Item 1.
|
Financial Statements
|
Molex Incorporated
Condensed Consolidated Balance Sheets
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Dec. 31,
2012
|
|
|
June 30,
2012
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
705,047
|
|
|
$
|
637,417
|
|
Marketable securities
|
|
|
11,738
|
|
|
|
14,830
|
|
Accounts receivable, less allowances of $37,681 and $37,876, respectively
|
|
|
745,851
|
|
|
|
751,279
|
|
Inventories
|
|
|
566,889
|
|
|
|
531,825
|
|
Deferred income taxes
|
|
|
101,398
|
|
|
|
110,789
|
|
Other current assets
|
|
|
33,109
|
|
|
|
33,098
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,164,032
|
|
|
|
2,079,238
|
|
Property, plant and equipment, net
|
|
|
1,177,342
|
|
|
|
1,150,549
|
|
Goodwill
|
|
|
195,030
|
|
|
|
160,986
|
|
Non-current deferred income taxes
|
|
|
48,063
|
|
|
|
50,038
|
|
Other assets
|
|
|
180,130
|
|
|
|
170,692
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,764,597
|
|
|
$
|
3,611,503
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of short-term borrowings and long-term debt
|
|
$
|
115,869
|
|
|
$
|
104,933
|
|
Accounts payable
|
|
|
344,997
|
|
|
|
355,491
|
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
Accrued liability for unauthorized activities in Japan
|
|
|
170,665
|
|
|
|
184,177
|
|
Income taxes payable
|
|
|
40,876
|
|
|
|
35,360
|
|
Other
|
|
|
200,084
|
|
|
|
212,035
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
872,491
|
|
|
|
891,996
|
|
Other non-current liabilities
|
|
|
19,700
|
|
|
|
18,174
|
|
Accrued pension and other postretirement benefits
|
|
|
95,424
|
|
|
|
115,176
|
|
Long-term debt
|
|
|
230,000
|
|
|
|
150,032
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,217,615
|
|
|
|
1,175,378
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
11,411
|
|
|
|
11,361
|
|
Additional paid-in capital
|
|
|
731,115
|
|
|
|
711,394
|
|
Retained earnings
|
|
|
2,603,761
|
|
|
|
2,539,931
|
|
Treasury stock
|
|
|
(1,117,193
|
)
|
|
|
(1,112,956
|
)
|
Accumulated other comprehensive income
|
|
|
317,888
|
|
|
|
286,395
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,546,982
|
|
|
|
2,436,125
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,764,597
|
|
|
$
|
3,611,503
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
3
Molex Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net revenue
|
|
$
|
967,735
|
|
|
$
|
857,598
|
|
|
$
|
1,884,656
|
|
|
$
|
1,793,583
|
|
Cost of sales
|
|
|
678,565
|
|
|
|
594,661
|
|
|
|
1,327,069
|
|
|
|
1,237,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
289,170
|
|
|
|
262,937
|
|
|
|
557,587
|
|
|
|
555,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
181,028
|
|
|
|
163,073
|
|
|
|
344,149
|
|
|
|
332,298
|
|
Unauthorized activities in Japan
|
|
|
1,627
|
|
|
|
2,723
|
|
|
|
4,188
|
|
|
|
5,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
182,655
|
|
|
|
165,796
|
|
|
|
348,337
|
|
|
|
337,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
106,515
|
|
|
|
97,141
|
|
|
|
209,250
|
|
|
|
217,722
|
|
Interest (expense) income, net
|
|
|
(1,133
|
)
|
|
|
(2,094
|
)
|
|
|
(1,943
|
)
|
|
|
(3,485
|
)
|
Other (expense) income
|
|
|
(3,151
|
)
|
|
|
1,482
|
|
|
|
(1,955
|
)
|
|
|
1,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income, net
|
|
|
(4,284
|
)
|
|
|
(612
|
)
|
|
|
(3,898
|
)
|
|
|
(1,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
102,231
|
|
|
|
96,529
|
|
|
|
205,352
|
|
|
|
215,995
|
|
Income taxes
|
|
|
31,837
|
|
|
|
32,513
|
|
|
|
63,644
|
|
|
|
71,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
70,394
|
|
|
$
|
64,016
|
|
|
$
|
141,708
|
|
|
$
|
144,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.40
|
|
|
$
|
0.36
|
|
|
$
|
0.80
|
|
|
$
|
0.82
|
|
Diluted
|
|
$
|
0.39
|
|
|
$
|
0.36
|
|
|
$
|
0.79
|
|
|
$
|
0.82
|
|
Dividends declared per share
|
|
$
|
0.2200
|
|
|
$
|
0.2000
|
|
|
$
|
0.4400
|
|
|
$
|
0.4000
|
|
Average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
177,123
|
|
|
|
175,830
|
|
|
|
176,888
|
|
|
|
175,656
|
|
Diluted
|
|
|
178,854
|
|
|
|
176,985
|
|
|
|
178,743
|
|
|
|
176,778
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
4
Molex Incorporated
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net income
|
|
$
|
70,394
|
|
|
$
|
64,016
|
|
|
$
|
141,708
|
|
|
$
|
144,533
|
|
Foreign currency translation adjustments
|
|
|
(8,852
|
)
|
|
|
(6,975
|
)
|
|
|
21,710
|
|
|
|
(65,559
|
)
|
Postretirement medical benefits remeasurement, net of tax
|
|
|
8,945
|
|
|
|
|
|
|
|
8,945
|
|
|
|
|
|
Unrealized (loss) gain on derivative instruments, net of tax
|
|
|
(1,647
|
)
|
|
|
(3,856
|
)
|
|
|
1,417
|
|
|
|
(2,981
|
)
|
Unrealized investment (loss), net of tax
|
|
|
(86
|
)
|
|
|
(212
|
)
|
|
|
(579
|
)
|
|
|
(2,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
(1,640
|
)
|
|
|
(11,043
|
)
|
|
|
31,493
|
|
|
|
(70,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
68,754
|
|
|
$
|
52,973
|
|
|
$
|
173,201
|
|
|
$
|
73,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
5
Molex Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
141,708
|
|
|
$
|
144,533
|
|
Add non-cash items included in net income:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
117,402
|
|
|
|
121,174
|
|
Share-based compensation
|
|
|
15,425
|
|
|
|
11,402
|
|
Other non-cash items
|
|
|
5,685
|
|
|
|
5,213
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
5,006
|
|
|
|
94,400
|
|
Inventories
|
|
|
(34,831
|
)
|
|
|
(26,442
|
)
|
Accounts payable
|
|
|
(5,326
|
)
|
|
|
(40,976
|
)
|
Other current assets and liabilities
|
|
|
9,605
|
|
|
|
(7,183
|
)
|
Other assets and liabilities
|
|
|
(97
|
)
|
|
|
(10,608
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided from operating activities
|
|
|
254,577
|
|
|
|
291,513
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(148,041
|
)
|
|
|
(95,055
|
)
|
Acquisitions
|
|
|
(55,299
|
)
|
|
|
(24,000
|
)
|
Proceeds from sales of property, plant and equipment
|
|
|
3,020
|
|
|
|
2,202
|
|
Proceeds from sales or maturities of marketable securities
|
|
|
8,399
|
|
|
|
6,553
|
|
Purchases of marketable securities
|
|
|
(5,081
|
)
|
|
|
(4,787
|
)
|
Insurance proceeds and other investing activities
|
|
|
9,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for investing activities
|
|
|
(187,045
|
)
|
|
|
(115,087
|
)
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
90,000
|
|
|
|
75,000
|
|
Payments on revolving credit facility
|
|
|
(10,000
|
)
|
|
|
(220,000
|
)
|
Proceeds from short-term loans and debt
|
|
|
178,089
|
|
|
|
|
|
Payments on short-term loans and debt
|
|
|
(158,620
|
)
|
|
|
(27,389
|
)
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
149,713
|
|
Cash dividends paid
|
|
|
(116,706
|
)
|
|
|
(70,186
|
)
|
Exercise of stock options
|
|
|
4,804
|
|
|
|
2,630
|
|
Other financing activities
|
|
|
(2,115
|
)
|
|
|
(2,087
|
)
|
|
|
|
|
|
|
|
|
|
Cash used for financing activities
|
|
|
(14,548
|
)
|
|
|
(92,319
|
)
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
14,646
|
|
|
|
(9,370
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
67,630
|
|
|
|
74,737
|
|
Cash and cash equivalents, beginning of period
|
|
|
637,417
|
|
|
|
532,599
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
705,047
|
|
|
$
|
607,336
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
6
Molex Incorporated
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 41 manufacturing locations in 15 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 and six months ended
December 31, 2012 are not necessarily an indication of the results that may be expected for the year ending June 30, 2013. The Condensed Consolidated Balance Sheet as of June 30, 2012 was derived from our audited consolidated
financial statements for the year ended June 30, 2012. 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, 2012.
