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 September 30, 1999
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: 630-969-4550
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes 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 September 30, 1999:
Common Stock 78,508,793 shares
Class A Common Stock 78,262,183 shares
Class B Common Stock 94,255 shares
MOLEX INCORPORATED
FORM 10-Q
SEPTEMBER 30, 1999
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Information - Unaudited
Condensed Consolidated Balance Sheets -- 2
September 30, 1999 and June 30, 1999
Condensed Consolidated Statements of Income -- 3
Three Months Ended September 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows -- 4
Three Months Ended September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 10
PART II - OTHER INFORMATION 11
-1-
<TABLE>
<CAPTION>
MOLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - In Thousands)
ASSETS Sept. 30, June 30,
1999 1999
_________ _________
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 167,649 $ 182,992
Marketable securities 92,456 83,874
Accounts receivable - net 424,580 391,120
Inventories 209,689 188,861
Other current assets 37,889 34,491
Total current assets 932,263 881,338
PROPERTY, PLANT AND EQUIPMENT - NET 856,904 809,602
GOODWILL 135,775 137,378
OTHER ASSETS 79,141 73,694
$2,004,083 $1,902,012
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 185,693 $ 156,556
Accrued expenses 144,204 130,969
Other current liabilities 14,145 54,916
Total current liabilities 344,042 342,441
DEFERRED ITEMS 15,714 6,968
ACCRUED POSTRETIREMENT BENEFITS 38,730 30,706
LONG-TERM DEBT 24,310 20,148
MINORITY INTEREST 1,435 1,212
SHAREHOLDERS' EQUITY
Common stock 8,421 8,415
Paid-in capital 234,501 233,806
Retained earnings 1,534,606 1,491,337
Treasury stock (206,641) (193,317)
Deferred unearned compensation (20,580) (21,996)
Cumulative translation and
other adjustments 29,545 (17,708)
Total shareholders' equity 1,579,852 1,500,537
$2,004,083 $1,902,012
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 2 -
<TABLE>
<CAPTION>
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - In Thousands Except per Share Data)
THREE MONTHS ENDED
Sept. 30, Sept. 30,
1999 1998
<S> <C> <C>
NET REVENUE $491,870 $409,892
COST OF SALES 298,447 244,315
Gross Profit 193,423 165,577
OPERATING EXPENSES:
Selling 37,904 33,812
Administrative 91,227 76,115
Total Operating Expenses 129,131 109,927
Income from Operations 64,292 55,650
OTHER INCOME:
Foreign currency transaction loss (638) (267)
Interest income, net 1,651 3,448
Total Other Income 1,013 3,181
INCOME BEFORE INCOME TAXES 65,305 58,831
INCOME TAXES 19,808 19,658
NET INCOME $45,497 $39,173
EARNINGS PER COMMON SHARE:
BASIC $0.29 $0.25
DILUTED $0.29 $0.25
CASH DIVIDENDS PER COMMON SHARE $0.025 $0.015
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD: BASIC 156,991 155,834
DILUTED 158,278 157,399
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 3 -
<TABLE>
<CAPTION>
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
THREE MONTHS ENDED
Sept. 30, Sept. 30,
1999 1998
<S> <C> <C>
CASH AND CASH EQUIVALENTS, Beginning of Period $182,992 $205,262
CASH AND CASH EQUIVALENTS
PROVIDED FROM (USED FOR):
Operations:
Net income 45,497 39,173
Add (deduct) non-cash items included
in net income:
Depreciation and amortization 45,669 36,004
Amortization of deferred unearned compensation 800 1,775
Other (credits)/charges to net income 3,963 (137)
Current items:
Accounts receivable (18,527) (18,695)
Inventories (15,837) 11,053
Other current assets (8) (2,773)
Accounts payable 19,040 (20,766)
Accrued expenses (2,224) 11,772
Other current liabilities (27,381) (4,822)
NET CASH PROVIDED FROM OPERATIONS 50,992 52,584
Investments:
Purchases of property, plant and equipment (58,943) (51,518)
Proceeds from sale of property, plant
and equipment 4,480 181
Proceeds from sale of marketable securities 821,679 1,029,858
Purchases of marketable securities (830,261)(1,014,043)
Increase in other assets (9,921) (31,860)
NET CASH USED FOR INVESTMENTS (72,966) (67,382)
Financing:
Increase in long-term debt 4,413 94
Decrease in long-term debt (251) -
Cash dividends paid (2,358) (2,266)
Purchase of treasury stock (13,658) (9,491)
Reissuance of treasury stock 301 972
Exercise of stock options 678 822
NET CASH USED FOR FINANCING (10,875) (9,869)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 17,506 4,954
CASH AND CASH EQUIVALENTS, End of Period $167,649 $185,549
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 4 -
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Condensed Consolidated Financial Statements
The condensed consolidated financial statements have been prepared from the
Company's books and records 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 1999
