Attached files

file filename
EX-32.1 - EX-32.1 - AVX Corpavx-20170331xex32_1.htm
EX-31.2 - EX-31.2 - AVX Corpavx-20170331xex31_2.htm
EX-31.1 - EX-31.1 - AVX Corpavx-20170331xex31_1.htm
EX-24.1 - EX-24.1 - AVX Corpavx-20170331xex24_1.htm
EX-23.1 - EX-23.1 - AVX Corpavx-20170331xex23_1.htm
EX-21.1 - EX-21.1 - AVX Corpavx-20170331xex21_1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-K



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

For the fiscal year ended March 31, 2017



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

For the transition period from _________ to__________



Commission File Number: 1-7201

AVX Corporation No Kyocera 300dpi

(Exact name of registrant as specified in its charter)



 

 

Delaware

 

33‑0379007

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. employer identification number)



 

 

1 AVX Boulevard, Fountain Inn, South Carolina

 

29644

(Address of principal executive offices)

 

(Zip Code)

(864) 967-2150

(Registrant's telephone number, including area code)

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



 

Title of each class

Name of each exchange on which registered

Common Stock, $.01 par value per share

New York Stock Exchange 



 

 

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



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

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

Yes      No

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes      No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,  a  smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”  and “emerging growth company” in Rule 12b-2 of the Exchange Act.



 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company



 

 

Emerging growth company

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

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

Based on the closing sales price of $13.79 on September 30, 2016, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the common stock held by non‑affiliates of the registrant as of that date was $629,207,803

As of May 16, 2017, there were 168,108,862  shares of the registrant’s common stock, par value $.01 per share, outstanding.






 

DOCUMENTS INCORPORATED BY REFERENCE



Portions of the registrant’s definitive proxy statement for the 2017 Annual Meeting of Stockholders, which will be filed within 120 days of March 31, 2017, are incorporated by reference into Part III.























































































































2


 

TABLE OF CONTENTS



 

 

Part I

 

Page

Item 1.

Business

Item 1A.

Risk Factors

13 

Item 1B.

Unresolved Staff Comments 

21 

Item 2.

Properties 

22 

Item 3.

Legal Proceedings 

23 

Item 4.

Mine Safety Disclosures 

23 

Part II

 

 

 

 

Item 5.

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

24 

Item 6.

Selected Financial Data

26 

Item 7.

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

27 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

42 

Item 8.

Financial Statements and Supplementary Data

42 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

42 

Item 9A.

Controls and Procedures 

43 

Item 9B.

Other Information

44 

Part III

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

44 

Item 11.

Executive Compensation 

44 

Item 12.

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

44 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

44 

Item 14.

Principal Accounting Fees and Services 

45 

Part IV

 

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

45 

Signatures

47 

3


 





Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities

Litigation Reform Act of 1995

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



4


 

PART I





 



 

Item 1.

Business



General



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



Our passive electronic component products include ceramic and tantalum capacitors, film capacitors, varistors, filters,  and other components manufactured in our facilities throughout the world and passive components manufactured by Kyocera Corporation of Japan (Kyocera), a public company and our majority stockholder which  owns approximately 73% of our outstanding common stock, and other manufacturing suppliers. We also manufacture and sell electronic connectors and inter-connect systems, and distribute and sell certain electronic connectors manufactured by Kyocera and others



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



Our customers are multi-national original equipment manufacturers, or OEMs, independent electronic component distributors, and electronic manufacturing service providers, or EMSs. We market our products through our own direct sales force and independent manufacturers' representatives, based upon market characteristics and demands. We coordinate our sales, marketing, and manufacturing organizations by strategic customer account and globally by region.



We sell our products to customers in a broad array of industries, such as telecommunications, information technology hardware, automotive electronics, medical devices and instrumentation, industrial instrumentation, transportation, energy harvesting, defense and aerospace electronic systems, and consumer electronics.



Our principal strategic advantages include:



Creating Technology Leadership.    We have research and development locations in the United States, United Kingdom, Czech Republic, France, Israel, Malaysia, and Japan, although a certain level of innovation occurs at every one of our manufacturing sites. We developed numerous new products and product extensions during fiscal 2017. These new products add to the broad product line we offer to our customers. Due to our broad product offering, none of our products individually represents a material portion of our revenues. Our scientists and design engineers are working to develop product solutions to the challenges facing our customers as consumers and businesses demand more advanced electronic solutions to manage their everyday lives and businesses. Our engineers are continually working to enhance our manufacturing processes to improve capability, capacity, and yield, while reducing manufacturing costs.



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



5


 

Maintaining the Lowest Cost, Highest Quality Manufacturing Organization. We have invested approximately $141 million over the past three fiscal years to upgrade and enhance our worldwide manufacturing capabilities with respect to the manufacture of ceramic, tantalum, and advanced components as well as Interconnect devices. In order to reduce the cost of production, our strategy has included the transfer to and expansion of manufacturing operations in countries such as El Salvador, Malaysia, Mexico, China and the Czech Republic. 



Globally Coordinating our Marketing, Distribution, and Manufacturing Facilities. We believe that our global presence is an important competitive advantage as it allows us to provide quality products on a timely basis to our multi-national customers. We provide enhanced services and responsiveness to our customers by maintaining significant manufacturing operations in locations where we market the majority of our products. Our 20 manufacturing facilities are located in 11 different countries around the world. As our customers continue to expand their global production capabilities, we are ideally situated to meet their design and supply requirements. 



Products



We offer an extensive line of passive components. Passive components do not require power to operate. Passive components adjust and regulate voltage and current, store energy, and filter frequencies. Sales of Passive Components represented approximately 67% of our net sales in fiscal 2017. KDP and KCD Resale represented approximately 22%, and Interconnect products, together with KCP Resale Connectors, represented approximately 11% of our net sales in fiscal 2017. The table below presents revenues for fiscal 2015, 2016 and 2017 by product group. Financial information concerning our Passive Components, KED Resale, and Interconnect segments is set forth in Note 15 to the consolidated financial statements elsewhere herein.









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Fiscal Year Ended March 31,

Sales revenue (in thousands)

 

2015

 

2016

 

2017

Ceramic Components

 

$

202,719 

 

$

176,502 

 

$

188,568 

Tantalum Components

 

 

355,974 

 

 

311,888 

 

 

314,723 

Advanced Components

 

 

359,315 

 

 

333,693 

 

 

372,279 

Total Passive Components

 

 

918,008 

 

 

822,083 

 

 

875,570 

Interconnect

 

 

134,610 

 

 

111,609 

 

 

118,163 

KCP Resale Connectors

 

 

70,741 

 

 

23,751 

 

 

30,027 

KDP and KCD Resale

 

 

229,869 

 

 

238,086 

 

 

288,901 

Total KED Resale

 

 

300,610 

 

 

261,837 

 

 

318,928 

Total Revenue

 

$

1,353,228 

 

$

1,195,529 

 

$

1,312,661 



 

 

 

 

 

 

 

 

 





Passive Components



We manufacture and resell a full line of multi-layered ceramic and tantalum electrolytic capacitors  in many different sizes and configurations. Our strategic focus on the growing use of passive components is reflected in our investment of approximately $109 million in facilities and equipment used to manufacture passive components during the past three fiscal years. Passive components accounted for approximately 67% of our net sales in fiscal 2017. We believe that sales of passive components will continue to expand in the worldwide electronics market because technological advances have been constantly expanding the number and type of applications for these products.