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 other post retirement benefits,
stock options, accrued liability 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, 2012, we investigated
unauthorized activities at Molex Japan Co., Ltd. Based on the results of the completed investigation, we recorded an accrued liability of $165.8 million for accounting purposes for the effect of unauthorized activities pending the resolution of the
legal proceedings reported in Note 12.
We believe these unauthorized activities and related losses occurred from at least as
early as 1988 through 2010. The accrued liability for these unauthorized activities was $170.7 million as of December 31, 2012, including $4.9 million in cumulative foreign currency translation, which was recorded as a component of other
comprehensive income, net of tax. To the extent we prevail in not having to pay all or any portion of the unauthorized loans ($165.8 million), we would recognize a gain. In addition, we have a contingent liability of $66.2 million for interest
expense, delay damages and other loan-related expenses on the outstanding unauthorized loans.
Unauthorized activities in
Japan for the three and six months ended December 31, 2012 and 2011 represent investigative and legal fees.
3. Acquisitions
During the second quarter of fiscal 2013, we acquired Affinity Medical Technologies, LLC, a medical electronics
company, for $55.3 million, net of cash acquired, and recorded goodwill of $34.0 million. The purchase price allocation for this acquisition is preliminary and subject to revision as more detailed analysis is completed and additional information
about the fair value of assets and liabilities becomes available.
7
During the second quarter of fiscal 2012, we completed an asset purchase of Temp-Flex Cable,
Inc., a specialty wire and cable company, for $24.0 million and recorded goodwill of $12.3 million. The purchase price allocation for this acquisition is complete.
4. 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
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net income
|
|
$
|
70,394
|
|
|
$
|
64,016
|
|
|
$
|
141,708
|
|
|
$
|
144,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic average common shares outstanding
|
|
|
177,123
|
|
|
|
175,830
|
|
|
|
176,888
|
|
|
|
175,656
|
|
Effect of dilutive stock options
|
|
|
1,731
|
|
|
|
1,155
|
|
|
|
1,855
|
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
178,854
|
|
|
|
176,985
|
|
|
|
178,743
|
|
|
|
176,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.40
|
|
|
$
|
0.36
|
|
|
$
|
0.80
|
|
|
$
|
0.82
|
|
Diluted
|
|
$
|
0.39
|
|
|
$
|
0.36
|
|
|
$
|
0.79
|
|
|
$
|
0.82
|
|
Excluded from the computations above were anti-dilutive shares of 3.8 million and 2.9 million
for the three and six months ended December 31, 2012, respectively, compared with 5.1 million and 5.8 million for the same prior year periods.
5. 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):
|
|
|
|
|
|
|
|
|
|
|
Dec. 31,
2012
|
|
|
June 30,
2012
|
|
Raw materials
|
|
$
|
90,711
|
|
|
$
|
84,536
|
|
Work in process
|
|
|
168,350
|
|
|
|
145,610
|
|
Finished goods
|
|
|
307,828
|
|
|
|
301,679
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
566,889
|
|
|
$
|
531,825
|
|
|
|
|
|
|
|
|
|
|
6. Pensions and Other Postretirement Benefits
The components of pension benefit cost are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Service cost
|
|
$
|
1,627
|
|
|
$
|
1,381
|
|
|
$
|
3,254
|
|
|
$
|
2,762
|
|
Interest cost
|
|
|
2,060
|
|
|
|
2,123
|
|
|
|
4,120
|
|
|
|
4,246
|
|
Expected return on plan assets
|
|
|
(2,272
|
)
|
|
|
(2,166
|
)
|
|
|
(4,544
|
)
|
|
|
(4,332
|
)
|
Amortization of prior service cost
|
|
|
65
|
|
|
|
65
|
|
|
|
130
|
|
|
|
130
|
|
Recognized actuarial losses
|
|
|
681
|
|
|
|
290
|
|
|
|
1,362
|
|
|
|
580
|
|
Amortization of transition obligation
|
|
|
10
|
|
|
|
10
|
|
|
|
20
|
|
|
|
20
|
|
Other income
|
|
|
(59
|
)
|
|
|
|
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit cost
|
|
$
|
2,112
|
|
|
$
|
1,703
|
|
|
$
|
4,224
|
|
|
$
|
3,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
The components of retiree health care benefit cost are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Service cost
|
|
$
|
179
|
|
|
$
|
274
|
|
|
$
|
358
|
|
|
$
|
548
|
|
Interest cost
|
|
|
341
|
|
|
|
586
|
|
|
|
682
|
|
|
|
1,172
|
|
Amortization of prior service cost
|
|
|
(516
|
)
|
|
|
(516
|
)
|
|
|
(1,032
|
)
|
|
|
(1,032
|
)
|
Recognized actuarial (gains) losses
|
|
|
(179
|
)
|
|
|
82
|
|
|
|
(358
|
)
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit cost
|
|
$
|
(175
|
)
|
|
$
|
426
|
|
|
$
|
(350
|
)
|
|
$
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective December 31, 2012, we amended a postretirement medical benefits plan in the United States
to cap subsidies provided to plan participants retiring after January 31, 2013. We remeasured the postretirement medical benefits liability, resulting in a $14.0 million reduction in the liability with the offset to other comprehensive income,
net of tax. The benefit of the remeasured liability will be recognized over a 27 month period, which is the average time until the remaining active participants in the plan reach retirement eligibility.
