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EX-32.1 - EX-32.1 - MOLEX INC | c66116exv32w1.htm |
EX-31.2 - EX-31.2 - MOLEX INC | c66116exv31w2.htm |
EX-32.2 - EX-32.2 - MOLEX INC | c66116exv32w2.htm |
EX-31.1 - EX-31.1 - MOLEX INC | c66116exv31w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - MOLEX INC | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2011
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-7491
MOLEX INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware | 36-2369491 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
2222 Wellington Court, Lisle, Illinois 60532
(Address of principal executive offices)
Registrants telephone number, including area code: (630) 969-4550
(Address of principal executive offices)
Registrants telephone number, including area code: (630) 969-4550
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 þ No o
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
On October 19, 2011, the following numbers of shares of the Companys common stock were outstanding:
Common Stock |
95,560,076 | |||
Class A Common Stock |
80,142,915 | |||
Class B Common Stock |
94,255 |
Molex Incorporated
INDEX
Page | ||||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
14 | ||||
24 | ||||
25 | ||||
26 | ||||
26 | ||||
27 | ||||
28 | ||||
Section 302 Certification of Chief Executive Officer |
||||
Section 302 Certification of Chief Financial Officer |
||||
Section 906 Certification of Chief Executive Officer |
||||
Section 906 Certification of Chief Financial Officer |
2
Table of Contents
PART I
Item 1. | Financial Statements |
Sept. 30, | June 30, | |||||||
2011 | 2011 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 557,376 | $ | 532,599 | ||||
Marketable securities |
11,150 | 13,947 | ||||||
Accounts receivable, less allowances of $40,685 and $42,297 respectively |
782,833 | 811,449 | ||||||
Inventories |
547,209 | 535,953 | ||||||
Deferred income taxes |
131,819 | 129,158 | ||||||
Other current assets |
40,917 | 32,239 | ||||||
Total current assets |
2,071,304 | 2,055,345 | ||||||
Property, plant and equipment, net |
1,144,023 | 1,168,448 | ||||||
Goodwill |
148,349 | 149,452 | ||||||
Non-current deferred income taxes |
39,404 | 38,178 | ||||||
Other assets |
177,498 | 186,429 | ||||||
Total assets |
$ | 3,580,578 | $ | 3,597,852 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt and short-term borrowings |
$ | 129,781 | $ | 119,764 | ||||
Accounts payable |
349,657 | 359,812 | ||||||
Accrued expenses: |
||||||||
Accrual for unauthorized activities in Japan |
191,873 | 182,460 | ||||||
Income taxes payable |
32,349 | 2,383 | ||||||
Other |
222,930 | 217,628 | ||||||
Total current liabilities |
926,590 | 882,047 | ||||||
Other non-current liabilities |
22,253 | 23,879 | ||||||
Accrued pension and postretirement benefits |
96,232 | 100,866 | ||||||
Long-term debt |
176,925 | 222,794 | ||||||
Total liabilities |
1,222,000 | 1,229,586 | ||||||
Commitments and contingencies
Stockholders equity: |
||||||||
Common stock |
11,302 | 11,285 | ||||||
Additional paid-in capital |
680,869 | 674,494 | ||||||
Retained earnings |
2,453,482 | 2,408,083 | ||||||
Treasury stock |
(1,107,670 | ) | (1,106,039 | ) | ||||
Accumulated other comprehensive income |
320,595 | 380,443 | ||||||
Total stockholders equity |
2,358,578 | 2,368,266 | ||||||
Total liabilities and stockholders equity |
$ | 3,580,578 | $ | 3,597,852 | ||||
See accompanying notes to condensed consolidated financial statements.
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Table of Contents
Molex Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share data)
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share data)
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Net revenue |
$ | 935,985 | $ | 897,672 | ||||
Cost of sales |
643,257 | 622,596 | ||||||
Gross profit |
292,728 | 275,076 | ||||||
Selling, general and administrative |
169,225 | 157,056 | ||||||
Unauthorized activities in Japan |
2,922 | 5,542 | ||||||
Total operating expenses |
172,147 | 162,598 | ||||||
Income from operations |
120,581 | 112,478 | ||||||
Interest expense, net |
1,391 | 1,335 | ||||||
Other (income) expense |
(276 | ) | 351 | |||||
Total other expense, net |
1,115 | 1,686 | ||||||
Income before income taxes |
119,466 | 110,792 | ||||||
Income taxes |
38,949 | 35,688 | ||||||
Net income |
$ | 80,517 | $ | 75,104 | ||||
Earnings per share: |
||||||||
Basic |
$ | 0.46 | $ | 0.43 | ||||
Diluted |
$ | 0.46 | $ | 0.43 | ||||
Dividends declared per share |
$ | 0.2000 | $ | 0.1525 | ||||
Average common shares outstanding: |
||||||||
Basic |
175,466 | 174,370 | ||||||
Diluted |
176,585 | 175,156 |
See accompanying notes to condensed consolidated financial statements.
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Table of Contents
(in thousands)
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Operating activities: |
||||||||
Net income |
$ | 80,517 | $ | 75,104 | ||||
Add non-cash items included in net income: |
||||||||
Depreciation and amortization |
61,239 | 59,108 | ||||||
Share-based compensation |
5,135 | 5,149 | ||||||
Other non-cash items |
5,991 | 8,634 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
22,927 | (29,343 | ) | |||||
Inventories |
(18,260 | ) | (57,988 | ) | ||||
Accounts payable |
(10,702 | ) | (24,876 | ) | ||||
Other current assets and liabilities |
28,890 | 27,886 | ||||||
Other assets and liabilities |
(25,188 | ) | (1,079 | ) | ||||
Cash provided from operating activities |
150,549 | 62,595 | ||||||
Investing activities: |
||||||||
Capital expenditures |
(42,804 | ) | (71,192 | ) | ||||
Proceeds from sales of property, plant and equipment |
1,396 | 643 | ||||||
Proceeds from sales or maturities of marketable securities |
4,868 | 2,184 | ||||||
Purchases of marketable securities |
(2,777 | ) | (1,257 | ) | ||||
Cash used for investing activities |
(39,317 | ) | (69,622 | ) | ||||
Financing activities: |
||||||||
Proceeds from revolving credit facility |
30,000 | 20,000 | ||||||
Payments on revolving credit facility |
(195,000 | ) | (10,000 | ) | ||||
Payments on short-term loans |
(27,266 | ) | | |||||
Proceeds from issuance of long-term debt |
150,000 | 797 | ||||||
Payments of long-term debt |
(143 | ) | (24,840 | ) | ||||
Cash dividends paid |
(35,068 | ) | (26,565 | ) | ||||
Exercise of stock options |
620 | 358 | ||||||
Other financing activities |
(1,014 | ) | (967 | ) | ||||
Cash used for financing activities |
(77,871 | ) | (41,217 | ) | ||||
Effect of exchange rate changes on cash |
(8,584 | ) | 12,536 | |||||
Net increase (decrease) in cash and cash equivalents |
24,777 | (35,708 | ) | |||||
Cash and cash equivalents, beginning of period |
532,599 | 376,352 | ||||||
Cash and cash equivalents, end of period |
$ | 557,376 | $ | 340,644 | ||||
See accompanying notes to condensed consolidated financial statements.
5
Table of Contents
Molex Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Molex Incorporated (together with its subsidiaries, except where the context otherwise
requires, we, us, and our) manufactures electronic components, including electrical and fiber
optic interconnection products and systems, switches and integrated products in 39 manufacturing
locations in 16 countries.
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United States (GAAP) for interim financial
information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments consisting of normal recurring accruals
considered necessary for a fair statement of results for the interim period have been included.
