UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 December 31, 1999 as restated for the January 2000 stock
dividend:
Common Stock 98,275,285 shares
Class A Common Stock 97,741,934 shares
Class B Common Stock 94,255 shares
MOLEX INCORPORATED
FORM 10-Q
DECEMBER 31, 1999
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Information - Unaudited
Condensed Consolidated Balance Sheets -- 2
December 31, 1999 and June 30, 1999
Condensed Consolidated Statements of Income -- 3
Three and Six Months Ended December 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows -- 4
Six Months Ended December 31, 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 11
PART II - OTHER INFORMATION 12
MOLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
ASSETS Dec. 31, June 30,
1999 1999
_________ _________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 194,124 $ 182,992
Marketable securities 76,742 83,874
Accounts receivable - net 450,575 391,120
Inventories 234,294 188,861
Other current assets 20,735 34,491
Total current assets 976,470 881,338
PROPERTY, PLANT AND EQUIPMENT - NET 906,418 809,602
GOODWILL 135,521 137,378
OTHER ASSETS 138,563 73,694
$2,156,972 $1,902,012
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 205,877 $ 156,556
Accrued expenses 142,846 130,969
Other current liabilities 23,805 54,916
Total current liabilities 372,528 342,441
DEFERRED ITEMS 15,516 6,968
ACCRUED POSTRETIREMENT BENEFITS 40,675 30,706
LONG-TERM DEBT 23,355 20,148
MINORITY INTEREST 1,601 1,212
SHAREHOLDERS' EQUITY
Common stock 8,432 8,415
Paid-in capital 238,792 233,806
Retained earnings 1,583,297 1,491,337
Treasury stock (218,946) (193,317)
Deferred unearned compensation (19,564) (21,996)
Cumulative translation and
other adjustments 111,286 (17,708)
Total shareholders' equity 1,703,297 1,500,537
$2,156,972 $1,902,012
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - In Thousands Except per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET REVENUE $543,009 $429,718 $1,034,879 $839,610
COST OF SALES 333,554 253,121 632,001 497,437
Gross Profit 209,455 176,597 402,878 342,173
OPERATING EXPENSES:
Selling 41,681 35,452 79,585 69,264
Administrative 91,667 75,561 182,894 151,675
Total Operating Expenses 133,348 111,013 262,479 220,939
Income from Operations 76,107 65,584 140,399 121,234
OTHER INCOME:
Foreign currency transaction
loss (999) (2,388) (1,637) (2,655)
Interest income, net 2,396 1,374 4,047 4,822
Total Other Income/(Loss) 1,397 (1,014) 2,410 2,167
INCOME BEFORE INCOME TAXES 77,504 64,570 142,809 123,401
INCOME TAXES 23,386 20,697 43,194 40,355
NET INCOME $ 54,118 $ 43,873 $ 99,615 $ 83,046
EARNINGS PER COMMON SHARE:
BASIC $0.28 $0.23 $0.51 $0.43
DILUTED $0.27 $0.22 $0.50 $0.42
CASH DIVIDENDS PER COMMON SHARE $0.020 $0.012 $0.040 $0.024
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD: BASIC 196,158 194,161 196,215 194,451
DILUTED 198,074 195,656 197,976 195,777
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
Dec. 31, Dec. 31,
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 99,615 83,046
Add (deduct) non-cash items included
in net income:
Depreciation and amortization 93,626 78,615
Amortization of deferred unearned compensation 3,254 3,552
Other charges to net income 6,380 2,611
Current items:
Accounts receivable (41,888) (3,547)
Inventories (39,733) (6,519)
Other current assets 11,572 (3,313)
Accounts payable 36,170 (30,473)
Accrued expenses 6,056 5,324
Other current liabilities (21,876) (7,778)
NET CASH PROVIDED FROM OPERATIONS 153,176 121,518
Investments:
Purchases of property, plant and equipment (150,204) (103,146)
Proceeds from sale of property, plant
and equipment 5,777 2,010
Proceeds from sale of marketable securities 2,053,535 2,522,536
Purchases of marketable securities (2,046,403)(2,538,887)
(Increase)/decrease in other assets 13,228 (21,701)
NET CASH USED FOR INVESTMENTS (124,067) (139,188)
Financing:
Increase in long-term debt 4,457 -
Decrease in long-term debt (1,250) -
Cash dividends paid (6,280) (4,596)
Purchase of treasury stock (26,256) (31,480)
Reissuance of treasury stock 1,212 1,192
Exercise of stock options 2,862 2,603
NET CASH USED FOR FINANCING (25,255) (32,281)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 7,278 38,462
CASH AND CASH EQUIVALENTS, End of Period $194,124 $193,773
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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
On January 28, 2000 the Board of Directors of Molex Incorporated declared a
twenty-five percent (25%) stock dividend. The dividend is payable on March 6,
2000 to shareholders of record on February 14, 2000. One quarter (1/4) share
of Common Stock will be paid for each share of Common Stock and each share of
Class B Common Stock outstanding, and one quarter (1/4) share of Class A Common
Stock will be paid for each share of Class A Common Stock outstanding. All
shares outstanding, earnings and dividends have been retroactively restated for
the stock split effected in the form of a stock dividend.