7. Debt
Total debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Interest
Rate
|
|
|
Calendar
Year
Maturity
|
|
|
December 31,
2012
|
|
|
June 30,
2012
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Placement
|
|
|
3.59
|
%
|
|
|
2016 2021
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
U.S. Credit Facility
|
|
|
1.71
|
%
|
|
|
2016
|
|
|
|
80,000
|
|
|
|
|
|
Unsecured bonds and term loans
|
|
|
1.18
|
%
|
|
|
2013
|
|
|
|
5,747
|
|
|
|
37,556
|
|
Other debt
|
|
|
Varies
|
|
|
|
2013
|
|
|
|
809
|
|
|
|
1,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
236,556
|
|
|
|
188,647
|
|
Less current portion of long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured bonds and term loans
|
|
|
1.18
|
%
|
|
|
|
|
|
|
5,747
|
|
|
|
37,556
|
|
Other debt
|
|
|
Varies
|
|
|
|
|
|
|
|
809
|
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
|
|
|
|
|
|
|
|
230,000
|
|
|
|
150,032
|
|
|
|
|
|
|
Short-term borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overdraft loans
|
|
|
0.74
|
%
|
|
|
2013
|
|
|
|
105,639
|
|
|
|
62,645
|
|
Other short-term borrowings
|
|
|
Varies
|
|
|
|
|
|
|
|
3,674
|
|
|
|
3,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
109,313
|
|
|
|
66,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
|
|
|
|
$
|
345,869
|
|
|
$
|
254,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In September 2012, Molex Japan entered into three overdraft loans totaling ¥11.0 billion, with
one-year terms and fluctuating interest rates based on interbank offered rates plus a spread ranging from 40 basis points to 70 basis points. At December 31, 2012, the balance of the overdraft loans, which require full repayment by the end of
the term if not renewed, approximated $105.6 million.
In August 2011, we issued senior notes pursuant to a Note Purchase
Agreement (the Agreement) 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 in
August 2016; Series B with an interest rate of 3.59% matures in August 2018; and Series C with an interest rate of 4.28% matures in August 2021. The Agreement contains customary covenants regarding liens, debt, substantial asset sales and mergers.
The Agreement also requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and interest rate coverage. As of December 31, 2012, we were in compliance with these covenants and the balance of the
senior notes was $150.0 million.
In March 2010, Molex Japan entered into a ¥3.0 billion syndicated term loan for three
years, with an interest rate equivalent to six month Tokyo Interbank Offered Rate (TIBOR) plus 75 basis points and scheduled
9
principal payments of ¥0.5 billion every six months. At December 31, 2012, the balance of the syndicated term loan approximated $5.7 million, which is classified as current.
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, March 2011 and December 2012, 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 U.S. 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 December 31, 2012. The agreement governing the U.S. Credit Facility contains
customary covenants regarding liens, debt, substantial asset sales and mergers, dividends and investments. The U.S. Credit Facility also requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage
and fixed charge coverage. As of December 31, 2012, we were in compliance with these covenants and had outstanding borrowings of $80.0 million.
Principal payments on long-term debt obligations are due as follows as of December 31, 2012 (in thousands):
|
|
|
|
|
Year one
|
|
$
|
6,556
|
|
Year two
|
|
|
|
|
Year three
|
|
|
|
|
Year four
|
|
|
130,000
|
|
Year five
|
|
|
|
|
Thereafter
|
|
|
100,000
|
|
|
|
|
|
|
Total long-term debt obligations
|
|
$
|
236,556
|
|
|
|
|
|
|
We had available lines of credit totaling $366.1 million at December 31, 2012, including $270.0
million available on the U.S. Credit Facility. The lines of credit expire between 2013 and 2016.
8. Income Taxes
The effective tax rate was 31.1% for the three months ended December 31, 2012 and 33.7% for the three months ended
December 31, 2011, reflecting the mix of earnings in tax jurisdictions with tax rates less than the U.S. federal tax rate of 35.0%. The effective tax rate for the six months ended December 31, 2012 was 31.0%.
We are subject to tax in U.S. federal, state and foreign tax jurisdictions. The examinations of U.S. federal income tax returns for 2007,
2008 and 2009 were completed during fiscal 2012. The tax years 2010 through 2012 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 December 31, 2012, there were no material interest or penalty amounts to accrue.
9. Fair Value Measurements
The following table summarizes our financial assets and liabilities as of December 31, 2012, which are measured at
fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Measured
at Fair
Value
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Available-for-sale and trading securities
|
|
$
|
26,487
|
|
|
$
|
26,487
|
|
|
$
|
|
|
|
$
|
|
|
Derivative financial instruments, net
|
|
|
2,578
|
|
|
|
|
|
|
|
2,578
|
|
|
|
|
|
10
We determine the fair value of our available-for-sale securities based on quoted market
prices (Level 1). We generally use derivatives for hedging purposes pursuant to ASC 815-10, which are valued based on Level 2 inputs in the ASC 820 fair value hierarchy. The fair value of our derivative 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.
10. 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-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 (expense) income. The notional amounts of the forward contracts were $255.5 million and $223.3
million at December 31, 2012 and June 30, 2012, respectively, with corresponding fair values of a $0.9 million liability at December 31, 2012 and a $2.6 million asset at June 30, 2012.
Cash Flow Hedges
We use
derivatives in the form of call options to hedge the variability of gold and copper prices. 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 (AOCI) and reclassified to cost of sales during the period the product containing the commodity is sold. The fair values of the call options were $3.5 million and
$4.4 million at December 31, 2012 and June 30, 2012, respectively. These call options have maturities of 12 months or less.
For the three and six months ended December 31, 2012 and 2011, the impact to AOCI and earnings from cash flow hedges before taxes follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December
31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Unrealized (loss) gain recognized in AOCI
|
|
|
(970
|
)
|
|
|
(9,286
|
)
|
|
|
6,178
|
|
|
|
(11,064
|
)
|
Realized (loss) gain reclassified into earnings
|
|
|
(1,544
|
)
|
|
|
3,354
|
|
|
|
(4,041
|
)
|
|
|
6,478
|
|
At December 31, 2012, $2.5 million is expected to be reclassified from AOCI to cost of sales within
the next 12 months.
11. New Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU)
No. 2011-05, Comprehensive Income (Topic 220). The 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. The guidance eliminates the current option to report other comprehensive income and its components in the statement of stockholders equity. While the 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. We adopted ASU 2011-05 in the first quarter of fiscal 2013 and presented a separate statement of
comprehensive income.
11
In July 2012, the FASB issued updated guidance on the periodic testing of intangible assets
for impairment. The guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that the indefinite-lived intangible asset might be impaired and whether it is necessary to perform the quantitative
impairment test as required under current guidance. The new guidance is effective for us beginning July 1, 2013, with early adoption permitted. The new guidance is not expected to have a material impact on our consolidated financial statements.
12. Contingencies
We are currently a party to various legal proceedings, claims and investigations including those disclosed below. While
management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially adversely affect our financial position, legal proceedings are subject to inherent uncertainties, and unfavorable
rulings or other events could occur. If one or more unfavorable final outcome were to occur, then our business could be materially and adversely affected.
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 24.0 million ($30.9 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 filed its briefs in reply on January 6, 2012 arguing the plaintiffs
claims be dismissed. In the reply briefs, Molex argued it was not the co-employer of the plaintiffs and the court should find that it lacks jurisdiction over Molex to hear the dispute. In the alternative, Molex argued there was no breach
of the information consultation process with the employees and their representatives, the dismissals were valid and based on economic grounds, MAS complied with its redeployment obligations and requested that the court dismiss the claims for
damages. Molex also argued if the court were to award compensation, then any judgment against Molex be several but not jointly with MAS, and the amount awarded to plaintiffs not exceed six months salary, approximately
2.0 million ($2.6 million).
