Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended DecJune 30, 2018ember 31, 2017

or

For the transition period from __________ to __________

Commission file number 1-7201

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

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

AVX Corporation and Subsidiaries

Table of Contents

1. Basis of Presentation:

The consolidated financial statements of AVX Corporation and its subsidiaries (“AVX” or the “Company”) include all accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. We have prepared the accompanying financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair statement of the consolidated balance sheets, operating results, comprehensive income, and cash flows for the periods presented. Operating results for the three and nine month periodsperiod ended December 31, 2017 June 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2018 2019 due to changes in economic conditions and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted in accordance with the rules and regulations of the SEC for interim financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K10-K for the fiscal year ended March 31, 2017.2018.

Critical

We have identified the accounting policies and estimates that are critical to our business operations and understanding our results of operations. Those policies and estimates can be found in Note 1,“Summary “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements and in “Critical Accounting Policies and Estimates,” in “Management's Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K10-K for the fiscal year ended March 31, 2017. 2018. Accordingly, this Quarterly Report on Form 10-Q10-Q should be read in conjunction with our Annual Report on Form 10-K10-K for the fiscal year ended March 31, 2017. 2018. During the three and nine month periodsperiod ended December 31, 2017, June 30, 2018, there were no significant changes to any critical accounting policies or to the methodology used in determining estimates including those related to investment securities, revenue recognition, inventories, goodwill, intangible assets, property and equipment, and contingencies other than those discussed below and in Note 3 related to income taxes.revenue recognition.

In relationRevenue Recognition:

All products are built to criticalspecification and tested by AVX or our suppliers for adherence to such specification before shipment to customers. We ship products to customers based upon firm orders. Shipping and handling costs are treated as fulfillment costs and as such are included in cost of sales. The Company applies this accounting policy election consistently to its sales. We recognize revenue as performance obligations are satisfied, which is when the customer takes control of the products as they are shipped to or received by the customer in accordance with the terms of the agreement of sale.

There are general product warranties within our contracts, as the Company warrants that products will function as expected in accordance with the specifications per the contract. These warranties cannot be purchased by the customer separately and accordingly these warranties are not considered to be separate performance obligations.

Payment terms for the Company’s sales are generally less than 90 days. Substantially all of the Company’s receivables are collected within twelve months of the transfer of products to the customer and the Company expects this to continue going forward. The Company applies the practical expedient within ASC 606 to all of its contracts with payment terms less than or equal to twelve months and does not recognize a financing component in the determination of the transaction price.

We evaluate gross versus net presentation on revenues from products purchased and resold in accordance with the revenue recognition criteria outlined in ASC 606. Based on the evaluation of our resale arrangements with Kyocera, including consideration of the primary indicators set forth in ASC 606, we record revenue related to products purchased and resold on a gross basis.

The Company pays commissions to sales representatives on a per-sale basis and applies the practical expedient available within ASC 340. Accordingly, commissions are expensed as incurred.

The Company recognizes the estimated variable consideration to be received as revenue and records a related reduction to accounts receivable or as an accrued expense for the consideration not expected to be received, based upon its estimate of credits issued or products returned under the sales allowance programs described below. Marketplace volatilities which impact the estimates of variable consideration include, but are not limited to, changes in economic conditions, pricing changes, product demand, inventory levels in the supply chain, the effects of technological change, and other variables that might result in changes to our estimates. Accordingly, there can be no assurance that actual results will not differ from those estimates. We utilize the “portfolio approach” practical expedient in ASC 606, which allows entities to apply the guidance to a portfolio of contracts with similar characteristics because the effects on the financial statements of this approach would not differ materially from applying the guidance to individual contracts. Using the “portfolio approach,” we believe we have an adequate basis to assess the reasonableness and reliability of our estimates for income taxes, the Tax Cutseach program.

Returns

Sales revenue and Jobs Act (the “Act”) was enacted into lawcost of sales reported in the U.S. on December 22, 2017. Among numerous other provisions, the Actstatement of operations are reduced the statutory U.S. corporation income tax rate from 35%to 21%, effective January 1, 2018. This was the primary reason for a change in AVX's global tax rate estimate for the fiscal year ending March 2018, resulting in a blended,reflect estimated global tax rate of 27% for fiscal 2018. The Act also resulted inreturns. We record an estimated net decrease inright of return liability for returns at the valuationtime of U.S. netsale based on historical trends, current pricing and deferred tax assetsvolume information, other market specific information, and liabilitiesinput from sales, marketing, and other key management personnel. The liability accrued reflects the variable consideration not expected to be received. The estimated value of $24.7 million. The Act reduced or eliminated certain corporate tax deductionsthe return to customer’s inventory is recorded as an asset. These procedures require the exercise of significant judgments. We believe that these procedures enable us to make reliable estimates of future returns. Our actual results have historically approximated our estimates. When the product is returned and provided for a transition from a worldwide to a modified territorial tax system for resident corporations and related corporate group members accompanied by a one-time tax, effective December 31, 2017, on all U.S.-based corporate groups’ accumulated foreign earnings as yet untaxed byverified, the U.S. This one-time taxcustomer is assessed at a 15.5% rate on all such earnings held in cash or liquid asset positions, and at an 8% rate on all other non-liquid asset positions. This one-time tax was recorded in the results for the quarter ended December 31,2017, and was approximately $75.6 million, which is payable in installments over an eight-year period beginning in 2018.given credit against their accounts receivable.

