AVX AVX Corp

PART I





General



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



Our passive electronic component products include ceramic and tantalum capacitors, film capacitors, varistors , filters ,   and other components manufactured in our facilities throughout the world and passive components manufactured by Kyocera Corporation of Japan ( “ Kyocera ” ), a public company and our majority stockholder , whic h   owns approximately 7 3 % of our outstanding common stock , and other manufacturing suppliers . We also manufacture and sell electronic connectors and inter-connect systems and distribute and sell certain electronic connectors manufactured by Kyocera. 



We are organized by product line with five main product groups. Our reportable segments are based on the types of products from which we generate revenues and how management assesses performance and makes operating decisions related to these products .   We have three reportable segments: Passive Components, Kyocera Electronic Devices ( “ KED Resale ” ) , and Interconnect. The product groups of Ceramic Components, Advanced Components and Tantalum Components have been aggregated into the Passive Component s reportable segment. Segment revenue and profit information is presented in Note 1 5 to the consolidated financial statements. The Passive Components segment consists primarily of surface mount and leaded ceramic capacitors, RF thick and thin film components, surface mount and leaded tantalum capacitors, surface mount and leaded film capacitors, ceramic and film power capacitors , super capacitors, EMI filters (bolt in and surface mount) , thick and thin film packages of multiple passive integrated components , varistors, thermistors, inductors , and resistive products manufactured by or for AVX .   The KED Resale segment consists primarily of ceramic capacitors, frequency control devices , SAW devices, sensor products, RF modules, actuators, acoustic devices , and connectors produced by Kyocera and resold by AVX. The Interc onnect segment consists primarily of AVX Interconnect automotive, telecom , and memory connectors manufactured by or for AVX. In addition, we have a corporate administration group consisting of finance , legal,   environmental health and safety (“EHS”) ,   and administrative activities. 



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



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



Our principa l strategic advantages include:



Creating Technology Leadership.     We have research and development locations in the United States, United Kingdom, Czech Republic, France ,   Israel , Malaysia, and Japan .   We developed numerous new products and product extensions during fiscal 201 6 .   These new products add to the broad product line we offer to our customers. Due to our broad product offering, none of our products individually represent a material portion of our revenues.   Our scientists and design engineers are working to develop product solutions to the challenges facing our customers as consumers and business es demand more advanced electronic solutions to manage their everyday lives and businesses . Our engineers are continually working to enhance our manufacturing processes to improve capability, capacity , and yield, while continuing to reduce manufacturing costs.



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



Maintaining the L owest Cost, Highest Quality Manufacturing Organization. We have invested approximately $ 1 0 2 million over the past three fiscal years to upgrade and enhance our worldwide manufacturing capabilities, with respect to the manufacture of ceramic, tantalum , and advanced components as well as Interconnect devices. In order to conti nually reduce the cost of production, our strategy has included the transfer to and expansion of manufacturing operations   in   countries such as El Salvador, Malaysia , Mexico , and the Czech Republic.  



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



Products



We offer an extensive line of passive components designed to provide our customers with “ one-stop shopping ” for substantially all of their passive component needs. Passive components do not r equire power to operate. These components adjust and regulate voltage and current, store energy , and filter frequencies. Sales of Passive Components represented approximately 6 9 % of our net sales in fiscal 201 6 . KDP and K CD Resale represented approximately 20 %, and Interconnect products, together with K C P Resale Connectors, represented approximately 1 1 % of our net sales in fiscal 201 6 . The table below presents revenues for fiscal 201 4 , 201 5 and 201 6   by product group. Financial information concerning our Passive Components, KED Resale , and Interconn ect segments is set fort h in Note 1 5 to the cons olidated f inancial s tatements elsewhere herein.





Passive Components



We manufacture and resell a full line of multi-layered ceramic and tantalum electrolytic capacitor s   in many different sizes and configurations. Our strategic focus on the growing use of passive components is reflected in our investment of approximately $ 81 million in facilities and equipment used to manufacture passive components during the past three fiscal years . Passive components accounted for approximately 6 9 % of net sales in fiscal 2016.   We believe that sales of passive components will continue to be among the most rapidly growing in the worldwide electronics market because technological advances have been constantly expanding the number and type of applications for these products.