On February 24, 2012, the five employees who fall within the executive section
submitted a reply brief and requested a postponement of the March 5, 2012 court date. The court granted the request and rescheduled separate court dates in 2012 for each plaintiff as follows:
June 25, July 9, September 24, October 8 and December 17. On June 25, 2012, one plaintiff withdrew his claims against Molex. At the hearing on July 9, the court heard arguments on the issue of
jurisdiction over Molex only, and on November 5, 2012 the court ruled that it has jurisdiction over Molex. Molex filed an appeal with the Toulouse Appellate Court and the court scheduled a hearing on February 13, 2013. A hearing at the
Toulouse Labor Court for the remaining three executive section plaintiffs has been scheduled for March 7, 2013.
On
June 28, 2012, the Toulouse Labor Court ruled it has jurisdiction over Molex with respect to the 190 employees who fall within the industry section and on July 12, 2012, Molex filed 190 appeals (one for each plaintiff)
12
with the Toulouse Appellate Court contesting jurisdiction. The Toulouse Appellate Court held a hearing to consider the appeal of the jurisdiction issue and is expected to issue a decision on
February 7, 2013.
On March 29, 2012, Molex received notice that the liquidator filed an action against Molex in the
Commercial Court of Paris claiming Molex is responsible for the liabilities of MAS that remain as a result of the liquidation. The liquidator alleged that Molex acted as de facto manager of MAS and mismanaged MAS. Although the liabilities are
currently estimated at 1.9 million ($2.5 million), future liabilities of MAS may also include any amounts successfully awarded to plaintiffs in their lawsuits against MAS (described above). Molex filed a brief opposing the
liquidators claims.
We intend to vigorously contest the attempt by the former employees to seek additional compensation
from Molex, and the liquidators attempt to hold Molex responsible for the liabilities of MAS.
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 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 ($34.8 million), ¥5 billion ($58.1 million), ¥5 billion ($58.1 million) and ¥2 billion ($23.2 million), other loan-related expenses of approximately ¥106 million ($1.2 million) and interest expense
and delay damages of approximately ¥5.7 billion ($66.2 million) as of December 31, 2012. 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, witness statements and witness testimony. At a court hearing on October 10, 2012, the court informed the parties that it would render its decision on December 26, 2012; however, in late November, upon consultation with
the court, court-supervised settlement discussions commenced. At a settlement meeting on December 21, 2012, the court postponed issuing its decision until February 27, 2013. There can be no assurance the parties will reach settlement or
the settlement amount will not exceed the accrued liability for unauthorized activities in Japan. If settlement discussions fail to resolve the litigation, we intend to continue to vigorously contest the enforceability of the outstanding
unauthorized loans. See Note 2 for accounting treatment of the accrued liability for unauthorized activities in Japan.
As we
reported on April 29, 2011, the SEC informed us they issued a formal order of private investigation in connection with the unauthorized activities in Japan. We are fully cooperating with the SECs investigation.
13. Segments and Related Information
We have two global reportable segments: Connector and Custom & Electrical. The reportable segments represent
an aggregation of three operating segments.
|
|
|
The Connector segment designs and manufactures products for high-speed, high-density, high signal-integrity applications for the telecommunications and
infotech markets as well as fine-pitch, low-profile connectors for the consumer market. 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 across all industries that provide
original, differentiated solutions to
|
13
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
714,712
|
|
|
$
|
252,913
|
|
|
$
|
110
|
|
|
$
|
967,735
|
|
Income (loss) from operations
|
|
|
116,876
|
|
|
|
31,812
|
|
|
|
(42,173
|
)
|
|
|
106,515
|
|
Depreciation & amortization
|
|
|
48,090
|
|
|
|
7,690
|
|
|
|
3,880
|
|
|
|
59,660
|
|
Capital expenditures
|
|
|
62,790
|
|
|
|
9,237
|
|
|
|
6,601
|
|
|
|
78,628
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
602,885
|
|
|
$
|
254,713
|
|
|
$
|
|
|
|
$
|
857,598
|
|
Income (loss) from operations
|
|
|
77,351
|
|
|
|
47,597
|
|
|
|
(27,807
|
)
|
|
|
97,141
|
|
Depreciation & amortization
|
|
|
49,333
|
|
|
|
6,753
|
|
|
|
3,847
|
|
|
|
59,933
|
|
Capital expenditures
|
|
|
43,673
|
|
|
|
4,235
|
|
|
|
4,343
|
|
|
|
52,251
|
|
|
|
|
|
|
For the six months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
1,371,286
|
|
|
$
|
512,697
|
|
|
$
|
673
|
|
|
$
|
1,884,656
|
|
Income (loss) from operations
|
|
|
212,132
|
|
|
|
72,672
|
|
|
|
(75,554
|
)
|
|
|
209,250
|
|
Depreciation & amortization
|
|
|
94,365
|
|
|
|
14,769
|
|
|
|
8,268
|
|
|
|
117,402
|
|
Capital expenditures
|
|
|
115,177
|
|
|
|
22,546
|
|
|
|
10,318
|
|
|
|
148,041
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
1,281,665
|
|
|
$
|
511,507
|
|
|
$
|
411
|
|
|
$
|
1,793,583
|
|
Income (loss) from operations
|
|
|
183,613
|
|
|
|
89,505
|
|
|
|
(55,396
|
)
|
|
|
217,722
|
|
Depreciation & amortization
|
|
|
99,408
|
|
|
|
13,880
|
|
|
|
7,886
|
|
|
|
121,174
|
|
Capital expenditures
|
|
|
78,375
|
|
|
|
11,149
|
|
|
|
5,531
|
|
|
|
95,055
|
|
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 assets of certain plants that are not specific to a particular segment.
Segment assets, which are comprised of accounts receivable, inventory and fixed assets, are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custom &
|
|
|
Corporate
|
|
|
|
|
|
|
Connector
|
|
|
Electrical
|
|
|
& Other
|
|
|
Total
|
|
December 31, 2012
|
|
$
|
1,888,097
|
|
|
$
|
496,875
|
|
|
$
|
105,110
|
|
|
$
|
2,490,082
|
|
June 30, 2012
|
|
|
1,846,636
|
|
|
|
479,318
|
|
|
|
107,699
|
|
|
|
2,433,653
|
|
14
The reconciliation of segment assets to consolidated total assets is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Dec. 31,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2012
|
|
Segment assets
|
|
$
|
2,490,082
|
|
|
$
|
2,433,653
|
|
Other current assets
|
|
|
851,292
|
|
|
|
796,134
|
|
Other non-current assets
|
|
|
423,223
|
|
|
|
381,716
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
$
|
3,764,597
|
|
|
$
|
3,611,503
|
|
|
|
|
|
|
|
|
|
|
15
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, 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, 2012. 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 electronic 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 different products including terminals, connectors, planar cables, cable assemblies, interconnection systems, backplanes, integrated products and mechanical and electronic switches in 41 manufacturing locations
in 15 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 designs and manufactures products for high-speed, high-density, high signal-integrity applications for the telecommunications and
infotech markets as well as fine-pitch, low-profile connectors for the consumer market. 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 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 12.8% and 5.1% during the three and six months ended December 31, 2012, respectively, compared with the prior
year periods primarily due to an increase in customer demand in the telecommunications and infotech markets, partially offset by lower demand in the consumer and industrial markets. The increased customer demand in the telecommunications and
infotech markets resulted in sales to a consumer electronics company, directly and indirectly, that exceeded 10% of net revenue during the three and six months ended December 31, 2012. Gross margin decreased during the three and six months
ended December 31, 2012 compared with the prior year periods primarily due to changes in the mix of product sales and start-up costs related to new product introductions. Selling, general and administrative expenses were higher during the three
and six months ended December 31, 2012 compared with the prior year periods to support the increase in net revenue. Selling, general and administrative expenses decreased as a percentage of net revenue over prior year periods. Income from
operations increased during the three months ended December 31, 2012 primarily due to higher net revenue compared with the prior year period, but decreased during the six months ended December 31, 2012 as higher net revenue was offset by
lower gross margin and higher selling, general and administrative expenses compared with the prior year period.