Annual Report to Shareholders and the 1999 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
The reconciliation of common shares outstanding to dilutive common shares
outstanding is as follows:
Three Months Ended
September 30,
1999 1998
Weighted average shares outstanding - basic 156,991 155,834
Dilutive effect of stock options 1,287 1,565
Weighted average shares outstanding - diluted 158,278 157,399
(3) Comprehensive Income
Comprehensive income includes all non-shareowner changes in equity and consists
of net income, foreign currency translation adjustments and unrealized gains
and losses on available-for-sale securities. Total comprehensive income, in
thousands of dollars, is as follows:
Three Months Ended
September 30,
1999 1998
Net income $45,497 $39,173
Currency translation and other adjustments 45,941 25,817
Total comprehensive income $91,438 $64,990
-5-
4) Inventories
Inventories are valued at the lower of first-in, first-out cost or market.
Inventories, in thousands of dollars, consist of the following:
Sept. 30, June 30,
1999 1999
Raw Materials $ 32,271 $ 46,767
Work in Process 50,720 58,893
Finished Goods 126,698 83,201
$209,689 $188,861
(5) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Originally effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999, it has since been delayed one year. It establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Company is assessing the impact this statement
will have on its statement of financial position and the results of its
operations.
-6-
MOLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net revenues were $491.9 million for the quarter ended September
30, 1999, increasing 20.0 percent in US dollars and 15.7 percent in local
currencies over the first quarter of last year. This growth included the
revenues of the Cardell acquisition, without which the US dollar revenue growth
for the current quarter would have been 12.9 percent. The strengthening of
other currencies against the US dollar caused net revenues to increase $17.5
million for the quarter.
Management believes that Molex continues to grow at a rate higher than the
worldwide connector market. All geographic regions experienced local currency
sales growth for the quarter.
Net revenue in the Americas region increased 27.1 percent in US dollars and
26.9 percent in local currencies over the prior year period. Excluding the
sales of the Cardell acquisition, net revenue rose 10.7 percent. Growth in the
region was a result of strong demand in the fiber optic, telecommunications and
networking markets, as well as improved business through distributors.
Quarterly net revenue in the Far East North increased 32.5 percent in US
dollars and 7.0 percent in local currencies compared to the prior year. Strong
demand in the Japanese market for DVDs, LCDs, CD-Roms, games, mobile phones,
PCs and printers was partially offset by shipment delays resulting from the
installation of the global information system. Strength in the Korean
automotive and home electronics markets also contributed to the growth.
Far East South net revenue for the quarter increased 11.5 percent in US dollars
and 8.0 percent in local currencies over the prior year due to strong bookings
in the personal computer and computer-peripheral product markets.
In Europe, net revenue grew 2.0 percent in US dollars and 9.2 percent in local
currencies over the prior year quarter due to strong growth in the fiber optic,
telecommunications and value-added markets.
For the three months ended September 30, 1999, 61.8 percent of Molex's
worldwide net revenue was generated from its international operations.
International operations are subject to currency fluctuations and government
actions. Molex monitors its currency exposure in each country and continues
to implement defensive strategies to respond to changing economic 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.
-7-
Gross profit as a percent of net revenue was 39.3 percent for the quarter ended
September 30, 1999 compared with 40.4 percent last year. The current quarter
was partially impacted by the results of the Cardell division, which currently
has a lower gross profit margin than the overall Molex gross margin.
Selling and administrative expenses were $129.1 million for the first quarter
compared with $109.9 million in the prior year period. As a percent of net
revenue, selling and administrative expenses were 26.3 percent compared with
26.8 percent for the same period in the prior year. Also included
in selling and administrative expenses are research and development
expenditures, which for the three months ended September 30, 1999, increased
as a percent of net revenue to 6.6 percent from 6.1 percent in the prior year
period.