Operating results for the three months ended September 30, 2011 are not necessarily an indication
of the results that may be expected for the year ending June 30, 2012. The Condensed Consolidated
Balance Sheet as of June 30, 2011 was derived from our audited consolidated financial statements
for the year ended June 30, 2011. These financial statements and related notes should be read in
conjunction with the financial statements and notes thereto included in our Annual Report on Form
10-K for the year ended June 30, 2011.
The preparation of the unaudited financial statements in conformity with GAAP requires the use
of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses
and related disclosures. Significant estimates and assumptions are used in the estimation of
income taxes, pension and retiree health care benefit obligations, stock options, accrual for
unauthorized activities in Japan, allowances for accounts receivable and inventory and impairment
reviews for goodwill, intangible and other long-lived assets. Estimates are revised periodically.
Actual results could differ from these estimates. Material subsequent events are evaluated and
disclosed through the report issuance date.
2. Unauthorized Activities in Japan
As previously reported in our Annual Report on Form 10-K for the year ended June 30, 2011, we
investigated unauthorized activities at Molex Japan Ltd. Based on the results of the completed
investigation, we recorded for accounting purposes an accrued liability for the effect of
unauthorized activities pending the resolution of the legal
proceedings reported in Note 14 of the Notes to the Condensed
Consolidated Financial Statements.
We believe these unauthorized activities and related losses occurred from at least as early as
1988 through 2010, with approximately $167.4 million of losses occurring prior to June 30, 2007.
The accrued liability for these potential net losses was $191.9 million as of September 30, 2011,
including $26.1 million in cumulative foreign currency translation, which was recorded as a
component of other comprehensive income. To the extent we prevail in not having to pay all or any
portion of the outstanding unauthorized loans, we would recognize a gain in that amount. In
addition, we have a contingent liability of $39.8 million for other loan-related expenses, interest
expense and delay damages on the outstanding unauthorized loans.
3. Restructuring Costs and Asset Impairments
On June 30, 2010 we completed a multi-year restructuring plan designed to reduce costs
and to improve return on invested capital in connection with a new global organization that was
effective July 1, 2007. A majority of the plan related to facilities located in North America,
Europe and Japan and, in general, the movement of manufacturing activities from these plants to
lower-cost facilities.
6
Table of Contents
Changes in the restructuring accrual balance are summarized as follows (in thousands):
Balance at June 30, 2011 |
$ | 14,049 | ||
Cash payments |
(752 | ) | ||
Non-cash related costs |
(569 | ) | ||
Balance at September 30, 2011 |
$ | 12,728 | ||
4. Acquisitions
During the third quarter of fiscal 2011, we completed an asset acquisition of an active
optical cable business for $24.6 million and recorded goodwill of $14.6 million. The purchase price
includes contingent consideration up to $5.8 million payable through fiscal 2013 upon the seller
meeting certain criteria. The purchase price allocation for this acquisition is complete.
5. Earnings Per Share
A reconciliation of the basic average common shares outstanding to diluted average common
shares outstanding is as follows (in thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Net income |
$ | 80,517 | $ | 75,104 | ||||
Basic weighted average common shares outstanding |
175,466 | 174,370 | ||||||
Effect of dilutive stock options |
1,119 | 786 | ||||||
Diluted weighted average common shares outstanding |
176,585 | 175,156 | ||||||
Earnings per share: |
||||||||
Basic |
$ | 0.46 | $ | 0.43 | ||||
Diluted |
$ | 0.46 | $ | 0.43 |
Excluded from the computations above were anti-dilutive shares of 5.6 million and 6.1 million
for the three months ended September 30, 2011 and 2010, respectively.
6. Comprehensive Income
Total comprehensive income is summarized as follows (in thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Net income |
$ | 80,517 | $ | 75,104 | ||||
Translation adjustments |
(58,724 | ) | 70,255 | |||||
Unrealized investment (loss) gain |
(1,124 | ) | 49 | |||||
Total comprehensive income |
$ | 20,669 | $ | 145,408 | ||||
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Table of Contents
7. Inventories
Inventories are valued at the lower of first-in, first-out cost or market. Inventories, net of
allowances, consist of the following (in thousands):
Sept. 30, | June 30, | |||||||
2011 | 2011 | |||||||
Raw materials |
$ | 96,839 | $ | 91,362 | ||||
Work in process |
151,132 | 143,888 | ||||||
Finished goods |
299,238 | 300,703 | ||||||
Total inventories |
$ | 547,209 | $ | 535,953 | ||||
8. Pensions and Other Postretirement Benefits
The components of pension benefit cost are as follows (in thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Service cost |
$ | 1,381 | $ | 2,197 | ||||
Interest cost |
2,123 | 1,967 | ||||||
Expected return on plan assets |
(2,166 | ) | (1,812 | ) | ||||
Amortization of prior service cost |
65 | 53 | ||||||
Recognized actuarial losses |
290 | 893 | ||||||
Amortization of transition obligation |
10 | 9 | ||||||
Benefit cost |
$ | 1,703 | $ | 3,307 | ||||
The components of retiree health care benefit cost are as follows (in thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Service cost |
$ | 274 | $ | 342 | ||||
Interest cost |
586 | 617 | ||||||
Amortization of prior service cost |
(516 | ) | (516 | ) | ||||
Recognized actuarial losses |
82 | 333 | ||||||
Benefit cost |
$ | 426 | $ | 776 | ||||
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Table of Contents
9. Debt
Total debt consisted of the following (in thousands):
Average | ||||||||||||||||
Interest | September 30, | June 30, | ||||||||||||||
Rate | Maturity | 2011 | 2011 | |||||||||||||
Long-term debt: |
||||||||||||||||
Private Placement |
2.91 4.28 | % | 2016 2021 | $ | 150,000 | $ | | |||||||||
U.S. Credit Facility |
1.74 | % | 2016 | 20,000 | 185,000 | |||||||||||
Unsecured bonds and term loans |
0.77 1.31 | % | 2012 2013 | 66,531 | 89,342 | |||||||||||
Other debt |
5.92 | % | 2012 2013 | 1,498 | 1,528 | |||||||||||
Total long-term debt |
238,029 | 275,870 | ||||||||||||||
Less current portion of long-term debt: |
||||||||||||||||
Unsecured bonds and term loans |
0.77 1.31 | % | 60,070 | 52,156 | ||||||||||||
Other debt |
Varies | 1,034 | 920 | |||||||||||||
Long-term debt, less current portion |
176,925 | 222,794 | ||||||||||||||
Short-term borrowings |
||||||||||||||||
Overdraft loan |
2.48 | % | 2012 | 65,265 | 62,060 | |||||||||||
Other short-term borrowings |
5.92 | % | 3,412 | 4,628 | ||||||||||||
Total short-term borrowings |
68,677 | 66,688 | ||||||||||||||
Total debt |
$ | 306,706 | $ | 342,558 | ||||||||||||
On August 18, 2011, we issued senior notes totaling $150.0 million through an
unregistered, private placement of debt (the Private Placement). The Private Placement consists of
three $50.0 million series notes: Series A with an interest rate of 2.91% matures on August 18,
2016; Series B with an interest rate of 3.59% matures on August 18, 2018; and Series C with an
interest rate of 4.28% matures on August 18, 2021. The Note Purchase Agreement contains customary
covenants regarding liens, debt, substantial asset sales and mergers. The Note Purchase Agreement
also requires us to maintain financial covenants pertaining to, among other things, our
consolidated leverage and interest rate coverage. As of September 30, 2011, we were in compliance
with these covenants and the balance of the senior notes was $150.0 million.