Tantalum and Ceramic components are commonly used in conjunction with integrated circuits and are best suited for applications requiring low to medium capacitance values. However, with current capacitance range extensions, we are seeing more demand for higher capacitance (“High CV”) products that increase the demand for products we sell. Capacitance is the measure of the capacitor's ability to store electric energy. Generally, ceramic capacitors are more cost-effective at lower capacitance values, and tantalum capacitors are more cost-effective at medium capacitance values.   The net sales of tantalum and ceramic capacitors accounted for approximately 59 % of our passive component net sales in fiscal 20 1 6 .



We also offer a line of advanced passive component products to fill the special needs of our customers. Our family of passive components also includes film capacitors, high energy/voltage power capacitors , and varistors. Our advanced product engineers work with some customers ’ in-house technical staffs to design and manufacture customized products to meet the specifications of particular applications. The manufacture of custom products permits us, through our research and development activities, to make technological advances, provide customers with design solutions to fit their needs, gain a marketing inroad with customer s with respect to our complete product line, and, in some cases, develop products that can be sold to additional customers in the future. Sales of advanced products accounted for approximately 41 % of passive component net sales in fiscal 20 1 6 .



KED Resale



We have a non-exclusive license to distribute and sell certain Kyocera - manufactured electronic component and connector products to certain customers and in certain territories outside of Japan. Our distribution and sale of certain Kyocera products broadens our range of products and further facilitates our ability to offer “ one-stop shopping ” for our customers' electronic components needs. The Kyocera KDP and K CD electronic components we sell include ceramic capacitors, RF modules, frequency control devices, SAW devices, sensor products, actuators, and acoustic devices. Resale product sales also include connectors manufactured by Kyocera.     Sales of these products accounted for approximately 22 % of net sales in fiscal 20 1 6 .     For a dditional information regarding the Company’s relationship with Kyocera see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Relationship with Kyocera and Related Transactions.”



Interconnect



We manufacture and re sell high-quality electronic connectors and inter connect systems for use in various industries. Our product lines include a variety of industry-standard connectors as well as products designed specifically for our customers' unique applications. An expanding portion of the electronics market for AVX Interconnect products is the automotive market , with applications throughout a vehicle , including engine control, transmission control, audio, brakes, and stability and safety control system s . W e produce fine pitch connectors used in portable devices such as smart phones, other cell phones, notebook computers, tablets, GPS, and other hand held devices. In addition, we offer specialty connectors designed to address customer specific applications across a wide ran ge of products and end markets , including the expanding LED and LCD market s .   We have invested approximately $ 17 million in facilities   and equipment over the past three years ,   as we continue to focus on new product development and enhancement of production capabilities for our Interconnect business.   Sales of Interconnect products, including K C P Resale connector products , accounted for approximately 1 1 % of net sales in fiscal 201 6 .     Approximately 18 % of combined   Interconnect and K C P Resale C onnector net sales in fiscal 201 6 consisted of connectors manufactured by Kyocera .   Kyocera notified AVX in February, 2014 of its intent, effective April 1, 2015 to market its connector products in Asia using Kyocera’s sales force rather than continuing to have AVX resell such products in Asia. AVX’s s ales of Kyocera connector products in Asia were $ 47.5 million and $ 1. 1 million for the fiscal year s ended March 31, 2015 and March 31, 2016, respectively.



Marketing, Sales , and Distribution



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



Approximately 30 %, 2 8 % , and 4 2 % of our net sales for fiscal 201 6 were to our customers in the Americas, Euro pe , and Asia, respectively. Financial information for these geographic regions is set forth in Note 1 5 to our consolidated financial statements elsewhere herein. A discussion of risks associated with our foreign operations can b e found in “Risk Factors” herein.



