UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE -------- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1993 ------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE -------- SECURITIES EXCHANGE ACT OF 1934 For the transition period from ----------------------------------- Commission File Number 0-7491 MOLEX INCORPORATED ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 36-2369491 -------------------------------- --------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2222 Wellington Court, Lisle, Illinois 60532 ----------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 708-969-4550 ------------ 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 X No ----------- ------------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (applicable only to corporate registrants). At December 31, 1993: Common Stock 31,701,523 Shares Class A Common Stock 31,561,342 Shares Class B Common Stock 94,255 Shares MOLEX INCORPORATED FORM 10-Q DECEMBER 31, 1993 INDEX Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Information - Unaudited Condensed Consolidated Balance Sheets -- 2 December 31, 1993 and June 30, 1993 Condensed Consolidated Statements of Income -- 3 Three Months and the Six Months Ended December 31, 1993 and 1992 Condensed Consolidated Statements of Cash Flows -- 4 Six Months Ended December 31, 1993 and 1992 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II - OTHER INFORMATION 9 -1- MOLEX INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited - In Thousands) ASSETS ------ Dec 31, June 30, 1993 1993 CURRENT ASSETS: --------- --------- Cash $ 13,113 $ 27,160 Short-term investments 211,063 158,893 Accounts receivable - net 178,421 193,192 Inventories 108,066 104,488 Other current assets 21,386 16,484 --------- --------- Total current assets 532,049 500,217 PROPERTY, PLANT AND EQUIPMENT - NET 392,731 385,828 OTHER ASSETS 60,383 75,730 --------- --------- $ 985,163 $ 961,775 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 76,737 $ 79,223 Accrued expenses 60,544 65,716 Other current liabilities 32,269 35,560 --------- --------- Total current liabilities 169,550 180,499 DEFERRED ITEMS 11,343 11,378 ACCRUED POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 7,320 6,883 LONG-TERM DEBT, less portion due currently 7,534 7,510 MINORITY INTEREST 4,758 3,851 SHAREHOLDERS' EQUITY Common stock 3,277 3,267 Paid-in capital 53,206 47,052 Retained earnings 678,754 637,074 Treasury stock (31,667) (31,107) Deferred unearned compensation (8,712) (6,235) Cumulative translation adjustments 89,800 101,603 --------- --------- Total shareholders' equity 784,658 751,654 --------- --------- $ 985,163 $ 961,775 ========= ========= The accompanying notes are an integral part of these condensed consolidated financial statements. -2- MOLEX INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited - In Thousands Except per Share) THREE MONTHS ENDED SIX MONTHS ENDED ----------------------- ----------------------- Dec 31, Dec 31, Dec 31, Dec 31, 1993 1992 1993 1992 -------- -------- -------- -------- NET REVENUE $224,896 $202,487 $458,140 $417,688 COST OF SALES 130,700 120,374 267,083 246,853 -------- -------- -------- -------- Gross Profit 94,196 82,113 191,057 170,835 OPERATING EXPENSES: Selling 26,471 24,058 53,779 48,736 Administrative 32,312 28,061 65,158 59,020 -------- -------- -------- -------- Total Operating Expenses 58,783 52,119 118,937 107,756 Income from Operations 35,413 29,994 72,120 63,079 OTHER INCOME (EXPENSE): Foreign currency transaction loss (599) (1,097) (1,371) (2,669) Interest 1,103 1,296 2,310 2,491 -------- -------- -------- -------- Total Other Income (Expense) 504 199 939 (178) Income before Income Taxes and Minority Interest 35,917 30,193 73,059 62,901 INCOME TAXES 14,256 13,621 29,613 28,015 -------- -------- -------- -------- Income before Minority Interest 21,661 16,572 43,446 34,886 MINORITY INTEREST (256) (29) (659) (78) -------- -------- -------- -------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 21,405 16,543 42,787 34,808 Cumulative effect of change in method of accounting for postretirement benefits other than pensions, net of tax - - - 3,605 -------- -------- -------- -------- NET INCOME $ 21,405 $ 16,543 $ 42,787 $ 31,203 ======== ======== ======== ======== EARNINGS PER COMMON SHARE: Earnings Per Common Share before cumulative effect of change in accounting principle $ 0.34 $ 0.26 $ 0.68 $ 0.55 Cumulative effect of change in method of accounting for postretirement benefits other than pensions per share - - - 0.06 -------- -------- -------- -------- EARNINGS PER COMMON SHARE $ 0.34 $ 0.26 $ 0.68 $ 0.49 ======== ======== ======== ======== CASH DIVIDENDS $ 0.0100 $ 0.0075 $ 0.0175 $ 0.0115 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING THE PERIOD 63,268 62,947 63,228 62,919 ======== ======== ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. -3- MOLEX INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - In Thousands) SIX MONTHS ENDED ----------------------- Dec 31, Dec 31, 1993 1992 -------- -------- CASH AND SHORT-TERM INVESTMENTS, Beginning of Period $186,053 $157,157 CASH AND SHORT-TERM INVESTMENTS PROVIDED FROM (USED FOR): Operations: Net income 42,787 31,203 Add (Deduct) non-cash items included in net income: Cumulative effect of change in accounting for postretirement benefits other than pensions - 3,605 Depreciation and amortization 43,774 35,432 Minority interest 659 78 Amortization of deferred unearned compensation 1,333 1,203 Loss (gain) on sale of property, plant and equipment 162 (2,488) Other (credits) charges to net income (72) 406 Current items: Accounts receivable 11,504 6,374 Inventories (4,626) (3,264) Prepaid expenses (5,747) (1,903) Accounts payable (856) (18,348) Accrued expenses (4,118) (3,046) Income taxes (2,527) 2,746 -------- -------- NET CASH PROVIDED FROM OPERATIONS 82,273 51,998 Investments: Purchases of property, plant and equipment (57,532) (44,839) Proceeds from sale of property, plant and equipment 2,164 4,185 Decrease in other assets 12,870 8,193 -------- -------- NET CASH USED FOR INVESTMENTS (42,498) (32,461) Financing: Increase in long-term debt 1,222 26 Decrease in long-term debt (1,139) (847) Cash dividends paid (948) (503) Disposition of treasury stock 532 523 Exercise of stock options 1,263 891 -------- -------- NET CASH PROVIDED FROM FINANCING 930 90 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND SHORT-TERM INVESTMENTS (2,582) (2,562) -------- -------- 38,123 17,065 -------- -------- CASH AND SHORT-TERM INVESTMENTS, End of Period $224,176 $174,222 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. -4- MOLEX INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Consolidated Financial Statements The condensed consolidated financial statements have been prepared from the Company's books without audit and are subject to year-end adjustments. The interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of information for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Molex Incorporated 1993 Annual Report to Shareholders and the 1993 Annual Report on Form 10-K. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. (2) Earnings per Common Share Earnings per common share (including Common Stock, Class A Common Stock and Class B Common Stock) have been computed using the weighted average number of common shares outstanding during the periods. For the periods ended December 31, 1993 and 1992, the shares shown as outstanding in the Condensed Consolidated Statements of Income do not require adjustments for common stock equivalents as they do not have a material dilutive effect after applying the treasury stock method. (3) Inventories Inventories are valued at the lower of first-in, first-out cost or market. Inventories, in thousands of dollars, consisted of the following: December 31, June 30, 1993 1993 ----------- ----------- Raw materials $ 19,828 $ 18,600 Work in process 39,375 39,379 Finished goods 48,863 46,509 ----------- ----------- $108,066 $104,488 =========== =========== -5- MOLEX INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Consolidated net revenues for the quarter and six months ended December 31, 1993 increased 11.1 percent and 9.7 percent respectively, over net revenues for the corresponding periods during the prior fiscal year. The generally lower value of the US dollar compared to other currencies worldwide increased net revenues by $2.7 million for the quarter and $3.4 million for the six months ending December 31, 1993. Excluding the effects of currency fluctuation, growth in net revenues would have equaled 9.7 percent for the quarter and 8.9 percent for the six months ending December 31, 1993. Molex continued to gain market share, with nearly all regions growing at a rate greater than the general connector industry. Net revenues in the U.S. Region increased 11.3 percent to $141.0 million for the six months ending December 31, 1993. The revenue growth was due to increased customer penetration through the introduction of new products. For the six months ending December 31, 1993, the Americas (Non-U.S.) Region posted revenue growth of 46.9 percent, due to substantially increased sales in Mexico and improved sales in Brazil. European net revenues for the six months ending December 31, 1993 improved 23.6 percent in local currencies, but were up only 5.5 percent in U.S. dollars as the dollar continued to gain strength against most European currencies. Increased customer demand in the U.K., Ireland and France offset softness in the German and Italian connector markets. Net revenues in the Far East North increased 10.0 percent in U.S. dollars due to the strength of the Japanese yen against the U.S. dollar, but declined 3.4 percent in local currencies due to the continued recession in Japan. The Far East South net revenues for the six months ended December 31, 1993 increased 7.2 percent in U.S. dollars from the comparable period last fiscal year. However, during the third quarter of fiscal 1993, Molex sold a manufacturing facility in Singapore and transferred a portion of the region's harness operations to a newly formed joint venture company. Adjusting for this change, Far East South net revenues for the six month period increased 16.9 percent from the same period a year ago. This regional growth is primarily due to many U.S., Japanese and European companies who have moved manufacturing operations to the region and to the strong growth in the personal computer and disk drive industries. -6- The gross profit percentage of 41.9 percent and 41.7 percent for the respective quarter and six months ending December 31, 1993 increased from the 40.6 percent and 40.9 percent reported during the comparable periods of the previous fiscal year. The Company was able to offset the effects of price erosion and higher depreciation charges with improved efficiencies, greater absorption of fixed costs due to increased sales volume and favorable changes in product mix. For the six months ended December 31, 1993, depreciation and amortization expenses have increased 23.5 percent from a year ago. The increase is attributed to the higher level of capital expenditures during the past several years. This year, as last, the majority of capital expenditures will be for new tooling and equipment directly related to improving efficiencies and increasing revenues. Operating expenses as a percent of net revenue for the six months ending December 31, 1993 remained unchanged from the same period a year