In June 2009, we entered into a $195.0 million unsecured, three-year revolving credit facility
in the United States, amended in January 2010, September 2010 and March 2011, that was initially
scheduled to mature in June 2012 (the U.S. Credit Facility). In connection with the September 2010
amendment, we increased the credit line on the U.S. Credit Facility to $270.0 million. In March
2011, we further amended the credit facility to increase the credit line to $350.0 million and
extend the term to March 2016. Borrowings under the U.S. Credit Facility bear interest at a
fluctuating interest rate (based on London InterBank Offered Rate) plus an applicable percentage
based on our consolidated leverage. The applicable percentage was 150 basis points as of September
30, 2011. The Credit Agreement contains customary covenants regarding liens, debt, substantial
asset sales and mergers, dividends and investments. The Credit Agreement also requires us to
maintain financial covenants pertaining to, among other things, our consolidated leverage and fixed
charge coverage. As of September 30, 2011, we were in compliance with these covenants and had
outstanding borrowings of $20.0 million.
In September 2011, Molex Japan renewed a ¥5.0 billion overdraft loan, with a six month term
and an interest rate of approximately 2.48%. At September 30, 2011, the balance of the overdraft
loan, which requires full repayment by the end of the term if not renewed, approximated $65.3
million.
In March 2010, Molex Japan entered into a ¥3.0 billion syndicated term loan for three years,
with interest rates equivalent to the six month Tokyo Interbank Offered Rate plus 75 basis points
and scheduled principal payments of ¥0.5 billion every six months. At September 30, 2011, the
balance of the syndicated term loan approximated $19.5 million, of which $13.1 million was current.
In September 2009, Molex Japan issued unsecured bonds totaling ¥10.0 billion with a term of
three years, an interest rate of approximately 1.65% and scheduled principal payments of ¥1.6
billion every six months. At September 30, 2011, the outstanding balance of the unsecured bonds
approximated $47.0 million which is classified as current.
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Table of Contents
Certain assets, including equipment, secure a portion of our long-term debt. Principal
payments on long-term debt obligations are due as follows (in thousands):
2012 |
$ | 61,104 | ||
2013 |
6,925 | |||
2014 |
| |||
2015 |
| |||
2016 |
70,000 | |||
Thereafter |
$ | 100,000 | ||
Total long-term debt obligations |
$ | 238,029 | ||
We had available lines of credit totaling $406.4 million at September 30, 2011, including a
$350.0 million unsecured, five-year revolving credit facility with $330.0 million available as of
September 30, 2011. The lines of credit expire between 2011 and 2021.
10. Income Taxes
The effective tax rate was 32.6% for the three months ended September 30, 2011 and 32.2% for
the three months ended September 30, 2010.
We are subject to tax in U.S. Federal, state and foreign tax jurisdictions. We have
substantially completed all U.S. federal income tax matters for tax years through 2007. The tax
years 2008 through 2010 remain open to examination by all major taxing jurisdictions to which we
are subject.
It is our practice to recognize interest and penalties related to income tax matters in tax
expense. As of September 30, 2011, there were no material interest or penalty amounts to accrue.
11. Fair Value Measurements
The following table summarizes our financial assets and liabilities as of September 30, 2011,
which are measured at fair value on a recurring basis (in thousands):
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Total | Markets for | Other | Significant | |||||||||||||
Measured | Identical | Observable | Unobservable | |||||||||||||
at Fair | Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Available for sale and trading securities |
$ | 23,142 | $ | 23,142 | $ | | $ | | ||||||||
Derivative financial instruments, net |
4,861 | | 4,861 | |
We determine the fair value of our marketable and available for sale securities based
on quoted market prices (Level 1). We generally use derivatives for hedging purposes, which are
valued based on Level 2 inputs in the fair value hierarchy. The fair value of our financial
instruments is determined by a mark-to-market valuation based on forward curves using observable
market prices.
The carrying value of our long-term debt approximates fair value.
12. Derivative Instruments and Hedging Activities
We use derivative instruments to manage our foreign exchange and commodity cost exposures. All
derivative instruments are recognized at fair value in other current assets or liabilities.
Derivatives Not Designated as Hedging Instruments
We use one-month foreign currency forward contracts (forward contracts) to offset the impact
of exchange rate volatility on certain assets and liabilities, including intercompany receivables
and payables denominated in non-
10
Table of Contents
functional currencies. These forward contracts have not been designated as hedges, and the
gains or losses on these forward contracts, along with the offsetting losses or gains due to the
fluctuation of exchange rates on the underlying foreign currency denominated assets and
liabilities, are recognized in other income (expense). The notional amounts of the forward
contracts were $155.9 million and $175.6 million at September 30, 2011 and June 30, 2011,
respectively, with corresponding fair values of a $5.0 million liability at September 30, 2011 and
a $2.7 million asset at June 30, 2011.
Cash Flow Hedges
We use derivatives in the form of call options to hedge the variability of gold and copper
costs. These derivative instruments are designated as cash flow hedges and hedge approximately 60%
of our planned gold and copper purchases. Gains and losses of the effective hedges are recorded as
a component of accumulated other comprehensive income and reclassified to cost of sales during the
period the product containing the commodity is sold. The fair values of the call options were $9.9
million and $7.8 million at September 30, 2011 and June 30, 2011, respectively. These call options
have maturities of 12 months or less.
For the three months ended September 30, 2011 and 2010, the impact to accumulated other
comprehensive income and earnings from cash flow hedges follows (in thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Unrealized gain (loss) recognized in accumulated other comprehensive income |
$ | 1,502 | $ | (722 | ) | |||
Gain reclassified into earnings |
1,845 | 2,136 |
13. New Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (the FASB) issued updated guidance
on the periodic testing of goodwill for impairment. This guidance will allow companies to assess
qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and
whether it is necessary to perform the two-step goodwill impairment test required under current
accounting standards. This new guidance is effective for us beginning July 1, 2012, with early
adoption permitted. This new guidance will not have a material impact on our consolidated financial
statements.
In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive
Income (Topic 220). This new guidance requires the components of net income and other comprehensive
income to be either presented in one continuous statement, referred to as the statement of
comprehensive income, or in two separate, but consecutive statements. This new guidance eliminates
the current option to report other comprehensive income and its components in the statement of
stockholders equity. While the new guidance changes the presentation of comprehensive income,
there are no changes to the components that are recognized in net income or other comprehensive
income under current accounting guidance. This new guidance is effective for us for the quarter
ended March 31, 2012 and will amend our presentation of the components of comprehensive income.
14. Contingencies
We are currently a party to various legal proceedings, claims and investigations including those disclosed in
this note. While management presently believes that the ultimate outcome of these proceedings, individually and in
the aggregate, will not materially adversely impact our financial position or overall trends in operations, legal
proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. If unfavorable
final outcomes were to occur, then there exists the possibility of a material adverse impact.
11
Table of Contents
Employment and Benefits Litigation
In 2009, Molex Automotive SARL (MAS), decided to close a facility it operated in Villemur-sur-Tarn,
France. MAS submitted a social plan to MASs labor representatives providing for payments to approximately 280
terminated employees. This social plan was adopted by MAS in 2009 and payments were made to those employees
until September 2010. In September 2010, former employees of MAS who were covered under the social plan filed
suit against MAS and AGS (a state fund for wage guarantee) in the Toulouse Labor Court, requesting additional
compensation. The total amount sought by the former employees is approximately 24 million ($32.5 million).
Molex International initiated liquidation of MAS, and pursuant to a court proceeding, a liquidator was appointed in
November 2010. One of the liquidators responsibilities is to assess and respond to the lawsuits involving MAS. In
June 2011, the former employees of MAS noticed Molex Incorporated (Molex) as a defendant to the Toulouse
Labor Court proceedings. In their court submission, the former employees claim that Molex was a co-employer of
the former employees and thus jointly liable for any additional compensation the court awards. The former
employees also claim that there was no economic justification for their dismissal, that MAS decided to close the
facility before it consulted with the employees and their representatives and that MAS did not adequately comply
with its obligation to assist the terminated employees in obtaining alternative employment. The liquidator has filed a
submission on behalf of MAS and argues that the dismissal was economically justified, that the former employees
have not proven the damages they are seeking but nonetheless Molex was co-employer and thus liable for any
additional payments that may be awarded to the former employees. AGS filed its submission, adopting essentially
the same substantive position as the liquidator on the dismissal of the former employees but arguing that Molex was
the employer. Molex shall file its necessary submission in advance of the court hearings. The Toulouse Labor Court
has scheduled two hearings, one on March 5, 2012 for employees who fall within the executives section and another
on April 5, 2012 for all other employees. We intend to vigorously contest the attempt by the former employees to
seek additional compensation from Molex.