Tantalum and Ceramic components are commonly used in conjunction with integrated circuits and are best suited for applications requiring low to medium capacitance values. However, with current capacitance range extensions, we are seeing more demand for higher capacitance (“High CV”) products that increase the demand for products we sell. Capacitance is the measure of the capacitor's ability to store electric energy. Generally, ceramic capacitors are more cost-effective at lower capacitance values, and tantalum capacitors are more cost-effective at medium capacitance values. The net sales of tantalum and ceramic capacitors accounted for approximately 57% of our passive component net sales in fiscal 2017.



6


 

We also offer a broad line of advanced passive component products to fill the special needs of our customers. Our family of advanced passive components includes film capacitors, high energy/voltage power capacitors, and varistors. Our advanced product engineers work with some customers in-house technical staffs to design and manufacture customized products to meet the specifications of particular applications. The manufacture of custom products permits us, through our research and development activities, to make technological advances, provide customers with design solutions to fit their needs, gain a marketing inroad with customers with respect to our complete product line, and, in some cases, develop products that can be sold to additional customers in the future. Sales of advanced products accounted for approximately 43% of passive component net sales in fiscal 2017.



Interconnect



We manufacture and resell high-quality electronic connectors and interconnect systems for use in various industries. Our product lines include a variety of industry-standard connectors as well as products designed specifically for our customers' unique applications. An expanding portion of the electronics market for AVX Interconnect products is the automotive market, with applications throughout a vehicle, including engine control, transmission control, audio, brakes, and stability and safety control systems. We produce fine pitch connectors used in portable devices such as smart phones, other cell phones, notebook computers, tablets, GPS, and other hand held devices. In addition, we offer specialty connectors designed to address customer specific applications across a wide range of products and end markets, including the expanding LED, LCD, and medical devices and hardware markets. We have invested approximately $28 million in facilities and equipment over the past three years, as we continue to focus on new product development and enhancement of production capabilities for our Interconnect business.  Sales of Interconnect products, including KCP Resale connector products, accounted for approximately 11% of net sales in fiscal 2017.  Approximately 20% of combined Interconnect and KCP Resale Connector net sales in fiscal 2017 consisted of connectors manufactured by Kyocera. Kyocera notified AVX in February 2014 of its intent, effective April 1, 2015 to market its connector products in Asia using Kyocera’s sales force rather than continuing to have AVX resell such products in Asia. AVX’s sales of Kyocera connector products in Asia were $1.1 million for the fiscal year ended March 31, 2016.  For additional information regarding the Company’s relationship with Kyocera see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Relationship with Kyocera and Related Transactions.”



KED Resale



We have a non-exclusive license to distribute and sell select Kyocera-manufactured electronic component and connector products to our customers in certain geographical regions outside of Japan.  The Kyocera KDP, KCP and KCD electronic components we market and sell include ceramic capacitors, RF modules, frequency control devices, SAW devices, sensor products, actuators, and acoustic devices. Sales of these products accounted for approximately 24% of net sales in fiscal 2017.    For additional information regarding the Company’s relationship with Kyocera see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Relationship with Kyocera and Related Transactions.”



AVX and Kyocera – Resale Sales Channel Changes



Kyocera notified AVX pursuant to the Products Supply and Distribution Agreement in December 2016 of its intent, effective January 1, 2018, to market its manufactured passive and interconnect products globally using Kyocera’s sales force rather than continuing to have AVX resell such products in the Americas, Europe and Asia. Kyocera will pay commissions to AVX on sales by Kyocera, in the applicable territories, of products designed into customer applications by AVX prior to January 1, 2018 of 2.0% in calendar year 2018, 1.5% in calendar year 2019, and 1.0% in calendar year 2020. Sales of Kyocera resale products by AVX were $318.9 million and related operating profit was $17.1 million for the fiscal year ended March 31, 2017.



AVX notified Kyocera pursuant to the Products Supply and Distribution Agreement in February 2017 of its intent, effective April 1, 2018, to market its manufactured products in Japan using AVX’s sales force rather than continuing to have Kyocera resell such products in this territory. AVX will pay commissions to Kyocera on sales by AVX, in the applicable territory, of products designed into customer applications by Kyocera prior to April 1, 2018 of 2.0% in fiscal year 2019, 1.5% in fiscal year 2020, and 1.0% in fiscal year 2021. Sales of AVX resale products by Kyocera were $25.9 million for the fiscal year ended March 31, 2017.



7


 

Marketing, Sales, and Distribution



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



Approximately 29%, 27%, and 44% of our net sales for fiscal 2017 were to our customers in the Americas, Europe, and Asia, respectively. Financial information for these geographic regions is set forth in Note 15 to our consolidated financial statements elsewhere herein. The section “Risk Factors,”  contained herein, provides a discussion of risks associated with our foreign operations. 



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



Our customers use our products in a wide variety of applications. In order to maximize opportunities, our engineering and sales teams maintain close relationships with OEM, EMS, and electronic component distributor customers.  Our largest customers may vary from year to year, and no customer has a long-term commitment to purchase our products.  During the fiscal years ended March 31, 2015,  March 31, 2016 and March 31, 2017, no single customer accounted for more than 10% of our sales. As of March 31, 2016 and March 31, 2017, one customer represented 13% and 12%, respectively, of the Company’s accounts receivable balance. Because we are a supplier to several significant manufacturers in the broad-based electronic devices industries and because of the cyclical nature of these industries, the significance of any one customer can vary from one period to the next.



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



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



We had a backlog of orders of approximately $228 million at March 31, 2015, $224 million at March 31, 2016, and $280 million at March 31, 2017. Firm orders, primarily with delivery dates within six months of order placement, are included in backlog. Many of our customers encounter uncertain and changing demand for their products. Customer-provided forecasts of product usage and anticipated usage of inventory at consignment locations are not included in backlog. If demand falls below customers’ forecasts, or if customers do not effectively control their inventory, they may cancel or reschedule their planned shipments that are included in our backlog, in many instances without any penalty. Backlog fluctuates from year to year due, in part, to changes in customer inventory levels, changes to consignment inventory arrangements, order patterns, and product delivery lead times in the industry. Accordingly, the backlog outstanding at any point in time is not necessarily indicative of the level of business expected in any ensuing period since many orders are placed and delivered within the same period. In addition, the increased use of vendor-managed inventory and similar consignment type arrangements tend to limit the significance of backlog as future use and sale of such inventory is not typically reflected in backlog.



8


 

Research, Development, and Engineering



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



Our research and development effort and our operational-level engineering effort place a priority on the design and development of product extensions, innovative new products, and improved manufacturing processes as well as engineering advances in existing product lines and manufacturing operations. Other areas of emphasis include material synthesis and the integration of passive components for applications requiring reduced size and lower manufacturing costs associated with circuit board assembly. Research, development, and engineering expenditures were approximately $25 million, $28 million, and $31 million during fiscal 2015, 2016, and 2017, respectively. The level of such spending can fluctuate as new products are transferred to full-scale production and process enhancements are implemented.