Interest income, net of interest expense, was $1.7 million for the quarter
ended September 30, 1999 compared with $3.4 million in the prior year. The
decline is primarily due to a lower level of short-term investments than in the
prior year quarter as well as an increased level of debt.
The effective tax rate was 30.2 percent for the first quarter
compared with 33.4 percent in the prior year period. The reduction
was caused by the Company implementing a more aggressive repatriation strategy,
Japanese tax rate reductions, and the continuing effort to reduce the overall
tax burden through better planning.
Net income for the quarter was $45.5 million or 29 cents per basic and diluted
share, a 16.1 percent increase compared with $39.2 million or 25 cents per
basic and diluted share for the same quarter last fiscal year. Excluding the
effects of currency translation, net income increased 8.8 percent for the
quarter ended September 30, 1999 from the comparable prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Molex's balance sheet continues to be exceptionally strong. Working capital
at September 30, 1999 was $588.2 million, an increase from $538.9 million at
June 30, 1999.
During the three months ended September 30, 1999, the Company purchased
an aggregate of 450,000 shares of treasury stock at an aggregate cost of $13.7
million. This is in accordance with authorization by the Board of Directors
allowing for the purchase of up to $50 million of Company stock during the
current fiscal year.
Management believes that the Company's current liquidity and financial
flexibility are adequate to support its continued growth.
-8-
YEAR 2000
Molex recognizes the importance of the Year 2000 issue and has been giving high
priority to it. The Company has completed an assessment of its business and
other information systems, as well as the non-information system aspects of its
business that could be impacted by the Year 2000 issue. Over the past few
years, the Company has developed and is currently implementing its Global
Information System (GIS), which is Year 2000 compliant. The GIS now covers
more than 80 percent of the Company's business and the legacy business systems
in the remaining operations have been remediated. The Company believes that
with the modifications to existing software and the GIS implementation, the
Year 2000 issue will not pose material operational problems for its information
systems.
While the GIS implementation addresses many of the Company's Year 2000 issues,
the Company does not consider the GIS implementation costs to be related to the
Year 2000 issue as such costs are a strategic expenditure to enhance future
operations and would be incurred regardless of the Year 2000 issue. Total
costs related to the GIS project are expected to reach $60 million once
complete. Expenditures related to the Year 2000 date conversion effort,
principally the cost to remediate existing software or microprocessors embedded
in the Company's manufacturing systems, are not expected to be significant, and
management expects the total costs of such remediation effort to be less than
$3 million. Most of these costs have already been incurred during fiscal year
1999. Any remaining costs should not have a material impact on the Company's
financial position, results of operations or cash flows.
Part of the risk inherent in the Year 2000 issue results from the general
uncertainty of the readiness of material third-party relationships. Although
the company cannot know or foresee every eventuality that suppliers and
customers may face that could impact its operations, the Company is actively
involved in a broad-structured contingency planning effort to mitigate the
impact of potential failures in any of its critical third-party relationships.
The Company cannot estimate the cost it may incur as a result of the failure of
third parties to address their Year 2000 issues, and there can be no assurance
that there will not be a material adverse effect on the Company if third
parties do not convert their systems in a timely manner and in a way that is
compatible with the Company's systems. However, management believes that the
likelihood of such a significant failure is low.
OUTLOOK
The outlook for the remainder of fiscal 2000 is encouraging, based on improved
business levels for the first quarter. Due to the uncertainty of the foreign
currency exchange markets, Molex cannot reasonably predict future trends
-9-
related to foreign currency fluctuations. Foreign currency fluctuations have
impacted the Company's results in the past and may impact results in the
future.
To further expand the Company's global presence, offer innovative products at
an accelerated pace, and improve internal productivity, Molex plans to
invest approximately $208 million in capital expenditures and approximately
$125 million in research and development for the fiscal year ending June 30,
2000.
Management believes the Company is well positioned to continue growing faster
than the overall connector industry. The Company continues to emphasize
expansion in rapidly growing industry segments, product lines and geographic
regions. Molex remains committed to providing high quality products and a full
range of services to its customers worldwide.