Molex Japan Co., Ltd
As we previously reported in our fiscal 2010 Annual Report on Form 10-K, we launched an
investigation into unauthorized activities at Molex Japan Co., Ltd. in April 2010. We learned that
an individual working in Molex Japans finance group obtained unauthorized loans from third party
lenders, that included in at least one instance the attempted unauthorized pledge of Molex Japan
facilities as security, in Molex Japans name that were used to cover losses resulting from
unauthorized trading, including margin trading, in Molex Japans name. We also learned that the
individual misappropriated funds from Molex Japans accounts to cover losses from unauthorized
trading. The individual admitted to forging documentation in arranging and concealing the
transactions. We retained outside legal counsel, and they retained forensic accountants, to investigate the matter. The investigation has
been completed.
On August 31, 2010, Mizuho Bank (Mizuho), which holds the unauthorized loans, filed a
complaint in Tokyo District Court requesting the court to find Molex Japan liable for the payment
of the outstanding unauthorized loans and to enter a judgment for such payment. Mizuho is claiming
payment of outstanding principal borrowings of ¥3 billion ($39.2 million), ¥5 billion ($65.3
million), ¥5 billion ($65.3 million) and ¥2 billion ($26.1 million), other loan-related expenses of
approximately ¥106 million ($1.4 million) and interest and delay damages of approximately ¥2.9
billion ($38.4 million) as of September 30, 2011. On October 13, 2010, Molex Japan filed a written
answer requesting the court to dismiss the complaint and subsequently both parties have submitted
additional briefs to the court. The next court hearing is scheduled for November 16, 2011. We
intend to vigorously contest the enforceability of the outstanding unauthorized loans and any
attempt by the lender to obtain payment. See Note 2 of the Notes to the Condensed Consolidated Financial Statements for accounting treatment of the accrual for
unauthorized activities in Japan.
As we reported on April 29, 2011, the Securities and Exchange Commission (the SEC) has
informed us that the SEC has issued a formal order of private investigation in connection with the
activities in Molex Japan. We are fully cooperating with the SECs investigation.
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15. Segments and Related Information
Our reportable segments consist of the Connector and Custom & Electrical segments:
| The Connector segment designs and manufactures products for high-speed, high-density, high signal-integrity applications as well as fine-pitch, low-profile connectors for the consumer and commercial markets. It also designs and manufactures products that withstand environments such as heat, cold, dust, dirt, liquid and vibration for automotive and other transportation applications. |
| The Custom & Electrical segment designs and manufactures integrated and customizable electronic components, including connectors, across all industries that provide original, differentiated solutions to customer requirements. It also leverages expertise in the use of signal, power and interface technology in industrial automation and other harsh environment applications. |
Information by segment is summarized as follows (in thousands):
Custom & | Corporate | |||||||||||||||
Connector | Electrical | & Other | Total | |||||||||||||
For the three months ended: |
||||||||||||||||
September 30, 2011: |
||||||||||||||||
Revenues from external customers |
$ | 678,780 | $ | 256,794 | $ | 411 | $ | 935,985 | ||||||||
Income (loss) from operations |
106,262 | 41,908 | (27,589 | ) | 120,581 | |||||||||||
Depreciation & amortization |
50,075 | 7,127 | 4,037 | 61,239 | ||||||||||||
Capital expenditures |
34,701 | 6,914 | 1,189 | 42,804 | ||||||||||||
September 30, 2010: |
||||||||||||||||
Revenues from external customers |
$ | 661,136 | $ | 236,031 | $ | 505 | $ | 897,672 | ||||||||
Income (loss) from operations |
98,647 | 42,566 | (28,735 | ) | 112,478 | |||||||||||
Depreciation & amortization |
47,536 | 7,523 | 4,049 | 59,108 | ||||||||||||
Capital expenditures |
58,757 | 7,254 | 5,181 | 71,192 |
Corporate & Other includes expenses primarily related to corporate operations that are not
allocated to segments such as executive management, human resources, legal, finance and information
technology. We also include in Corporate & Other the investigative and legal costs related to the
unauthorized activities in Japan and the assets of certain plants that are not specific to a
particular division.
Segment assets, which are comprised of accounts receivable, inventory and fixed assets, are
summarized as follows (in thousands):
Custom & | Corporate | |||||||||||||||
Connector | Electrical | & Other | Total | |||||||||||||
September 30, 2011 |
$ | 1,899,592 | $ | 479,216 | $ | 95,257 | $ | 2,474,065 | ||||||||
June 30, 2011 |
1,913,675 | 503,443 | 98,732 | 2,515,850 |
The reconciliation of segment assets to consolidated total assets is as follows (in thousands):
Sept. 30, | June 30, | |||||||
2011 | 2011 | |||||||
Segment assets |
$ | 2,474,065 | $ | 2,515,850 | ||||
Other current assets |
741,262 | 707,943 | ||||||
Other non-current assets |
365,251 | 374,059 | ||||||
Consolidated total assets |
$ | 3,580,578 | $ | 3,597,852 | ||||
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Molex Incorporated
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated or the content otherwise requires, the terms we, us and our
and other similar terms in this Quarterly Report on Form 10-Q refer to Molex Incorporated and its
subsidiaries.
The following discussion and analysis should be read in conjunction with our condensed
consolidated financial statements and accompanying notes contained herein and our consolidated
financial statements and accompanying notes and managements discussion and analysis of results of
operations and financial condition contained in our Annual Report on Form 10-K for the fiscal year
ended June 30, 2011. This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors, including but not
limited to those described below under the heading Cautionary Statement Regarding Forward-Looking
Information.
Overview
Our core business is the manufacture and sale of electromechanical components. Our products
are used by a large number of leading original equipment manufacturers (OEMs) throughout the world.
We design, manufacture and sell more than 100,000 products including terminals, connectors, planar
cables, cable assemblies, interconnection systems, backplanes, integrated products and mechanical
and electronic switches in 39 manufacturing locations in 16 countries. We also provide
manufacturing services to integrate specific components into a customers product.
We have two global product segments: Connector and Custom & Electrical.
| The Connector segment manufactures and sells products for high-speed, high-density, high signal-integrity applications as well as fine-pitch, low-profile connectors for the consumer and commercial markets. It also designs and manufactures products that withstand environments such as heat, cold, dust, dirt, liquid and vibration for automotive and other transportation applicants. | ||
| The Custom & Electrical segment designs and manufactures integrated and customizable electronic components across all industries that provide original, differentiated solutions to customer requirements. It also leverages expertise in the use of signal, power and interface technology in industrial automation and other harsh environment applications. |
Net revenue increased during the three months ended September 30, 2011 compared with the prior
year period primarily due to favorable foreign currency translation. Customer demand improved in
the infotech and automotive markets with the release of new products, but was offset by decreases
in the telecommunications, consumer and industrial markets. Gross profit improved due to higher net
revenue, particularly in Japan, and higher absorption from increased production. We increased prices to partially offset
rising input costs, which improved gross profit compared with the prior year
period. The improved gross profit and cost control efforts improved our operating income during the
three months ended September 30, 2011 compared with the prior year period.