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



Raw Materials



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



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



Although most materials incorporated in our products are available from a number of sources, certain materials are available only from a relatively limited number of suppliers. Historically, we had a policy of not using tantalum sourced from the Democratic Republic of Congo (DRC), or any other area in which insurgents or similar groups benefit from the sale of minerals. As a key participant in Solutions for Hope, AVX was the first in its industry to validate a “closed tantalum pipe” process from the mine site to the customer. Furthermore, the “closed pipe” was validated under the Conflict-Free Smelter program in accordance with the principles of the Dodd-Frank legislation and the current Organization for Economic Cooperation and Development (“OECD”) guidelines. During 2016 and in the spirit of continuous improvement envisioned and enshrined by the OECD Due Diligence guidance, AVX continues to improve supply chain sustainability and reduce compliance cost by field-testing a new alternate traceability platform (BSP) and proof of concept of a geological science technique for mineral matching (Geological Passporting) in region. The result of the BSP pilot demonstrated that a new cost model is possible using technology for the reporting, analysis, chain of custody and Geo Passporting for validation. Please refer to the Solutions for Hope website for more information.



Since December 2011, AVX has only sourced tantalum powder and wire used in its tantalum capacitors from smelters that are compliant with the EICC/GeSI conflict-free smelter program. In 2012, AVX began using Validated Conflict-Free Tantalum, which comes from verified sources in the DRC and surrounding countries.



Our continued efforts affirm our commitment to supply conflict-free minerals to our customers and to comply fully with the OECD guidelines and United States Securities and Exchange Commission (“SEC”) regulations.



9


 

Competition



Markets for our products are highly competitive. We encounter aggressive and able competition in our various product lines from both domestic and foreign manufacturers. Competitive factors in the markets include product quality and reliability, breadth of product line, customer service, technological innovation, global production presence, timely delivery, and price. We believe we are competitively positioned on each of these factors. The breadth of our product offering enables us to strengthen our market position by providing customers with one of the broadest selections of passive electronic components and interconnect products available from any one source. Our major competitors for passive electronic components include Murata

Manufacturing Co. Ltd., TDK Corporation, Kemet Corporation, Yageo Corporation, Taiyo Yuden Co. Ltd., Samsung Electronics, and Vishay Intertechnology, Inc. Our major competitors for certain electronic interconnect products include TE Connectivity, Amphenol Corporation, Molex Incorporated,  and Delphi Connection Systems.  Many other companies produce products in the markets in which we compete.



Employees



As of March 31, 2017,  we employed approximately 10,800 full-time employees. Approximately 1,370 of these employees are employed in the United States, of which, approximately 220 are covered by collective-bargaining arrangements.  In addition, some foreign employees are members of trade and government-affiliated unions. Our relationship with our employee union groups is generally good. However, no assurance can be given that, in response to changing social and economic conditions and our actions, labor unrest or strikes will not occur. 



Environmental Matters



We are subject to federal, state, and local laws and regulations concerning the environment in the United States and to the environmental laws and regulations of the other countries in which we operate. These regulations include limitations on discharges into air and water; remediation requirements; chemical use and handling restrictions; pollution control requirements; waste minimization considerations; and hazardous materials transportation, treatment, and disposal restrictions. If we fail to comply with any of the applicable environmental regulations, we may be subject to fines, suspension of production, alteration of our manufacturing processes, sales limitations, and criminal and civil liabilities. Existing or future regulations could require us to procure expensive pollution abatement or remediation equipment, to modify product designs, or to incur expenses to comply with environmental regulations. Any failure to control the use, disposal, or storage, or to adequately restrict the discharge of hazardous substances, could subject us to future liabilities and could have a material adverse effect on our business. Based on our periodic reviews of the operating policies and practices at all of our facilities, we believe that our operations are currently in compliance with applicable environmental laws and regulations. 



We have been identified by the United States Environmental Protection Agency (“EPA”), state governmental agencies or other private parties as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), or equivalent 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 and 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 would be apportioned between AVX and other PRPs.



To resolve our liability at the sites at which we have been named a PRP, we have entered into various administrative orders and consent decrees with federal and state regulatory agencies governing the timing and nature of investigation and remediation.  As is customary, the orders and decrees regarding sites where the PRPs are not themselves implementing the chosen remedy contain provisions allowing the EPA to reopen the agreement and seek additional amounts from settling PRPs in the event that certain contingencies occur, such as the discovery of significant new information about site conditions.



On October 10, 2012, the EPA, the United States, and the Commonwealth of Massachusetts and AVX announced that they had reached a financial settlement with respect to the EPA’s ongoing clean-up of the New Bedford Harbor in the Commonwealth of Massachusetts (the “harbor”). Under the terms of the settlement, AVX was obligated to pay $366.3 million, plus interest computed from August 1, 2012, in three installments over a two-year period for use by the EPA and the Commonwealth to complete the clean-up of the harbor. On May 26, 2015, we prepaid the third and final settlement installment of $122.1 million, plus interest of $1.1 million.

10


 

On June 3, 2010, AVX entered into an agreement with the EPA and the City of New Bedford, pursuant to which AVX is required to perform environmental remediation at a site referred to as the “Aerovox Site” (the “Site”), located in New Bedford, Massachusetts. AVX has substantially completed its obligations pursuant to such agreement with the EPA and the City of New Bedford with respect to the satisfaction of AVX’s federal law requirements. Agreements with the state regulatory authorities are not concluded yet but are likely to include additional groundwater and soil remediation. We have a remaining accrual of $15.1 million at March 31, 2017, representing our estimate, including a $3.6 million charge in the current fiscal year, of the potential liability related to the remaining performance of environmental remediation actions at the Site and neighboring properties using certain assumptions regarding the plan of remediation. 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 $16.8 million and $19.2 million at March 31, 2016 and March 31, 2017, respectively, related to various environmental matters and sites, including those discussed above. These reserves are classified in the Consolidated Balance Sheets as $7.4 million and $3.9 million in accrued expenses at March 31, 2016 and March 31, 2017, respectively, and $9.4 million and $15.3 million in other non-current liabilities at March 31, 2016 and March 31, 2017, respectively. The amounts recorded for identified environmental liabilities are based on estimates. Periodically we review amounts recorded and adjust them to reflect additional legal and technical information that becomes available. Uncertainties about the status of laws, regulations, regulatory actions, technology, and information related to individual sites make it difficult to develop an estimate of the reasonably possible aggregate environmental remediation exposure. Accordingly, these costs could differ from our current estimates.   



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



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



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



Company Information and Website



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



11


 

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



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



·

Code of Business Conduct and Ethics

·

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

·

Corporate Governance Guidelines

·

Audit Committee Charter

·

Compensation Committee Charter

·

Special Advisory Committee Charter

·

Contact the Board – Whistleblower and Ethics Hotline Procedures



To review these documents, go to our website and select “About,”  followed by Corporate Information, and then Corporate Governance.



Executive Officers of the Registrant



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





 

 

 

 

Name

 

Age

 

Position

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

 

67 

 

Chief Executive Officer and President

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

 

66 

 

Senior Vice President and Chief Technology Officer

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

 

61 

 

Executive Vice President, Chief Financial Officer, and Treasurer

Evan Slavitt.........................

 

59 

 

Senior Vice President, General Counsel, and Secretary

Kathleen M. Kelly.................

 

63 

 

Senior Vice President of Human Resources

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

 

62 

 

Senior Vice President of Corporate Development

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

 

64 

 

Senior Vice President of Sales

S. Willing King.....................

 

54 

 

Senior Vice President of Tantalum Products



John Sarvis



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



John Lawing



Senior Vice President and Chief Technology Officer since 2015. Vice President and Chief Technology Officer from April 2014 to 2015.  President and Chief Operating Officer from 2013 to March 2014. Vice President of Advanced Products from 2005 to April 2013. Divisional Vice President of Advanced Products from 2002 to 2005 and Divisional Vice President of Leaded Products from 1997 to 2002. Prior to 1997, held positions in Engineering, Technical, Operational, and Plant management. Employed by the Company since 1981. 