Unauthorized Activities in
Japan
As previously reported in our Annual Report on Form 10-K for the year ended June 30, 2012, we investigated
unauthorized activities at Molex Japan Co., Ltd. Based on the results of the completed investigation, we
16
recorded an accrued liability of $165.8 million for accounting purposes for the effect of unauthorized activities.
We believe these unauthorized activities and related losses occurred from at least as early as 1988 through 2010. The accrued liability for these unauthorized activities was $170.7 million as of
December 31, 2012, including $4.9 million in cumulative foreign currency translation, which was recorded as a component of other comprehensive income, net of tax. To the extent we prevail in not having to pay all or any portion of the
unauthorized loans ($165.8 million), we would recognize a gain. In addition, we have a contingent liability of $66.2 million for interest expense, delay damages and other loan-related expenses on the outstanding unauthorized loans.
On August 31, 2010, the holder of the unauthorized loans filed a complaint in Tokyo District Court requesting the court to find Molex
Japan liable for payment of the outstanding unauthorized loans and to enter a judgment for such payment. 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, witness statements and witness testimony. At a court hearing on October 10, 2012, the court informed the parties that it would render its decision on December 26, 2012; however, in late November, upon consultation with
the court, court-supervised settlement discussions commenced. At a settlement meeting on December 21, 2012, the court postponed issuing its decision until February 27, 2013. There can be no assurance the parties will reach settlement or the
settlement amount will not exceed the accrued liability for unauthorized activities in Japan. If settlement discussions fail to resolve the litigation, we intend to continue to vigorously contest the enforceability of the outstanding unauthorized
loans. For a complete discussion of legal proceedings, see Note 12 of the Notes to Condensed Consolidated Financial Statements.
Unauthorized activities in Japan for the three and six months ended December 31, 2012 and 2011 represent investigative and legal
fees.
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 and Analysis of Financial
Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012 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 income data as a percentage of net revenue for the three months ended
December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
|
|
2012
|
|
|
of Revenue
|
|
|
2011
|
|
|
of Revenue
|
|
Net revenue
|
|
$
|
967,735
|
|
|
|
100.0
|
%
|
|
$
|
857,598
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
678,565
|
|
|
|
70.1
|
%
|
|
|
594,661
|
|
|
|
69.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
289,170
|
|
|
|
29.9
|
%
|
|
|
262,937
|
|
|
|
30.7
|
%
|
|
|
|
|
|
Selling, general & administrative
|
|
|
181,028
|
|
|
|
18.7
|
%
|
|
|
163,073
|
|
|
|
19.0
|
%
|
Unauthorized activities in Japan
|
|
|
1,627
|
|
|
|
0.2
|
%
|
|
|
2,723
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
106,515
|
|
|
|
11.0
|
%
|
|
|
97,141
|
|
|
|
11.3
|
%
|
|
|
|
|
|
Other (expense) income, net
|
|
|
(4,284
|
)
|
|
|
(0.4
|
%)
|
|
|
(612
|
)
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
102,231
|
|
|
|
10.6
|
%
|
|
|
96,529
|
|
|
|
11.3
|
%
|
Income taxes
|
|
|
31,837
|
|
|
|
3.3
|
%
|
|
|
32,513
|
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
70,394
|
|
|
|
7.3
|
%
|
|
$
|
64,016
|
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
The following table sets forth consolidated statements of income data as a percentage of net
revenue for the six months ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
Percentage
of Revenue
|
|
|
2011
|
|
|
Percentage
of Revenue
|
|
Net revenue
|
|
$
|
1,884,656
|
|
|
|
100.0
|
%
|
|
$
|
1,793,583
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
1,327,069
|
|
|
|
70.4
|
%
|
|
|
1,237,918
|
|
|
|
69.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
557,587
|
|
|
|
29.6
|
%
|
|
|
555,665
|
|
|
|
31.0
|
%
|
|
|
|
|
|
Selling, general & administrative
|
|
|
344,149
|
|
|
|
18.3
|
%
|
|
|
332,298
|
|
|
|
18.5
|
%
|
Unauthorized activities in Japan
|
|
|
4,188
|
|
|
|
0.2
|
%
|
|
|
5,645
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
209,250
|
|
|
|
11.1
|
%
|
|
|
217,722
|
|
|
|
12.1
|
%
|
|
|
|
|
|
Other (expense) income, net
|
|
|
(3,898
|
)
|
|
|
(0.2
|
%)
|
|
|
(1,727
|
)
|
|
|
(0.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
205,352
|
|
|
|
10.9
|
%
|
|
|
215,995
|
|
|
|
12.0
|
%
|
Income taxes
|
|
|
63,644
|
|
|
|
3.4
|
%
|
|
|
71,462
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
141,708
|
|
|
|
7.5
|
%
|
|
$
|
144,533
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 servers and storage devices, networking products, notebook computers, mobile products such as smartphones and tablets, home entertainment products such as cameras and televisions,
gaming systems, automobile infotainment and safety systems, factory automation and diagnostic equipment.
During the second
quarter of fiscal 2013 net revenue increased 5.5% and 12.8% compared with the first quarter of fiscal 2013 (sequential quarter) and the second quarter of fiscal 2012 (comparable quarter), respectively, due primarily to increased demand from new
product introductions in the telecommunications and infotech markets, partially offset by foreign currency translation and lower demand in the consumer and industrial markets. The increase (decrease) in net revenue from each market during the
sequential quarter and the comparable quarter follows:
|
|
|
|
|
|
|
|
|
|
|
Sequential
Quarter
|
|
|
Comparable
Quarter
|
|
Telecommunications
|
|
|
15
|
%
|
|
|
15
|
%
|
Infotech
|
|
|
11
|
|
|
|
31
|
|
Consumer
|
|
|
(9
|
)
|
|
|
(11
|
)
|
Industrial
|
|
|
(9
|
)
|
|
|
(4
|
)
|
Automotive
|
|
|
3
|
|
|
|
15
|
|
Telecommunications market net revenue increased versus both the sequential and comparable quarters
primarily due to higher demand related to new product introductions for certain mobile phone products. Net revenue also increased versus the sequential quarter due to increased holiday seasonal demand. The higher net revenue was partially offset by
lower demand for networking products.
18
Infotech market net revenue increased versus both the sequential and comparable quarters
primarily due to higher demand related to new product introductions for certain tablet devices and higher demand for notebook computers. Net revenue also increased versus the sequential quarter due to increased holiday seasonal demand and versus the
comparable quarter due to relatively high levels of inventory in the distribution channel in the prior year period.