The markets in which we compete are highly competitive. Our financial results may be
influenced by the following factors: our ability to successfully execute our business strategy;
competition for customers; raw material prices; product and price competition; economic conditions
in various geographic regions; foreign currency exchange rates; interest rates; changes in
technology; fluctuations in customer demand; patent and intellectual property issues; availability
of credit and general market liquidity; natural disasters; litigation results; investigations and
legal proceedings and regulatory developments. Our ability to execute our business strategy
successfully will require that we meet a number of challenges, including our ability to accurately
forecast sales demand and calibrate manufacturing to such demand, manage volatile raw material
costs, develop, manufacture and successfully market new and enhanced products and product lines,
control operating costs, and attract, motivate and retain key personnel to manage our operational,
financial and management information systems. Our sales are also dependent
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on end markets impacted by consumer, industrial and infrastructure spending, and our operating
results can be adversely affected by reduced demand in those end markets.
Unauthorized Activities in Japan
As previously reported in our Annual Report on Form 10-K for the year ended June 30, 2011, we
investigated unauthorized activities at Molex Japan Ltd. Based on the results of the completed
investigation, we recorded for accounting purposes an accrued liability for the effect of
unauthorized activities pending the resolution of the legal
proceedings reported in Note 14 of the Notes to the Condensed
Consolidated Financial Statements.
We believe these unauthorized activities and related losses occurred from at least as early as
1988 through 2010, with approximately $167.4 million of losses occurring prior to June 30, 2007.
The accrued liability for these potential net losses was $191.9 million as of September 30, 2011,
including $26.1 million in cumulative foreign currency translation, which was recorded as a
component of other comprehensive income. To the extent we prevail in not having to pay all or any
portion of the outstanding unauthorized loans, we would recognize a gain in that amount. In
addition, we have a contingent liability of $39.8 million for other loan-related expenses, interest
expense and delay damages on the outstanding unauthorized loans.
Critical Accounting Policies and Estimates
This discussion and analysis of financial condition and results of operations is based on our
condensed consolidated financial statements, which have been prepared in conformity with accounting
principles generally accepted in the United States. The preparation of these financial statements
requires the use of estimates and assumptions related to the reporting of assets, liabilities,
revenues, expenses and related disclosures. In preparing these financial statements, we have made
our best estimates and judgments of certain amounts included in the financial statements. Estimates
are revised periodically. Actual results could differ from these estimates.
The information concerning our critical accounting policies can be found under Managements
Discussion of Financial Condition and Results of Operations in our Annual Report on Form 10-K for
the fiscal year ended June 30, 2011 filed with the Securities and Exchange Commission, which is
incorporated by reference in this Form 10-Q.
Results of Operations
The following table sets forth consolidated statements of operations data as a percentage of
net revenue for the three months ended September 30 (in thousands):
Percentage | Percentage | |||||||||||||||
2011 | of Revenue | 2010 | of Revenue | |||||||||||||
Net revenue |
$ | 935,985 | 100.0 | % | $ | 897,672 | 100.0 | % | ||||||||
Cost of sales |
643,257 | 68.7 | % | 622,596 | 69.4 | % | ||||||||||
Gross profit |
292,728 | 31.3 | % | 275,076 | 30.6 | % | ||||||||||
Selling, general & administrative |
169,225 | 18.1 | % | 157,056 | 17.5 | % | ||||||||||
Unauthorized activities in Japan |
2,922 | 0.3 | % | 5,542 | 0.6 | % | ||||||||||
Income from operations |
120,581 | 12.9 | % | 112,478 | 12.5 | % | ||||||||||
Other expense, net |
1,115 | 0.1 | % | 1,686 | 0.2 | % | ||||||||||
Income before income taxes |
119,466 | 12.8 | % | 110,792 | 12.3 | % | ||||||||||
Income taxes |
38,949 | 4.2 | % | 35,688 | 3.9 | % | ||||||||||
Net income |
$ | 80,517 | 8.6 | % | $ | 75,104 | 8.4 | % | ||||||||
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Net Revenue
We sell our products in five primary markets. Our connectors, interconnecting devices and
assemblies are used principally in the telecommunications, infotech, consumer, industrial and
automotive markets. Our products are used in a wide range of applications including notebook
computers, computer peripheral equipment, mobile products such as smartphones and tablets, digital
electronics such as cameras and flat panel display televisions, automobile engine control units and
adaptive braking systems, factory robotics and diagnostic equipment.
Net revenue increased in the infotech and automotive markets during the first quarter of
fiscal 2012 compared with the first quarter of fiscal 2011 (comparable quarter) as customer demand
improved over the prior year, but declined in the telecommunications, consumer and industrial
markets. Net revenue increased in the infotech and consumer markets during the first quarter of
fiscal 2012 compared with the fourth quarter of fiscal 2011 (sequential quarter), but declined in
the telecommunications and industrial markets. The increase (decrease) in net revenue from each
market during the first quarter of fiscal 2012 compared with the comparable quarter and the
sequential quarter follows:
Comparable | Sequential | |||||||
Quarter | Quarter | |||||||
Telecommunications |
(5 | )% | (2 | )% | ||||
Infotech |
20 | 6 | ||||||
Consumer |
(2 | ) | 14 | |||||
Industrial |
(4 | ) | (6 | ) | ||||
Automotive |
17 | |
Telecommunications market net revenue decreased against the comparable quarter due to
decreases in demand for certain mobile products partially offset by increased infrastructure
spending on networking. Telecommunications market net revenue decreased against the sequential
quarter primarily due to decreased infrastructure spending partially offset by improved demand for
mobile products, including higher demand for smartphones and our customers introduction of
smartphone models.
Infotech market net revenue increased significantly against the comparable quarter primarily
due to increased content and strong demand for notebook computers and tablet devices. Infotech
market net revenue increased against the sequential quarter on increased demand for tablet devices.
Consumer market net revenue decreased against the comparable quarter due to lower demand for
our components in flat panel display televisions, partially offset by increased demand in gaming
equipment. Net revenue increased against the sequential quarter primarily due to delayed
pre-holiday production volumes in home entertainment and gaming equipment from the prior quarter.
Industrial market net revenue decreased against the comparable and sequential quarters due to
softening demand for semiconductor and production equipment from our customers decreased production
and relatively high levels of inventory in the distribution channel.
Automotive market net revenue increased against the comparable quarter due to increased global
automobile production and our customers increasing electronic content in automobiles, such as
navigational and entertainment systems, mobile communication and products to promote fuel
efficiency. The automotive market remained unchanged against the sequential quarter.
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The following table shows the percentage of our net revenue by geographic region: |
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Americas |
24 | % | 24 | % | ||||
Asia Pacific |
63 | 63 | ||||||
Europe |
13 | 13 | ||||||
Total |
100 | % | 100 | % | ||||
The following table provides an analysis of the change in net revenue compared with the prior
fiscal year period (in thousands):
Three Months | ||||
Ended | ||||
Sept. 30, 2011 | ||||
Net revenue for prior year period |
$ | 897,672 | ||
Components of net revenue change: |
||||
Organic net revenue decline |
(18,595 | ) | ||
Currency translation |
52,875 | |||
Acquisitions |
4,033 | |||
Total change in net revenue from prior year period |
38,313 | |||
Net revenue for current year period |
$ | 935,985 | ||
Organic net revenue decline as a percentage of net revenue from prior year period |
(2.1 | )% |
Organic net revenue decreased during the three months ended September 30, 2011 compared with
the prior year period as customer demand decreased in certain primary markets. We completed an
asset acquisition of an active optical cable business during the third quarter of fiscal 2011.