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



Our products are used in a wide variety of applications by numerous customers. In order to maximize our opportunities, our engineering and sales teams maintain close relationships with OEM, EMS , and electronic component distributor customers.  Our largest customers may vary from year to year, and no customer has a long-term commitment to purchase our products.  During the fiscal year s ended March 31, 201 4 ,   March 31, 201 5 and March 31, 201 6 , no single customer accounted for more than 10% of our sales. As of March 31, 201 5 and March 31, 201 6 ,   one customer represented 1 5 % and 1 3 % , respectively, of the Company’s accounts receivable balance.   B ecause we are a supplier to several significant manufacturers in the broad based electronic devices industries and because of the cyclical nature of these industries, the significance of any one customer can vary from one period to the next.



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



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



We had a backlog of orders of approximately $ 2 70 million at M arch 31, 201 4 , $ 2 28 million at M arch 31, 201 5   and $ 224   million at March 31, 201 6 . Firm orders, primarily with delivery dates within six months of order placement, are included in back log. Many of our customers encounter uncertain and changing demand for their products. Customer provided forecasts of product usage and anticipated usage of inventory at consignment locations are not included in backlog. If demand falls below customers’ forecasts, or if customers do not effectively control their inventory, they may cancel or reschedule their planned shipments that are included in our backlog, in many instances without any penalty. Backlog fluctuates from year to year due, in part, to changes in customer inventory levels, changes to consignment inventory arrangements, order patterns , and product delivery lead times in the industry. Accordingly, t he backlog outstanding at any point in time is not necessarily indicative of the level of business to be expected in any ensuing period since many orders are placed and delivered within the same period. In addition, the increased use of vendor managed inventory and similar consignment type arrangements tend to limit the significance of backlog as future use and sale of such inventory   is not typically reflected in backlog.



Research, Development , and Engineering



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



Our research and development effort and   our operational level engineering effort place a priority on the design and development of product extensions, innovative new products and improved manufacturing processes as well as engineering advances in existing product lines and manufacturing operations. Other areas of emphasis include material synthesis and the integration of passive components for applications requiring reduced size and lower manufacturing costs associated with circuit board assembly. Research, development , and engineering expenditures were approximately $ 26 million, $ 2 5 million ,   and $ 28 million during fiscal 201 4 , 201 5 , and 201 6 , respectively. The level of such spending can fluctuate as new products are transferred to full scale production and process enhancements are implemented.



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



Raw Materials



The costs of our products are influenced by a wide variety of raw materials, including tantalum and other metals such as platinum, palladium, silver, nickel, gold, and copper used in our manufacturing processes. The cost of these materials is subject to price fluctuation. In some cases, increases in the cost of raw materials may be offset by selling price increases, productivity improvement, and cost savings programs, but that is not always the case.



We are a major consumer of the world’s annual production of tantalum. Tantalum powder and wire are princip a l materials used in the manufacture of tantalum capacitor products. T antalum raw materials as well as processed powder and wire ar e purchased from suppliers in various parts of the world at prices that are subject to periodic adjustment and variations in the market.   The tantalum required to manufacture our products has generally been available in sufficient quantity .   The limited number of tantalum material suppliers that process tantalum ore into capacitor grade tantalum powder has led to higher prices during periods of increased demand and/or limited mining output . 



Although most materials incorporated in our products are available from a number of sources, certain materials are available only from a relatively limited number of suppliers. For the ten years prior to our participation in “Solutions for Hope”, we had a policy of not using tantalum sourced from the Democratic Republic of Congo ( “ DRC ” ) or any other area in which insurgents or similar groups benefit from the sale of minerals.   We have conducted extensive supply chain investiga tion s relating to tantalum and a re a participant in “Solutions for Hope ” ,   which is a program designed to ensure that tantalum sourced from the DRC does not derive from conflict areas. “Solutions for Hope” incorporates the independently-validated Conflict-Free Smelter program. As a result, AVX was the first in its industry to validate a “closed tantalum pipe” process, assuring all our tantalum products contain only tantalum from smelters that have been independently-validated under the Conflict-Free Smelter program in accordance with the principles of the Dodd-Frank legislation and the current Organisation for Economic Cooperation and Development (“ OECD ”) guidelines.



