-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FortiUxfabQs50PfSlcLaAkgjYhUvGG84GNCg9TTiroz/5SikbgIKoSqWJ2ppkaD QZ+aOa5fFQFWpl0TKKw98g== 0000859163-98-000009.txt : 19980612 0000859163-98-000009.hdr.sgml : 19980612 ACCESSION NUMBER: 0000859163-98-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980611 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVX CORP /DE CENTRAL INDEX KEY: 0000859163 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 330379007 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07201 FILM NUMBER: 98646219 BUSINESS ADDRESS: STREET 1: 801 17TH AVE S CITY: MYRTLE BEACH STATE: SC ZIP: 29577 BUSINESS PHONE: 8034499411 MAIL ADDRESS: STREET 1: PO BOX 867 STREET 2: PO BOX 867 CITY: MYRTLE BEACH STATE: SC ZIP: 29578 FORMER COMPANY: FORMER CONFORMED NAME: KC SUBSIDIARY CORP DATE OF NAME CHANGE: 19900212 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED MARCH 31, 1998 Commission File No. 110431 AVX CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 33-0379007 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) IdentificationNumber) 801 17th Avenue South Myrtle Beach, South Carolina 29577 (843) 448-9411 (address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange On Which Registered Common Stock, New York Stock Exchange $.01 par value per share Securities Registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark 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. [X] Based on the closing sales price of $19 1/16 on May 22, 1998, the aggregate market value of the voting stock held by non-affiliates of the registrant was $412,004,007. As of May 22, 1998, the number of shares outstanding of the registrant's Common Stock, par value $.01 per share, was 87,763,325 shares. DOCUMENTS INCORPORATED BY REFERENCE There is incorporated by reference in Part III on this Annual Report on Form 10-K the information contained in the registrant's proxy statement for its annual meeting of shareholders to be held on July 16, 1998. 2 Capacitors AVX manufactures a full line of multi-layered ceramic and solid tantalum capacitors in many different sizes and configurations. The Company's strategic focus on the growing use of ceramic and tantalum capacitors is reflected in its investment during the past three years of approximately $273 million primarily to increase its capacitor manufacturing capacity. The Company believes that sales of ceramic and tantalum capacitors will continue to be among the most rapidly growing in the worldwide capacitor market because technological advances have been constantly expanding the number and type of applications for these products. Tantalum and ceramic capacitors commonly are used in conjunction with integrated circuits and are best suited for applications requiring lower to medium capacitance values. Generally, ceramic capacitors are more cost- effective at lower capacitance values, and tantalum capacitors are more cost-effective at medium capacitance values. Capacitance is the measure of the capacitor's ability to store energy. Ceramic and tantalum capacitors are produced by the Company in two basic versions: leaded and surface-mount. Leaded capacitors are attached to a circuit board using lead wires while surface-mount capacitors are attached directly to a circuit board. In recent years there has been significant industry-wide growth in the use of surface-mount capacitors, and industry analysts have predicted that this would cause the market for leaded capacitors to decline significantly. In certain applications, however, leaded capacitors continue to be the component of choice. Advanced Products To fill the needs of its customers, the Company's advanced products engineers work with certain customers' in-house technical staffs to design, produce and manufacture special products to meet the specifications of particular applications. The manufacture of special products permits AVX, through its research and development activities, to make technological advances, provide the customer with a design solution to fit its needs, gain a marketing inroad with the customer with respect to AVX's complete product line and, in some cases,develop products that can be sold to additional customers in the future. AVX's advanced products division presently has significant ongoing projects with a variety of key customers in the computer, telecommunications, automotive and medical fields as well as some other new areas of use. Connectors The connector division of the Company manufactures high-quality electronic connectors and inter-connect systems for use in the computer, telecommunications, automotive electronics, medical device, military and aerospace industries. The Company's product line includes a variety of industry-standard connectors as well as products designed specifically for its customers' unique applications. The Company produces fine pitch, or small centerline, connectors, many of which have been selected by leading OEMs for applications in cellular phones, pagers, printers and notebook computers. The Company also has developed a value-added business in flat ribbon cable assembly and in backpanel, and card edge assemblies. Kyocera Products The Company's distribution and sale of certain Kyocera products throughout the world, except in Japan, broaden the Company's range of products and further facilitate its ability to offer "one-stop shopping" for its customers' electronic components needs. Kyocera's passive components sold by the Company include ceramic capacitors, hybrids, oscillators, saw devices, resistor networks, trimmers, chip resistors, ceramic filters, resonators, connectors and piezo acoustic devices. Marketing, Sales and Distribution The Company places a high priority on solving customers' electronic component problems and responding to their needs. AVX frequently forms teams of its marketing, research and development, and manufacturing personnel to work with customers to design and manufacture products to suit their specific requirements. The Company's products are sold primarily to manufacturers and, to a much lesser extent, to United States and foreign government agencies. The Company has also qualified products under various military specifications, approved and monitored by the United States Defense Electronic Supply Center ("DESC"), and under certain foreign military specifications. 3 Approximately 48%, 23% and 29% of the Company's net sales for fiscal 1998, were to customers in North America, Europe, and Asia, respectively. Financial information relating to geographic operations is set forth in Part IV, item 14(a), of this report. The Company's products are marketed worldwide by the Company's own sales personnel, as well as through independent manufacturers' representatives who are compensated solely on a commission basis, and independent electronic component distributors. The Company has regional sales personnel in strategic locations to provide technical and sales support for independent manufacturers' representatives and independent electronic component distributors. The Company believes that this combination of distribution channels provides a high level of market penetration and efficient coverage of its customers on a cost-effective basis. Among the Company's customers are Motorola Inc., Lucent Technologies, American Telephone and Telegraph Corporation, L.M. Ericsson Telefonaktiebolaget, OY Nokia AB., Northern Telecom,Uniden and Siemens AG in the telecommunications industry; International Business Machines Corporation, Compaq Computer Corp., Seagate Technology International, Western Digital Corp., Acer Incorporated, Intel Corp., Sony Corporation, and Samsung Co. Limited in the computer industry; and Ford Motor Co., Robert Bosch GmbH, General Motors Corp. and Magneti Marelli S.p.A. in the automotive industry. The Company's largest customers vary on a year-to-year basis, and no customer has a long-term commitment to purchase products of the Company. No one customer has accounted for more than 10% of net sales for the past three years. AVX had a backlog of orders of approximately $196 million at March 31, 1998, $240 million at March 31, 1997, and $250 million at March 31, 1996. Orders may be canceled by a customer at any time, subject to cancellation charges under certain circumstances. The backlog reduction since March 31, 1996, reflects the reduction in delivery lead times which has decreased customers' long-term ordering patterns, such that orders are currently placed more on an as needed basis. The backlog outstanding at any time is not necessarily indicative of the level of business to be expected in any ensuing period since certain orders are placed and delivered within the same period. Research, Development and Engineering AVX's emphasis on research and development is reflected by the fact that most of the Company's manufactured products and manufacturing processes have been designed and developed by its own engineers and scientists. The Company's 60,000 square-foot facility, dedicated entirely to pure research and development, in Myrtle Beach, South Carolina, provides centralized coordination of AVX's global research and development efforts. The Company also maintains significant research and development staffs at its facilities in Coleraine, Northern Ireland, Jerusalem, Israel, and Paignton, England. The Company's research, development and engineering effort places a priority on the design and development of innovative products and manufacturing processes and engineering advances in existing product lines and manufacturing operations. Other areas of emphasis include material synthesis and the integration of passive components for applications requiring reduced size, and lower manufacturing costs associated with board assembly. Research, development and engineering expenditures were approximately $36 million, $33 million and $30 million during fiscal 1998, 1997 and 1996, respectively. While AVX owns United States patents as well as corresponding patents in various other countries, and also has patent applications pending, its patents are not in the aggregate material to the successful operation of its business. Public Offering From January 1990 through August 15, 1995, the Company was wholly-owned by Kyocera. On August 15, 1995, Kyocera sold 22.9%, or 19,650,000 of the Company's common shares, and the Company sold an additional 2,200,000 common shares, in a public offering. As a result, Kyocera currently owns approximately 75% of the Company's common shares. Transactions with Kyocera Since January 1990, Kyocera and AVX have engaged in a significant number and variety of related company transactions, including, without limitation, the transactions referred to in footnote 10 to the financial statements set forth in Part IV, item 14(a), of this report. The Company also has established several ongoing arrangements with Kyocera and has executed several agreements, the more significant of which are described below. Except for the Buzzer Assembly Agreement, each of the agreements described below contains provisions requiring that the terms of any transaction under such agreement be equivalent to that which an independent unrelated party would agree at arm's-length and is subject to the approval of the Special Advisory Committee of the AVX Board of Directors. The Special Advisory Committee is comprised of the independent directors of the Company and is required to review and approve such agreements and any significant transactions between the Company and Kyocera not covered by such agreements. Products Supply and Distribution Agreement. Pursuant to the Products Supply and Distribution Agreement (the "Distribution Agreement") (i) AVX will act as the non-exclusive distributor