Foreign currency translation increased net revenue approximately $52.9 million for the three
months ended September 30, 2011 principally due to a stronger Japanese yen, partially offset by a
weaker euro against the U.S. dollar. The following tables show the effect on the change in
geographic net revenue from foreign currency translations to the U.S. dollar (in thousands):
Three Months Ended September 30, 2011 | ||||||||||||
Local | Currency | Net | ||||||||||
Currency | Translation | Change | ||||||||||
Americas |
$ | 3,835 | $ | 384 | $ | 4,219 | ||||||
Asia Pacific |
(8,186 | ) | 36,888 | 28,702 | ||||||||
Europe |
(9,010 | ) | 15,603 | 6,593 | ||||||||
Corporate & Other |
(1,201 | ) | | (1,201 | ) | |||||||
Net change |
$ | (14,562 | ) | $ | 52,875 | $ | 38,313 | |||||
The change in net revenue on a local currency basis was as follows:
Three Months | ||||
Ended | ||||
Sept. 30, 2011 | ||||
Americas |
1.8 | % | ||
Asia Pacific |
(1.5 | ) | ||
Europe |
(7.6 | ) | ||
Total |
(1.6 | )% |
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Gross Profit
The following table provides a summary of gross profit and gross margin for the three months
ended September 30 (in thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Gross profit |
$ | 292,728 | $ | 275,076 | ||||
Gross margin |
31.3 | % | 30.6 | % |
The increase in gross profit and gross margin for the three months ended September 30, 2011
was primarily due to higher net revenue and higher absorption from increased production. We also
increased prices to partially offset rising input costs, which improved
gross profit and gross margin. The improvements in gross profit and gross margin were partially
offset by the impact of price erosion and material price increases.
A significant portion of our material cost is comprised of copper and gold. We purchased
approximately 6.0 million pounds of copper and approximately 29,000 troy ounces of gold during the
first quarter of fiscal 2012. The following table shows the change in average prices related to our
purchases of copper and gold for the three months ended September 30 (in thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Copper (price per pound) |
$ | 4.07 | $ | 3.30 | ||||
Gold (price per troy ounce) |
1,702.00 | 1,228.00 |
Generally, we are able to pass through to our customers only a small portion of changes in the
cost of copper and gold. However, we mitigate the impact of any significant increases in gold and
copper prices by hedging with call options a portion of our projected net global purchases of gold
and copper. The hedges reduced cost of sales by $1.8 million for the three months ended September
30, 2011 and reduced cost of sales by $2.2 million for the three months ended September 30, 2010.
The effect of certain significant impacts on gross profit compared with the prior year periods
was as follows for the three months ended September 30 (in thousands):
Three Months | ||||
Ended | ||||
Sept. 30, 2011 | ||||
Price erosion |
$ | (24,018 | ) | |
Currency translation |
16,975 | |||
Currency transaction |
(18,606 | ) |
Price erosion is measured as the reduction in prices of our products year over year, which
reduces our gross profit, particularly in our Connector segment, where we have the largest impacts
of price erosion. A significant portion of our price erosion occurred in mobile phone connector
products as our customers introduced new versions of mobile products. Mobile phones and smartphones
are part of our telecommunications market.
The increase in gross profit due to currency translation was primarily due to a stronger
Japanese yen against other currencies and a general weakening of the U.S. dollar against other
currencies, during the three months ended September 30, 2011.
Certain products that we manufacture in Japan and Europe are sold in other regions of the
world at selling prices primarily denominated in or closely linked to the U.S. dollar. As a result,
changes in currency exchange rates
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may affect our cost of sales reported in U.S. dollars without a corresponding effect on net
revenue. The decrease in gross profit due to currency transactions was primarily due to a stronger
Japanese yen and a general weakening of the U.S dollar against most currencies, partially offset by
a weaker euro against the U.S. dollar during the three months ended September 30, 2011.
Operating Expenses
Operating expenses were as follows as of September 30 (in thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Selling, general and administrative |
$ | 169,225 | $ | 157,056 | ||||
Unauthorized activities in Japan |
2,922 | 5,542 | ||||||
Selling, general and administrative
as a percentage of net revenue |
18.1 | % | 17.5 | % |
Selling, general and administrative expenses increased $12.2 million compared to the prior
year period. The impact of currency translation increased selling, general and administrative
expenses approximately $8.1 million and $2.6 million for the three months ended September 30, 2011
and 2010, respectively.
Research and development expenditures, which are classified as selling, general and
administrative expense, were approximately $43.9 million, or 4.7% of net revenue for the three
months ended September 30, 2011, compared with $40.5 million, or 4.5% of net revenue for the
comparable prior year period.
Unauthorized activities in Molex Japan for the three months ended September 30, 2011 represent
investigative and legal fees. See Note 2 of the Notes to the Condensed Consolidated Financial
Statements.
Other Expense (Income)
Other expense (income) consists primarily of net interest income, investment income and
currency exchange gains or losses. Net expenses of $1.1 million for the three months ended
September 30, 2011 compared with net expenses of $1.7 million for the three months ended September
30, 2010 as investment income partially offset interest expense and foreign currency losses in both
periods.
Effective Tax Rate
The effective tax rate was 32.6% for the three months ended September 30, 2011. During the
three months ended September 30, 2011, we recorded income tax expense of $3.1 million due to the
reversal of estimated tax benefits resulting from expirations of employee stock options and vesting
of restricted stock at amounts less than recorded book value.
Our effective tax rate reflects tax benefits derived from significant operations outside the
United States, which, other than Japan, are generally taxed at rates lower than the U.S. statutory
rate of 35.0%. A change in the mix of income before income taxes from these various jurisdictions
can have a significant impact on our periodic effective rate.
The effective tax rate was 32.2% for the three months ended September 30, 2010.
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Backlog
Our order backlog on September 30, 2011 was approximately $387.2 million compared with order
backlog of $445.5 million at September 30, 2010. Orders for the three months ended September 30,
2011 were $910.0 million compared with $868.4 million for the prior year period, representing the
increase in customer demand during fiscal 2012. Orders improved in all of our primary markets
compared with the prior year period, except for the industrial and telecom markets which decreased
5.4% and 8.4% respectively over the prior year period.
Segments
The following table sets forth information on net revenue by segment as of the three months
ended September 30 (in thousands):
Percentage | Percentage | |||||||||||||||
2011 | of Revenue | 2010 | of Revenue | |||||||||||||
Connector |
$ | 678,780 | 72.5 | % | $ | 661,136 | 73.6 | % | ||||||||
Custom & Electrical |
256,794 | 27.4 | 236,031 | 26.3 | ||||||||||||
Corporate & Other |
411 | 0.1 | 505 | 0.1 | ||||||||||||
Total |
$ | 935,985 | 100.0 | % | $ | 897,672 | 100.0 | % | ||||||||
Connector
The following table provides an analysis of the change in net revenue compared with the prior
fiscal year (in thousands):
Three Months | ||||
Ended | ||||
Sept. 30, 2011 | ||||
Net revenue for prior year period |
$ | 661,136 | ||
Components of net revenue change: |
||||
Organic net revenue decrease |
(23,914 | ) | ||
Currency translation |
41,558 | |||
Total change in net revenue from prior year period |
17,644 | |||
Net revenue for current year period |
$ | 678,780 | ||
Organic net revenue decline as a percentage of
net revenue for prior year period |
(3.6 | )% |
The Connector segment sells primarily to the telecommunication, infotech, consumer and
automotive markets. Organic net revenue decreased during the three months ended September 30, 2011
compared with the prior year period as customer demand decreased in the telecommunications and
consumer markets. Segment net revenue increased in the three months ended September 30, 2011
compared with the prior year period primarily due to foreign currency translation, partially offset
by price erosion, which is generally higher in the Connector segment compared with our other
segment. Currency translation favorably impacted net revenue by $41.6 million for the three months
ended September 30, 2011.
The following table provides information on income from operations and operating margins for
the Connector segment for the periods indicated (in thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Income from operations |
$ | 106,262 | $ | 98,647 | ||||
Operating margin |
15.7 | % | 14.9 | % |
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Connector segment income from operations improved over the prior year period primarily due to
higher net revenue and improved gross margins, partially offset by increased selling, general and
administrative costs. The increase in gross margins was primarily due to higher absorption from
increased production. We also increased prices to partially offset rising input costs, which improved gross profit and gross margin. Unfavorable currency translation
increased selling, general and administrative expenses primarily due to a stronger Japanese yen
against other currencies and a general weakening of the U.S. dollar against other currencies,
during the three months ended September 30, 2011.