Since December 2011, AVX has only sourced tantalum pow d er and wire used in its tantalum capacitors from smelters that are compliant with the EIC C /G e SI conflict-free smelter prog r am . In 2012 , AVX began using Validated Conflict-Free Tantalum, which comes from verified sources in the DRC and surrounding countries.



Our participation in “Solutions for Hope” is intended to affirm our commitment to supply conflict-free minerals to our customers and to fully comply with the OECD guidelines and United States Securities and Exchange Commission (“ SEC ”) regulations. Some of our major OEM customers and automotive suppliers have joined us in the “Solutions for Hope” project.





Competition



Markets for our products are highly competitive. We encounter aggressive and able competition in our various product lines from both domestic and foreign manufacturers. Competitive factors in the markets include product quality and reliability, breadth of product line, customer service, technological innovation, global production presence, timely delivery , and price. We believe we are competitively positioned on each of these factors. The breadth of our product offering enables us to strengthen our market position by providing customers with one of the broadest selections of passive electronic components and interconnect products available from any one source. Our major competitors for passive electronic components include :   Murata Manufacturing Co. Ltd . , TDK Corporation, Kemet Corpor ation, Yageo Corporation, Taiyo Yuden Co. Ltd. , Samsung Electro nics , and Vishay Intertechnology, Inc. Our major competitors for certain electronic interconnect products include :   TE Connecti vity , Amphenol Corporation , Molex Incorporated ,   and Ern i Electronics. There are many other companies that produce products in the markets in which we compete.



Employees



As of March 31, 201 6 ,   we employed approximately 10, 2 00 full-time employees. Approximately 1,4 00 of these employees are employed in the United States , of which , approximately 24 0 are covered by collective-bargaining arrangements.  In addition, some foreign employees are members of trade and government-affiliated unions. Our relationship with our employee union groups is generally good. However, no assurance can be given that, in response to changing social and economic conditions and our actions, labor unrest or strikes will not occur. 



Environmental Matters



We are subject to federal, state , and local laws and regulations concerning the environment in the United States and to the environmental laws and regulations of the other countries in which we operate. These regulations include limitations on discharges into air and water; remediation requirements; chemical use and handling restrictions; pollution control requirements; waste minimization considerations; and hazardous materials transportation, treatment , and disposal restrictions. If we fail to comply with any of the applicable environmental regulations we may be subject to fines, suspension of production, alteration of our manufacturing processes, sales limitations, and criminal and civil liabilities. Existing or future regulations could require us to procure expensive pollution abatement or remediation equipment, to modify product designs , or to incur expenses to comply with environmental regulations. Any failure to control the use, disposal , or storage, or adequately restrict the discharge of hazardous substances could subject us to future liabilities and could have a material adverse effect on our business. Based on our periodic reviews of the operating policies and practices at all of our facilities, we believe that our operations are currently in substantial compliance, in all material respects, with all applicable environmental laws and regulations and that the cost of continuing compliance will not have a material effect on our financial condition or results of operations. 



We have been identified by the United States Environmental Protection Agency (“EPA”), state governmental agencies or other private parties as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or equivalent state or local laws for clean-up and response costs associated with certain sites at which remediation is required with respect to prior contamination.  Because CERCLA or such state statutes authorize joint and several liability, the EPA or state regulatory authorities could seek to recover all clean-up costs from any one of the PRPs at a site despite the involvement of other PRPs.  At certain sites, financially responsible PRPs other than AVX also are, or have been, involved in site investigation and clean-up activities.  We believe that liability resulting from these sites will be apportioned between AVX and other PRPs.