of certain Kyocera-manufactured products in territories outside of Japan, and (ii) Kyocera will act as the non-exclusive distributor of certain AVX-manufactured products within Japan. The Distribution Agreement has a term of one year, with automatic one-year renewals, subject to the right of termination by either party at the end of the then current term upon at least three months prior written notice. Disclosure and Option to License Agreement. Pursuant to the Disclosure and Option to License Agreement (the "License Agreement"), the Company and Kyocera agree to exchange confidential information relating to the development and manufacture of multi-layered ceramic capacitors and various other ceramic products. The expiration date of the License Agreement is March 31, 2005. Materials Supply Agreement. Pursuant to the Materials Supply Agreement (the "Supply Agreement"), AVX and Kyocera will from time to time supply the other party with certain raw and semi-processed materials used in the manufacture of ceramic capacitors and other ceramic products. The expiration date of the Supply Agreement is March 31, 2000. Buzzer Assembly Agreement. Pursuant to the Buzzer Assembly Agreement, AVX assembles certain electronic components for Kyocera in the Company's Juarez, Mexico facility. Kyocera pays AVX a fixed cost mutually agreed upon by the parties for each component assembled plus a profit margin. The Agreement will terminate on March 31, 2000, subject to the right of either party to terminate upon six months written notice. Machinery and Equipment Purchase Agreement. Pursuant to the Machinery and Equipment Purchase Agreement (the "Machinery Purchase Agreement"), AVX and Kyocera will from time to time design and manufacture for the other party certain equipment and machinery of a proprietary and confidential nature used in the manufacture of capacitors and other electrical components. The agreement will terminate on March 31, 2000. Raw Materials Although most materials incorporated in the Company's products are available from a number of sources, certain materials (particularly palladium and tantalum) are available only from a relatively limited number of suppliers. Palladium, a principal raw material used in the manufacture of ceramic capacitors, is primarily purchased from various companies in the form of palladium sponge and ingot. The main areas of mining of palladium are in Russia and South Africa. Palladium is considered a commodity and is subject to price volatility and has fluctuated in a range of approximately $120 to $400 per troy ounce during the last three years. The Company is presently, and expanding the use of, substitutes, such as nickel and copper, for palladium in certain product applications. Tantalum powder is a principal material used in the manufacture of tantalum capacitor products. This product is purchased under annual contracts with suppliers from various parts of the world at prices that are subject to periodic adjustment. The Company is a major consumer of the world's annual tantalum production. Although the Company believes that there is currently no problem with the procurement of tantalum powder and that the tantalum required by the Company has generally been available in sufficient quantity to meet requirements, the limited number of tantalum powder suppliers could lead to higher prices. An inability of the Company to pass on an increase in tantalum cost to its customers could have a material adverse effect on the Company's results of operations. 5 AVX internally develops and produces a majority of the ceramic raw materials used in its production processes and is expanding its ceramic production operations in order to meet increased demand. The Company believes that it is the only United States capacitor manufacturer that processes its own ceramic materials. Competition The Company encounters strong competition in its various product lines from both domestic and foreign manufacturers. Competitive factors in the markets of the Company's products include product quality and reliability, breadth of product line, customer service, technological innovation, timely delivery, and price. The Company believes that it competes favorably on the basis of each of these factors. The breadth of the Company's product offering enables AVX to strengthen its market position by providing its customers with one of the broadest selections of passive electronic components available from one source. The Company's major competitors are Murata Manufacturing Company Ltd, KEMET Corporation, NEC Corporation, TDK Corporation and Vishay Intertechnology, Inc. Employees As of May 31, 1998, AVX employed approximately 13,500 full time employees. Approximately 3,800 of these employees are employed in the United States. Of the employees located in the United States, approximately 2,000 are covered by collective-bargaining arrangements. In addition, some foreign employees are members of various trade and government-affiliated unions. The Company believes that its relationship with its employees is good, and the Company has not had a work stoppage as a result of collective bargaining difficulties during the past 20 years. Environmental Matters The Company is subject in the United States to federal, state and local laws and regulations concerning the environment and to the environmental laws and regulations of the other countries in which it has manufacturing facilities. Based on the Company's periodic review of the operating policies and practices at all its facilities, the Company believes that its operations currently comply in all material respects with all such laws and regulations. The Company has been identified by the federal 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 ten sites at which remediation is required. Because CERCLA has been construed to authorize joint and several liability, EPA could seek to recover all clean-up costs from any one of the PRPs at a site despite the involvement of other PRPs. At all but one site, financially responsible PRPs other than the Company also are, or have been, involved in site investigation and clean-up activities. Therefore, the Company believes that any liability resulting from these sites will be apportioned between the Company and other PRPs. To resolve its liability at each of the sites at which it has been named a PRP, the Company has entered into various administrative orders and consent decrees (collectively, "Decrees") with federal and state regulatory agencies, governing the timing and nature of investigation and remediation. The Company has paid, or reserved for, all amounts required under the terms of these Decrees corresponding to its apportioned share of the liabilities. Such reserves for remediation, compliance and legal costs totaled $4.1 million at March 31, 1998. As is customary, the Decrees at sites where the PRPs are not themselves implementing the chosen remedy contain provisions allowing 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 during clean-up or substantial cost overruns for the chosen remedy. The existence of such reopener provisions, combined with the difficulties of reliably estimating clean-up costs and the joint and several nature of CERCLA liability, makes it difficult to predict the ultimate liability at any site with certainty. While no assurance can be given, the Company does not believe that any additional costs to be incurred by the Company at any of the sites will have a material adverse effect on the Company's financial condition or results of operations. 6 In addition, the Company does not believe that any investigation or clean-up that may be required at any other locations will have a material adverse effect on the Company's financial condition or results of operations. Executive Officers of the Registrant The following table provides certain information regarding the executive officers of the Company as of May 22, 1998. Name Age Position Benedict P. Rosen 62 Chief Executive Officer John S. Gilbertson 54 President and Chief Operating Officer Donald B. Christiansen 59 Senior Vice President, Chief Financial Officer and Treasurer C. Marshall Jackson 49 Senior Vice President of Sales and Marketing Ernie Chilton 54 Senior Vice President-Tantalum S. M. Chan 42 Vice President of Marketing and Sales-Asia Allan Cole 55 Vice President of Sales Alan Gordon 49 Vice President of European Sales/Marketing John L. Mann 55 Vice President of Quality Roberto E. Salazar 43 Vice President of Latin America Operations Carl L. Eggerding 48 Vice President of Advanced Products and Technology Center Kurt P. Cummings 42 Corporate Controller and Secretary Benedict P. Rosen Chairman of the Board and Chief Executive Officer effective July 1997. Chief Executive Officer and President of the Company from April 1993 until July 1997 and a member of the Board since January 1990. Executive Vice President from February 1985 to March 1993 and employed by the Company since 1972. Senior Managing and Representative Director of Kyocera since June 1995 and previously served as a Managing Director of Kyocera from 1992 to June 1995. Director of Nitzanim-AVX/Kyocera- Venture Capital Fund Ltd. and Aerovox Corporation. John S. Gilbertson President since July 1997. Chief Operating Officer of the Company since April 1994, and a member of the Board since January 1990. Executive Vice President from April 1992 to July 1997, Senior Vice President from September 1990 to March 1992 and employed by the Company since 1981. Director of Kyocera since June 1995 Donald B. Christian Senior Vice President of Finance, Chief Financial Officer and Treasurer of the Company since July 1997 and a member of the Board since April 1992. Vice President of Finance, Chief Financial Officer and Treasurer from April 1994 to July 1997 and Chief Financial Officer from March 1992 to April 1994. C. Marshall Jackson Senior Vice President of Sales and Marketing since April 1994. From January 1990 until March 1994, Mr. Jackson was Vice President of AVX and has been employed by the Company since 1969. Ernie Chilton Senior Vice President-Tantalum of AVX since April 1994. From January 1990 until February 1993, Mr. Chilton served as Vice President of AVX. Mr. Chilton has been employed by the Company since 1980. S. M. Chan Vice President of Marketing and Sales-Asia since April 1994. From April 1992 until March 1994, Mr. Chan served as the Director of Marketing of AVX. Mr. Chan has been employed by AVX since October 1990. Allan Cole Vice President of Sales of the Company since May 1987. Mr. Cole has been employed by AVX since 1977 serving in several sales management positions, both domestic and international. Alan Gordon Vice President-European Sales/Marketing of AVX since February 1993. From January 1991 until February 1993, Mr. Gordon served as the Director of Marketing of AVX. Mr. Gordon has been employed by AVX since 1991. John L. Mann Vice President of Quality of the Company since May 1986. From March 1984 until May 1986, Mr. Mann served as the Corporate Director of Quality. Carl L. Eggerding Vice President of Advanced Products and Technology Center since July 1997. Employed by the Company since April 1996. Prior to April 1996, employed by IBM as Director of Development for Organic Packaging Technology. Roberto E. Salazar Vice President of Latin America Operations since July 1997. Served as General Manager of El Salvador Operations from 1990 until 1993 and as Division Vice President for El Salvador and the Mexican operations until July 1997. Kurt P. Cummings Secretary of the Company since July 1997. Corporate Controller of the Company since June 1992. Item 2. Properties The Company conducts manufacturing operations throughout the world. All the