ago. Foreign currency transaction losses decreased 45.4 percent for the quarter and 48.6 percent for the six months ending December 31, 1993 over the prior year's losses when the Company incurred significant losses due to the abrupt devaluation of several European currencies. Nearly 70 percent of the losses for the six month period were due to the severe devaluation of the Brazilian cruzeiro against the U.S. dollar. Interest income, net of interest expense, decreased slightly for the quarter and six months ending December 31, 1993. The decrease reflects lower average interest rates in countries where Molex has significant short-term investments. Interest expense has remained relatively unchanged from the prior year. The effective tax rate for the quarter ending December 31, 1993 equaled 39.7 percent as compared to 45.1 percent reported for the same period in the prior year. This decrease is primarily caused by increased pretax profitability in countries with lower effective tax rates and increased foreign tax credit utilization. The effective tax rates for the comparable six month periods ending December 31, 1993 and 1992, of 40.5 percent and 44.5 percent also reflect this trend. During the fourth quarter of fiscal 1993 Molex adopted Statement of Financial Accounting Standards No. 106, "Employees Accounting for Postretirement Benefits Other Than Pensions." In adopting this standard, Molex elected to immediately recognize the cumulative effect and restate the previously reported fiscal 1993 quarterly results. -7- Net income for the quarter was $21.4 million or 34 cents per share, a 29.4 percent increase compared with $16.5 million or 26 cents per share for the same quarter last fiscal year. Excluding the effects of currency fluctuations, net income for the quarter increased 26.4 percent over the same quarter last fiscal year. For the six months ending December 31, 1993, income before the cumulative effect of change in accounting was $42.8 million or 68 cents per share, a 22.9 percent increase compared to $34.8 million or 55 cents per share for the same period last fiscal year. Excluding the effects of currency fluctuations, income before the cumulative effect of change in accounting for the six months increased 20.2 percent over the prior fiscal year. Revenues derived from international operations decreased slightly during fiscal 1994. For the six months ending December 31, 1993 international revenues represented 70 percent of total revenues, compared to 72 percent for the same period during the prior year. LIQUIDITY AND CAPITAL Molex maintained its strong financial position during the first six months of fiscal 1994. Working capital at December 31, 1993 was $362.5 million, up from $319.7 million at June 30, 1993. Current assets increased by $31.8 million and current liabilities decreased by $10.9 million. Management believes that the Company's current liquidity and financial flexibility are more than adequate to support its current growth. OUTLOOK We believe Molex remains well positioned to continue increasing market share in all regions. Business remains strong in the Far East South, United States and Americas (Non-U.S.). Economic conditions remain difficult in Europe. The fiscal year 1994 six month results in this region were encouraging and we remain optimistic about the business opportunities for Molex in the European automotive, telecommunications and local area network markets. Local business remains slow in Japan. While Japan's economic difficulties may last through most of fiscal 1994, we believe that our continuing emphasis upon new product introduction, quality, delivery performance and improved efficiencies will generate improved long-term results. We anticipate that price erosion will continue in the connector industry. To help offset this pressure on margins we will continue to focus upon productivity improvements, control of expenses and the introduction of new and innovative products. We are also continuing to increase research and development expenditures to help Molex grow at a rate much faster than the rest of the worldwide connector industry. -8- Part II - Other Information Items 1 - 4. Not Applicable Item 5. Other Information On November 12, 1993, John H. Krehbiel, Sr., Chairman of the Board of Molex, died at the age of 87. Prior to his death, Mr. Krehbiel, Sr. was the sole trustee of the John H. Krehbiel Trust dated May 14, 1981 (the "Trust"). Upon his death, Mr. Krehbiel, Sr.'s sons, John H. Krehbiel, Jr. and Frederick A. Krehbiel, became trustees of the Trust. Pursuant to the request of the Trust, Molex filed a registration statement with the Securities and Exchange Commission on December 15, 1993 for a public offering by the Trust of 7.8 million shares of non-voting Class A Common Stock of Molex. Proceeds from the offering are expected to be used by the Trust primarily to pay estate taxes arising from the death of John H. Krehbiel, Sr. Molex received none of the proceeds of this offering. On November 18, 1993, Molex's Board of Directors elected Frederick A. Krehbiel Chairman of the Board. Prior to that time, he was Vice Chairman of the Board; he continues to serve as Molex's Chief Executive Officer. John H. Krehbiel, Jr. remains President and a director. Also on November 18, Fred L. Krehbiel, son of John H. Krehbiel, Jr., was elected to Molex's Board of Directors. Item 6. Not Applicable -9- S I G N A T U R E S 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 February 11, 1994 JOHN C. PSALTIS ------------------ ----------------------- John C. Psaltis Corporate Vice President & Chief Financial Officer Date February 11, 1994 LOUIS A. HECHT ------------------ ----------------------- Louis A. Hecht Corporate Secretary and General Counsel