Kurt P. Cummings



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



12


 

Evan Slavitt

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



Kathleen M. Kelly



Senior Vice President of Human Resources since 2015. Vice President of Human Resources from 2010 to 2015. Vice President of Administration from 2007 to 2010. Prior to the acquisition of American Technical Ceramics by the Company in 2007, served as Vice President – Administration and as Corporate Secretary of American Technical Ceramics from November 1989.



Keith Thomas



Senior Vice President of Corporate Development since 2016.  Senior Vice President of Kyocera Electronic Devices from 2015 to 2016. President of Kyocera Electronic Devices from 2004 to 2016. Vice President of Kyocera Developed Products from 2001 to 2004. Divisional Vice President of Kyocera Developed Products from 1992 to 2001. Employed by the Company since 1980.



Peter Venuto



Senior Vice President of Sales since 2015. Vice President of Sales from 2009 to 2015.  Vice President of North American and European Sales from 2004 to 2009. Vice President of North American Sales from 2001 to 2004. Divisional Vice President of Strategic Accounts from 1998 to 2000. Director of Strategic Accounts from 1990 to 1997. Director of Business Development from 1987 to 1989. Employed by the Company since 1987.



S. Willing King



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







 

Item 1A.

Risk Factors



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



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



13


 

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



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



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



Our industry is intensely competitive, and prices for existing products tend to decrease over their life cycle. To remain competitive, we must achieve continuous cost reductions through process and material improvements. We must also be in a

position to minimize our customers’ inventory financing costs and to meet their other goals for supply chain management. In addition, as a result of our efforts to streamline manufacturing and logistics operations and to enhance operations in lower operating cost regions we have incurred restructuring costs in the past and are likely to incur restructuring costs in the future in response to competitive pressures. If we are unsuccessful in implementing restructuring or other cost reduction plans, we may experience disruptions in our operations and incur higher ongoing costs, which may adversely affect our sales levels, financial condition, and operating results.



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



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



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



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



14


 

We encounter competition in substantially all areas of our business



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



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



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



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



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



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



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



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



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



Many of our products require the use of raw materials that are available from only a limited number of regions around the world, are available from only a limited number of suppliers, or may be subject to significant fluctuations in market prices. Our results of operations may be adversely affected if we have difficulty obtaining these raw materials, our key suppliers experience financial difficulties, the quality of available raw materials deteriorates, or there are significant price increases for these raw

15


 

materials. For example, the prices for tantalum, platinum, silver, nickel, gold, copper, palladium, and other raw materials that we use in the manufacture of our products are subject to fluctuation and have experienced significant variability in the past. Our inability to recover increased costs through increased sales prices could have an adverse impact on our results of operations. For periods in which the prices for these raw materials rise, we may be unable to pass on the increased cost to our customers, which would result in decreased sales margins for the products in which they are used. For periods in which sales margins are declining, we may be required, as has occurred in the past, to write down our inventory carrying cost of these raw materials and products. Depending on the extent of the difference between market price and our carrying cost, the write-down could have a significant adverse effect on our results of operations.



We resell products manufactured by Kyocera, as well as other component and interconnect product manufacturers. Should these manufacturers experience difficulties supplying the products that we resell, or such suppliers use other channels to market their products (see “Business; Products” in Item 1 elsewhere in this Form 10-K for additional information regarding changes in Kyocera sales channels), we could experience lower sales, which could have an adverse effect on our results of operations.



Our sales to distribution sales channel customers may fluctuate



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



Our backlog is subject to customer cancellation



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



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



From time to time, we may make strategic acquisitions of other companies or businesses as we believe such acquisitions can help to position us to take advantage of growth opportunities. Such acquisitions could introduce significant risks and uncertainties, including risks related to integrating the acquired businesses and achieving benefits from the acquisitions. More particularly, risks and uncertainties of an acquisition strategy could include: (1) difficulties in integrating newly-acquired businesses and operations in an efficient and effective manner; (2) challenges in achieving strategic objectives, cost savings, and other benefits from acquisitions; (3) risk that markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in those markets; (4) potential loss of key employees of the acquired businesses; (5) risk of diverting the attention of senior management from our operations; (6) risks of entering new markets in which we have limited experience; (7) risks associated with integrating financial reporting and internal control systems; (8) difficulties in expanding information technology systems and other business processes to accommodate the acquired businesses; (9) future impairments of goodwill and other intangible assets of an acquired business; (10) unanticipated legal and regulatory issues in the jurisdictions of the acquired business; (11) liabilities for activities of the acquired businesses, including environmental, tax, and other known and unknown liabilities; and (12) additional costs related to plant closures, employee terminations, etc. could be incurred to create operating inefficiencies for AVX and a newly acquired entity.



16


 

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



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



Changes in regulatory compliance obligations may adversely affect our operations



The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank” Act), signed into law on July 21,

2010, includes Section 1502, which required the SEC to adopt additional disclosure requirements related to the source of certain “conflict minerals” for issuers for which such “conflict minerals” are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by that issuer. The SEC issued a final rule on August 22, 2012. The minerals covered by the rules are commonly referred to as “3TG” and include tin, tantalum, tungsten, and gold. We use many of these materials in our production processes. The rule requires companies to perform due diligence, disclose, and report whether or not such minerals originate from the DRC and adjoining countries. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Global supply chains are complicated with multiple layers and suppliers between the mine and the final product.



Historically, and prior to our participation in “Solutions for Hope,” we had a policy of not using tantalum sourced from the DRC or any other area in which insurgents or similar groups benefit from the sale of minerals. We continue to conduct extensive supply chain investigations to reduce risk and support supply chain sustainability in the region using the OECD guiding principles. AVX was the first in its industry to validate a “closed tantalum pipe” process, assuring all tantalum products contain only tantalum from smelters that have been independently verified under the Conflict Free Smelter program in accordance with the principles of the Dodd-Frank legislation and the current OECD guidelines.



Since December 2011, AVX has only sourced tantalum powder and wire used in its tantalum capacitors from smelters that are compliant with the EICC/GeSI conflict-free smelter program. In 2012, AVX began using Validated Conflict-Free Tantalum, which comes from verified sources in the DRC and surrounding countries. During 2016 and in the spirit of continuous improvement envisioned and enshrined by the OECD Due Diligence guidance, AVX continues to improve supply chain sustainability and reduce compliance cost by field-testing a new alternate traceability platform (BSP) and proof of concept of a geological science technique for mineral matching (Geological Passporting) in the region. The result of the BSP pilot demonstrated that a new cost model is possible using technology for the reporting, analysis, chain of custody and Geo Passporting for validation. Please refer to the Solutions for Hope website for more information.



Our continued efforts affirm our commitment to supply conflict-free minerals to our customers and to comply fully with the OECD guidelines and SEC regulations. The implementation of Rule 1502 has not had a material adverse effect on our ability to source raw materials or manufacture products containing the “3TG” metals. We filed our most recent Form SD with the SEC on May 27, 2016.