Company's operations around the world are certified to the ISO 9000 international quality control standards. ISO 9000 is a comprehensive set of quality program standards developed by the International Organization for Standardization. Certain facilities have also been qualified under a new set of stringent QS 9000 quality standards developed by the US automotive industry. A list of the Company's facilities, their square footage, whether they are leased or owned and a description of their use, follows: Type Square of Description Location Footage Interest of Use UNITED STATES Myrtle Beach, SC 505,09 Owned Research/Manufacturing /Headquarters Myrtle Beach, SC 15,000 Leased Warehouse Conway, SC 70,408 Owned Manufacturing Biddeford, ME 72,000 Owned Manufacturing Colorado Springs, CO 15,000 Owned Manufacturing El Paso, TX 24,960 Leased Warehouse New Orleans, LA 18,840 Leased Warehouse Olean, NY 107,400 Owned Manufacturing Raleigh, NC 206,000 Owned Manufacturing/Warehouse Sun Valley, CA 25,000 Leased Manufacturing Vancouver, WA 87,048 Leased Manufacturing Vancouver, WA 10,800 Leased Warehouse/Office OUTSIDE THE UNITED STATES Betzdorf, Germany 101,671 Owned Manufacturing Biggleswade, England 10,000 Leased Manufacturing Chihuahua, Mexico 393,952 Owned Manufacturing Coleraine, N. Ireland 167,000 Owned Research/Manufacturing Hong Kong 30,257 Owned Warehouse Jerusalem, Israel 42,470 Leased Research/Manufacturing Juarez, Mexico 84,000 Owned Manufacturing Lanskroun, Czech Republic 179,050 Leased Manufacturing Uherske Hradiste,Czech Republic 148,910 Leased Manufacturing Larne, N. Ireland 120,000 Owned Manufacturing/Warehouse Newmarket, England 52,000 Leased Manufacturing Paignton, England 160,909 Owned Research/Manufacturing San Salvador, El Salvador 232,981 Owned Manufacturing Singapore 49,500 Leased Manufacturing/Warehouse In addition to the foregoing, the Company owns and leases a number of sales offices throughout the world. Management believes that all its property, plant and equipment is in good operating condition. The Company is constantly upgrading its equipment and adding capacity through greater use of automation. The Company's capital expenditures for plant and equipment were $100.4 million for fiscal 1998 and $93.9 million in fiscal 1997. Item 3. Legal Proceedings The Company is a party to various legal proceedings and administrative actions, all of which are of an ordinary or routine nature incidental to the operations of the Company. Although it is difficult to predict the outcome of any legal proceeding, in the opinion of the Company's management, such procedures and actions should not, individually or in the aggregate, have a material adverse effect on the Company's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Securities Holders During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders of the Company. PART II Item 5. Market for the Registrant's Securities and Related Stockholder Matters Market for Common Stock The Company's common stock is listed on the New York Stock Exchange and trades under the symbol AVX. The following presents the high and low sale prices for the Company's Common Stock for each quarter since June 30, 1996 as reported on the New York Stock Exchange Composite Tape. 1998 1997 High Low High Low First Quarter $291/8 $ 193/4 $251/2 $17 Second Quarter 395/8 265/8 23 16 Third Quarter 341/2 1711/16 241/8 181/4 Fourth Quarter 233/8 181/4 251/4 193/4 Holders of Record At May 22, 1998, there were approximately 13,000 holders of record of the Company's common stock. Dividends The Company has declared and paid cash dividends of $.065 per share of common stock for the quarter ended March 31, 1998. The Company declared and paid cash dividends for the quarters ended December 31, 1997, September 30, 1997, June 30, 1997 and March 31, 1997 of $.06 per share of common stock. The Company declared and paid cash dividends for the quarters ended December 31, 1996, September 30, 1996 and June 30, 1996 of $.055 per share of common stock. Future dividends, if any, will depend on the Company's profitability and anticipated operating requirements. Item 6. Selected Financial Data The following table sets forth selected financial data for the Company for the five years ended March 31, 1998. The financial data set forth below should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Form 10-K. Year ended March 31, (dollars in 1998 1997 1996 1995 1994 thousands, except share data) Income Statement Data: Net sales $1,267,653 $1,126,178 $1,207,761 $988,893 $795,515 Cost of sales 970,216 851,863 886,494 777,687 639,058 Gross profit 297,437 274,315 321,267 211,206 156,457 Selling, general and administrative expenses 110,737 102,369 116,586 101,013 100,875 Profit from operations 186,700 171,946 204,681 110,193 55,582 Interest income 11,268 7,536 5,096 2,018 749 Interest expense (1,921) (2,049) (2,352) (2,229) (2,792) Other, net 1,377 1,010 1,655 1,218 1,439 Income before income taxes and cumulative effect of accounting change for income taxes 197,424 178,443 209,080 111,200 54,978 Provision for income taxes 62,773 57,102 71,344 36,329 19,817 Income before cumulative effect of accounting change for income taxes 134,651 121,341 137,736 74,871 35,161 Cumulative effect of accounting change for income taxes 5,000 Net income $ 134,651 $ 121,341 $ 137,736 $ 74,871 $ 40,161 Basic and diluted income per share: Before cumulative effect of accounting change for income taxes $ 1.53 $ 1.38 $ 1.58 $ 0.87 $ 0.41 Cumulative effect of accounting change for income taxes 0.06 Net income $ 1.53 $ 1.38 $ 1.58 $ 0.87 $ 0.47 Weighted average common shares outstanding 88,109,643 88,000,000 87,175,000 85,800,000 85,800,000 Cash dividends declared per common share $ 0.245 $ 0.225 $ 0.229 $ 0.305 $ 0.17 As of March 31, 1998 1997 1996 1995 1994 Balance Sheet Data: Working capital $ 552,787 $ 456,672 $ 357,930 $ 224,999 $ 189,528 Total assets 1,048,653 949,307 867,516 670,697 573,966 Long-term debt 8,376 12,170 8,507 9,544 10,427 Stockholders'equity 850,884 731,969 624,000 456,266 400,834 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition General The Compan's 1998 net sales increased 12.6% compared to 1997, while 1997 reflected a 6.8% decrease from 1996 levels and the previous two years increased 22.1% and 24.3%, respectively. The growth in sales from 1994 to 1998 is primarily the result of the Company increasing its production capacity and the expansion of the electronic components industry. This expansion has been due primarily to the growth of computer, telecommunications and automotive manufacturers' usage of passive electronic components, as the use of electronics in all walks of life become more widespread and sophisticated. During this period of growth in the industry, the average selling prices of electronic components, as well as the selling prices of the end use products which rely on passive components, have declined. In order to lower the costs of production, the Company continues to increase automation of its manufacturing processes and transfer certain labor intensive manufacturing processes from countries with high labor costs to lower labor cost areas (such as the Czech Republic, El Salvador, and Mexico). The following table sets forth the percentage relationships to net sales of certain income statement items for the periods presented. Years Ended March 31, 1998 1997 1996 Net sales 100.0% 100.0% 100.0% Cost of sales 76.5 75.6 73.4 Gross profit 23.5 24.4 26.6 Selling, general and administrative expenses 8.7 9.1 9.6 Profit from operations 14.7 15.3 17.0 Income before income taxes 15.6 15.8 17.3 Provision for income taxes 5.0 5.0 5.9 Net income 10.6 10.8 11.4 Results of Operations Year Ended March 31, 1998 Compared to Year Ended March 31, 1997 Net sales for the year ended March 31, 1998 increased 12.6% to $1,267.7 million from $1,126.2 million for the year ended March 31, 1997. The increase was primarily attributable to the growth in the ceramic and tantalum products, particularly surface-mount and advanced products. Despite the overall increase in sales, the Company's results continue to be impacted by several factors including, (a) the shortening of lead times as customers reduced their level of inventory and suppliers reduced lead times, (b) a continuation of the trend toward surface-mount products and smaller part sizes, which traditionally have lower average selling prices, (c) an overall reduction in selling prices, (d) the uncertainties surrounding the Asian economic crisis, and (e) the strengthening of the U.S. dollar and certain European currencies, which had a modest dampening effect on reported U.S. dollar sales. Gross profit as a percentage of net sales for the year ended March 31, 1998 decreased 0.9% to $297.4 million (23.5% of net sales) from $274.3 million (24.4% of net sales) for the year ended March 31, 1997. Overall sales prices in the 1998 year were lower compared to the 1997 year. Gross profit was also negatively impacted by the rising cost of palladium, a principle raw material used in the manufacture of ceramic capacitors. Continued automation of the manufacturing processes and higher volumes of through- put in the factories have helped to reduce manufacturing costs for products sold and have enabled the Company to maintain strong gross profit levels. As a result of the Company's strategy to manufacture in the various regions in which it sells products, and the strengthening of the U.S. dollar and certain European currencies acted to reduce the overall cost of manufacturing when reported in U.S. dollars. Selling, general and administrative expenses for the year ended March 31, 1998 were $110.7 million (8.7% of net sales), compared with $102.4 million (9.1% of net sales) in the year ended March 31, 1997. The increase in selling, general, and administrative expenses is due to higher research and development spending, higher sales commissions, and the benefit of adjustments to environmental remediation accruals in 1997. As a percentage of sales, such expenses have declined due to the Company's stringent cost control measures. Research, development and engineering expenditures, which encompass the personnel and related expenses devoted to developing new products, processes and technical innovations, were $36 million and $33 million in fiscal 1998 and 1997, respectively. As a result of the above factors, profit from operations for the year ended March 31, 1998 increased 8.6% to $186.7 million from $171.9 million for the year ended March 31, 1997. For the reasons set forth above, higher interest income on invested cash and a $3.1 million dividend from a nonmarketable equity investment, net income in the year ended March 31, 1998 increased 11.0% to $134.6 million (10.6% of net sales) from $121.3 million (10.8% of net sales) for the year ended March 31, 1997. Year Ended March 31, 1997 Compared to Year Ended March 31, 1996 Net sales for the year ended March 31, 1997 decreased 6.8% to $1,126.2 million from $1,207.7 million for the year ended March 31, 1996. The decrease was attributable to a combination of factors including, (a) the residual effect of the softened order and delivery demand experienced by the electronic component industry throughout the latter portion of calendar 1995 and the first half of calendar 1996 (as customers reduced their level of inventory and suppliers reduced lead times), (b) a continuation of the trend toward surface-mount products and smaller part sizes, which traditionally have lower average selling prices, (c) an overall reduction in selling prices, and (d) the strengthening of the U.S. dollar and certain European currencies, which had a modest dampening effect on reported U.S. dollar sales. Gross profit as a percentage