Consumer
market net revenue decreased versus the sequential quarter as the first quarter of fiscal 2013 benefitted from pre-holiday production volumes in gaming systems. Consumer market net revenue decreased versus the comparable quarter due to lower demand
for home entertainment products and gaming systems.
Industrial market net revenue decreased versus both the sequential and
comparable quarters due to lower demand for semiconductor and production equipment from our customers decreased production, companies reluctance to invest in automation projects or deferral of projects in the current economic environment
and relatively high levels of inventory in the distribution channel.
Automotive market net revenue increased versus both the
sequential and comparable quarters due to increasing electronic content in automobiles, such as infotainment and safety systems and products to improve fuel efficiency. Automotive market net revenue also increased versus the comparable quarter due
to higher automobile production, particularly in North America.
The following table shows the percentage relationship to net
revenue of our sales by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Americas
|
|
|
25
|
%
|
|
|
26
|
%
|
|
|
26
|
%
|
|
|
25
|
%
|
Asia Pacific
|
|
|
64
|
|
|
|
61
|
|
|
|
63
|
|
|
|
62
|
|
Europe
|
|
|
11
|
|
|
|
13
|
|
|
|
11
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
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
Dec. 31,
2012
|
|
|
Six
Months
Ended
Dec. 31, 2012
|
|
Net revenue for prior year period
|
|
$
|
857,598
|
|
|
$
|
1,793,583
|
|
Components of net revenue change:
|
|
|
|
|
|
|
|
|
Organic net revenue change
|
|
|
109,512
|
|
|
|
112,807
|
|
Currency translation
|
|
|
(7,851
|
)
|
|
|
(32,950
|
)
|
Acquisitions
|
|
|
8,476
|
|
|
|
11,216
|
|
|
|
|
|
|
|
|
|
|
Total change in net revenue from prior year period
|
|
|
110,137
|
|
|
|
91,073
|
|
|
|
|
|
|
|
|
|
|
Net revenue for current year period
|
|
$
|
967,735
|
|
|
$
|
1,884,656
|
|
|
|
|
|
|
|
|
|
|
Organic net revenue change as a percentage of net revenue for prior year period
|
|
|
12.8
|
%
|
|
|
6.3
|
%
|
Organic net revenue increased during the three and six months ended December 31, 2012 compared with
the prior year periods as customer demand for certain mobile phone products and tablet devices improved in the telecommunications and infotech markets. We acquired Affinity Medical Technologies, LLC during the second quarter of fiscal 2013 and
completed an asset purchase of Temp-Flex Cable, Inc. during the second quarter of fiscal 2012.
Foreign currency translation
decreased net revenue approximately $7.9 million and $33.0 million for the three and six months ended December 31, 2012, respectively, primarily due to a weaker euro and Japanese yen
19
against the U.S. dollar, compared with the prior year periods. 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 December 31, 2012
|
|
|
Six Months Ended December 31, 2012
|
|
|
|
Local
Currency
|
|
|
Currency
Translation
|
|
|
Net
Change
|
|
|
Local
Currency
|
|
|
Currency
Translation
|
|
|
Net
Change
|
|
Americas
|
|
$
|
25,560
|
|
|
$
|
111
|
|
|
$
|
25,671
|
|
|
$
|
41,784
|
|
|
$
|
(79
|
)
|
|
$
|
41,705
|
|
Asia Pacific
|
|
|
98,951
|
|
|
|
(1,784
|
)
|
|
|
97,167
|
|
|
|
89,899
|
|
|
|
(10,025
|
)
|
|
|
79,874
|
|
Europe
|
|
|
(4,839
|
)
|
|
|
(6,178
|
)
|
|
|
(11,017
|
)
|
|
|
(7,817
|
)
|
|
|
(22,846
|
)
|
|
|
(30,663
|
)
|
Corporate & Other
|
|
|
(1,684
|
)
|
|
|
|
|
|
|
(1,684
|
)
|
|
|
157
|
|
|
|
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
$
|
117,988
|
|
|
$
|
(7,851
|
)
|
|
$
|
110,137
|
|
|
$
|
124,023
|
|
|
$
|
(32,950
|
)
|
|
$
|
91,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in net revenue on a local currency basis was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
Dec. 31,
2012
|
|
|
Six Months
Ended
Dec. 31, 2012
|
|
Americas
|
|
|
11.8
|
%
|
|
|
9.5
|
%
|
Asia Pacific
|
|
|
18.9
|
|
|
|
8.1
|
|
Europe
|
|
|
(4.3
|
)
|
|
|
(3.3
|
)
|
Total
|
|
|
13.8
|
%
|
|
|
6.9
|
%
|
Gross Profit
The following table provides a summary of gross profit and gross margin for the three and six months ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Gross profit
|
|
$
|
289,170
|
|
|
$
|
262,937
|
|
|
$
|
557,587
|
|
|
$
|
555,665
|
|
Gross margin
|
|
|
29.9
|
%
|
|
|
30.7
|
%
|
|
|
29.6
|
%
|
|
|
31.0
|
%
|
Gross profit increased for the three and six months ended December 31, 2012 compared with the prior
year periods despite the lower gross margin due to the higher net revenue in the telecommunications and infotech markets. The lower gross margin compared with the prior year periods was primarily due to higher material costs, changes in the mix of
product sales, start-up costs related to new product introductions during the period and price erosion.
A significant portion
of our material cost is comprised of copper and gold. We purchased approximately 8.6 million pounds of copper and approximately 47,900 troy ounces of gold during the six months ended December 31, 2012. The following table sets forth the
average prices of copper and gold we purchased in the three and six months ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Copper (price per pound)
|
|
$
|
3.60
|
|
|
$
|
3.41
|
|
|
$
|
3.55
|
|
|
$
|
3.78
|
|
Gold (price per troy ounce)
|
|
|
1,718.00
|
|
|
|
1,683.00
|
|
|
|
1,686.00
|
|
|
|
1,693.00
|
|
Generally, we are able to pass through to our customers only a small portion of changes in the price of
copper and gold. However, we mitigate the impact of any significant increases in copper and gold prices by hedging with call options a portion of our projected net global purchases of copper and gold. The hedges increased cost of sales by $1.5
million and $4.0 million for the three and six months ended December 31, 2012, respectively, and
20
reduced cost of sales by $3.4 million and $6.5 million for the three and six months ended December 31, 2011, respectively.
The effect of certain significant impacts on gross profit compared with the prior year periods was as follows for the three and six
months ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
Dec. 31,
2012
|
|
|
Six Months
Ended
Dec. 31, 2012
|
|
Price erosion
|
|
$
|
(23,341
|
)
|
|
$
|
(41,425
|
)
|
Currency translation
|
|
|
(2,566
|
)
|
|
|
(8,234
|
)
|
Currency transaction
|
|
|
1,136
|
|
|
|
901
|
|
Price erosion measures the reduction in prices of our products year over year, which reduces our gross
profit. The largest impact from price erosion is in our Connector segment. A significant portion of price erosion occurred in mobile phone connector products, which are part of the mobile market. We minimize the impact of price erosion through the
use of pricing software that provides enhanced visibility to recoverable costs and improved detail of profit margin by product.
The decrease in gross profit due to currency translation during the three and six months ended December 31, 2012 was primarily due
to a weaker Japanese yen and euro against the U.S. dollar, compared with the prior year periods.