Custom & Electrical
The following table provides an analysis of the change in net revenue compared with the prior
fiscal year (in thousands):
Three Months | ||||
Ended | ||||
Sept. 30, 2011 | ||||
Net revenue for prior year period |
$ | 236,031 | ||
Components of net revenue increase: |
||||
Organic net revenue increase |
5,395 | |||
Currency translation |
11,335 | |||
Acquisitions |
4,033 | |||
Total change in net revenue from prior year period |
20,763 | |||
Net revenue for current year period |
$ | 256,794 | ||
Organic net revenue increase as a percentage of
net revenue for prior year period |
2.3 | % |
The Custom & Electrical segment sells primarily to the industrial, telecommunications and
infotech markets. Custom & Electrical segment net revenue increased in the three months ended
September 30, 2011 compared with the prior year period due to increased customer demand and foreign
currency translation. We also completed an asset acquisition of an active optical cable business
during the third quarter of fiscal 2011.
The following table provides information on income from operations and operating margins for
the Custom & Electrical segment for the periods indicated (in thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Income from operations |
$ | 41,908 | $ | 42,566 | ||||
Operating margin |
16.3 | % | 18.0 | % |
Custom & Electrical income from operations decreased slightly compared to the prior year
period due to lower gross margin. Gross margin was lower primarily due to changes in customer mix
and foreign currency transaction. The decrease in gross margin was partially offset by price
changes to offset rising input costs. Selling, general and administrative
expenses as a percent of net revenue for the three months ended September 30, 2011 improved over
the same prior year period, due primarily to increased net revenue and specific cost containment
actions.
Non-GAAP Financial Measures
Organic net revenue growth, which is included in the discussion above, is a non-GAAP financial
measure. The tables presented in Results of Operations above provide reconciliations of U.S. GAAP
reported net revenue growth (the most directly comparable GAAP financial measure) to organic net
revenue growth.
We believe organic net revenue growth provides useful information to investors because it
reflects the underlying growth from the ongoing activities of our business and provides investors
with a view of our operations
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from managements perspective. We use organic net revenue growth to monitor and evaluate
performance, as it is an important measure of the underlying results of our operations. It excludes
items that are not completely under managements control, such as the impact of changes in foreign
currency exchange rates, and items that do not reflect the underlying growth of the company, such
as acquisition activity. Management uses organic net revenue growth together with GAAP measures
such as net revenue growth and operating income in its decision making processes related to the
operations of our reporting segments and our overall company.
Financial Condition and Liquidity
We fund capital projects and working capital needs principally out of operating cash flows and
cash reserves. Cash, cash equivalents and marketable securities totaled $568.5 million and $546.5
million at September 30, 2011 and June 30, 2011, respectively, of which $553.0 million was in
non-U.S. accounts, including $189.0 million in China, as of September 30, 2011. Transferring cash,
cash equivalents, or marketable securities to U.S. accounts from non-U.S. accounts could subject us
to additional U.S. repatriation income tax. The primary source of our cash flow is cash generated
by operations. Principal uses of cash are capital expenditures, dividend payments and business
investments. Our long-term financing strategy is to primarily rely on internal sources of funds for
investing in plant, equipment and acquisitions.
On August 18, 2011, we issued senior notes totaling $150.0 million through a private placement
of debt (the Private Placement). The Private Placement consists of three $50.0 million series
notes: Series A with an interest rate of 2.91% matures on August 18, 2016; Series B with an
interest rate of 3.59% matures on August 18, 2018; and Series C with an interest rate of 4.28%
matures on August 18, 2021. The Note Purchase Agreement also requires us to maintain financial
covenants pertaining to, among other things, our consolidated leverage and interest rate coverage.
As of September 30, 2011, we were in compliance with these covenants.
In June 2009, we entered into a $195.0 million unsecured, three-year revolving credit facility
in the United States, amended in January 2010, September 2010 and March 2011, that was initially
scheduled to mature in June 2012 (the U.S. Credit Facility). In connection with the September 2010
amendment, we increased the credit line on the U.S. Credit Facility to $270.0 million. In March
2011, we further amended the credit facility to increase the credit line to $350.0 million and
extend the term to March 2016.
Total debt including obligations under capital leases totaled $306.7 million and $342.6
million at September 30, 2011 and June 30, 2011, respectively. We had available lines of credit
totaling $406.4 million at September 30, 2011, including a $350.0 million unsecured, five-year
revolving credit facility with $330.0 million available as of September 30, 2011. The credit
facility also requires us to maintain financial covenants pertaining to, among other things, our
consolidated leverage and fixed charge coverage. As of September 30, 2011, we were in compliance
with these covenants. Additionally, we have three unsecured borrowing agreements in Japan totaling
¥10.1 billion ($131.8 million) as of September 30, 2011, with weighted average fixed interest rates
of 1.56%. See Note 9 of the Notes to the Condensed Consolidated Financial Statements.
Cash Flows
Our cash balance increased $24.8 million during the three months ended September 30, 2011. Our
primary source of cash was operating cash flows of $150.5 million, the majority of which is generated outside the United States. We used cash during the
period to fund capital expenditures of $42.8 million and pay dividends of $35.1 million. The
translation of our cash to U.S. dollars decreased our cash balance by $8.6 million as compared with
the balance as of June 30, 2011.
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Below is a table setting forth the key lines of our Consolidated Statements of Cash Flows (in
thousands):
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Cash provided from operating activities |
$ | 150,549 | $ | 62,595 | ||||
Cash used for investing activities |
(39,317 | ) | (69,622 | ) | ||||
Cash used for financing activities |
(77,871 | ) | (41,217 | ) | ||||
Effect of exchange rate changes on cash |
(8,584 | ) | 12,536 | |||||
Net increase (decrease) cash |
$ | 24,777 | $ | (35,708 | ) | |||
Operating Activities
Cash provided from operating activities increased by $88.0 million from the prior year period
due mainly to a $107.2 million decrease in working capital needs in the current year period
compared with the prior year. Working capital needs decreased during the three months ended
September 30, 2011 compared with the prior year period as we collected outstanding receivable
balances and maintained inventory levels after increasing inventory in the prior year due to
customer demand and the conversion from air shipment to sea shipment. Working capital is defined as
current assets minus current liabilities.
Investing Activities
Cash used for investing activities decreased by $30.3 million from the prior year period due
mainly to a $28.4 million decrease in capital expenditures. Capital expenditures were $42.8 million
for the three months ended September 30, 2011 compared with $71.2 million in the prior year period.
Financing Activities
Cash used for financing activities increased $36.7 million during the three months ended
September 30, 2011, as compared with the prior year period primarily due to the increase in our
quarterly cash dividend and net payments on debt.
We increased our quarterly cash dividend to $0.2000 per share, an increase of 14.3% from the
previous cash dividend of $0.1750 per share. The increase was effective to shareholders of record
on June 30, 2011.
We issued senior notes totaling $150.0 million on August 18, 2011. Proceeds were used to pay
down a portion of the U.S. Credit Facility. Net payments on the revolving credit facility were
$165.0 million for the three months ended September 30, 2011 compared to net borrowings of $10.0
million in the prior year period.
As part of our growth strategy, in the future we may acquire other companies in the same or
complementary lines of business and pursue other business ventures. The timing and size of any new
business ventures or acquisitions we complete may impact our cash requirements. To the extent we
are required to pay all or any portion of the unauthorized loans in Molex Japan our cash
requirements may also be impacted.
