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 March 31, 1995 ------------------------------- 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 March 31, 1995: Common Stock 40,083,024 Shares Class A Common Stock 40,533,379 Shares Class B Common Stock 94,255 Shares MOLEX INCORPORATED FORM 10-Q MARCH 31, 1995 INDEX Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Information - Unaudited Condensed Consolidated Balance Sheets -- 2 March 31, 1995 and June 30, 1994 Condensed Consolidated Statements of Income -- 3 Three Months and Nine Months Ended March 31, 1995 and 1994 Condensed Consolidated Statements of Cash Flows -- 4 Nine Months Ended March 31, 1995 and 1994 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II - OTHER INFORMATION 11 -1- MOLEX INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited - In Thousands) ASSETS ------ Mar. 31, June 30, 1995 1994 CURRENT ASSETS: --------- --------- Cash $ 22,382 $ 19,309 Short-term investments 228,360 209,617 Accounts receivable - net 253,289 221,674 Inventories 141,819 113,266 Other current assets 27,214 22,746 --------- --------- Total current assets 673,064 586,612 PROPERTY, PLANT AND EQUIPMENT - NET 522,259 440,995 OTHER ASSETS 159,276 110,910 --------- --------- $1,354,599 $1,138,517 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 113,534 $ 96,659 Accrued expenses 86,932 66,673 Other current liabilities 47,155 42,062 --------- --------- Total current liabilities 247,621 205,394 DEFERRED ITEMS 14,526 14,612 ACCRUED POSTRETIREMENT BENEFITS 30,861 26,363 LONG-TERM DEBT, less portion due currently 8,914 7,350 MINORITY INTEREST 1,890 3,184 SHAREHOLDERS' EQUITY Common stock 4,170 3,288 Paid-in capital 97,841 56,464 Retained earnings 814,371 729,547 Treasury stock (31,635) (31,749) Deferred unearned compensation (13,531) (7,223) Cumulative translation adjustments 179,571 131,287 --------- --------- Total shareholders' equity 1,050,787 881,614 --------- --------- $1,354,599 $1,138,517 ========= ========= 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 NINE MONTHS ENDED ----------------------- ----------------------- Mar. 31, Mar. 31, Mar. 31, Mar. 31, 1995 1994 1995 1994 -------- -------- -------- -------- NET REVENUE $305,755 $238,568 $849,615 $696,708 COST OF SALES 178,058 138,465 489,977 405,548 -------- -------- -------- -------- Gross Profit 127,697 100,103 359,638 291,160 OPERATING EXPENSES: Selling 32,100 26,862 93,766 80,641 Administrative 42,595 34,237 120,096 99,395 -------- -------- -------- -------- Total Operating Expenses 74,695 61,099 213,862 180,036 Income from Operations 53,002 39,004 145,776 111,124 OTHER INCOME: Foreign currency transaction loss (1,302) (747) (1,635) (2,118) Interest 2,628 1,402 6,422 3,712 -------- -------- -------- -------- Total Other Income 1,326 655 4,787 1,594 Income before Income Taxes and Minority Interest 54,328 39,659 150,563 112,718 INCOME TAXES 22,504 15,761 63,345 45,374 -------- -------- -------- -------- Income before Minority Interest 31,824 23,898 87,218 67,344 MINORITY INTEREST (30) (302) (160) (961) -------- -------- -------- -------- NET INCOME $ 31,794 $ 23,596 $ 87,058 $ 66,383 ======== ======== ======== ======== EARNINGS PER COMMON SHARE $ 0.40 $ 0.30 $ 1.09 $ 0.84 ======== ======== ======== ======== CASH DIVIDENDS PER COMMON SHARE $ 0.0100 $ 0.0080 $ 0.0280 $ 0.0220 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING THE PERIOD 80,172 79,252 79,791 79,106 ======== ======== ======== ======== 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) NINE MONTHS ENDED ----------------------- Mar. 31, Mar. 31, 1995 1994 -------- -------- CASH AND SHORT-TERM INVESTMENTS, Beginning of Period $228,926 $186,053 CASH AND SHORT-TERM INVESTMENTS PROVIDED FROM (USED FOR): Operations: Net income 87,058 66,383 Add (deduct) non-cash items included in net income: Depreciation and amortization 75,822 65,870 Minority interest 160 961 Amortization of deferred unearned compensation 2,468 2,049 (Gain) loss on sale of property, plant and equipment (327) 371 Other (credits) charges to net income (147) 118 Current items: Accounts receivable (12,241) 2,146 Inventories (16,461) (7,150) Prepaid expenses (1,980) (4,776) Accounts payable 5,198 404 Accrued expenses 16,314 8,994 Income taxes 3,350 (11,144) -------- -------- NET CASH PROVIDED FROM OPERATIONS 159,214 124,226 Investments: Purchases of property, plant and equipment (123,548) (92,208) Proceeds from sale of property, plant and equipment 1,259 2,436 (Increase) decrease in other assets (10,170) 11,533 Purchase of business, net of cash acquired (16,052) (43) -------- -------- NET CASH USED FOR INVESTMENTS (148,511) (78,282) Financing: Increase in long-term debt - 1,164 Decrease in long-term debt (238) (1,212) Cash dividends paid (2,184) (1,580) Disposition of treasury stock 1,277 871 Exercise of stock options 1,973 2,084 -------- -------- NET CASH PROVIDED FROM FINANCING 828 1,327 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND SHORT-TERM INVESTMENTS 10,285 3,725 -------- -------- 21,816 50,996 -------- -------- CASH AND SHORT-TERM INVESTMENTS, End of Period $250,742 $237,049 ======== ======== 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 1994 Annual Report to Shareholders and the 1994 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 On October 21, 1994, the Board of Directors of Molex Incorporated declared a twenty-five percent (25%) stock dividend. One quarter (1/4) share of Molex Common Stock was distributed on November 28, 1994 to shareholders of record as of November 7, 1994 for each share of Common Stock and Molex Class B Common Stock outstanding. In addition, one quarter (1/4) share of Molex Class A Common Stock was distributed for each share of Class A Common Stock outstanding. All shares outstanding, earnings and dividends have been retroactively restated for the stock split effected in the form of a stock dividend. 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 March 31, 1995 and 1994, 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) Short-Term Investments Short-term investments are available for sale and consist of a variety of highly-liquid investments with original maturities of three months or less. Short-term investments are carried at cost, which approximates market. -5- (4) Inventories Inventories are valued at the lower of first-in, first-out cost or market. Inventories, in thousands of dollars, consisted of the following: March 31, June 30, 1995 1994 ----------- ----------- Raw materials $ 24,962 $ 20,940 Work in process 56,999 42,865 Finished goods 59,858 49,461 ----------- ----------- $141,819 $113,266 =========== =========== (5) Acquisitions and Investments and Supplemental Disclosure of Noncash Investing and Financing Activities On February 17, 1995, Molex acquired Mod-Tap W. Corp., a manufacturer of interconnection products and systems for data and voice communications, for 974,988 shares of Molex Class A Common Stock and $9.3 million in cash. The transaction has been accounted for as a purchase and accordingly, the purchase price in excess of the fair value of the net assets acquired has been classified as goodwill, and included in other assets in the accompanying condensed consolidated balance sheet and amortized over 20 years. Operating results have been included in the financial statements from the date of acquisition. Mod-Tap's financial position and operating results are not material to the Company. Accordingly, pro forma financial information, which assumes the acquisition had taken place as of the beginning of the fiscal year, has not been presented. Another acquisition accounted for as purchase transaction in fiscal 1995 totaled $6.7 million. -6- MOLEX INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Consolidated net revenues reached an all-time high for the quarter ended March 31, 1995, increasing 28.2 percent over net revenues for the corresponding quarter of the prior fiscal year. For the nine months ended March 31, 1995, net revenues were $849.6 million, increasing 21.9 percent from the same period a year ago. The generally lower value of the US dollar compared to other currencies worldwide increased net revenues by $14.6 million for the quarter and $33.6 million for the nine months ended March 31, 1995. Excluding the effects of currency fluctuation, growth in net revenues would have equaled 22.0 percent for the quarter and 17.1 percent for the nine months ended March 31, 1995. Molex continued to exceed its goal of increasing net revenues at twice the growth rate of the worldwide connector market. All geographic regions gained market share as U.S. dollar net revenue growth was in excess of 15 percent for the nine months ending March 31, 1995. Net revenues in Europe increased 39.0 percent in U.S. dollars and 27.2 percent in local currencies for the nine months ending March 31, 1995. We are continuing to see increased demand for interconnection products in most of Europe, and are pleased with the