The reconciliation of common shares outstanding to dilutive common shares
outstanding is as follows as restated for the January 2000 stock dividend:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Weighted average shares outstanding - basic 196,158 194,161 196,215 194,451
Dilutive effect of stock options 1,916 1,495 1,761 1,326
Weighted average shares outstanding - diluted 198,074 195,656 197,976 195,777
</TABLE>
(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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $ 54,118 $43,873 $ 99,615 $ 83,046
Currency translation and other adjustments 81,741 52,645 128,994 78,462
Total comprehensive income $135,859 $96,518 $228,609 $161,508
</TABLE>
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:
Dec. 31, June 30,
1999 1999
Raw Materials $ 36,921 $ 46,767
Work in Process 88,628 58,893
Finished Goods 108,745 83,201
$234,294 $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.
MOLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net revenues were $543.0 million for the quarter ended
December 31, 1999, increasing 26.4 percent in US dollars and 25.8 percent in
local currencies over the same period last year. For the six months ended
December 31, 1999, net revenues rose to $1,034.9 million from $839.6 million
in the corresponding period last year, resulting in US dollar growth of
23.3 percent and local currency growth of 20.9 percent. This growth included
the revenue of the Cardell acquisition, without which the US dollar revenue
growth for the current quarter and year-to-date periods would have been
20.3 percent and 16.7 percent, respectively. The strengthening of other
currencies against the US dollar caused net revenues to increase $2.6 million
and $20.1 million for the quarter and year-to-date periods, respectively.
Management believes that Molex continues to grow at a rate higher than the
worldwide connector market. All geographic regions experienced sales growth
for the quarter as well as the six months ended December 31, 1999.
Net revenue in the Americas region increased 36.1 percent in both US dollars
and local currencies over the prior year quarter. Year-to-date net revenue
growth over last year was 31.6 percent in US dollars and 31.5 percent in local
currencies. Excluding the sales of the Cardell acquisition, net revenue rose
21.3 percent and 16.0 percent for the quarter and year-to-date periods,
respectively. Growth in the region was a result of strong demand in all major
markets, including business through distributors.
Quarterly net revenue in the Far East North increased 36.6 percent in US
dollars and 20.9 percent in local currencies compared to the prior year. For
the six months ended December 31, 1999, revenue grew 34.8 percent in US dollars
and 14.7 percent in local currencies over last year. Revenue growth was
supported by strong demand in the Japanese market for DVDs, LCDs, CD-Roms,
games, mobile phones, PCs and printers. Strength in the Korean automotive,
home electronics and telecommunications markets also contributed to the growth.
Far East South net revenue for the quarter increased 10.1 percent in US dollars
and 10.6 percent in local currencies over the prior year. For the year-to-date
period, revenue rose 10.8 percent in US dollars and 9.4 percent in local
currencies over last year due to increased demand in the personal computer and
computer-peripheral product markets.
In Europe, net revenue grew 4.5 percent in US dollars and 18.9 percent in local
currencies over the prior year quarter. For the six months ended December 31,
1999, the revenue growth over the comparable prior year period was 3.3 percent
in US dollars and 14.3 percent in local currencies. Strength in the
telecommunications and fiber optic markets contributed to the growth.
For the six months ended December 31, 1999, 62.6 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
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.
Gross profit as a percent of net revenue was 38.6 percent for the quarter ended
December 31, 1999 compared to 41.1 percent last year. For the six months ended
December 31, 1999, the gross profit percentage was 38.9 percent, down from
40.8 percent in the prior year period. This year's margins were impacted by
inclusion of the results of the Cardell division, which currently has a lower
gross profit margin than the overall Molex gross margin, higher operating costs
to meet customer demands and an unplanned reduction in margins on value-added
products.