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Contractual Obligations and Commercial Commitments
We have contractual obligations and commercial commitments as described in Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations
Contractual Obligations and Commercial Commitments of our Annual Report on Form 10-K filed with
the Securities and Exchange Commission (the Commission) for the year ended June 30, 2011. In
addition, we have obligations under open purchase orders and the long-term liabilities reflected in
our consolidated balance sheet, which principally consist of pension and retiree health care
benefit obligations. Since June 30, 2011, there have been no material changes in our contractual
obligations and commercial commitments arising outside of the ordinary course of business other
than the Private Placement. The Private Placement consists of three $50.0 million series notes:
Series A that matures on August 18, 2016; Series B that matures on August 18, 2018; and Series C
that matures on August 18, 2021. See Note 9 of the Notes to the Condensed Consolidated Financial
Statements.
Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report contains forward-looking statements that are based on current
expectations, estimates, forecasts and projections about our future performance, business, beliefs,
and managements assumptions. In addition, we, or others on our behalf, may make forward-looking
statements in press releases or written statements, or in our communications and discussions with
investors and analysts in the normal course of business through meetings, web casts, phone calls,
and conference calls. Words such as expect, anticipate, outlook, forecast, could,
project, intend, plan, continue, believe, seek, estimate, should, may, assume,
variations of such words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and involve certain risks,
uncertainties, and assumptions that are difficult to predict. We describe our respective risks,
uncertainties, and assumptions that could affect the outcome or results of operations in Part 1,
Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2011 (Form 10-K). You should
carefully consider the risks described in our Form 10-K. Such risks are not the only ones we are
facing; additional risks and uncertainties not presently known to us or that we currently believe
to be immaterial may also impair our business operations. If any of the risks occur, our business,
financial condition or operating results could be materially adversely affected.
We have based our forward-looking statements on our managements beliefs and assumptions based
on information available to management at the time the statements are made. We caution you that
actual outcomes and results may differ materially from what is expressed, implied, or forecast by
our forward-looking statements. Reference is made in particular to forward looking statements
regarding growth strategies, industry trends, financial results, cost reduction initiatives,
unauthorized activities in Molex Japan, acquisition synergies, manufacturing strategies, product
development and sales, regulatory approvals, competitive strengths, natural disasters and
investigations and legal proceedings. Except as required under the federal securities laws, we do
not have any intention or obligation to update publicly any forward-looking statements after the
distribution of this quarterly report, whether as a result of new information, future events,
changes in assumptions, or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risk associated with changes in foreign currency exchange rates,
interest rates and certain commodity prices.
We mitigate our foreign currency exchange rate risk principally through the establishment of
local production facilities in the markets we serve. This creates a natural hedge since
purchases and sales within a specific country are both denominated in the same currency and
therefore no exposure exists to hedge with a foreign exchange forward or option contract
(collectively, foreign exchange contracts). Natural hedges exist in most countries in which we
operate, although the percentage of natural offsets, compared with offsets that need to be hedged
by foreign exchange contracts, will vary from country to country.
We also monitor our foreign currency exposure in each country and implement strategies to
respond to changing economic and political environments. Examples of these strategies include the
prompt payment of intercompany balances utilizing a global netting system, the establishment of
contra-currency accounts in several international subsidiaries, and the development of natural
hedges and use of foreign exchange contracts to protect or
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preserve the value of cash flows. See Note 12 of the Notes to the Condensed Consolidated Financial
Statements for discussion of foreign exchange contracts in use at September 30, 2011 and June 30,
2011.
We have implemented a formalized treasury risk management policy that describes procedures and
controls over derivative financial and commodity instruments. Under the policy, we do not use
derivative financial or commodity instruments for speculative or trading purposes, and the use of
such instruments is subject to strict approval levels by senior management. Typically, the use of
derivative instruments is limited to hedging activities related to specific foreign currency cash
flows, net receivable and payable balances and call options on certain commodities. See Note 12 of the Notes to the
Condensed Consolidated Financial Statements for discussion of derivative instruments in use at
September 30, 2011 and June 30, 2011.
The translation of the financial statements of the non-North American operations is impacted
by fluctuations in foreign currency exchange rates. Consolidated net revenue and income from
operations was impacted by the translation of our international financial statements into U.S.
dollars resulting in increased net revenue of $52.9 million and increased income from operations of
$6.0 million for the three months ended September 30, 2011, compared with the estimated results for
the comparable period in the prior year.
Our $11.2 million of marketable securities at September 30, 2011 are principally invested in
time deposits.
Interest rate exposure is generally limited to our marketable securities, five-year unsecured
credit facility and syndicated term loan. We do not actively manage the risk of interest rate
fluctuations. Our marketable securities mature in less than 12 months. We had $20.0 million
outstanding on our $350.0 million credit facility with an interest rate of approximately 1.74% at
September 30, 2011.
Due to the nature of our operations, we are not subject to significant concentration risks
relating to customers or products.
We monitor the environmental laws and regulations in the countries in which we operate. We
have implemented an environmental program to reduce the generation of potentially hazardous
materials during our manufacturing process and believe we continue to meet or exceed local
government regulations.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our chief
executive officer and chief financial officer, the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the Exchange Act) as of the end of the period covered by this report. Based on that
evaluation, our chief executive officer and chief financial officer have concluded that, as of the
end of the period covered by this report, our disclosure controls and procedures are effective in
ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded,
processed, summarized and reported within the time periods specified in SECs rules and forms, and
(2) accumulated and communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
During the three months ended September 30, 2011, there were no changes in our internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) or in other factors that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO and CFO, do not expect that our disclosure controls or our
internal control over financial reporting will prevent or detect all error and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the control systems objectives will
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be met. The design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, will be detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns can occur because of
simple error or mistake. Controls can also be circumvented by the individual acts of some persons,
by intentionally falsified documentation, by collusion of two or more individuals within Molex or
third parties, or by management override of the controls. The design of any system of controls is
based in part on certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness to future periods are subject
to risks. Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures.
PART II
Item 1. Legal Proceedings
Currently, we are involved in a number of legal proceedings. For a discussion of contingencies
related to legal proceedings, see Note 14 of the Notes to the Condensed Consolidated Financial Statements, which
is hereby incorporated by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share purchases of Molex Common and/or Class A Common Stock for the quarter ended September
30, 2011 were as follows (in thousands, except price per share data):
Total Number | ||||||||||||
of Shares | ||||||||||||
Total Number | Purchased as | |||||||||||
of Shares | Average Price | Part of Publicly | ||||||||||
Purchased | Paid per Share | Announced Plan | ||||||||||
July 1 July 31 |
||||||||||||
Common Stock |
| $ | | | ||||||||
Class A Common Stock |
2 | $ | 21.74 | | ||||||||
August 1 August 31 |
||||||||||||
Common Stock |
| $ | | | ||||||||
Class A Common Stock |
92 | $ | 16.79 | | ||||||||
September 1 September 30 |
||||||||||||
Common Stock |
| $ | | | ||||||||
Class A Common Stock |
1 | $ | 16.98 | | ||||||||
Total |
95 | $ | 16.92 | | ||||||||
The shares purchased represent exercises of employee stock options.
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Item 6. Exhibits
Number | Description | |
4.1
|
Note Purchase Agreement dated August 18, 2011 among Molex Incorporated and the Purchasers named therein. Incorporated by reference to Exhibit 4.1 to our Form 8-K filed on August 24, 2011 (File No. 000-07491). | |
31
|
Rule 13a-14(a)/15d-14(a) Certifications | |
31.1 Section 302 certification by Chief Executive Officer | ||
31.2 Section 302 certification by Chief Financial Officer | ||
32
|
Section 1350 Certifications | |
32.1 Section 906 certification by Chief Executive Officer | ||
32.2 Section 906 certification by Chief Financial Officer | ||
101.INS
|
XBRL Instance Document | |
101.SCH
|
XBRL Taxonomy Extension Schema Document | |
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MOLEX INCORPORATED |
||||
(Registrant) |
Date: October 27, 2011 | /S/ DAVID D. JOHNSON | |||
David D. Johnson | ||||
Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) |
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