charges were $20.2 million, or 6.9% of gross sales to distributors, for the six months ended September 30, 2004 and $22.9 million, or 10.4% of gross sales to distributors, for the six months ended September 30, 2003. This reduction is reflective of the improved demand in the electronics business end markets, resulting in a more stable pricing environment. Applications under such programs for the six-month period ended September 30, 2004 and 2003 were approximately $20.4 million and $21.7 million, respectiv ely.

Geographically, compared to the same period last year, sales as a percentage of total sales increased 2.8% in Asia and decreased 1.5% in the Americas and 1.3 % in Europe reflecting the continuing shift of production capabilities by our customers to the Asian region. Compared to the same period last year, sales in the Americas, Asia and Europe increased 23.2%, 38.1% and 22.8%, respectively.

Gross profit in the six months ended September 30, 2004 increased $191.8 million to $109.1 million compared to $(82.7) million in the six months ended September 30, 2003. Gross profit for the six-month period ended September 30, 2003 was negatively affected by the $87.7 million materials charge discussed below. Cost of sales for the six months ended September 30, 2004 reflect improved manufacturing efficiencies as a result of increased volumes, lower manufacturing costs as a result of moving production into lower cost regions, lower material costs and lower depreciation expense of $8.4 million due to lower capital spending during the past two fiscal years. Labor costs increased $3.7 million as a result of higher headcount due to increased production. Overall material expense, excluding the materials charge, decreased $33.4 million as a result of lower material costs, in part due to the tantalum materials charge taken in fiscal 2004. Lower material costs we re partially offset by increased material usage due to higher production volumes.

As a result of the cost of tantalum materials under the long-term supply contract and the continued decline in selling prices for tantalum product, during the six months ended September 30, 2003, the Company determined, after identifying and monitoring key indicators of forecasted demand and average tantalum capacitor selling prices, that the weight of evidence regarding the sustained decline in average selling prices was sufficient to support a write-down to net realizable value the carrying value of the Company's then current raw materials and work in process inventory and future purchase commitments under the long-term supply agreement for tantalum materials. Based on the Company's finished goods standard for tantalum products, finished goods were already recorded at net realizable value since the purchase price variances were not capitalized. Accordingly, the Company recorded a pre-tax charge of $87.7 million, (or $61.4 million and $0.35 per share on an after-tax basis), to c ost of sales for the write-down of the then current tantalum materials and future material purchase commitments. The Company records inventory at the lower of cost or market (realizable value). Estimated losses, included in the charge above, associated with the Company's then current inventory of tantalum materials (primarily raw materials) were $48.3 million. Also, included in the charge above, the Company recorded estimated future losses from its commitment to purchase additional tantalum materials of $39.4 million which consisted of $21.6 million related to purchase commitments within twelve months and $17.8 million related to purchase commitments exceeding twelve months. These accruals were reflected in the balance sheet as current and non-current liabilities, respectively. At September 30, 2004 the Company had remaining accruals reflected as current and non-current liabilities of $14.9 million and $3.7 million, respectively.

27

The materials charge involved significant judgments on the Company's part, including assumptions and estimates as to the future prices of finished products using these materials, additional cost to manufacture, and the timing and use of the Company's current supply of tantalum material and future purchases under the long-term supply agreement. If prices for tantalum products were to recover in the future, the Company would not reverse the write-downs that we have taken on our materials inventory or the charges that we have taken against future purchase commitments. Therefore, the costs of materials will continue to reflect these write-downs and charges regardless of future price increases for tantalum products. This could have the effect of increasing future earnings from what they would be had we not taken the charge in the period that it was taken. The Company could also be required to take additional write-downs in the future if tantalum product selling prices experience further dec lines. Additionally, gross profit is impacted in the period in which the inventory write-down occurs and in future periods as the Company uses materials purchased under the long-term supply agreement. Due to the large number of products containing tantalum, the number of production locations, the variety of specific raw materials purchased under the contract (i.e., unprocessed material, processed material, tantalum wire, and different grades and prices of material within each category), the mix of these and other purchased materials used in any one period, the status of these materials (i.e., raw materials, work in process or finished goods) at any point in time, and the production yields, the Company cannot reasonably estimate the impact of the materials charge on gross profit in any individual reporting period.

Selling, general and administrative expenses in the six months ended September 30, 2004 were $51.3 million, or 7.6% of net sales, compared with $41.0 million, or 7.8% of net sales, in the six months ended September 30, 2003. Direct selling expenses increased $1.9 million primarily due to higher sales commissions paid to independent manufacturers' representatives and higher freight costs due to higher sales. Professional fees increased $2.1 million primarily due to the increased costs related to public company compliance and the implementation of the Sarbanes - Oxley Act of 2002.

Research, development and engineering expenditures, which encompass the personnel and related expenses devoted to developing new and maintaining existing products, processes and technical innovations, were approximately $19.6 million and $17.8 million in the six months ended September 30, 2003 and 2004, respectively. Research and development costs for the development of new products and processes are primarily classified in selling, general and administrative expenses, while engineering costs in connection with existing products and processes are primarily included in cost of sales.