Distribution Programs

Based onA portion of our current interpretation of the Act, we made reasonable estimatessales to record provisional adjustments during our fiscal third quarter ended December 31, 2017. Our estimatesindependent electronic component distributor customers are subject to changevarious distributor sales programs. We report provisions for distributor allowances in connection with such sales programs as a reduction in revenue and report distributor allowances on the balance sheet as either a reduction in accounts receivable or right-of-return liabilities. For the distribution programs described below, we accumulate, refine anddo not track the individual units that are recorded against specific products sold from distributor inventories, which would allow us to directly compare revenue reduction for credits recorded during any period with credits ultimately awarded in respect of products sold during that period. Rather, we believe our use of the “portfolio approach” provides an adequate basis to assess the reasonableness and reliability of our estimates for each program.

Distributor Stock Rotation Program

Stock rotation is a program whereby distributor customers 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. We record an estimated right of return liability for stock rotation at the time of sale based on a percentage of distributor sales using historical trends, current pricing and volume information, other market specific information, and datainput from sales, marketing, and other key management personnel. An asset is recorded for the estimated value of returned product. These procedures require the exercise of significant judgments. We believe that these procedures enable us to finalizemake reliable estimates of future returns under the underlying calculations. We will continuestock rotation program. Our actual results have historically approximated our estimates. When the product is returned and verified, the distributor is given credit against their accounts receivable.

Distributor Ship-from-Stock and Debit Program

Ship-from-Stock and Debit (“ship and debit”) is a program designed to assess allassist distributor customers 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. The pricing adjustment is deemed variable consideration. Ship and debit authorizations may cover current and future distributor activity for a specific part for sale to their customer. At the time we record sales to the distributors, we provide an allowance for the variable consideration of the relevant aspectsestimated future distributor activity related to such sales since it is probable that such sales to distributors will result in ship and debit activity. We record an estimated sales allowance based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends we see in our direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing, and other key management personnel. These procedures require the exercise of the Act, including expected guidancesignificant judgments. We believe that these procedures enable us to make reliable estimates of future credits under the Act, among other things that might impactship and debit program. Our actual results have historically approximated our income tax provision.estimates. At the time the distributor ships the part from stock, the distributor debits us for the authorized pricing adjustment.

Relevant New Accounting Standards

In consideration of the Act, the Company has determined that it is no longer necessary to assert that cash and profits generated by our foreign subsidiaries will continue to be reinvested locally indefinitely.  Accordingly, we provided for estimated foreign withholding taxes and associated foreign tax credits related to the potential distribution of such earnings. Therefore, in addition to the one-time tax noted above, we also provided for estimated foreign withholding taxes of approximately $13.6 million related to the potential distribution of such foreign earnings.

Relevant New Accounting Standards

In May 2014, the FASB issued ASU 2014-09,2014-09, “Revenue from Contracts with Customers.Customers.” This guidance modifies how an entity will determine the measurement of revenue and timing of when it is recognized. The Company adopted this guidance provides for a five-step approach in applyingeffective April 1, 2018, using the standard: 1) identifying the contract with the customer, 2) identifying separate performance obligations in the contract, 3) determining the transaction price, 4) allocating the transaction price to separate performance obligations, and 5) recognizing the revenue when the performance obligation has been satisfied. The new guidance requires enhanced disclosures for the nature, amount, timing, and uncertainty of revenue that is being recognized. The guidance is effective for public companies for interim and annual reporting periods beginning after December 15, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. We are assessing the impact of the new standard and our technical analysis is on-goingmethod, with respect to the portfolios of our recently acquired companies. In addition, we are finalizing the assessment of our other portfolios and determining the estimatedno material impact on our consolidated financial statements and our internal control framework over revenue recognition.results of operations. Please refer to Note 3 for additional information.