of net sales for the year ended March 31, 1997 decreased 2.2% to $274.3 million (24.4% of net sales) from $321.3 million (26.6% of net sales) in the year ended March 31, 1996. Due in part to the industry wide inventory correction discussed above, overall sales prices in the 1997 year were lower compared to the 1996 year. Continued automation of the manufacturing processes and higher volumes of through-put in the factories have resulted in lower manufacturing costs for products sold and have enabled the Company to maintain strong gross profit levels despite the decline in sales. As a result of the Company's strategy to manufacture in the various regions in which it sells products, the strengthening of the U.S. dollar and certain European currencies acted to reduce the overall cost of manufacturing when reported in U.S. dollars. Cost of sales in fiscal 1996 include approximately $3.5 million of costs associated with the closure of a plant in the United States. Selling, general and administrative expenses in the year ended March 31, 1997 were $102.4 million (9.1% of net sales), compared with $116.6 million (9.6% of net sales) in the year ended March 31, 1996. The decrease in selling, general and administrative expenses is due to (a) cost containment programs, (b) lower sales commissions, (c) the benefit of adjustments to environmental remediation accruals, and (d) charges related to the closing of the Company's previous headquarters recorded in 1996. Research, development and engineering expenditures, which encompass the personnel and related expenses devoted to developing new products, processes and technical innovations, were $33 million and $30 million in fiscal 1997 and 1996, respectively. As a result of the above factors, profit from operations as a percentage of net sales in the year ended March 31, 1997 decreased 1.7% to $171.9 million from $204.7 million in the year ended March 31, 1996. The effective tax rate in the year ended March 31, 1997 was 32.0%, compared to 34.1% in the year ended March 31, 1996. The decrease in the 1997 year primarily results from the benefit of lower tax rates on foreign earnings and the realization of certain foreign net operating losses. For the reasons set forth above, net income in the year ended March 31, 1997 decreased 11.9% to $121.3 million (10.8% of net sales) from $137.7 million (11.4% of net sales) in the year ended March 31, 1996. Financial Condition Liquidity and Capital Resources The Company's liquidity needs arise primarily from working capital requirements, dividends and capital expenditures. Historically, the Company has satisfied its liquidity requirements through internally generated funds. As of March 31, 1998, the Company had a current ratio of 4.3 to 1, $201.9 million of cash and cash equivalents, $850.9 million of stockholders' equity and an insignificant amount of long-term debt. Net cash from operating activities was $136.8 million in the year ended March 31, 1998, compared to $167.9 million in the year ended March 31, 1997 and $155.7 million in the year ended March 31, 1996. The decrease is primarily a result of higher inventories which is due to the industry trend toward shorter lead times which require the Company to maintain higher levels of inventories in order to support customers. Purchases of property and equipment were $100.4 million in fiscal 1998, $93.9 million in fiscal 1997, and $110.5 million in fiscal 1996. Virtually all expenditures were for expanding the production capabilities of the ceramic and tantalum surface-mount and advanced product lines. The Company's carrying value of its equipment reflects the fact that depreciation expense for machinery and equipment is generally computed using the accelerated double-declining balance method. The Company continues to add additional capacity as the overall volume of produced units continues to increase. The Company expects to construct facilities and purchase equipment totaling approximately $100 to $150 million to increase production capacity in fiscal 1999. During fiscal 1998, the Company invested $5.3 million in a research and development company (Electro-Chemical Research Ltd. "ECR"). ECR has developed and patented a technology for high capacity electrical storage devices. Although the majority of the Company's funding is internally generated, certain European subsidiaries of the Company borrowed deutsche marks under various bank agreements. These borrowings were used for working capital requirements and to repay other outstanding obligations. In fiscal 1998, 1997 and 1996, dividends of $21.1 million, $19.4 million and $19.4 million, respectively, were paid to stockholders. The Company has established reserves in the three years ended March 31, 1998 for its projected share of costs associated with the remediation of, and compliance with, environmental matters at various sites. Adjustments to such provisions and related expenditures have not been material in any of these periods. Based on the financial condition of the Company as of March 31, 1998, the Company believes that cash expected to be generated from operating activities will be sufficient to satisfy the Company's anticipated financing needs for working capital, capital expenditures, environmental clean-up costs, research and development expenses and any dividends to be paid for the foreseeable future. In April 1998, the Company agreed to acquire the passive component businesses of Thomson-CSF for $15 million in addition to approximately $50 million of intercompany debt repayments. The businesses include film capacitors, ferrites, high energy and high voltage power capacitors, ceramic capacitors, varistors, and non-linear resistors. Annual sales for last year for these businesses were approximately $135 million. The operations include production facilities in France, Malaysia, Taiwan, and Brazil. AVX believes that some of the TPC products offer unique opportunities to expand and grow the business using our marketing and sales expertise. Year 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. As a result, those computer programs having time sensitive software would recognize a date using "00" as the year 1900 rather than the year 2000. Based on a recent assessment of the Company's date sensitive systems, the Company has determined that certain systems will need to be updated, replaced or modified. This will be accomplished through software vendors and internal resources. The Company does not expect any material cost to be incurred as a result of these modifications or any significant disruption to its operations. Foreign Currency and Precious Metals The Company's European sales generally are denominated in local currencies whereas those in North America and Asia generally are denominated in U.S. dollars. Currency exchange gains and losses have been immaterial during the three years ended March 31, 1998. Approximately one quarter of the Company's revenues are generated in Europe. Also, certain manufacturing and operating costs denominated in local currencies are incurred in Europe, Asia, Mexico and Latin America. As a result, fluctuations in currency exchange rates affect the Company's operating results and cash flow. In order to minimize the effect of movements in currency exchange rates, the Company periodically enters into forward exchange contracts to hedge existing and anticipated external and intercompany foreign currency transactions. The Company also enters into forward delivery contracts for certain precious metals used in its production processes. The Company does not hold or issue derivative financial instruments for speculative purposes. New Accounting Standards In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, Employers' Disclosure about Pension and Other Postretirement Benefits ("SFAS No. 132"). SFAS No. 132 standardizes the disclosure requirements for pensions and other postretirement benefits and amends SFAS 87, 88 and 106. The Company will be required to adopt SFAS No. 132 for the year ended March 31, 1999. Currently, the Company is evaluating this standard and is uncertain as to the impact it will have on the Company's consolidated financial statements disclosures. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131 establishes standards for disclosure of segment information about products and services, geographic areas, major customers and certain interim disclosures of segment information which are not required by accounting standards currently applied by the Company. The Company will be required to adopt SFAS No. 131 for the year ended March 31, 1999. Currently, the Company is evaluating this standard and the timing of adoption and is uncertain as to the impact it will have on the Company's consolidated financial statements disclosures. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130 established standards for reporting and presenting comprehensive income and its components in a full set of general purpose financial statements. SFAS No. 130 is effective for both interim and annual periods beginning after December 15, 1997. The adoption is not expected to have a material impact on the consolidated financial statements. Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 This report may contain "forward-looking" information within the meaning of the federal securities laws. The forward- looking information may include, among other information, statements concerning the Company's outlook for fiscal 1999, overall volume and pricing trends, cost reduction strategies and their anticipated results, and expectations for research and capital expenditures. There may also be other statements of exceptions, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking information and statements in this report are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the information or statements. Item 8. Financial Statements and Supplementary Data The following Consolidated Financial Statements of the Company and its subsidiaries, together with the Report of Independent Accountants thereon, are presented under Item 14 of this report: Consolidated Balance Sheets, March 31, 1998 and 1997 Consolidated Statements of Income, Years Ended March 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity, Years Ended March 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows, Years Ended March 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements Report of Independent Accountants All financial statement schedules are omitted because of the absence of the conditions under which they are required or because the information required is shown in the financial statements or notes thereto. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Information with respect to Items 10, 11, 12 and 13 on Form 10-K is set forth in the Company's definitive proxy statement filed with the Commission in June 1998. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K (a) Financial Statements and Financial Statement Schedules - See Index to Consolidated Financial Statements at Item 8 of this report. (b) Reports on Form 8-K Item 5. Other events dated March 24, 1998. Avx Corporation announces proposed acquisition of the Passive Component business of Thomson CSF. Item 2. Acquisition and Disposition of Assets dated June 2, 1998. AVX completes Acquisition of Thomson CSF Passive Component business. (c) Exhibits: None Documents Incorporated by Reference from previously filed registration statements and Form 10-K's. 3.1 Restated Certificate of Incorporation of the Company 3.2 By-laws of the Company 10.1 1995 Stock Option Plan 10.2 Non-Employee Directors Stock Option Plan 10.3 Form of Employment Agreement between AVX Corporation and Benedict P. Rosen 10.4 Products Supply and Distribution Agreement by and between Kyocera Corporation and AVX Corporation 10.5 Disclosure and Option to License Agreement by and between Kyocera Corporation and AVX Corporation 10.6 Management Incentive Plan 10.7 Deferred Compensation Plan 10.8 Directors Deferred Compensation Plan Documents Submitted Herewith: 10.9 AVX corporation Supplemental Employee Retirement Plan 21.1 Subsidiaries of the Registrant 23.1 Consent of Coopers & Lybrand L.L.P. 24.1 Power of Attorney SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AVX Corporation by: /s/ Donald B. Christiansen DONALD B. CHRISTIANSEN Dated: June 9, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Kazuo Inamori Chairman Emeritus of the Board Benedict P. Rosen Chairman of the Board and Chief Executive Officer John S. Gilbertson President and Chief Operating Officer and Director Donald B. Christiansen Senior Vice President of Finance, Chief Financial Officer and Treasurer and Director Marshall D. Butler Director Carroll A. Campbell Director Richard Tressler Director Kensuke Itoh Director Rodney N. Lanthorne Director Michihisa Yamaoto Director Masahiro Umemura Director Masahiro Yamamoto Director Yuzo Yamamura Director By: /s/ Donald B. Christiansen DONALD B. CHRISTIANSEN, Attorney-in-Fact June 9, 1998 EX-13 2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AVX Corporation and Subsidiaries Consolidated Balance Sheets (dollars in thousands, except share data) March 31, 1998 1997 Assets Current assets: Cash and cash equivalents $201,887 $188,574 Accounts receivable, net 139,812 155,358 Inventories 326,787 247,895 Deferred income taxes 20,039 21,145 Other receivables - affiliate 3,707 3,131 Prepaid and other 29,980 22,365 Total current assets 722,212 638,468 Property and equipment: Land 10,110 10,028 Buildings and improvements 123,668 113,614 Machinery and equipment 663,594 588,880 Construction in progress 44,313 34,040 841,685 746,562 Accumulated depreciation (559,431) (474,970) 282,254 271,592 Goodwill, net 33,479 34,913 Other assets 10,708 4,334 Total Assets $1,048,653 $949,307 Liabilities and Stockholders' Equity Current liabilities: Short-term bank debt $ 9,887 $ 12,216 Current maturities of long-term debt 2,911 1,362 Accounts payable: Trade 39,507 39,399 Affiliates 37,800 38,621 Income taxes payable 15,650 25,405 Accrued payroll and benefits 36,361 34,328 Accrued expenses 27,309 30,465 Total current liabilities 169,425 181,796 Long-term debt 8,376 12,170 Deferred income taxes 8,563 12,190 Other liabilities 11,405 11,182 Total Liabilities 197,769 217,338 Commitments and Contingencies (Notes 9 and 12) Stockholders' Equity: Preferred stock, par value $.01 per share: Authorized, 20,000,000 shares; None issued or outstanding Common stock, par value $.01 per share: 882 880 Authorized, 300,000,000 shares; issued and outstanding, 88,183,500 and 88,000,000 shares for 1998 and 1997, respectively Additional paid-in capital 325,017 319,909 Retained earnings 522,410 408,904 Foreign currency translation adjustment 2,575 2,276 Total Stockholders' Equity 850,884 731,969 Total Liabilities and Stockholders' Equity $1,048,653 $949,307 See accompanying notes to consolidated financial statements. AVX Corporation and Subsidiaries Consolidated Statements of Income (dollars in thousands, except share data) Years Ended March 31, 1998 1997 1996 Net sales $1,267,653 $1,126,178 $1,207,761 Cost of sales 970,216 851,863 886,494 Gross profit 297,437 274,315 321,267 Selling, general and administrative expenses 110,737 102,369 116,586 Profit from operations 186,700 171,946 204,681 Other income (expense): Interest income 11,268 7,536 5,096 Interest expense (1,921) (2,049) (2,352) Other, net 1,377 1,010 1,655 Income before income taxes 197,424 178,443 209,080 Provision for income taxes 62,773 57,102 71,344 Net income $134,651 $121,341 $137,736 Basic and diluted income per share: $ 1.53 $ 1.38 $ 1.58 Weighted average shares outstanding 88,109,643 88,000,000 87,175,000 See accompanying notes to consolidated financial statements. AVX Corporation and Subsidiaries Consolidated Statements of Stockholders' Equity (dollars in thousands)
Common Stock Foreign Additional Currency Number Paid-In Retained Translation of Shares Amount Capital Earnings Adjustment Total Balance, March 31, 1995 85,800,000 $858 $267,043 $188,631 $ (266) $456,266 Issuance of common stock 2,200,000 22 52,866 52,888 Net income 137,736 137,736 Dividends (19,444) (19,444) Current year's adjustment (3,446) (3,446) Balance, March 31, 1996 88,000,000 880 319,909 306,923 (3,712) 624,000 Net income 121,341 121,341 Dividends (19,360) (19,360) Current year's adjustment 5,988 5,988 Balance, March 31, 1997 88,000,000 880 319,909 408,904 2,276 731,969 Net income 134,651 134,651 Dividends (21,145) (21,145) Current year's adjustment 299 299 Exercise of stock options 183,500 2 4,482 4,484 Tax benefit of stock options exercises 626 626 Balance, March 31, 1998 88,183,500 $882 $325,017 $522,410 $2,575 $850,884
See accompanying notes to consolidated financial statements. AVX Corporation and Subsidiaries Consolidated Statements of Cash Flows (dollars in thousands) Years Ended March 31, 1998 1997 1996 Operating Activities: Net income $134,651 $121,341 $137,736 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 87,668 82,242 69,910 Deferred income taxes (2,520) (911) (15,680) Changes in operating assets and liabilities: Accounts receivable 11,621 (9,745) (26,564) Inventories (77,053) (2,912) (44,862) Accounts payable and accrued expenses (3,772) (5,730) 12,416 Income taxes payable (9,507) (11,093) 20,351 Other assets and liabilities (4,327) (5,266) 2,380 Net cash from operating activities 136,761 167,926 155,687 Investing Activities: Purchases of property and equipment (100,374) (93,954) (110,487) Proceeds from sale of operations to affiliate 3,973 Equity investment (5,300) Other 142 2,347 (79) Net cash used in investing activities (105,532) (91,607) (106,593) Financing Activities: Repayment of debt (3,464) (10,043) (3,308) Dividends paid (21,145) (19,360) (19,444) Proceeds from issuance of debt 2,197 9,738 8,696 Exercise of stock options 4,482 Proceeds from issuance of common stock 52,888 Net cash from (used in) financing activities (17,930) (19,665) 38,832 Effect of exchange rate changes on cash 14 319 (138) Increase in cash and cash equivalents 13,313 56,973 87,788 Cash and cash equivalents at beginning of year 188,574 131,601 43,813 Cash and cash equivalents at end of year $201,887 $188,574 $131,601 See accompanying notes to consolidated financial statements. AVX Corporation and Subsidiaries Notes to Consolidated Financila Statements (dollars in thoudands, except share data) 1. Summary of Significant Accounting Policies: General: AVX Corporation is a leading worldwide manufacturer and supplier of a broad line of passive electronic components and related products. Components sold by the Company are used in virtually all types of electronic products for industries such as telecommunications, computers, automotive, medical and consumer electronics. The consolidated financial statements of AVX Corporation and subsidiaries (the "Company" or "AVX") include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. Public Offering: From January 1990 through August 15, 1995, the Company was whollyowned by Kyocera Corporation ("Kyocera"). On August 15, 1995, Kyocera sold 22.9%, or 19,650,000 of the Company's common shares, and the Company sold an additional 2,200,000 common shares, in a public offering. As a result, Kyocera currently owns approximately 75% of the Company's common shares. Cash Equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories: Inventories are valued at the lower of cost (first-in, first-out method) or market. Inventory costs include material, labor and manufacturing overhead. Property and Equipment: Property and equipment are recorded at cost. Machinery and equipment are generally depreciated on the double- declining balance method. Buildings are depreciated on the straight-line method. The estimated useful lives used for computing depreciation are as follows: buildings and improvements-10 to 31.5 years, and machinery and equipment-3 to 10 years. Depreciation expense was $85,858, $80,120 and $67,508 for the years ended March 31, 1998, 1997 and 1996, respectively. The cost of maintenance and repairs is charged to expense as incurred. Upon disposal or retirement, the cost and accumulated depreciation of assets are eliminated from the respective accounts. Any gain or loss is reflected in income. Goodwill: Assets and liabilities related to business combinations accounted for as purchase transactions were recorded at their respective fair values on the dates of acquisition. Any excess of purchase price over such fair value ("Goodwill") is amortized on a straight-line basis over periods ranging from 20 to 40 years. The accumulated amortization as of March 31, 1998 and 1997 was $19,099 and $17,289, respectively. The carrying value of Goodwill is evaluated quarterly in relation to the operating performance and estimated future undiscounted cash flows of the related operating unit. Adjustments are made if the sum of expected future net cash flows is less than carrying value. Income Taxes: The Company does not provide for U.S. taxes on the undistributed earnings of foreign subsidiaries which are considered to be reinvested indefinitely. As of March 31, 1998, the amount of U.S. taxes on such undistributed earnings would have been approximately $27,700. Foreign Currency Activity: Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Operating accounts are translated at an average rate of exchange for the respective accounting periods. Translation adjustments result from the process of translating foreign currency financial statements into U.S. dollars and are reported separately as a component of stockholders' equity. The Company enters into foreign currency exchange contracts and options to manage exposure to currency rate fluctuations on anticipated sales, purchases and intercompany transactions. These exchange agreements generally qualify for accounting as designated hedges. The realized and unrealized gains and losses on these contracts are deferred and included as a component of the related transaction. Any contracts that do not qualify as hedges for accounting purposes are marked to market with the resulting gains and losses recognized in other income or expense. Revenue Recognition: Sales are recorded upon shipment of related goods to customers. Certain sales to distributors are under terms which allow for the affected distributors to receive price protection from the Company for actual sales at prices below anticipated sales prices. A portion of sales is made to distributors under agreements allowing limited rights of return. The Company provides an allowance for distributor adjustments based on historical experience. Grants: The Company receives employment and research grants from various governmental agencies which are recognized in earnings in the period in which the related expenditures are incurred. Capital grants for the acquisition of equipment are recorded as reductions of the related equipment cost and reduce future depreciation expense. Use of Estimates: Use of estimates and assumptions as determined by management is required in the preparation of consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates and assumptions. Research, Development and Engineering: Research, development and engineering expenses totaled approximately $36,000, $33,000 and $30,000 for the years ended March 31, 1998, 1997 and 1996, respectively, while research and development expenses included in these amounts totaled $21,000, $18,500 and $16,000 for the years ended March 31, 1998, 1997 and 1996, respectively. Research and development expenditures are expensed when incurred. Stock-Based Compensation: Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", allows companies to record compensation cost for stock-based compensation plans at fair value or provide pro forma disclosures. The Company has chosen to continue to account for stockbased compensation using the method whereby compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. New Accounting Standards: In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 132, Employers' Disclosure about Pension and Other Postretirement Benefits ("SFAS No. 132"). SFAS No. 132 standardizes the disclosure requirements for pensions and other postretirement benefits and amends SFAS 87, 88 and 106. The Company will be required to adopt SFAS No. 132 for the year ended March 31, 1999. Currently, the Company is evaluating this standard and is uncertain as to the impact it will have on the Company's consolidated financial statements disclosures. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 131, Disclosure about Segments of an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131 establishes standards for disclosure of segment information about products and services, geographic areas, major customers and certain interim disclosures of segment information which are not required by accounting standards currently applied by the Company. The Company will be required to adopt SFAS No. 131 for the year ended March 31, 1999. Currently, the Company is evaluating this standard and the timing of adoption and is uncertain as to the impact it will have on the Company's consolidated financial statements disclosures. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130 established standards for reporting and presenting comprehensive income and its components. SFAS No. 130 is effective for both interim and annual periods beginning after December 15, 1997. The adoption is not expected to have a material impact on the Company's consolidated financial statements. 2. Earnings Per Share: The Company has adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"). The new standard replaces primary and fully diluted earnings per share with basic and diluted earnings per share. The adoption did not result in a difference between basic and diluted earnings per share for the periods presented. Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding for the period which were 88,109,643, 88,000,000 and 87,175,000 for the years ended March 31, 1998, 1997 and 1996, respectively. Diluted earnings per share are computed by dividing net income by the weighted average number of shares of common stock and potential common stock equivalents outstanding for the period which were 88,279,846, 88,038,950 and 87,216,077 for the years ended March 31, 1998, 1997 and 1996, respectively. Stock options are the only common stock equivalents and are therefore considered in the diluted earnings per share calculations. Common stock equivalents are computed using the treasury stock method. 3. Accounts Receivable: Accounts receivable at March 31 consisted of: 1998 1997 Trade $163,348 $173,414 Less, allowance for doubtful accounts, sales returns distributor adjustments and discounts (23,536) (18,056) $139,812 $155,358 Charges to expense related to such allowances were approximately $93,059, $58,543 and $53,117, and applications to such allowances were approximately $87,746, $60,991 and $50,078 for the years ended March 31, 1998, 1997 and 1996, respectively. 4. Inventories: Inventories at March 31 consisted of: 1998 1997 Finished goods $116,811 $ 83,711 Work in process 114,827 89,146 Raw materials and supplies 95,149 75,038 $326,787 $247,895 5. Debt: Long-term debt at March 31 consisted of: 1998 1997 Deutsche mark loans at 3.875% to 6.25% due through 2000 $11,287 $13,532 Less - current maturities (2,911) (1,362) $ 8,376 $12,170 The aggregate annual maturities of long-term debt are as follows: 1999 $ 2,911 2000 8,376 $11,287 Long-term debt includes a 15.0 million deutsche mark loan which has a variable rate of interest based on a market rate plus .25%. At March 31, 1998, this loan had a rate of 3.875%. The remaining loans carry a fixed rate of 6.25%. Short-term bank debt at March 31, 1998, consists primarily of borrowings incurred by the Company's European subsidiaries under two 10.0 million deutsche mark working capital bank facilities and a 5.0 million deutsche mark short-term bank facility bearing interest at market rates (between 4.05% and 5.25% at March 31, 1998) which extend through December 1998. Interest paid totaled $1,426, $1,639 and $2,452 during the years ended March 31, 1998, 1997 and 1996, respectively. 6. Income Taxes: For financial reporting purposes, after adjustments for certain corporate items, income before income taxes includes the following components: Years Ended March 31, 1998 1997 1996 Domestic $126,236 $102,717 $114,011 Foreign 71,188 75,726 95,069 $197,424 $178,443 $209,080 The provision (benefit) for income taxes consisted of: Years Ended March 31, 1998 1997 1996 Current: Federal/State $49,075 $38,186 $ 55,480 Foreign 17,487 20,084 31,544 66,562 58,270 87,024 Deferred: Federal/State (4,362) 4,031 (15,680) Foreign 573 (5,199) (3,789) (1,168) (15,680) $62,773 $57,102 $ 71,344 Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows: March 31, 1998 1997 Current: Assets Liabilities Assets Liabilities Sales and receivable reserves $ 7,626 $ $ 5,317 $ Inventory reserves 2,990 4,989 Accrued expenses 9,423 10,839 $20,039 $ $21,145 $ March 31, 1998 1997 Non- Current: Assets Liabilities Assets Liabilities Property and equipment depreciation $ 1,123 $ 2,707 $ 471 $ 6,147 Accrued expenses 1,330 1,260 1,100 1,251 Other 11,638 10,674 Foreign income tax loss carryforwards 4,964 7,246 7,417 15,605 8,817 18,072 Valuation allowance (375) (2,935) $ 7,042 $ 15,605 $5,882 $18,072 A reconciliation between the U.S. Federal statutory income tax rate and the Company's effective rate for income tax is as follows: Years Ended March 31, 1998 1997 1996 U.S. Federal statutory rate 35.0% 35.0% 35.0% Increase (decrease) in taxrate resulting from: State income taxes, net of federal tax benefit 1.7 2.4 .9 Taxes at different tax rates on foreign earnings (3.6) (2.9) (1.5) Change in valuation allowance (.8) (2.5) Other, net (1.3) (1.7) 2.2 Effective tax rate 31.8% 32.0% 34.1% At March 31, 1998, certain of the Company's foreign subsidiaries in Europe had tax net operating loss carryforwards totaling approximately $11,013, most with no expiration date. Accordingly, the Company's valuation allowances relate to deferred tax assets which are the result of the loss carryforwards in these jurisdictions. The valuation allowance decreased $2,560 during the year ended March 31, 1998 and $1,459 during the year ended March 31, 1997. Income taxes paid totaled $76,013, $72,096 and $66,500 during the years ended March 31, 1998, 1997 and 1996, respectively. 7. Employee Retirement Plans: Pension Plans The Company sponsors non-contributory, defined benefit pension plans covering certain employees. Pension benefits provided to certain U.S. employees covered under collective bargaining agreements are based on a flat benefit formula. Effective December 31, 1995, the Company froze benefit accruals under its domestic non-contributory defined benefit pension plan for a significant portion of the employees covered under collective bargaining agreements. This change resulted in the Company recognizing a curtailment gain of $500 for the year ended March 31, 1996. The Company's pension plans for certain European salaried employees and certain hourly employees provide for benefits based on a percentage of final pay. The Company's funding policy is to contribute the statutory required amount to appropriate trust or government funds. The following table sets forth the plans' funded status and amounts recognized in the Company's balance sheet at March 31: Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets 1998 1997 1998 1997 Actuarial present value of benefit obligations: Vested benefits $(44,089) $(49,019) $(20,024) $(6,779) Non-vested benefits (295) (407) - Accumulated benefit obligation (44,089) (49,314) (20,431) (6,779) Effect of projected future salary increases (8,237) (10,882) (901) - Projected benefit obligation (52,326) (60,196) (21,332) (6,779) Plan assets at fair value,primarily stocks and bonds 61,638 65,695 15,505 2,068 Projected benefit obligation (in excess of) less than plan assets 9,312 5,499 (5,827) (4,711) Unrecognized net (gain) loss (6,482) (5,009) (1,082) 455 Prior service cost not yet recognized 477 631 196 - Unrecognized net transition obligation (48 ) 90 87 - (Accrued) prepaid pension cost recognized in the balance sheets $ 3,259 $ 1,211 $ (6,626) $(4,256) The Company's assumptions used in determining the pension assets (liabilities) shown above were as follows: Years Ended March 31, 1998 1997 Assumptions: Discount rates 6.75-7.0% 6.75-7.75% Increase in compensation 3.0-4.0% 3.0-4.0% Expected long-term rate of return on plan assets 8.0-9.0% 8.0-9.0% Net pension costs related to these pension plans, exclusive of the curtailment gain referred to above, include the following components: Years Ended March 31, 1998 1997 1996 Service cost $ 1,613 $ 1,873 $ 2,030 Interest cost 4,613 4,384 4,412 Actual loss (return) on plan assets (9,234) (6,911) (10,423) Net amortization 3,876 2,063 6,400 Net periodic pension cost $ 868 $ 1,409 $ 2,419 Savings Plans The Company maintains retirement savings plans which allow eligible employees to defer part of their annual compensation. Certain contributions by the Company are discretionary and are determined by the Company's Board of Directors each year. The Company's contributions to the savings plans for the years ended March 31, 1998, 1997 and 1996, were approximately $6,302, $5,800 and $5,300, respectively. The Company sponsors a nonqualified deferred compensation program which permits key employees to annually elect to defer a portion of their compensation until retirement. A portion of the deferral is subject to a matching contribution by the Company. The employees select among various investment alternatives, with the investments held in a separate trust. The value of the participant's balance fluctuates based on the performance of the investments. At March 31, 1998, the market value of the trust $2,058 is included as an asset and a liability of the Company in the accompanying balance sheet because the trust assets are available to AVX's general creditors in the event of the Company's insolvency. 