17


 

We use significant amounts of electrical energy and processed ores in our production processes.  Although its status is uncertain, the Kyoto Protocol is an international agreement that purports to set binding targets for signatory industrialized countries for reducing greenhouse gas emissions. Further, a number of governments or governmental bodies have introduced or are contemplating legislative and regulatory change in response to the potential impacts of climate change that would limit and reduce greenhouse gas emissions.  Any significant, sustained increase in energy costs could result in increases in our capital expenditures, operating expenses, and costs of important raw materials resulting in an adverse effect on our results of operations and financial condition. 



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



Brexit adds additional uncertainty in one of our key markets



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



Our results may be negatively affected by foreign currency exchange rates



We conduct business in several international currencies through our worldwide operations and, as a result, are subject to foreign exchange exposure due to changes in exchange rates of the various currencies. Volatility in exchange rates can affect our

sales, gross margins, and stockholders equity both positively and negatively. In order to minimize the effects of movements in

currency exchange rates, we enter into forward exchange contracts to hedge external and intercompany foreign currency transactions. In addition, we attempt to minimize currency exposure risk by producing our products in the same country or region in which the products are sold, thereby generating revenues and incurring expenses in the same currency. There can be no assurance that our approach will be successful, especially in the event of a significant and sudden decline in the value of any of the international currencies of our worldwide operations. We do not engage in purchasing forward exchange contracts for speculative purposes.



A significant portion of our cash, cash equivalents, and short-term investments are held by our foreign subsidiaries



We generate a significant amount of cash and profits at our foreign subsidiaries. We expect that cash and profits generated by our foreign subsidiaries will continue to be reinvested indefinitely. However, liquidity requirements could necessitate transfers of existing cash balances between our subsidiaries or to the United States that may be subject to restrictions or result in unfavorable tax or earnings consequences. Approximately 86% of our cash and investment securities are held by our foreign subsidiaries. While we intend to use cash held outside the United States to fund our international operations and growth, if we encounter a significant need for liquidity domestically or at a particular location that we cannot fulfill through other internal or external sources, we may experience unfavorable tax and earnings consequences due to cash transfers. These adverse consequences would occur, for example, if the transfer of cash into the United States is taxed and no offsetting foreign tax credit is available to offset the U.S. tax liability, resulting in lower earnings.  We do not provide for U.S. taxes on the undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely.



18


 

Our operating results may be adversely affected by foreign operations



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



Our products are subject to stringent specifications and operating tolerances



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



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



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



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



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



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



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



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



19


 

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



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



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



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



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



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



As part of the process of preparing our consolidated financial statements, we are required to estimate our tax assets and liabilities in each of the jurisdictions in which we operate. This process involves management estimating the actual current tax liabilities together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities that are included within our consolidated balance sheet.



We assess the likelihood that our deferred tax assets will be recoverable as a result of future taxable income and, to the extent we believe that recovery is not more likely than not, we establish a valuation allowance.



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



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



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



20


 

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



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

 

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



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



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



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



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



·

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



·

Rapid escalation of the cost of regulatory compliance and litigation.



·

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



·

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



·

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



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







 

Item 1B.

Unresolved Staff Comments



None.

21


 





 

Item 2.

Properties



Our fixed assets include manufacturing plants, warehouses, and machinery and equipment. In many instances, the machinery and equipment have been manufactured to our specifications and/or have special adaptations. Our plants, warehouses, machinery, and equipment are in good operating condition and are well maintained. Substantially all of our facilities are in regular use. We consider the present level of fixed assets, along with planned capital expenditures, as suitable and adequate for our operations in the current business environment. Our capital expenditures for plant and equipment were $26.6 million in fiscal 2015, $48.1 million in fiscal 2016 and $66.3 million in fiscal 2017.



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



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



Virtually all of our manufacturing, research and development, and warehousing facilities could at any time be involved in the manufacturing, sale, or distribution of passive components (PC), interconnect products (CP) or resale products (“RP”).  The following is a list of our facilities and related information.





 

 

 

 

 

 

Location

Approximate

Square

Footage

 

Type of Interest

 

Description

of Use

UNITED STATES

 

 

 

 

 

Fountain Inn, SC

370,000 

 

Owned

 

Headquarters/Manufacturing/Warehouse/Research – PC, CP, RP

Myrtle Beach, SC

150,000 

 

Owned

 

Manufacturing — PC



 

 

 

 

 

Olean, NY

113,000 

 

Owned

 

Manufacturing — PC

Jacksonville, FL

100,000 

 

Owned

 

Manufacturing — PC

Huntington Station, NY

73,600 

 

Owned

 

Manufacturing/Research— PC

Biddeford, ME

72,000 

 

Owned

 

Manufacturing — PC

Conway, SC

71,000 

 

Owned

 

Manufacturing — PC 

Sun Valley, CA

25,000 

 

Leased

 

Manufacturing — PC



 

 

 

 

 

NON U.S.

 

 

 

 

Tianjin, China

520,000 

 

Owned

 

Manufacturing — PC 

San Salvador, El Salvador

420,000 

 

Owned

 

Manufacturing — PC

Saint-Apollinaire, France

322,000 

 

Leased

 

Manufacturing/Research — PC             

Lanskroun, Czech Republic

542,000 

 

Owned

 

Manufacturing/Research — PC

Lanskroun, Czech Republic

75,000 

 

Leased

 

Manufacturing — PC

Uherske Hradiste, Czech Republic

336,000 

 

Owned

 

Manufacturing — PC

Uherske Hradiste, Czech Republic

80,000 

 

Leased

 

Warehouse — PC, CP, RP 

Bzenec, Czech Republic

200,000 

 

Owned

 

Manufacturing — CP

Penang, Malaysia

190,000 

 

Owned

 

Manufacturing/Research — PC

Coleraine, N. Ireland

185,000 

 

Owned

 

Manufacturing/Research — PC

Betzdorf, Germany

111,000 

 

Owned

 

Manufacturing — CP

Betzdorf, Germany

157,000 

 

Leased

 

Manufacturing — CP

Juarez, Mexico

218,000 

 

Owned

 

Manufacturing — PC, CP

Jerusalem, Israel

88,000 

 

Leased

 

Manufacturing/Research — PC

Adogawa, Japan

206,000 

 

Owned

 

Manufacturing/Research/Warehouse — PC

Hong Kong

30,000 

 

Owned

 

Warehouse — PC, CP, RP

Hong Kong

21,000 

 

Leased

 

Warehouse/Office – PC, CP, RP 



22


 

In addition to the foregoing, we lease a number of sales offices throughout the world. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities, if necessary.







 

Item 3.

Legal Proceedings



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



On April 25, 2013, AVX was named as a defendant in a patent infringement case filed in the United States District Court for the District of Delaware captioned Greatbatch, Inc. v. AVX Corporation. This case alleged that certain AVX products infringe on one or more of six Greatbatch patents. On January 26, 2016, the jury returned a verdict in favor of the plaintiff in the first phase of a segmented trial and 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 of the District of Delaware captioned Presidio Components, Inc. v. American Technical Ceramics Corp. This case alleged that certain ATC products infringe on a Presidio patent. On April 18, 2016, the jury returned a verdict in favor of the plaintiff and found damages to Presidio in the amount of $2.2 million.  On August 17, 2016, the court issued a permanent injunction prohibiting ATC from manufacturing or selling the related products after November 16, 2016 and awarded Presidio damages related to ATC’s sale of such products from February 21, 2016 through November 16, 2016. Subsequently, on October 21, 2016, the Federal Circuit Court granted AVX’s request for a stay of the permanent injunction whereby AVX was allowed to continue to sell the disputed product until March 17, 2017 to anyone who was a customer prior to June 17, 2016. Any sales subsequent to November 16, 2016 pursuant to the stay of the permanent injunction are subject to court mandated intellectual property damages for each product sold. Accordingly, in addition to the $2.2 million jury verdict award above, we recorded during fiscal year 2017 an estimated reserve for damages on all pre- and post-verdict sales of product subject to that litigation in the event that the verdict withstands future challenges. As of March 31, 2017, we have reserved $34.9 million related to the pre- and post-verdict sales of such product. On September 1, 2016 we filed an appeal with the Federal Circuit to appeal this verdict. 