increased sales we are making to the European automotive and telecommunication industries. For the first nine months of the fiscal year, the significantly increased sales levels in Europe, along with the continued streamlining of our warehouse operations, resulted in the net return on sales percent increasing from approximately 6 percent during fiscal 1994 to nearly 10 percent during the current fiscal year. U.S. Region net revenues for the nine month period increased 15.3 percent from the prior year. Sales continue strong in this, the largest of the world's connector markets. We continue to see strong revenue growth in the home entertainment/appliance market and increased customer sales to the automotive market. Fiber optic sales continue to experience robust growth. For the nine months ended March 31, 1995, net revenues in the Far East North increased 22.0 percent in U.S. dollars and 12.2 percent in local currencies as the value of the U.S. dollar continues to decline against the Japanese yen. The Japanese domestic electronic market is showing signs of improvement and demand for Molex Japan products remains strong outside the region. -7- Far East South net revenues for the nine months ending March 31, 1995 increased 22.4 percent in U.S. dollars and 18.7 percent in local currencies. Sales in this region remain strong due to continued growth in the personal computer and hard disk drive industries. The region is also gaining market share due to increased customer penetration at many of the multinational companies that have relocated manufacturing operations to the region. Net revenues in the Americas (Non-U.S.) Region grew 20.4 percent in U.S. dollars and 42.4 percent in local currencies from the prior year due to increased net revenues in Brazil and continued strong revenue growth in Mexico. The severe devaluation of the Mexican peso during fiscal 1995 did not have a material effect on the consolidated results, as Molex's operations in Mexico primarily transact business in U.S. dollars. For the nine months ending March 31, 1995, 72 percent of Molex's worldwide net revenues were generated from its international operations, compared to 70 percent for the same period during the prior fiscal year. International operations are subject to currency fluctuations and government actions. Molex monitors its currency exposure in each country and implements strategies to respond to changing economic and political environments. Due to the uncertainty of the foreign exchange markets, Molex cannot reasonably predict future trends related to foreign currency fluctuations. Foreign currency fluctuations have impacted results in the past and may impact results in the future. The gross profit percentage of 42.3 percent for the nine months ending March 31, 1995 increased from the 41.8 percent reported during the comparable period of the previous fiscal year. The Company was able to offset the effects of slightly higher material prices and price erosion in some key product lines with improved manufacturing efficiencies, greater absorption of fixed costs due to the increased sales volume and favorable changes in product mix. For the nine months ending March 31, 1995, depreciation and amortization expenses have increased at a lower rate than the increase in net revenues. Depreciation and amortization expenses currently represent 8.9 percent of sales compared to 9.5 percent of sales during the same period of the prior fiscal year. Operating expenses as a percent of net revenue for the nine months ending March 31, 1995 improved slightly from the same period a year ago, reflecting the continued management focus on the control of expenses. Foreign currency transaction losses increased 74.3 percent for the quarter, but decreased 22.8 percent for the nine months ending March 31, 1995 over the prior year's losses when the Company incurred high losses due to the devaluation of the Brazilian cruzeiro against the U.S. dollar. The increase in the foreign currency transaction loss for the quarter ended March 31, 1995 is primarily due to the stronger Japanese yen. -8- Interest income, net of interest expense, increased 87.4 percent for the quarter and 73.0 percent for the nine months ending March 31, 1995. The increase reflects the higher balance of cash and short-term investments during the period coupled with a slight increase in 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 March 31, 1995 equaled 41.4 percent as compared to 39.7 percent reported