28

The decline in research and development expenses was partially due to the transfer from development to production of certain new products. The costs were incurred as we continue to enhance existing product lines, develop new products, convert to the use of base metals in the manufacture of ceramic capacitors and develop high capacitance capacitors. Decreased engineering costs are due to products transferred out of engineering to production.

Operating results for the six-month period ended September 30, 2003 include restructuring charges of $4.5 million related to worldwide headcount reductions across all geographic regions from employee separations covering approximately 300 production, technical, administrative and support employees and additional costs related to the completion of a previous facility closure.

As a result of the above factors, the Company reported income from operations of $57.8 million in the six months ended September 30, 2004 compared to a loss from operations of $128.1 million in the six months ended September 30, 2003.

Other income increased $2.4 million to $8.2 million in the six months ended September 30, 2004 compared to $5.8 million in the prior fiscal year. This net increase includes a $2.8 million pre-tax and after-tax gain on the sale of a previously closed facility in Taiwan, partially offset by lower interest income resulting from lower interest rates on invested cash and securities and lower cash balances.

The Company's effective tax rate for the six-month period ended September 30, 2004 was 37.0% compared to a tax benefit of 24.0% for the same period last year. This increase is due to increased taxable income. The Company provides valuation allowances related to tax benefits resulting from operating losses for certain European and Asian operations where there is a greater likelihood of not realizing the future tax benefits of net operating losses. The tax benefit for the six-month period ended September 30, 2003 included $0.5 million from the favorable resolution of certain prior year tax matters.

29

Net income for the six months ended September 30, 2004 was $41.5 million compared to a net loss of $92.9 million for the six months ended September 30, 2003. The increase in net income was a result of the factors set forth above.

The electronic component industry in which we operate is cyclical. During the first half of fiscal 2005, we saw an improvement in the markets we serve, some pricing stabilization, improvement in manufacturing capacity utilization and a more normal balance in supply chain inventories. The continued uncertainty in the global economy and end market demand makes it difficult to predict near-term events. Near-term results for us will depend on growth in the economy and resulting expansion in the telecommunications, information technology hardware, automotive and other electronic markets. We expect a continued, modest decline in average selling prices for certain commodity related products which is more typical over a longer period of time in our industry than the rapid average selling price declines experienced during the last two years resulting from the imbalance of the industry's manufacturing capacity and end market demand. This has helped stabilize selling prices. Additionally, i n reaction to the slow down in demand during the prior fiscal years, the Company implemented global workforce reduction programs, manufacturing facility closures and other measures to reduce operating costs and rationalized our product offerings. The Company continues to evaluate its cost structure and manufacturing capabilities in conjunction with current demand and future expectations. Accordingly, the Company could record additional restructuring charges in the future resulting from further global workforce reductions and facility reorganizations as the Company continues to take strategic actions in response to changes in current or future business conditions.

We continue to be optimistic that opportunities of long-term growth and profitability will continue due to: (a) the continued increase as a long-term trend in worldwide demand for electronic devices which require our electronic components, (b) cost reductions and improvements in our production processes and (c) opportunities for growth in our advanced product line due to advances in component design.

The Company's liquidity needs arise primarily from working capital requirements, dividend payments and capital expenditures. Historically, the Company has satisfied its liquidity requirements through funds from operations and investment income from cash and investments in securities. As of September 30, 2004, the Company had a current ratio of 5.17 to 1, $696.7 million of cash, cash equivalents and investments in securities, $1,414.9 million of stockholders' equity and no debt.

Net cash used in operating activities was $6.8 million in the six months ended September 30, 2004 compared to $7.6 million of cash used in operations in the six months ended September 30, 2003. The increase in cash flow from operations compared to the same period last year was primarily a result of the higher net income, offset in part by changes in net working capital to support the higher level of activity during the six months ended September 30, 2004.

30

Purchases of property and equipment were $25.9 million in the six-month period ended September 30, 2004 compared to $14.5 million in the six-month period ended September 30, 2003. Expenditures for both periods were primarily in connection with the transfer of Passive Component manufacturing operations to lower cost regions, process improvements in Passive Component product lines and expansion of production of some advanced and connector product lines. This included the construction of a 500,000 square foot manufacturing facility in China that was started during fiscal 2002 that was substantially complete at the end of fiscal 2004. Production is being transferred to this facility over the next year. The carrying value for our equipment reflects the use of the accelerated double-declining balance method to compute depreciation expense for machinery and equipment. We continue to add additional capacity for advanced passive component and connector products and expect to incur capital expe nditures of $45.0 million to $50.0 million in fiscal 2005. The actual amount of capital expenditures will depend upon the outlook for end market demand.