As of March 31, 2017, we had total reserves of $74.6 million with respect to the two intellectual property cases discussed above. The amounts recorded are based on estimated outcomes. Amounts recorded are reviewed periodically and adjusted to reflect additional information that becomes available. Accordingly, these costs could differ from our current estimates.



During calendar year 2014, AVX was named as a co-defendant in a series of cases filed in the United States and in the Canadian provinces of Quebec, Ontario, British Columbia, Saskatchewan and Manitoba alleging violations of United States, state and Canadian antitrust laws and asserting that AVX and numerous other companies were participants in alleged price-fixing in the capacitor market. The cases in the United States were consolidated into the Northern District of California on October 2, 2014. Some plaintiffs have broken off from the United States class action and filed actions on their own. These cases are still at their initial stages. AVX believes it has meritorious defenses and intends to vigorously defend the cases.



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







 

Item 4.

Mine Safety Disclosures



Not applicable.



23


 

PART II





 

Item 5.

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



Market for Common Stock



Our common stock is listed on the New York Stock Exchange and trades under the symbol “AVX.” At May 16, 2017, there were 196 holders of record of the Company's common stock. In addition, there were numerous beneficial holders of the common stock, representing persons whose stock is held in nominee or street name accounts through brokers. The following table presents the high and low sale prices for our common stock on the New York Stock Exchange and the dividends declared per common share for each quarter for the fiscal years ended March 31, 2016 and March 31, 2017.  On May 24, 2017, our Board of Directors declared a $0.11 dividend per share of common stock with respect to the quarter ended March 31, 2017. Future dividends, if any, will be determined by the Company’s Board of Directors and may depend on the Company’s future profitability and anticipated operating cash requirements.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common Stock Price Range

 

Dividends Declared



 

2016

 

2017

 

Per Share



 

High

 

Low

 

High

 

Low

 

2016

 

2017

First Quarter

 

$

14.96 

 

$

13.42 

 

$

14.24 

 

$

11.77 

 

$

0.105 

 

$

0.105 

Second Quarter

 

 

13.67 

 

 

12.00 

 

 

14.14 

 

 

13.04 

 

 

0.105 

 

 

0.110 

Third Quarter

 

 

14.32 

 

 

11.96 

 

 

16.07 

 

 

13.58 

 

 

0.105 

 

 

0.110 

Fourth Quarter

 

 

12.68 

 

 

10.43 

 

 

16.65 

 

 

15.38 

 

 

0.105 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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



The American Stock Transfer and Trust Company, LLC

6201 15th Avenue

Brooklyn, NY  11219

1-800-937-5449



Stock Performance Graph



The following chart shows, from the end of fiscal year 2012 to the end of fiscal year 2017, changes in the value of $100 invested in each of the Company’s common stock, Standard & Poor’s 500 Composite Index, and a peer group consisting of three companies whose businesses are representative of our business segments. The companies in the peer group are Kemet Corporation and Vishay Intertechnology, Inc.  Fairchild Semiconductor International, Inc. was dropped from the peer group since it was acquired by another company and delisted in 2016.

24


 

Picture 2





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative Total Return



 

3/31/12

 

3/31/13

 

3/31/14

 

3/31/15

 

3/31/16

 

3/31/17

AVX - NYSE

 

$

100 

 

$

92 

 

$

105 

 

$

117 

 

$

107 

 

$

143 

S & P 500

 

$

100 

 

$

114 

 

$

139 

 

$

157 

 

$

159 

 

$

187 

Peer Group

 

$

100 

 

$

103 

 

$

111 

 

$

102 

 

$

88 

 

$

142 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Purchases of Equity Securities by the Issuer



On October 17, 2007, the Board of Directors of the Company authorized the repurchase of up to 5,000,000 shares of our common stock from time to time on the open market. The repurchased shares are held as treasury stock and are available for general corporate purposes. As of March 31, 2017, there were 3,067,074 shares that may yet be repurchased under this program.







 

25


 

Item 6.

Selected Financial Data



The following table sets forth selected consolidated financial data for AVX for the five fiscal years ended March 31, 2017.  The selected consolidated financial data for the five fiscal years ended March 31, 2017 are derived from AVXs  audited consolidated financial statements.  The consolidated financial data set forth below should be read in conjunction with AVXs consolidated financial statements and the notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K.



Selected Financial Data

(in thousands, except per share data)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Fiscal Year Ended March 31,



 

2013

 

2014

 

2015

 

2016

 

2017

OPERATING RESULTS DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,414,400 

 

$

1,442,604 

 

$

1,353,228 

 

$

1,195,529 

 

$

1,312,661 

Cost of sales

 

 

1,150,630 

 

 

1,163,770 

 

 

1,024,659 

 

 

906,460 

 

 

1,027,906 

Gross profit

 

 

263,770 

 

 

278,834 

 

 

328,569 

 

 

289,069 

 

 

284,755 

Selling, general and administrative expenses

 

 

117,365 

 

 

119,670 

 

 

115,820 

 

 

119,767 

 

 

117,598 

Legal and environmental charges

 

 

266,250 

 

 

 -

 

 

 -

 

 

45,318 

 

 

3,600 

Profit (loss) from operations

 

 

(119,845)

 

 

159,164 

 

 

212,749 

 

 

123,984 

 

 

163,557 

Interest income

 

 

7,021 

 

 

4,899 

 

 

4,554 

 

 

5,003 

 

 

7,381 

Other, net

 

 

(498)

 

 

(706)

 

 

1,296 

 

 

3,165 

 

 

4,011 

Income (loss) before income taxes

 

 

(113,322)

 

 

163,357 

 

 

218,599 

 

 

132,152 

 

 

174,949 

Provision for (benefit from) income taxes

 

 

(49,010)

 

 

36,320 

 

 

(7,272)

 

 

30,617 

 

 

49,164 

Net income (loss)

 

$

(64,312)

 

$

127,037 

 

$

225,871 

 

$

101,535 

 

$

125,785 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.38)

 

$

0.75 

 

$

1.34 

 

$

0.61 

 

$

0.75 

Diluted

 

$

(0.38)

 

$

0.75 

 

$

1.34 

 

$

0.60 

 

$

0.75 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

169,124 

 

 

168,473 

 

 

168,148 

 

 

167,797 

 

 

167,506 

Diluted

 

 

169,124 

 

 

168,658 

 

 

168,402 

 

 

167,961 

 

 

167,837 

Cash dividends declared per common share

 

$

0.31 

 

$

0.37 

 

$

0.41 

 

$

0.42 

 

$

0.33 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of March 31,



 

2013

 

2014

 

2015

 

2016

 

2017

BALANCE SHEET DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

1,614,656 

 

$

1,606,789 

 

$

1,478,243 

 

$

1,506,589 

 

$

1,620,337 

Total assets

 

 

2,601,995 

 

 

2,384,988 

 

 

2,459,015 

 

 

2,409,819 

 

 

2,477,413 

Stockholders' equity

 

 

1,972,930 

 

 

2,047,685 

 

 

2,131,963 

 

 

2,177,106 

 

 

2,216,479 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Fiscal Year Ended March 31,



 

2013

 

2014

 

2015

 

2016

 

2017

OTHER DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

43,705 

 

$

26,805 

 

$

26,599 

 

$

48,103 

 

$

66,288 

Research, development and engineering expenses

 

 

26,240 

 

 

26,240 

 

 

25,390 

 

 

28,300 

 

 

30,946 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 











26


 





 





 

 

Item 7.