Certain products 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 foreign currency exchange rates may affect our cost of sales reported in
U.S. dollars without a corresponding effect on net revenue. The increase in gross profit due to currency transactions was nominal as the impact of fluctuations in foreign exchange rates principally offset each other during the three and six months
ended December 31, 2012, compared with the prior year periods.
Operating Expenses
Operating expenses were as follows as of December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Selling, general and administrative
|
|
$
|
181,028
|
|
|
$
|
163,073
|
|
|
$
|
344,149
|
|
|
$
|
332,298
|
|
Unauthorized activities in Japan
|
|
|
1,627
|
|
|
|
2,723
|
|
|
|
4,188
|
|
|
|
5,645
|
|
|
|
|
|
|
Selling, general and administrative as a percentage of net revenue
|
|
|
18.7
|
%
|
|
|
19.0
|
%
|
|
|
18.3
|
%
|
|
|
18.5
|
%
|
Selling, general and administrative expenses increased $18.0 million and $11.9 million for the three and
six months ended December 31, 2012, respectively, compared with the prior year periods, but decreased as a percentage of net revenue. The increase in selling, general and administrative expenses was primarily due to the increase in net revenue
and investments in research and development to support new product introductions. We also increased investments in business development to drive future growth. Selling, general and administrative expenses for the six months ended December 31,
2012 were reduced by $9.9 million due to property insurance proceeds for damages from the earthquake and tsunami that occurred in Japan during the third quarter of fiscal 2011. The impact of foreign currency translation decreased selling, general
and administrative expenses approximately $5.9 million and $1.7 million for the three and six months ended December 31, 2012, compared with the prior year periods.
Research and development expenditures, which are classified as selling, general and administrative expenses, were approximately $47.9 million, or 4.9% of net revenue and $94.2 million, or 5.0% of net
revenue, for the three
21
and six months ended December 31, 2012, compared with $44.8 million, or 5.2% of net revenue and $88.7 million, or 4.9% of net revenue, for the comparable prior year periods.
Unauthorized activities in Japan for the three and six months ended December 31, 2012 represent investigative and legal fees. See
Note 2 of the Notes to Condensed Consolidated Financial Statements.
Other (Expense) Income
Other (expense) income consists primarily of net interest expense, investment income and currency exchange gains or losses. We recorded
net expense of $4.3 million and $3.9 million for the three and six months ended December 31, 2012, respectively, compared with net expense of $0.6 million and $1.7 million for the three and six months ended December 31, 2011, respectively.
Fluctuations in other (expense) income are primarily due to changes in foreign currency gains and losses as net interest expense and investment income principally offset.
Effective Tax Rate
The effective tax rate was 31.1% for the three months
ended December 31, 2012. During the three months ended December 31, 2012, we recorded income tax expense of $31.8 million. The effective tax rate for the six months ended December 31, 2012 was 31.0%.
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 33.7% for the three months ended December 31, 2011.
Backlog
Our order
backlog on December 31, 2012 was approximately $404.0 million compared with order backlog of $445.3 million at September 30, 2012 and $346.3 million at December 31, 2011. Orders for the three months ended December 31, 2012 were
$919.7 million compared with $943.9 million and $815.3 million for the three months ended September 30, 2012 and December 31, 2011, respectively. Orders for the three months ended December 31, 2012 decreased $24.2 million over the
sequential quarter and fell short of net revenue during the period as customer demand weakened. Orders for the three months ended December 31, 2012 improved compared with the prior year period due primarily to new product introductions in the
telecommunications and infotech markets.
Segments
The following table sets forth information on net revenue by segment as of the three months ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
Percentage
of Revenue
|
|
|
2011
|
|
|
Percentage
of Revenue
|
|
Connector
|
|
$
|
714,712
|
|
|
|
73.9
|
%
|
|
$
|
602,885
|
|
|
|
70.3
|
%
|
Custom & Electrical
|
|
|
252,913
|
|
|
|
26.1
|
|
|
|
254,713
|
|
|
|
29.7
|
|
Corporate & Other
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
967,735
|
|
|
|
100.0
|
%
|
|
$
|
857,598
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
The following table sets forth information on net revenue by segment as of the six months
ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
Percentage
of Revenue
|
|
|
2011
|
|
|
Percentage
of Revenue
|
|
Connector
|
|
$
|
1,371,286
|
|
|
|
72.8
|
%
|
|
$
|
1,281,665
|
|
|
|
71.5
|
%
|
Custom & Electrical
|
|
|
512,697
|
|
|
|
27.2
|
|
|
|
511,507
|
|
|
|
28.5
|
|
Corporate & Other
|
|
|
673
|
|
|
|
|
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,884,656
|
|
|
|
100.0
|
%
|
|
$
|
1,793,583
|
|
|
|
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
Dec. 31,
2012
|
|
|
Six Months
Ended
Dec. 31, 2012
|
|
Net revenue for prior year period
|
|
$
|
602,885
|
|
|
$
|
1,281,665
|
|
Components of net revenue change:
|
|
|
|
|
|
|
|
|
Organic net revenue change
|
|
|
117,825
|
|
|
|
110,666
|
|
Currency translation
|
|
|
(5,998
|
)
|
|
|
(21,045
|
)
|
|
|
|
|
|
|
|
|
|
Total change in net revenue from prior year period
|
|
|
111,827
|
|
|
|
89,621
|
|
|
|
|
|
|
|
|
|
|
Net revenue for current year period
|
|
$
|
714,712
|
|
|
$
|
1,371,286
|
|
|
|
|
|
|
|
|
|
|
Organic net revenue change as a percentage of net revenue for prior year period
|
|
|
19.5
|
%
|
|
|
8.6
|
%
|
The Connector segment sells primarily to the telecommunications, infotech, consumer and automotive
markets. Organic net revenue and segment net revenue increased during the three and six months ended December 31, 2012 compared with the prior year periods as increased demand for new product introductions in the telecommunications and infotech
markets offset lower demand in the consumer market. The increase in organic net revenue was partially offset by price erosion, which is generally higher in the Connector segment compared with our Custom & Electrical segment. Foreign
currency translation decreased net revenue by $6.0 million and $21.0 million for the three and six months ended December 31, 2012, respectively, primarily due to a weaker euro and Japanese yen against the U.S dollar.
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
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Income from operations
|
|
$
|
116,876
|
|
|
$
|
77,351
|
|
|
$
|
212,132
|
|
|
$
|
183,613
|
|
Operating margin
|
|
|
16.4
|
%
|
|
|
12.8
|
%
|
|
|
15.5
|
%
|
|
|
14.3
|
%
|
Connector segment income from operations and operating margin increased for the three and six months
ended December 31, 2012 compared with the prior year periods primarily due to higher net revenue and higher absorption from increased production. Selling, general and administrative expenses for the six months ended December 31, 2012 were
reduced by $9.9 million due to property insurance proceeds for damages from the earthquake and tsunami that occurred in Japan during the third quarter of fiscal 2011.