FORWARD LOOKING STATEMENT
This document contains various forward looking statements. Statements that are
not historical are forward looking statements and are subject to various risks
and uncertainties which could cause actual results to vary materially from
those stated. Such risks and uncertainties include: economic conditions in
various regions, product and price competition, raw material prices, foreign
currency exchange rates, technology changes, patent issues, litigation results,
legal and regulatory developments, and other risks and uncertainties described
in documents filed with the Securities and Exchange Commission.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk associated with changes in foreign
currency exchange rates, interest rates and certain commodity prices. The
Company mitigates its foreign currency exchange rate risk principally through
the establishment of local production facilities in the markets it serves and
invoicing of customers in the same currency as the source of the products.
Molex also monitors its foreign currency exposure in each country and
implements strategies to respond to changing economic and political
environments. Examples of these strategies include the prompt payment of
intercompany balances utilizing a global netting system, the establishing of
contra-currency accounts in several international subsidiaries, development of
natural hedges and occasional use of foreign exchange contracts. One of the
Company's subsidiaries utilizes derivative commodity futures contracts to hedge
against fluctuations in commodity price fluctuations. Such commodity futures
contracts are limited to a maximum duration of eighteen months.
A formalized treasury risk management policy has been implemented by the
Company which describes the procedures and controls over derivative financial
and commodity instruments. Under the policy, the Company does not use
derivative financial or commodity instruments for trading purposes and the use
of such instruments are subject to strict approval levels by senior officers.
Typically, the use of such derivative instruments is limited to hedging
activities related to specific foreign currency cash flows or inventory
purchases. The Company's exposure related to such transactions is, in the
aggregate, not material to the Company's financial position, results of
operations and cash flows.
Interest rate exposure is principally limited to the $92.5 million of
marketable securities owned by the Company. Such securities are debt
instruments which generate interest income for the Company on temporary excess
cash balances. The Company does not actively manage the risk of interest rate
fluctuations, however, such risk is mitigated by the relatively short term,
less than twelve months, nature of these investments.
Part II - Other Information
Items 1-3. Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on October 22,
1999, a proposal to amend the Certificate of
Incorporation to provide for a Classified Board of
Directors, which is set forth in detail in the proxy
statement dated September 14, 1999, was approved with
53,180,669 votes cast in favor of the amendment,
13,826,491 votes against and 76,824 votes withheld.
The following directors were elected to hold office
for their respective terms according to their class:
Frederick A. Krehbiel, J.H. Krehbiel, Jr., Fred L.
Krehbiel, J. Joseph King, Robert J. Potter, Edgar D.
Jannotta, Donald G. Lubin, Masahisa Naitoh, Michael J.
Birck, Douglas K. Carnahan. No one candidate for
director received less than 71,170,000 votes in favor of
their election nor more than 662,000 votes withheld.
Item 5. Other Information
On July 26, 1999, Molex announced that its Board of
Directors increased the Company's regular quarterly cash
dividend to $.025 per share, an increase of 67 percent
from the previous cash dividend of $.015 per share. The
dividend will be paid on October 25, 1999 to shareholders
of record on September 30, 1999 and will continue
quarterly until further action by the Board.
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 November 12, 1999 /s/ ROBERT B. MAHONEY
----------------- --------------------
Robert B. Mahoney
Corporate Vice President,
Treasurer and
Chief Financial Officer
Date November 12, 1999 /s/ LOUIS A. HECHT
----------------- --------------------
Louis A. Hecht
Corporate Secretary and
General Counsel
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 167649
<SECURITIES> 92456
<RECEIVABLES> 444330
<ALLOWANCES> 19750
<INVENTORY> 209689
<CURRENT-ASSETS> 932263
<PP&E> 1863289
<DEPRECIATION> 1006385
<TOTAL-ASSETS> 2004083
<CURRENT-LIABILITIES> 344042
<BONDS> 0
0
0
<COMMON> 242922
<OTHER-SE> 1336930
<TOTAL-LIABILITY-AND-EQUITY> 2004083
<SALES> 491870
<TOTAL-REVENUES> 491870
<CGS> 298447
<TOTAL-COSTS> 298447
<OTHER-EXPENSES> 129131
<LOSS-PROVISION> 638
<INTEREST-EXPENSE> (1651)
<INCOME-PRETAX> 65305
<INCOME-TAX> 19808
<INCOME-CONTINUING> 45497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45497
<EPS-BASIC> .29
<EPS-DILUTED> .29
</TABLE>