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



Overview



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



Consolidated revenues for the fiscal year ended March 31, 2017 were $1,312.7 million with net income of $125.8 million compared to consolidated revenues of $1,195.5 million with net income of $101.5 million for the fiscal year ended March 31, 2016. During fiscal 2017, we saw an increase in sales due to a number of factors, including, higher volumes across all of our product groups: Ceramic Components, Interconnect, and KED Resale products, resulting from improved global market conditions reflective of higher overall demand, primarily in the automotive, cellular telecommunications, and industrial markets. In addition, approximately $6.3 million of this increase in revenues is partially a result of the currency fluctuations throughout the year which we believe may have been influenced by the announcement 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.



Profit from operations for the fiscal year ended March 31, 2017 includes post judgment charges of $34.9 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 the fiscal year ended March 31, 2017 includes $21.4 million from increased sales prices related to the affected products which have the effect of partially offsetting the effect of court awarded damages on all pre- and post-verdict sales of the product subject to the intellectual property damages awards, resulting in a net impact on profit from operations of $13.5 million for the current fiscal year.



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



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



In fiscal 2017, we generated $195.0 million of cash from operating activities. We used cash generated from operations to fund $28.3 million of general working capital requirements and $66.3 million of property and equipment purchases. We enhanced shareholder value as we spent $4.8 million to repurchase shares of our common stock on the market and paid dividends of $72.0 million during fiscal year 2017. Our financial position remains strong with approximately $1.1 billion of cash, cash equivalents, and securities investments and no borrowings as of March 31, 2017.



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



27


 

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



Outlook



Near-Term:



With uncertain global geopolitical and economic conditions, it is difficult to quantify expectations for fiscal 2018. 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 sales price pressure in the markets we serve due to competitive activity. In response to anticipated market conditions, we expect to continue to focus on cost management and product line rationalization to maximize earnings potential. We also continue to focus on process improvements and enhanced production capabilities in conjunction with our focus on the sales of value-added electronic components to support today’s advanced electronic devices. If current global geopolitical and economic conditions worsen, the overall impact on our customers as well as end user demand for electronic products could have a significant adverse impact on our near-term results.



Kyocera notified AVX pursuant to the Products Supply and Distribution Agreement in December 2016 of its intent, effective January 1, 2018, to market its manufactured passive and interconnect products globally using Kyocera’s sales force rather than continuing to have AVX resell such products in the Americas, Europe and Asia. Kyocera will pay commissions to AVX on sales by Kyocera, in the applicable territories, of products designed into customer applications by AVX prior to January 1, 2018 of 2.0% in calendar year 2018, 1.5% in calendar  year 2019, and 1.0% in calendar year 2020. Sales of Kyocera resale products were $318.9 million and related operating profit was $17.1 million for the fiscal year ended March 31, 2017.



AVX notified Kyocera pursuant to the Products Supply and Distribution Agreement in February 2017 of its intent, effective April 1, 2018, to market its manufactured products in Japan using AVX’s sales force rather than continuing to have Kyocera resell such products in this territory. AVX will pay commissions to Kyocera on sales by AVX, in the applicable territory, of products designed into customer applications by Kyocera prior to April 1, 2018 of 2.0% in fiscal year 2019, 1.5% in fiscal year 2020, and 1.0% in fiscal year 2021. Sales of AVX resale products by Kyocera were $25.9 million for the fiscal year ended March 31, 2017.



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 and interconnect devices 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.



28


 

Results of Operations



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



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



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





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Fiscal Year Ended March 31,

Sales revenue (in thousands)

 

2015

 

2016

 

2017

Ceramic Components

 

$

202,719 

 

$

176,502 

 

$

188,568 

Tantalum Components

 

 

355,974 

 

 

311,888 

 

 

314,723 

Advanced Components

 

 

359,315 

 

 

333,693 

 

 

372,279 

Total Passive Components

 

 

918,008 

 

 

822,083 

 

 

875,570 

Interconnect

 

 

134,610 

 

 

111,609 

 

 

118,163 

KCP Resale Connectors

 

 

70,741 

 

 

23,751 

 

 

30,027 

KDP and KCD Resale

 

 

229,869 

 

 

238,086 

 

 

288,901 

Total KED Resale

 

 

300,610 

 

 

261,837 

 

 

318,928 

Total Revenue

 

$

1,353,228 

 

$

1,195,529 

 

$

1,312,661 



 

 

 

 

 

 

 

 

 



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



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



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



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



Geographically, compared to the prior fiscal year, regional sales as a percentage of total sales for the fiscal year ended March 31, 2017 remained relatively consistent in all regions.  Sales in Asia increased to 44.1% of total sales, while sales in the Americas

29


 

decreased slightly to 29.1% and sales in Europe decreased to 26.8% of total sales.  This compares to 41.6%, 30.0%, and 28.4% of total sales for the Asian, American, and European regions in the prior year, respectively. As a result of the movement of the U.S. dollar against certain foreign currencies, reported sales for the fiscal year ended March 31, 2017 were favorably impacted by approximately $6.3 million when compared to the prior year.



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



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



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



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



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



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

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

30


 

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



Year Ended March 31, 2016 Compared to Year Ended March 31, 2015



Net sales for the fiscal year ended March 31, 2016 were $1,195.5 million compared to $1,353.2 million for the fiscal year ended March 31, 2015.



The table below represents product group revenues for the fiscal years ended March 31, 2014, 2015, and 2016.







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Fiscal Year Ended March 31,

Sales revenue (in thousands)

 

 

2014

2015

 

2016

Ceramic Components

 

$

193,978 

 

$

202,719 

 

$

176,502 

Tantalum Components

 

 

394,119 

 

 

355,974 

 

 

311,888 

Advanced Components

 

 

357,900 

 

 

359,315 

 

 

333,693 

Total Passive Components

 

 

945,997 

 

 

918,008 

 

 

822,083 

Interconnect

 

 

138,879 

 

 

134,610 

 

 

111,609 

KCP Resale Connectors

 

 

64,680 

 

 

70,741 

 

 

23,751 

KDP and KCD Resale

 

 

293,048 

 

 

229,869 

 

 

238,086 

Total KED Resale

 

 

357,728 

 

 

300,610 

 

 

261,837 

Total Revenue

 

$

1,442,604 

 

$

1,353,228 

 

$

1,195,529 



 

 

 

 

 

 

 

 

 



Passive Component sales were $822.1 million for the fiscal year ended March 31, 2016 compared to $918.0 million during the fiscal year ended March 31, 2015. The sales decrease in Passive Components reflects a lower overall market demand across most of our product market segments related to soft global economic conditions, the unfavorable impact on reported sales of currency exchange as the U.S. dollar strengthened against certain foreign currencies and our focus on the sale of value added and higher capacitance components with higher margin opportunities and lower sales volumes rather than higher volume commodity components when compared to the fiscal year ended March 31, 2015. Lower sales is also reflective of our customers’ cautious inventory management programs during the fiscal year ended March 31, 2016.