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



On October 10, 2012, the EPA, the United States, and the Commonwealth of Massachusetts and AVX announced that they had reached a financial settlement with respect to the EPA’s ongoing clean-up of the New Bedford Harbor in the Commonwealth of Massachusetts (the “harbor”). That agreement is contained in a Supplemental Consent Decree that modifies certain provisions of prior agreements related to clean-up of the harbor, including elimination of the governments’ right to invoke certain reopener provisions in the future. Under the terms of the settlement, AVX was obligated to pay $366.3 million, plus interest computed from August 1, 2012, in three installments over a two-year period for use by the EPA and the Commonwealth to complete the clean-up of the harbor. On May 26, 2015, we prepaid the third and final settlement installment of $122.1 million, plus interest of $1.1 million.



On June 3, 2010, AVX entered into an agreement with the EPA and the City of New Bedford, pursuant to which AVX is required to perform environmental remediation at a site referred to as the “Aerovox Site” (the “Site”), located in New Bedford, Massachusetts. AVX has substantially completed its obligations pursuant to such agreement with the EPA and the City of New Bedford with respect to the satisfaction of AVX’s federal law requirements. Agreements with the state regulatory authorities have yet to be concluded but are likely to include additional groundwater and soil remediation. We have a remaining accrual of $11.0 million at March 31, 2016 , representing our estimate of the potential liability related to the remaining performance of environmental remediation actions at the Site using certain assumptions regarding the plan of remediation. Since additional sampling and analysis may cause the state regulatory authority, the Massachusetts Department of Environmental Protection, to require a more extensive and costly plan of remediation, until all parties agree and remediation is complete, we cannot be certain there will be no additional cost relating to the Site.



We had total reserves of approximately $138.1 million and $1 6.8 million at March 31, 2015 and March 31 , 201 6 , respectively, related to the various matters and specific sites discussed above. These reserves are classified in the Consolidated Balance Sheets as $127.2 million and $ 7.4 million in accrued expenses at March 31, 2015 and March 31, 2016 , respectively, and $10.9 million and $9.4 million in other non-current liabilities at March 31, 2015 and March 31, 2016 , respectively . The amounts recorded for identified contingent liabilities are based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional legal and technical information that becomes available. Also, uncertainties about the status of laws, regulations, regulatory actions, technology, and information related to individual sites make it difficult to develop an estimate of the reasonably possible aggregate environmental remediation exposure. Accordingly, these costs could differ from our current estimates.    



Effective September 30, 2015 a Settlement Agreement and Mutual Release (“Settlement Agreement”) was entered into with the City of New Bedford in settlement of the following two cases: DaRosa v. City of New Bedford and City of New Bedford, et al v. AVX Corporation both arising from contamination at certain property sites in the City of New Bedford. In accordance with the Settlement Agreement, AVX paid the sum of $6.5 million to the City of New Bedford in October 2015. This Settlement Agreement releases AVX from any future actions by the City of New Bedford related to these cases or sites.



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



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



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



Company Information and Website



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



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



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





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



Executive Officers of the Registrant



Our executive officers are appoint ed annually by our Board of Directors or, in some cases, appointed in accordance with our bylaws and each officer holds office until the next annual appoi n t ment of officers or until a successor has been duly appoint ed and qualified, or until the officer ’ s death or resignation, or until the officer has otherwise been removed in accordance with our bylaws. The following table provides certain information regarding the current executive officers of the Company:





John Sarvis



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



John Lawing



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



Kurt P. Cummings



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



Kathleen M. Kelly



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



Keith Thomas



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



Peter Venuto



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



S. Willing King



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







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



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



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



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



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



To remain competitive and to address the impact of potential downward price trends we must consistently reduce the total costs of our products. Our industry is intensely competitive, and prices for existing products tend to decrease over their life cycle. To remain competitive, we must achieve continuous cost reductions through process and material improvements. We must also be in a position to minimize our customers’ inventory financing costs and to meet their other goals for supply chain management. In addition, as a result of our efforts to streamline manufacturing and logistics operations and to enhance operations in lower operating cost regions, we have incurred restructuring costs in the past and are likely to incur restructuring costs in the future in response to competitive pressures. If we are unsuccessful in implementing restructuring or other cost reduction plans, we may experience disruptions in our operations and incur higher ongoing costs, which may adversely affect our sales levels, financial condition, and operating results.