for the same period in the prior fiscal year. This increase is primarily caused by increased pretax profitability in countries with higher effective tax rates coupled with the inability of the Company to utilize all of its foreign tax credits. The effective tax rates for the comparable nine month periods ending March 31, 1995 and 1994, of 42.1 percent and 40.3 percent also reflect this trend. Net income for the quarter was $31.8 million or 40 cents per share, a 34.7 percent increase compared with $23.6 million or 30 cents per share for the same quarter last fiscal year. Excluding the effects of currency fluctuations, net income for the quarter increased 26.3 percent over the same quarter last fiscal year. For the nine months ending March 31, 1995, net income was $87.1 million or $1.09 per share, a 31.1 percent increase compared to $66.4 million or 84 cents per share for the same period last fiscal year. Excluding the effects of currency fluctuations, net income for the nine months increased 24.6 percent over the prior fiscal year. During the first quarter of fiscal 1995 Molex adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). SFAS 115 requires that the carrying value of certain investments be adjusted to their fair value. Adoption of the statement did not have a material effect on the financial condition or consolidated results of operations of the Company. LIQUIDITY AND CAPITAL One of Molex's many financial strengths is its exceptionally strong balance sheet. Working capital at March 31, 1995 was $425.4 million, up from $381.2 million at June 30, 1994. Current assets increased by $86.5 million, primarily due to increases in short-term investments, net accounts receivable and inventory. On October 21, 1994, the Board of Directors of Molex Incorporated declared a twenty-five percent (25%) stock dividend. One quarter (1/4) share of Molex Common Stock was distributed on November 28, 1994 to shareholders of record as of November 7, 1994 for each share of Common Stock and Molex Class B Common Stock outstanding. In addition, one quarter (1/4) share of Molex Class A Common Stock was distributed for each share of Class A Common Stock outstanding. All shares outstanding, earnings and dividends have been retroactively restated for the stock split effected in the form of a stock dividend. -9- For the fiscal year ending June 30, 1995, we expect capital expenditures to increase to between $180 and $190 million from the $129.5 million expended during fiscal year 1994. This increase represents the required investment in plants, equipment and technology to support the increased sales levels and meet our customers' needs. Management believes that the Company's current liquidity and financial flexibility are adequate to support its current growth. OUTLOOK The prospects for the remainder of fiscal 1995 continue to look promising. Demand for interconnection products remains strong in the United States, Europe and Far East South. In Japan, Molex's business levels continue to improve modestly. Molex will continue to push into new markets and expand our product line through the introduction of new and innovative products. On February 17, 1995, Molex completed the transaction to acquire Mod-Tap W. Corp., a manufacturer of interconnection products and systems for data and voice communications. This acquisition is expected to better position Molex to expand into the rapidly growing local area network market. We continue to see the effects of Molex's ability to control costs and improve productivity. We will continue to review and challenge all activities in the Company with the goal of improving customer service and operating efficiencies. -10- Part II - Other Information Items 1 - 4. Not Applicable Item 5. Other Information On February 17, 1995, Molex Incorporated completed the transaction to acquire Mod-Tap W. Corp., a Harvard, Massachusetts based privately owned manufacturer of interconnection products and systems for data and voice communications in a transaction in which shareholders of Mod- Tap W. Corp. received shares of Molex Class A non-voting Common Stock. Item 6. Not Applicable -11- 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 May 12, 1995 /s/ JOHN C. PSALTIS ------------------ ----------------------- John C. Psaltis Corporate Vice President, Treasurer and Chief Financial Officer Date May 12, 1995 /s/ LOUIS A. HECHT ------------------ ----------------------- Louis A. Hecht Corporate Secretary and General Counsel