Total connector sales, including AVX Interconnect products and KCP Resale Connectors, were $135.4 million in the fiscal year ended March 31, 2016 compared to $205.4 million during the fiscal year ended March 31, 2015. This decrease was primarily attributable to Kyocera’s decision to utilize their sales force rather than continuing to have AVX resell their connector products in Asia. Kyocera notified AVX in February 2014 of its intent, effective April 1, 2015, to market its connector products in Asia using Kyocera’s sales force rather than continuing to have AVX resell such products in Asia. Sales of Kyocera manufactured connector products in Asia were $1.1 million and $47.5 million with operating profit of $0.4 million and $1.9 million for the fiscal years ended March 31, 2016 and March 31, 2015, respectively. For more information regarding AVX’s relationship with Kyocera, see “Relationship with Kyocera and Related Transactions” below. In addition, there was a negative impact on reported sales resulting from the strength of the U.S. dollar when compared to the Japanese Yen and the Euro, partially offset by improved volumes to our automotive customers.  



KDP and KCD Resale sales were $238.1 million for the fiscal year ended March 31, 2016 compared to $229.9 million during the fiscal year ended March 31, 2015. This increase is primarily attributable to higher demand from our telecommunications and cellular device customers in the fiscal year ended March 31, 2016 partially offset by the unfavorable impact on reported sales of the stronger U.S. dollar when compared to the Japanese Yen.

Our sales to independent electronic distributors represented 45.0% of total net sales for the fiscal year ended March 31, 2016, compared to 45.7% for fiscal year ended March 31, 2015. Overall, distributor activity as a percentage of sales decreased slightly when compared to the same period in the prior year reflective of their cautious inventory management programs. Our sales to distributor customers may involve specific ship and debit and stock rotation programs for which sales allowances are recorded as reductions in sales. Such allowance charges decreased to $29.4 million, or 5.5% of gross sales to distributor customers, for the fiscal year ended March 31, 2016 compared to $33.6 million, or 5.4% of gross sales to distributor customers, for the fiscal year ended March 31, 2015. Applications under such programs for fiscal years ended March 31, 2016 and 2015 were approximately $31.5 million and $34.4 million, respectively.

31


 

Geographically, compared to the prior fiscal year, regional sales as a percentage of total sales for the fiscal year ended March 31, 2016 increased slightly in the Americas while decreasing slightly in Europe. Generally, all three geographic regions faced similar market conditions. Our Asian market sales were impacted Kyocera’s aforementioned decision to utilize their sales force rather than continuing to have AVX resell Kyocera manufactured connector products in this region. Sales in Asia remained 41.6% of total sales, while sales in the Americas increased slightly to 30.0% and sales in Europe decreased slightly to 28.4% of total sales.  This compares to 41.6%, 29.7%, and 28.7% of total sales for the Asian, American, and European regions in the prior year, respectively. As a result of the strength of the U.S. dollar against certain foreign currencies, reported sales for the year ended March 31, 2016 were unfavorably impacted by approximately $51 million when compared to the prior year.



Gross profit margin in the fiscal year ended March 31, 2016 decreased slightly to 24.2% of sales, or $289.1 million, compared to a gross profit margin of 24.3% of sales, or $328.6 million, in the fiscal year ended March 31, 2015. This overall decrease in dollars and percentage is primarily a result of lower sales volumes and lower selling prices reflective of soft demand in the global marketplace when compared to the same period last year. The impact on gross margin due to lower selling prices was partially offset by our focus on the sale of value added and higher capacitance passive components with better margin opportunities than higher volume commodity components. Gross profit also benefited from lower manufacturing and overhead costs due to our focus on cost control and manufacturing efficiencies. In addition, the currency impact of a stronger U.S. dollar against certain foreign currencies favorably impacted costs by approximately $59 million when compared to the same period last year.



Selling, general, and administrative expenses for the fiscal year ended March 31, 2016 were $119.8 million, or 10.0% of net sales, compared to $115.8 million, or 8.6% of net sales, for the fiscal year ended March 31, 2015. The overall increase in selling, general and administrative expenses is primarily due to higher legal advisory fees partially offset by lower selling expenses as a result of lower sales for the fiscal year ended March 31, 2016 compared to the fiscal year ended March 31, 2015.



During the fiscal ended March 31, 2016, we recorded estimated litigation and settlement charges of $45.3 million related to the outcome of certain litigation and remediation challenges involving legacy environmental issues and intellectual property litigation. Effective September 30, 2015, a Settlement Agreement and Mutual Release (“Settlement Agreement”) was entered into with the City of New Bedford in settlement of the following two cases: DaRosa v. City of New Bedford and City of New Bedford, et al v. AVX Corporation both arising from contamination at certain property sites in the City of New Bedford. In accordance with the Settlement Agreement, AVX paid the sum of $6.5 million to the City of New Bedford in October 2015. Additionally, on January 26, 2016, in a patent infringement case filed in the United States District Court for the District of Delaware captioned Greatbatch, Inc. v. AVX Corporation, the jury returned a verdict in favor of the plaintiff and found damages to the plaintiff in the amount of $37.5 million. Also, during the fourth quarter of the fiscal year ended March 31, 2016, we accrued a $1.3 million estimated charge related to a new environmental remediation demand related to a legacy environmental issue and a $0.4 million charge related to a recent jury finding with respect to an intellectual property lawsuit filed in the United States District Court for the District of Delaware captioned Presidio Components, Inc. v. American Technical Ceramics Corp.



Profit from operations for the fiscal year ended March 31, 2016 decreased $88.8 million to $124.0 million compared to $212.8 million for the fiscal year ended March 31, 2015. This decrease is a result of the factors above.



Other income increased $2.3 million to $8.2 million in fiscal 2016 compared to $5.9 million in fiscal 2015. This increase is primarily attributable to higher interest income resulting from an increase in the overall average balance of our cash and investments during fiscal 2016 when compared to fiscal 2015 and foreign currency exchange gains.

The tax rate for the fiscal year ended March 31, 2016 was a tax rate of 23.2% compared to a tax benefit of (3.3%) for the fiscal year ended March 31, 2015. For fiscal 2016, the rate of 23.2% is impacted by a reduction of income tax reserves related to the expiration of statutory periods with regard to certain income tax positions of approximately $4.4 million. Excluding such discrete items recorded during the fiscal year ended March 31, 2016, the effective tax rate would have been 26.5%. The tax rate for fiscal 2015 was impacted by net income tax benefits of $70.3 million primarily attributable to the reversal of valuation allowances of $50.0 million related to the forecasted future utilization of net operating loss carryforwards (“NOL’s”) in our European operations and net tax benefits of $17.5 million primarily due to the U.S. tax benefits related to the restructuring of certain foreign subsidiaries. Excluding such discrete items recorded during the fiscal year ended March 31, 2015, the effective tax rate would have been 28.9%.

The gross NOL’s related to the $50.0 million reversal of valuation allowances in the fiscal year ended March 31, 2015 were $149.9 million. The related tax benefits upon utilization of the NOL’s are un-expiring, however they are subject to annual utilization limitations. The realization of tax benefits due to the utiliza