23
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
Dec. 31,
2012
|
|
|
Six Months
Ended
Dec. 31, 2012
|
|
Net revenue for prior year period
|
|
$
|
254,713
|
|
|
$
|
511,507
|
|
Components of net revenue change:
|
|
|
|
|
|
|
|
|
Organic net revenue change
|
|
|
(8,418
|
)
|
|
|
1,895
|
|
Currency translation
|
|
|
(1,858
|
)
|
|
|
(11,921
|
)
|
Acquisitions
|
|
|
8,476
|
|
|
|
11,216
|
|
|
|
|
|
|
|
|
|
|
Total change in net revenue from prior year period
|
|
|
(1,800
|
)
|
|
|
1,190
|
|
|
|
|
|
|
|
|
|
|
Net revenue for current year period
|
|
$
|
252,913
|
|
|
$
|
512,697
|
|
|
|
|
|
|
|
|
|
|
Organic net revenue change as a percentage of net revenue for prior year period
|
|
|
(3.3
|
)%
|
|
|
0.4
|
%
|
The Custom & Electrical segment sells primarily to the industrial, telecommunications and
infotech markets. Custom & Electrical segment organic net revenue decreased for the three months ended December 31, 2012 compared with the prior year periods primarily due to lower customer demand in the industrial market and lower
customer demand for networking devices in the infotech market. Segment organic net revenue increased slightly for the six months ended December 31, 2012 as higher net revenue earlier in the period was partially offset by weakening demand in the
industrial market and lower demand for networking devices in the telecommunications market. Foreign currency translation decreased net revenue $1.9 million and $11.9 million for the three and six months ended December 31, 2012, respectively,
primarily due to a weaker euro against the U.S. dollar compared with the prior year periods. We acquired Affinity Medical Technologies, LLC during the second quarter of fiscal 2013 and completed an asset purchase of Temp-Flex Cable, Inc. during the
second quarter of fiscal 2012.
The following table provides information on income from operations and operating margin for
the Custom & Electrical segment for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Income from operations
|
|
$
|
31,812
|
|
|
$
|
47,597
|
|
|
$
|
72,672
|
|
|
$
|
89,505
|
|
Operating margin
|
|
|
12.6
|
%
|
|
|
18.7
|
%
|
|
|
14.2
|
%
|
|
|
17.5
|
%
|
Custom & Electrical income from operations and operating margin decreased for the three and six
months ended December 31, 2012 compared with the prior year periods primarily due to lower net revenue and lower gross margin caused by an unfavorable mix of product sales and lower absorption of fixed costs from lower demand.
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 from managements perspective. We use organic
net revenue growth to monitor and evaluate performance, since 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
24
growth together with GAAP measures, such as net revenue and operating income in its decision making processes related to the operations of our reporting segments and our overall company. Because
organic net revenue growth calculations may vary among other companies, organic net revenue growth amounts presented may not be comparable with similar measures of other companies.
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 $716.8 million and $652.2 million at December 31, 2012 and June 30, 2012, respectively. Cash, cash
equivalents and marketable securities as of December 31, 2012 included $686.6 million held in non-U.S. accounts, including $223.0 million in countries where we may experience administrative delays in withdrawing and transferring cash to U.S.
accounts. 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 property, plant, equipment and acquisitions.
In September 2012, Molex Japan entered into three overdraft loans totaling ¥11.0 billion, with one-year terms and fluctuating
interest rates based on interbank offered rates plus a spread ranging from 40 basis points to 70 basis points. At December 31, 2012, the balance of the overdraft loans, which require full repayment by the end of the term if not renewed,
approximated $105.6 million.
In August 2011, we issued senior notes pursuant to a Note Purchase Agreement (the Agreement)
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 in August 2016; Series B with an interest rate
of 3.59% matures in August 2018; and Series C with an interest rate of 4.28% matures in August 2021. The Agreement requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and interest rate coverage.
As of December 31, 2012, 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, March 2011 and December 2012, 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 U.S. Credit Facility to increase the credit line to $350.0 million and extend the term to March
2016. The U.S. Credit Facility requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and fixed charge coverage. As of December 31, 2012, we were in compliance with these covenants.
Total debt, including obligations under capital leases, totaled $345.9 million and $255.0 million at December 31, 2012 and
June 30, 2012, respectively. We had available lines of credit totaling $366.1 million at December 31, 2012, including $270.0 million available on the U.S. Credit Facility. See Note 7 of the Notes to Condensed Consolidated Financial
Statements.
Cash Flows
Cash and cash equivalents increased $67.6 million during the six months ended December 31, 2012. Our primary source of cash was operating cash flows of $254.6 million, the majority of which is
generated outside the United States. We used cash during the period to fund capital expenditures of $148.0 million and pay dividends of $116.7 million. The translation of our cash to U.S. dollars increased our cash and cash equivalents by $14.6
million compared with the balance as of June 30, 2012.
25
Below is a table setting forth the key lines of our Condensed Consolidated Statements of
Cash Flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Cash provided from operating activities
|
|
$
|
254,577
|
|
|
$
|
291,513
|
|
Cash used for investing activities
|
|
|
(187,045
|
)
|
|
|
(115,087
|
)
|
Cash used for financing activities
|
|
|
(14,548
|
)
|
|
|
(92,319
|
)
|
Effect of exchange rate changes on cash
|
|
|
14,646
|
|
|
|
(9,370
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
67,630
|
|
|
$
|
74,737
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
Cash provided from operating activities decreased by $36.9 million from the prior year period. Working capital needs increased $48.4 million in the current year period compared with the prior year period
as higher inventory levels and lower accounts payable balances were partially offset by lower accounts receivable balances. Working capital is defined as current assets minus current liabilities.
Investing Activities
Cash used for investing activities increased by $72.0 million from the prior year period due to a $53.0 million increase in capital
expenditures and a $31.3 million increase in acquisitions during the six months ended December 31, 2012, partially offset by $9.9 million of property insurance proceeds for damages from the earthquake and tsunami that occurred in Japan during
the third quarter of fiscal 2011. Capital expenditures were $148.0 million for the six months ended December 31, 2012, compared with $95.1 million in the prior year period. Capital expenditures increased primarily due to investments related to
new product introductions.
Financing Activities
Cash used for financing activities decreased $77.8 million during the six months ended December 31, 2012, compared with the prior year period primarily due to a reduction in net payments on debt
partially offset by an increase in dividends paid during the period.
Our quarterly cash dividend was $0.22 per share in
fiscal 2013, an increase of 10.0% from the previous cash dividend of $0.20 per share in the prior fiscal year. In addition, we accelerated our regular third quarter cash dividend from January 2013 to December 2012. The accelerated dividend was paid
on December 21, 2012 to stockholders of record as of November 30, 2012.
We issued senior notes totaling $150.0
million in August 2011. Proceeds were used to pay down a portion of the U.S. Credit Facility. Net borrowings on the revolving U.S. Credit Facility were $80.0 million for the six months ended December 31, 2012, compared with $145.0 million for
the six months ended December 31, 2011.
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 Japan our cash requirements may also be impacted.
26
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, 2012.
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 other postretirement benefits obligations and debt. Since June 30,
2012, there have been no material changes in our contractual obligations and commercial commitments arising outside of the ordinary course of business. See Note 7 of the Notes to 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, potential, 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, 2012 (Form 10-K). You should carefully consider the risks described in our Form 10-K. Such
risks are not the only ones facing our company; 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 forecasted by our
forward-looking statements. Reference is made in particular to forward-looking statements regarding growth strategies, industry trends, global economic conditions, success of customers, cost of raw materials, value of inventory, availability of
credit, foreign currency exchange rates, labor costs, protection of intellectual property, cost reduction initiatives, acquisition synergies, manufacturing strategies, product development introduction and sales, regulatory changes, income tax
fluctuations, competitive strengths, natural disasters, unauthorized access to data, government investigations and outcomes of 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.