In February 2016, FASB issued ASU 2016-02,2016-02, “Leases.” This guidance changes the requirements for inclusion of certain right-of-use assets and the associated lease liabilities to be included in a statement of financial position. The classification criteria maintains the distinction between finance leases and operating leases. Regarding finance leases, lessees are required to 1)1) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position, 2)2) recognize interest on the lease liability separate from the amortization of the right-of-use asset in the statement of comprehensive income, and 3)3) classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. Regarding operating leases, lessees are required to 1)1) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position, 2)2) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and 3)3) classify all cash payments within operating activities in the statement of cash flows. This guidance is effective for public companies for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. We previously disclosed priorPrior to our recent acquisitions, we disclosed that we anticipated no material impact from adopting ASU 2016-02.2016-02. However, we are in the process of updating our assessment to include the impact of our recently acquired companies.

In March 2016, August 2017, the FASB issued ASU 2016-09, “Compensation — Stock Compensation.” The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The guidance is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. The standard became effective for the interim reporting period ending June 30, 2017 and has not had a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other.” This guidance simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of goodwill. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU also removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment, and if it fails that qualitative test to perform Step 2 of the goodwill impairment test. Companies are to apply the standard on a prospective basis. The guidance is effective for public companies that are an SEC filer for fiscal years beginning after December 15, 2019. Early adoption is permitted and management elected to adopt this guidance beginning with the interim period ending June 30, 2017. The adoption of this standard has not had a material impact on our consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12,2017-12, “Derivatives and Hedging.” The standard aims to align the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results for cash flow and fair value hedge accounting with risk management activities. The guidance is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted in any interim period after issuance. Management is currently evaluating the impact this guidance will have on our consolidated financial statements.

2. Acquisition: Acquisitions:

On October 2, 2017, AVX acquired the AB Electronics sensing and control business from TT Electronics, PLC, for $150.3 million, net of cash acquired. Now named Sensing and Control (“S&C”) and consolidated with our Interconnect, Sensing and Control Devices segment (formerly AVX Interconnect) for financial reporting purposes, the acquisition enhances AVX’s position in the automotive business and provides further opportunities for expansion and growth. Goodwill associated with the acquisition has been allocated to the Interconnect, Sensing and Control Devices reporting unit.

The Company hasWe used the acquisition method of accounting to record the transactionbelow transactions in accordance with FASB Accounting Standards Codification Topic 805, “Business Combinations.Combinations.” In accordance with the acquisition method, the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values with the excess being allocated to goodwill. Factors that contributed to the recognition of goodwill include expected synergies and the trained workforce. The goodwill is not deductible for tax purposes.

As of December 31, 2017, a preliminary allocation of the purchase price was prepared based on estimates of fair values, as shown in the table below. The results of operations for S&C since the acquisition date are included in the accompanying consolidated statement of operations.

33. . Revenue Recognition:

We adopted ASC 606 effective April 1, 2018 using the modified retrospective approach. We elected the practical expedient to only apply the standard to contracts that were not completed at the effective date. The impact of implementing this standard had no impact on our revenue recognition for the uncompleted contracts and accordingly no cumulative adjustment was made to the opening balance of retained earnings as of April 1, 2018.

We identified a change in how we record right-of-return liabilities which impacts Current Assets and Current Liabilities. The change is primarily due to how ASC 606 defines a right-of-return contract liability. The following table compares the amounts reported in the Consolidated Balance Sheet had the previous revenue recognition guidance been in effect:

Reference Note 5, "Trade Accounts Receivable and Contract Liabilities," for information on variable consideration and right-of-return liability details.

Reference Note 11, "Segment and Geographic Information," for disaggregated revenue information.

4. Earnings Perper Share:

Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share are computed by dividing net earnings by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the dilutive effect of potential common stock equivalents during the period. EquityStock options and unvested service-based RSU awards aremake up the only common stock equivalents currently used in our calculation and are computed using the treasury stock method.

The table below represents the basic and diluted earnings per share and sets forth the weighted average number of shares of common stock outstanding and potential common stock equivalents:equivalents for the three month periods ending June 30, 2017 and 2018.

5. Trade Accounts Receivable and no shares for the three months ended December 31, 2016 and 2017,respectively and 1,580 shares and 121 shares for the nine months ended December 31, 2016 and 2017, respectively. In addition, 777 and 653 shares that would have been dilutive, if we had net income, were excluded from diluted earnings per share due to the Company’s net loss for the three and nine month periods ended December 31, 2017.Contract Liabilities:

4. Trade Accounts Receivable:

Charges related to allowances for doubtful accounts are charged to selling, general and administrative expenses. Charges related to stock rotation, ship from stock and debit, sales returns,, and sales discounts are reported as deductions from revenue. Please refer to Note 3, “Revenue Recognition,” for additional information.

56. Fair Value:

Fair Value Hierarchy:

The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to value the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

During the three and ninethree month periods ended DecemberMarch 31, 2016 2018 and 2017,June 30, 2018, there have been no transfers of assets or liabilities between levels within the fair value hierarchy.