The majority of the Company's funding is internally generated through operations and investment income from cash and investments in securities. Since March 31, 2004, there have been no significant changes in the Company's contractual obligations or commitments for the acquisition or construction of plant and equipment or future minimum lease commitments under noncancellable operating leases. Based on the financial condition of the Company as of September 30, 2004, the Company believes that cash on hand and cash expected to be generated from operating activities and investment income from cash and investments in securities will be sufficient to satisfy the Company's anticipated financing needs for working capital, capital expenditures, environmental clean-up costs, research, development and engineering expenses, and any dividend payments or stock repurchases to be made during the year. While changes in customer demand have an impact on the Company's future cash requirements, changes in t hose requirements are mitigated by the Company's ability to adjust manufacturing capabilities to meet increases or decreases in customer demand. Additionally, the Company does not anticipate any significant changes in its ability to generate or meet its liquidity needs in the long-term.

Although the majority of our funding is internally generated, certain of our European subsidiaries have from time to time borrowed various European currencies under various bank agreements. At September 30, 2004, there were no balances under such agreements. These borrowings have been used primarily to fund regional working capital requirements.

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 September 30, 2004, we did not have any of these delivery contracts outstanding.

AVX filed a complaint on July 29, 2002, against Cabot Corporation ("Cabot") in U.S. District Court for the District of Massachusetts (the "Federal Court") with respect to the existing supply agreement with Cabot for tantalum powder, ore and wire, alleging violations of a federal law known as the Robinson-Patman Act. Just before the dismissal of that case by stipulation on jurisdictional grounds on March 28, 2003, Cabot filed a court action in the Superior Court for Suffolk County, Commonwealth of Massachusetts (the "State Court") on March 18, 2003, seeking a declaratory judgment to determine the rights and obligations of each party. AVX then filed a counterclaim against Cabot in the State Court on April 17, 2003, restating the affirmative claims asserted in the Federal Court action for money damages for unfair and deceptive trade practices by Cabot, breach of contract and other related matters. In particular, AVX asserts that in fiscal 2001 Cabot took advantage of a shortage of tantalum on the market to induce AVX to execute a long-term contract at inflated prices by threatening to breach the contract then in effect between the parties, and that Cabot made false or misleading assertions during the course of those dealings. AVX has also filed claims for breach of the long-term contract because of defective product and delayed deliveries. AVX seeks, pursuant to the action, injunctive relief, actual and treble damages in amounts to be determined at trial and attorney's fees. On June 18, 2004, the Superior Court judge dismissed that portion of the AVX state case that related to the allegations concerning the formation of the challenged contract. The allegations of breach of contract still survive.

31

On March 8, 2004, AVX filed a second action in Federal Court against Cabot alleging certain violations of the federal antitrust laws. The facts alleged in this action relate to the same contracts, but in this action AVX alleged Cabot engaged in conduct that violated federal anti-trust laws known as the Sherman Anti-Trust Act. AVX seeks, pursuant to this action, injunctive relief, actual and treble damages in amounts to be determined at trial and attorney's fees. Cabot has filed its initial motions to dismiss which are still pending. AVX is not subject to any loss contingency resulting from the claims against Cabot.

We have been named as a potentially responsible party in state and federal administrative proceedings seeking contribution for costs associated with the correction and remediation of environmental conditions at various waste disposal and operating sites. We also operate on sites that may have potential future environmental 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 reserve for our projected share of these costs. Management believes that, as of September 30, 2004, its reserves of approximately $2.4 million are adequate with respect to these matters. Actual costs may vary from these estimated reserves, but such costs are not expected to have a material adverse effect on our financial condition or results of operations.

During the fiscal year ended March 31, 2001, the Company entered into a tantalum supply agreement for a portion of its anticipated tantalum usage. Under the agreement, quantities to be delivered were fixed for the next five years. Prices were fixed for the first two years and are subject to downward price adjustments based upon market conditions for the remaining three years. Downward price adjustments are contingent upon the grade, quantity and price of tantalum materials sold by the supplier to third parties. Accordingly, there is no guarantee as to the future realizability of any downward price adjustments and amounts currently received may not be indicative of amounts that may be received in the future. Downward price adjustments are recorded as reductions in the costs of the related inventory when received. The Company received $4.4 million and $6.3 million of downward price adjustments for the six-month periods ended September 30, 2003 and 2004, respectively. At September 30, 2004, future purchase commitments under the tantalum supply agreement are approximately $34.4 million during the balance of fiscal 2005 and $48.1 million in fiscal 2006. During the quarter ended September 30, 2003, we recorded a materials charge in connection with the tantalum supply agreement. In connection with the materials charge, we have remaining accruals of $18.6 million at September 30, 2004 for the write-down of future purchase commitments under the tantalum supply agreement. The remaining accrued net losses will be used as we satisfy our remaining purchase commitments under the tantalum supply agreement. At September 30, 2004, the Company had $75.7 million of tantalum raw materials inventory that we expect will be used in the normal course of production.

The Company's market risk exposure at September 30, 2004 is consistent with the types of market risk and amount of exposures, including foreign currency and materials risks, presented in the Annual Report on Form 10-K for the year ended March 31, 2004.