8. Stock Option Plans: The Company has two fixed option plans. Under the 1995 Stock Option Plan, as amended, the Company may grant options to employees for the purchase of up to an aggregate of 2,650,000 shares of common stock. Under the Non-Employee Directors' Stock Option Plan, the Company may grant options for the purchase of up to an aggregate of 100,000 shares of common stock. Under both plans, the exercise price of each option equals the market price of the Company's stock on the date of grant and an option's maximum term is 10 years. All options granted under the 1995 Stock Option Plan and the Non-Employee Directors' Stock Option Plan vest as to 25% annually commencing on the first anniversary of the date of grant. The following table summarizes the transactions of the Company's stock option plans for the three year period ended March 31, 1998: Number of Weighted Average Shares Exercise Price Unexercised options outstanding March 31, 1995 - - Options granted 1,143,000 $25.50 Options exercised - - Options forfeited (17,000) $25.50 Unexercised options outstanding March 31, 1996 1,126,000 $25.50 Options granted 534,000 $18.13 Options exercised - - Options forfeited (21,500) $23.61 Unexercised options outstanding March 31, 1997 1,638,500 $23.12 Options granted 633,000 $22.09 Options exercised (183,500) $24.42 Options forfeited (14,325) $22.54 Unexercised options outstanding March 31, 1998 2,073,675 $22.69 Price Range $25.50-$31.813 (weighted average contractual life of 7.6 years) 1,079,550 $26.26 Price Range $18.13-$19.50 (weighted average contractual life of 9.1 years )994,125 $18.82 Exercisable options: March 31, 1996 - - March 31, 1997 277,500 $25.50 March 31, 1998 534,250 $24.07 The calculated fair value at date of grant for each option granted during the years ended March 31, 1998, 1997 and 1996 was $8.59 to $14.48, $6.82 and $8.96, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions: Year Ended March 31, 1998 1997 1996 Expected life (years) 5 5 5 Interest rate 6.6% 6.7% 6.25% Volatility 45% 35% 30% Dividend yield 0.75-1.23% 1.21% 0.78% If the estimated fair value of the options had been recognized as compensation expense over the vesting periods, income before income taxes would have been reduced by $4,127 ($3,408 after income taxes or $.04 per share), $3,099 ($2,523 after income taxes, or $.03 per share) and $1,787 ($1,460 after income taxes, or $.02 per share) for the years ended March 31, 1998, 1997 and 1996, respectively. 9. Commitments and Financial Instruments: Commitments At March 31, 1998 and 1997, the Company had contractual obligations for the acquisition or construction of plant and equipment aggregating approximately $26,188 and $24,422, respectively. In connection with an expansion at the Company's manufacturing facility in the Northern Ireland, capital grants totaling $11,500 have been approved, $3,000 of which had not been received as of March 31, 1998 and are contingent upon the Company spending approximately $12,100 for plant and equipment. The Company is a lessee under long-term operating leases primarily for office space, plant and equipment. Future minimum lease commitments under non-cancelable operating leases as of March 31, 1998, were as follows: Years Ending March 31, 1999 $ 6,059 2000 5,492 2001 5,162 2002 4,443 2003 3,299 Thereafter 7,861 $32,316 Rental expense for operating leases was $6,440, $6,390 and $4,682 for the years ended March 31, 1998, 1997 and 1996, respectively. Financial Instruments At March 31, 1997, $20,000 of the Company's intercompany borrowings by a European subsidiary were denominated in U.S. dollars. To reduce the exposure to foreign currency fluctuations, the subsidiary entered into foreign currency swaps which at March 31, 1998 fixed approximately 80% of the principal balance of the intercompany borrowings in U.K. sterling. In addition to the U.S. dollar, the Company conducts business in most European currencies and the Japanese yen. The Company's foreign currency contracts related to anticipated sales and purchases generally have maturities that do not exceed six months. The Company enters into forward delivery contracts with certain suppliers for certain precious metals used in its production processes. The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents with high credit quality institutions. At times, such investments may be in excess of the Federal Deposit Insurance Corporation insurance limit. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base and their dispersion across many different industries and countries. As of March 31, 1998, the Company believes that its credit risk exposure is not significant. The following disclosure of the estimated fair value of financial instruments has been determined by the Company, using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities including cash and cash equivalents, receivables and accounts payable approximate carrying value due to the short-term maturity of the instruments. The fair value of short-term and longterm debt approximate carrying value based on their effective interest rates compared to current market rates. March 31, 1998 March 31, 1997 Contract Carrying Unrealized Contract Carrying Unrealized Amount Amount Gain (Loss) Amount Amount Gain (Loss) Off-Balance Sheet Financial Instruments: Foreign currency contracts $26,541 $ - $ 259 $81,510 $ - $2,887 Foreign currency swaps 16,000 (1,474) (1,474) 21,000 (1,166) (1,166) Metal delivery contracts 25,014 - 8,016 6,225 - 1,225 10. Transactions With Affiliate: The Company's primary businesses include the design, manufacture and sale of ceramic and tantalum capacitors and electronic connectors and the sale and distribution of electronic products manufactured by Kyocera. The Company entered into transactions with Kyocera as follows: Years Ended March 31, 1998 1997 1996 Sales: Product and equipment sales to affiliates $ 25,725 $ 23,120 $ 9,240 Subcontracting activities 1,679 2,111 2,365 Commissions received 438 236 252 Service fee income 120 Purchases: Purchases of resale inventories, raw materials supplies, equipment and services 266,568 234,434 234,612 Commissions paid 87 202 171 Rent paid 1,137 959 909 Other: Research and development reimbursements 442 Dividends paid 15,883 14,553 17,491 Sale of assembly operation in Indonesia 3,973 Effective April 1, 1995, the Company sold to Kyocera an assembly operation in Indonesia for $3,973, the equivalent of the Company's net carrying value of such operation. Consistent with Kyocera's arrangements with its other worldwide direct reporting subsidiaries, the Company paid cash dividends equal to approximately 35% of estimated net income during the quarter ended June 30, 1995. Thereafter, quarterly cash dividends have been paid as approved by the Board of Directors on a per common share basis. 11. Segment and Geographic Information: AVX's manufacture and sale of electronic components is considered one business segment. Information about the Company's operations in different geographic areas is as follows: Year Ended March 31, United States Europe Asia Other Elimination Total 1998: Net sales to customers $607,064 $291,709 $364,300 $ 4,580 $ - $1,267,653 Net sales between geographic areas 120,951 156,839 51,209 (328,999) Total net sales 728,015 448,548 364,300 55,789 (328,999) $1,267,653 Profit from operations 133,986 14,125 26,205 12,384 $ 186,700 Interest income, net 9,347 Other, net 1,377 Income before income taxes $ 197,424 Identifiable assets 536,458 337,263 96,274 78,658 $1,048,653 Year Ended March 31, United States Europe Asia Other Elimination Total 1997: Net sales to customers $522,879 $253,493 $345,262 $ 4,544 $ - $1,126,178 Net sales between geographic areas 96,952 138,260 214 40,186 (275,612) Total net sales 619,831 391,753 345,476 44,730 (275,612) $1,126,178 Profit from operations 107,634 28,105 29,406 6,801 $ 171,946 Interest income, net 5,487 Other, net 1,010 Income before income taxes $ 178,443 Identifiable assets 517,563 274,726 88,123 68,895 $ 949,307 Year Ended March 31, United States Europe Asia Other Elimination Total 1996: Net sales to customers $561,162 $301,509 $341,760 $ 3,330 $ - $1,207,761 Net sales between geographic areas 89,560 104,425 610 66,380 (260,975) Total net sales 650,722 405,934 342,370 69,710 (260,975) $1,207,761 Profit from operations 102,858 58,099 43,724 $ 204,681 Interest income, net 2,744 Other, net 1,655 Income before income taxes $ 209,080 Identifiable assets 483,186 261,154 77,231 45,945 $ 867,516 The other category consists of the Mexico, El Salvador and Israel operations. Sales between geographic areas are priced based on a percentage over cost which allows the selling organization to earn a reasonable profit. Operating profit is total revenue less operating expenses and allocated general corporate expenses. In computing operating profit, interest expenses, interest income, miscellaneous other non-operating income and expenses and income taxes were not deducted. 12. Environmental Matters and Contingencies: The Company has been named as a potentially responsible party in state and federal administrative proceedings seeking contribution for costs associated with the correction and remediation of environmental conditions at various hazardous waste disposal sites. The Company continues to monitor these actions and proceedings and to vigorously defend its interests. The Company's ultimate liability in connection with environmental claims will depend on many factors, including its volumetric share of waste, the total cost of remediation and the financial viability of other companies that also sent waste to a given site. Once it becomes probable that the Company will incur costs in connection with remediation of a site and such costs can be reasonably estimated, the Company establishes or adjusts its reserves for its projected share of these costs. These reserves 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. Based upon information known to the Company concerning the size of these sites, their years of operations and the number of past users, management believes that it has adequate reserves with respect to these matters. Such reserves for remediation, compliance and legal costs totaled $4.1 million at March 31, 1998. Actual costs may vary from these estimated reserves, but such costs are not expected to have a material adverse effect on the Company's financial condition or results of operations. 13. Subsequent Event: In April 1998, the Company agreed to acquire the passive component businesses of Thomson-CSF for $15 million in addition to approximately $50 million of intercompany debt repayments. The businesses include film capacitors, ferrites, high energy and high voltage power capacitors, ceramic capacitors, varistors and non-linear resistors. Annual sales for last year for these businesses were approximately $135 million. The operations include production facilities in France, Malaysia, Taiwan and Brazil. AVX believes that some of the TPC products offer unique opportunities to expand and grow the business using our marketing and sales expertise. 14. Summary of Quarterly Financial Information (Unaudited): Quarterly financial information for the years ended March 31, 1998 and 1997 is as follows: First Quarter Second Quarter 1998 1997 1998 1997 Net sales $313,807 $268,211 $329,224 $267,909 Gross profit 78,080 73,286 79,318 65,795 Net income 34,935 32,467 36,730 28,153 Basic and diluted earnings per share .40 .37 .41 .32 Third Quarter Fourth Quarter 1998 1997 1998 1997 Net sales $319,651 $289,574 $304,971 $300,484 Gross profit 74,173 64,633 65,866 70,601 Net income 33,329 30,051 29,657 30,670 Basic and diluted earnings per share .38 .34 .34 .35 Report of Independent Accountants To the Board of Directors and Stockholders of AVX Corporation We have audited the accompanying consolidated balance sheets of AVX Corporation and Subsidiaries as of March 31, 1998 and 1997, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended March 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AVX Corporation and Subsidiaries as of March 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles. Atlanta, Georgia May 13, 1998 EX-21.1 3 AVX Corporation Subsidiaries Exhibit 21.1 As of June 9, 1998 , active subsidiaries, all 100% owned directly or indirectly, consist of the following: Country or State of incorporation 1 AVX CORPORATION Delaware 2 AVX TANTALUM CORPORATION Maine 3 AVX FILTERS CORPORATION California 4 AVX VANCOUVER CORPORATION Washington 5 ELCO USA, INC Delaware 6 AVX ISRAEL Israel 7 AVX LIMITED United Kingdom 8 AVX Gmbh Republic of Germany 9 AVX ELECTRONISCH BAUELEMENTE GmbH Republic of Germany 10 AVX SRL Italy 11 AVX SA France 12 AVX CZECH REPUBLIC sro Czech Republic 13 ELCO EUROPE United Kingdom 14 ELCO EUROPE GMBH Republic of Germany 15 AVX/KYOCERA ASIA LTD. Hong Kong 16 AVX/KYOCERA HONG KONG LTD. Hong