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



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



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



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



We encounter competition in substantially all areas of our business



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



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



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



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



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



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



Many of our products require the use of raw materials that are available from only a limited number of regions around the world, are available from only a limited number of suppliers, or may be subject to significant fluctuations in market prices. Our results of operations may be adversely affected if we have difficulty obtaining these raw materials, our key suppliers experience financial difficulties, the quality of available raw materials deteriorates, or there are significant price increases for these raw materials. For example, the prices for tantalum, platinum, silver, nickel, gold, copper, palladium, and other raw materials that we use in the manufacture of our products are subject to fluctuation and have experienced significant variability in the past. Our inability to recover costs through increased sales prices could have an adverse impact on our results of operations. For periods in which the prices for these raw materials rise, we may be unable to pass on the increased cost to our customers, which would result in decreased margins for the products in which they are used. For periods in which margins are declining, we may be required, as has occurred in the past, to write down our inventory carrying cost of these raw materials and products. Depending on the extent of the difference between market price and our carrying cost, the write-down could have an adverse effect on our results of operations.



From time to time there have been short-term market shortages of raw materials. While these shortages have not historically adversely affected our ability to increase production of products, they have historically resulted in higher raw material costs for us. There can be no assurance that any of these market shortages in the future would not adversely affect our ability to increase production, particularly during periods of growing demand for our products.



We resell products manufactured by Kyocera, as well as other component and interconnect product manufacturers. Should these manufacturers experience difficulties in supplying the products that we resell, or such suppliers use other channels to market their products, we could experience lower sales which could have an adverse effect on our results of operations.



Our sales to distribution sales channel customers may fluctuate



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



Our backlog is subject to customer cancellation



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



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



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



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



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



Changes in regulatory compliance obligations may adversely impact our operations



The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank” Act), signed into law on July 21, 2010, includes Section 1502, which requires the SEC to adopt additional disclosure requirements related to the source of certain “conflict minerals” for issuers for which such “conflict minerals” are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by that issuer.   A final rule was issued by the SEC on August 22, 2012. The metals covered by the rules   are commonly referred to as “3TG” and include tin, tantalum, tungsten , and gold.   We use many of these materials in our production processes.   The rule require s companies to perform due diligence, disclose , and report whether or not such minerals originate from the D RC and adjoining countries.   In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products.   Global supply chains are complicated with multiple layers and supplie r s between t he mine and the final product.



For the ten years prior to our participation in “Solutions for Hope”, we had a policy of not using tantalum sourced from the DRC or any other area in which insurgents or similar groups benefit from the sale of minerals. We have conducted extensive supply chain investiga tions relating to tantalum and a re a participant in “Solutions for Hope ” ,   which is a program designed to ensure that tantalum sourced from the DRC does not finance or benefit armed groups in the DRC or adjoining countries .  “Solutions for Hope” incorporates the independently-validated Conflict-Free Smelter program. As a result, AVX wa s the first in its industry to validate a “closed tantalum pipe” process, assuring all tantalum products contain only tantalum from smelters that have been independently-verified under the Conflict Free Smelter program in accordance with the principles of the Dodd-Frank legislation and the current OECD guidelines.



Since December 2011, AVX has only sourced tantalum pow d er and wire used in its tantalum capacitors from smelters that are compliant with the EIC C /G e SI conflict-free smelter program . In 201 2 , AVX began using Validated Conflict-Free Tantalum, which comes from verified sources in the DRC and surrounding countries.



Our participation in “Solutions for Hope” is intended to affirm our commitment to supply conflict-free minerals to our customers and to fully comply with the OECD guidelines and SEC regulations. T he implementation of Rule 1502 has   not   had a material adverse effect on our ability to source raw materials or manufacture products containing the “3TG” metals. We filed our most recent   Form SD with the SEC on May 28, 201 5 .