Selling and administrative expenses were $133.3 million and $262.5 million,
respectively, for the quarter and six month period ended December 31, 1999 as
compared with $111.0 million and $220.9 million, respectively, for the
corresponding periods in the prior year. As a percent of net revenue, selling
and administrative expenses for the quarter were 24.6 percent compared with
25.8 percent in the prior year, and for the year-to-date period were
25.4 percent compared with 26.3 percent in the prior year. Also included in
selling and administrative expenses are research and development expenditures,
which for the six months ended December 31, 1999, increased as a percent of net
revenue to 6.2 percent from 6.1 percent in the prior year period.
Interest income, net of interest expense, was $2.4 million in the quarter ended
December 31, 1999 compared with $1.4 million in the prior year and was
$4.1 million for the six months ended December 31, 1999 as compared with
$4.8 million a year ago. The year-to-date decline is primarily due to a lower
level of short-term investments than in the prior year as well as an increased
level of debt.
The effective tax rate was 30.0 percent for the quarter ended December 31, 1999
compared with 32.1 percent in the prior year period and was 30.1 percent for
the six month period compared with 32.7 percent last year. 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 $54.1 million or 28 cents per basic and 27 cents
per diluted share, a 23.4 percent increase compared with $43.9 million or
23 cents per basic and 22 cents per diluted share for the same quarter last
fiscal year. Net income for the six months ended December 31, 1999 was
$99.6 million or 51 cents per basic and 50 cents per diluted share, as compared
with net income of $83.0 million or 43 cents per basic and 42 cents per diluted
share, for the same period in the prior year. Excluding the effects of currency
translation, net income increased 20.7 percent for the quarter and 15.1 percent
for the six months ended December 31, 1999 from the comparable prior year
periods.
LIQUIDITY AND CAPITAL RESOURCES
Molex's balance sheet continues to be exceptionally strong. Working capital
at December 31, 1999 was $603.9 million, an increase from $538.9 million at
June 30, 1999.
During the six months ended December 31, 1999, the Company purchased an
aggregate of 937,500 shares of treasury stock at an aggregate cost of
$26.3 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.
YEAR 2000
Molex recognized the importance of, and gave high priority to, the Year 2000
issue. The Company completed an assessment of its business and other
information systems, as well as the non-information system aspects of its
business that could have been impacted by the Year 2000 issue. The Global
Information System (GIS), which is Year 2000 compliant, covered more than 80
percent of the Company's business while the legacy business systems in the
remaining operations were remediated. The Company did not experience and was
not aware of any material operational problems with its information systems
posed by the Year 2000 issue, but will continue to closely monitor its systems.
While the GIS implementation addressed 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.
Part of the risk inherent in the Year 2000 issue resulted from the general
uncertainty of the readiness of material third-party relationships. To date,
the Company has not been impacted and is not aware of any Year 2000 issues
experienced by its suppliers and customers. Although the Company cannot know
or foresee every eventuality that suppliers and customers may face that could
impact its operations, the Company will remain 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 did 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 half. Due to the uncertainty of the foreign
currency exchange markets, Molex cannot reasonably predict future trends
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 $231 million in capital expenditures and approximately $129
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 $76.7 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 1-4. Not Applicable
Item 5. Other Information
On January 28, 2000, Martin P. Slark was appointed as a
Director of Molex Incorporated. Mr. Slark is the
Executive Vice President of the Company. His
appointment expands the Molex Board to eleven
directors.
On February 4, 2000, Molex announced that it has entered into
a definitive asset purchase agreement pursuant to which it has
agreed to acquire substantially all of the assets and assume
certain liabilities of the Beau Interconnect Division of Axsys
Technologies. Beau is a leading manufacturer of electronic
interconnect devices in many industrial and commercial markets.
The closing of the transaction is subject to the satisfaction
or waiver of various conditions, but is currently expected to
occur in the first calender quarter of 2000.
Item 6. Not applicable
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MOLEX INCORPORATED
--------------------
(Registrant)
Date February 11, 2000 /s/ ROBERT B. MAHONEY
----------------- --------------------
Robert B. Mahoney
Corporate Vice President,
Treasurer and
Chief Financial Officer
Date February 11, 2000 /s/ LOUIS A. HECHT
----------------- --------------------
Louis A. Hecht
Corporate Secretary and
General Counsel
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