Kong 17. AVX/KYOCERA (S) PTE LTD. Singapore 18. AVX INDUSTRIES PTE LTD. Singapore 19. AVX/KYOCERA (MALAYSIA) SDM BHD Malaysia 20. AVX/KYOCERA (SINGAPORE) PTE LTD. Singapore 21 AVIO EXITO de Chihuahua, S.A. de C.V. United Mexican States 22 AVIO EXCELENTE, S.A. de C.V. " 23 AVIO EXCELENTE de Chihuahua, S.A. de C.V. " 24 AVX S.A. (El Salvador) " EX-23.1 4 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 We consent to the incorporation by reference in the registration statements of AVX Corporation on Form S-8 (File Nos. 33-97628, 33-98114, 33-98094, 33-99574, 333-00890, 333-02808, and 33-0379007) of our report dated May 13, 1998, on our audits of the consolidated financial statements of AVX Corporation as of March 31, 1998 and 1997, and for the each of three years and period ended March 31, 1998, 1997, and 1996, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Atlanta, Georgia June 9, 1998 EX-24.1 5 POWER OF ATTORNEY Exhibit 24.1 KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors and officers of AVX Corporation, a Delaware corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for fiscal year ended March 31, 1998 on Form 10-K, hereby constitutes and appoints Benedict P. Rosen, John S. Gilbertson and Donald B. Christiansen his true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him and in his name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power-of Attorney on the date set opposite his respective name. Signature Title Date /s/Kazuo Inamori ChairmanEmeritus of the Board of Directors April 23, 1998 Kazuo Inamori /s/Yuzo Yamamura Director April 23, 1998 Yuzo Yamamura /s/Kensuke Itoh Director April 23, 1998 Kensuke Itoh /s/Michihisa Yamamoto Director April 23, 1998 Michihisa Yamamoto /s/Masahiro Umemura Director April 23, 1998 Masahiro Umemura /s/Masahiro Yamamoto Director April 23, 1998 Masahiro Yamamoto /s/Benedict P. Rosen Chairman of the Board, April 23, 1998 Benedict P. Rosen Chief Executive Officer /s/John S. Gilbertson President, Cief Operating Officer John S. Gilbertson and Director April 23, 1998 /s/Donald B. Christiansen Chief Financial Officer, Senior Donald B. Christiansen Vice President, Treasurer and Director April 23, 1998 /s/Carroll A. Campbell, Jr. Director April 23, 1998 Carroll A. Campbell, Jr. /s/Marshall D. Butler Director April 23, 1998 Marshall D. Butler /s/Rodney N. Lanthorne Director April 23, 1998 Rodney N. Lanthorne /s/Richard Tressler Director April 23, 1998 Richard Tressler EX-27 6
5 12-MOS MAR-31-1998 MAR-31-1998 201887 0 163348 23536 326787 722212 841685 559431 1048653 169425 0 0 0 882 850002 1048653 1267653 1267653 970216 1080953 0 0 (9347) 197424 62773 134651 0 0 0 134651 1.53 1.53
EX-10.8 7 AVX CORPORATION Supplemental Employee Retirement Plan ("SERP") Exhibit 10.9 Section 1 Purpose of the Plan The purpose of the AVX Corporation SERP (the "Plan") is to provide certain management or highly compensated employees of AVX Corporation (the "Company") with supplemental retirement benefits. The Plan is effective as of January 1, 1998. Section 2 Eligibility to Participate The Chief Executive Officer of the Company shall have the right in his sole and complete discretion to designate which, if any, management or highly compensated employees shall be eligible to participate in the Plan. An employee who is designated as being eligible to participate and elects to do so is hereinafter referred to as a "Participant." Section 3 Benefits 3.1 Each employee who is designated as being eligible to participate in the Plan shall be entitled to make an irrevocable election, as specified in Section 3.2, to defer receipt of all or a portion of compensation otherwise payable by the Company to such employee. For purposes of the Plan, compensation shall include any amounts not includible in the gross income of the Participant due to any salary reduction agreement maintained with the Company under Sections 125 or 401(k) of the Internal Revenue Code of 1986, as amended (the "Code") and any compensation deferred under the AVX Nonqualified Supplemental Retirement Plan (the "Supplemental Plan"). 3.2 A Participant may elect to defer compensation pursuant to Section 3.1 by giving written notice to the Company. Such notice must be received by the Company prior to January1,1998, and thereafter prior to the first day of the calendar year to which such election is applicable. Notwithstanding the preceding sentence, for each employee who enters the Plan after January 1, 1998, in the first year in which such employee becomes eligible to participate, such newly eligible employee may make an election to defer compensation for services to be performed subsequent to such election within 30 days after the date such employee becomes eligible. A Participant's initial election to defer compensation shall also include an election as to themanner of payment which shall be (i) a lump sum distribution, or (ii) installment payments over a period of years (not to exceed 10 years). The time of payment shall be in accordance with Section 5.2. Section 4 Deferred Compensation Accounts 4.1 In furtherance of the purposes of this Plan, the Company has established the Trust Under the AVX Corporation Deferred Compensation Plans (the "Trust") which is intended to be a "grantor trust" within the meaning of Subpart E, Part I, Subchapter J, Chapter 1, Subtitle A of the Code. The trustee of the Trust (the "Trustee") shall hold, invest and distribute any assets contributed to the Trust in accordance with the provisions thereof. The AVX Stock Fund is an investment option under the Trust. Notwithstanding anything contained in the Plan or Trust to the contrary, the purchase price to be paid for shares of AVX Stock acquired by the Trust shall be equal to the fair market value of such shares and the maximum number of such shares that may be purchased during the existence of the Plan shall not exceed one (1) million shares. Section 5 Distribution of Benefits 5.1 Each Participant shall be fully vested and shall have a nonforfeitable interest in his/her account. 5.2 Benefits under the Plan shall be payable to a Participant or beneficiary, as the case may be, upon the earlier of such Participant's termination of employment (for any reason), or death. 5.3 In the event a Participant dies before all amounts credited to such Participant's account have been distributed to him/her, then the beneficiary designated by the Participant shall be paid the balance of such account. If a Participant shall fail to designate a beneficiary or if the beneficiary designated does not survive the Participant, then the beneficiary shall be deemed to be one of the following, in the order named: (i) spouse, (ii) children, per stirpes and (iii) estate of the Participant. Such designation of beneficiary may be changed from time to time by the Participant filing a new designation with the Company. 5.4 The Trustee shall deduct from each payment under the Plan, any federal, state or local withholding or other taxes or charges which the Trustee may be required to deduct under applicable laws. 5.5 Notwithstanding anything contained in this Plan or Trust to the contrary, if at any time the Trust is determined by the Internal Revenue Service ("IRS") not to be a "grantor trust" with the result that the income of the Trust is not treated as income of the Company pursuant to Subpart E of Subchapter J of the Code, or if a tax is finally determined by the IRS to be payable by the Participants or their beneficiaries in respect of any vested interests in their accounts prior to payment of such interest to the Participants or their beneficiaries, then the Board of Directors of the Company or the Chief Executive Officer of the Company shall have the right in its or his sole and complete discretion (i) to permit the distribution of the amount of such tax or (ii) terminate the Plan and Trust and the full fair market value of the assets in the Trust distributed to the Participants. For purposes of this Section 5.5, a final determination of the IRS shall be a decision rendered by the IRS which is no longer subject to administrative appeal within the IRS. 5.6 Notwithstanding anything contained herein to the contrary, a "derivative security" (as defined in rules issued by the Securities and Exchange Commission under Section 16 of the Securities Exchange Act of 1934) issued under the Plan shall not be transferrable by a Participant other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined under the Code. Section 6 Status of Plan Assets 6.1 The Trust assets are and shall remain at all time subject to the claims of the general creditors of the Company. Accordingly, the Company shall not create a security interest in the Trust assets in favor of the Participants (or their beneficiaries). 6.2 Except insofar as applicable law may otherwise require and subject to the provisions of the Trust, (i) no amount payable to or in respect of the Participants or their beneficiaries at any time under the Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable, shall be void; and (ii) the Plan shall in no manner be liablefor or subject to the debts or liabilities of the Participants or their beneficiaries. Section 7 Amendment and Termination The Plan may, at any time or from time to time, be amended, modified or terminated by the Company. However, no amendment, modification or termination of the Plan shall, without the consent of a Participant, adversely affect such Participant's rights with respect to amounts then accrued in his/her account. Section 8 Miscellaneous 8.1 If the Company shall find that any person to whom any payment is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefore shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to a spouse, a child, a parent, or a brother or sister, or to any person deemed by the Company to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Company may determine. Any such payment shall be a complete discharge of the liabilities of the Company under the Plan. 8.2 Nothing contained herein shall be construed as conferring upo n a Participant the right to continue in the employ of the Company as an executive or in any other capacity. 8.3 The Company (or such party or committee as the Company may designate) shall have full power and authority to interpret, construe and administer the Plan (except to the extent authority has been explicitly granted to the Chief Executive Officer or to the Trustee under the Trust) and such interpretation, construction, and actions hereunder, shall be binding and conclusive on all persons for all purposes. The Company, Chief Executive Officer (or such party or committee as the Company may designate) shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to willful misconduct or lack of good faith. 8.4 Titles to the Sections of the Plan are included for convenience only and shall not control the meaning or interpretation of any provision of the Plan. 8.5 Except to the extent preempted by federal law, this Plan and the Trust established hereunder shall be governed by and construed, enforced, and administered in accordance with thelaws of the State of New York and the Trustee shall be liable to account only in the courts of the State of New York. 8.6 All expenses of administering the Plan and Trust shall be borne by the Company. 8.7 For Participants of the Plan who are subject to Section 16(b) of the Securities Exchange Act of 1934, the Company (or such party or committee as the Company may designate) may adopt such rules and procedures as it considers appropriate. IN WITNESS WHEREOF, the Company has caused this Plan to be executed this day of December, 1997. AVX CORPORATION /s/Donald B. Christiansen DONALD B. CHRISTIANSEN -----END PRIVACY-ENHANCED MESSAGE-----