We use significant amounts of electrical energy and processed ores in our production process. Although its status is uncertain, t he Kyoto Protocol is an international agreement that purports to set binding targets for signatory industrialized countries for reducing greenhouse gas emissions. Further, a number of governments or governmental bodies have introduced or are contemplating legislative and regulatory change in response to the potential impacts of climate change including pending U.S. legislation that , if enacted, would limit and reduce greenhouse gas emissions through a “cap and trade” system of allowances and credits, among other provisions. There is also current and emerging regulation in other countries in which we or our customers operate, such as the mandatory renewable energy target in Australia. Any significant, sustained increase in energy costs could result in increases in our capital expenditures, operating expenses, and costs of important raw materials resulting in an adverse effect on our results of operations and financial condition. 



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



Our results may be negatively affected by foreign currency exchange rates



We conduct business in several international currencies through our worldwide operations and, as a result, are subject to foreign exchange exposure due to changes in exchange rates of the various currencies. Volatility in exchange rates can positively or negatively affect our sales, gross margins, and stockholder’s equity. In order to minimize the effects of movements in currency exchange rates, we enter into forward exchange contracts to hedge external and intercompany foreign currency transactions. In addition, we attempt to minimize currency exposure risk by producing our products in the same country or region in which the products are sold, thereby generating revenues and incurring expenses in the same currency. There can be no assurance that our approach will be successful, especially in the event of a significant and sudden decline in the value of any of the international currencies of our worldwide operations. We do not engage in purchasing forward exchange contracts for speculative purposes.



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



We generate a significant amount of cash and profits from our foreign subsidiaries. We expect that cash and profits generated by our foreign subsidiaries will continue to be reinvested indefinitely. However, liquidity requirements could necessitate transfers of existing cash balances between our subsidiaries which may be subject to restrictions or cause unfavorable tax or earnings consequences. Approximately 80% of our cash and investment securities are held by international subsidiaries. While we intend to use cash held overseas to fund our international operations and growth, if we encounter a significant need for liquidity domestically or at a particular location that we cannot fulfill through other internal or external sources, we may experience unfavorable tax and earnings consequences due to cash transfers. These adverse consequences would occur, for example, if the transfer of cash into the United States is taxed and no offsetting foreign tax credit is available to offset the U.S. tax liability, resulting in lower earnings.  We do not provide for U.S. taxes on the undistributed earnings of foreign subsidiaries which are considered to be reinvested indefinitely. We expect to generate sufficient cash from our U.S. subsidiaries to meet our cash requirements.



Our operating results may be adversely affected by foreign operations



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



Our products are subject to stringent specifications and operating tolerances



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



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



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



Patent and intellectual property rights litigation is prevalent in the electronic components industry. We have occasionally been advised that we are infringing on others’ patent and intellectual property rights and have recently seen an aggressive posture within the electronic component industry to assert and defend patent claims. We will continue to vigorously defend our patent and intellectual property rights and may be involved in future litigation alleging our infringement of such rights from others. We will seek multiple remedies to resolve these claims, including the normal practice of the offering or purchasing of licenses, in an acceptable manner. An unfavorable outcome regarding these rights could have a n adverse effect on our business and our results of operations.  



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



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



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



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



C ounterparty non-performance to derivative transactions could adversely affect our fi nancial condition and operating results



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



Returns on pension and retirement plan assets and interest rate changes could affect our earnings in future periods



The funding position of our pension plans is impacted by the performance of the financial markets, and the discount rate used to calculate our pension obligations for funding and expens e purposes. In the past, declines in the financial markets have negatively impacted the value of the assets in our defined benefit pension plans. In addition, lower bond yields may reduce our discount rates , resulting in increased pension contributions and expense .



Funding obligations are determined under government regulations and measured each year based on the value of the assets and liabilities on a specific date. If the financial markets do not provide the long-term returns that are expected, we could be required to m ake larger contributions. The financial markets can be, and in the recent past have been , very volatile, and therefore our estimate of future contribution requirements can change in relatively short periods of time. I n a low interest rate environment, the likelihood of higher contributions in the future increases .



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



As part of the process of preparing our consolidated financial statements, we are required to estimate our tax assets and liabilities in each of the jurisdictions in which we operate. This process involves management estimating the actual current tax exposure together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities that are included within our consolidated balance sheets. We assess the likelihood that our deferred tax assets will be recover able as a result of future taxable income and, to the extent we believe that recovery is not more likely than not , we establish a valuation allowance.



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



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



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



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



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

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



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



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



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



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













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







None.





Our fixed assets include certain plants and warehouses and a substantial quantity of machinery and equipment, most of which is general purpose machinery and equipment , using tools and fixtures .   I n many instances the machinery and equipment have automatic control features and special adaptations. Our plants, warehouses, machinery , and equipment are in good operating condition and are well maintained. Substantially all of our facilities are in regular use. We consider the present level of fixed assets , along with planned capital expenditures , as suitable and adequate for our operations in the current business environment. Our capital expenditures for plant and equipment were $ 26.8 million in fiscal 201 4 , $ 26.6 million in fiscal 201 5   and $48.1 million in fiscal 201 6 .



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



We conduct manufacturing operations throughout the world. Most of our operations are certified to the ISO 9000 quality standard, a set of fundamental quality system standards developed by the International Organization for Standardization. Some of our facilities are also qualified and registered under the more stringent QS 9000, a comprehensive quality system for continuous improvement developed by the U.S. automotive industry.



Virtually all of our manufacturing, research and development , and warehousing facilities could at any time be involved in the manufacturing, sale , or distribution of passive components ( “ PC ” ) and inter connect products ( “ CP ” ).  The following is a list of our facilities, their approximate square footage, whether they are leased or owned , and a description of their use.





In addition to the foregoing, we own and lease a numb e r of sales offices throughout the world. In the opinion of management, our properties and equipment generally are in good operating condition and are adequate for our present needs. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities if necessary .







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



On April 25, 2013, AVX was named as a defendant in a patent infringement case filed in the United States District Court for the District of Delaware captioned Greatbatch, Inc. v AVX Corporation .  This case alleged that certain AVX products infringe on one or more of nine Greatbatch patents. On January 26, 2016, the jury returned a verdict in favor of the plaintiff in the first phase of a segmented trial and found damages to Greatbatch in the amount of $37 .5 million .  AVX is reviewing this initial verdict and consulting with its legal advisors on what action AVX may take in response , and continuing to litigate the rest of the case .



On September 2, 2014, a subsidiary of AVX, American Technical Ceramics (“ATC”), was named as a defendant in a patent infringement case filed in the United States District Court of the District of Delaware captioned Presidio Components, Inc. v. American Technical Ceramics Corp. This case allege d that certain products of ATC’s infringe on a Presidio patent. On April 18, 2016, the jury returned a verdict in favor of the plaintiff and found damages to Presidio in the amount of $2.2 million .  AVX is reviewing the verdict and consulting with its legal advisors on what action AVX may take in response.



As of March 31, 2016, we had total reserves of $ 39.7 million with respect to the two intellectual property cases discussed above. The amounts recorded are based on estimated outcomes. Amounts recorded are reviewed periodically and adjusted to reflect additional information that becomes available. Accordingly, these costs could differ from our current estimates.



During the quarter ended September 30, 2014, AVX was named as a co-defendant in a series of cases filed in the United States and in the Canadian provinces of Quebec, Ontario and British Columbia alleging violations of United States, Canadian, and state antitrust laws asserting that AVX and numerous other companies are participants in alleged price-fixing in the capacitor market. The cases in the United States were consolidated into the Northern District of California on October 2, 2014. During the quarter ended December 31, 2014, additional Canadian cases were filed in the provinces of Quebec, Ontario, British Columbia, Saskatchewan and Manitoba. In addition, in the quarter ended September 30, 2015, AVX was named as a co-defendant in two cases filed in the United States alleging violations of United States antitrust laws asserting that AVX and numerous other companies were participants in alleged price-fixing in the resistor market. These cases are at the initial stages. AVX believes it has meritorious defenses and intends to vigorously defend the cases.



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







Not applicable.