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, 2001
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, 2001:
Common Stock 99,250,681 shares
Class A Common Stock 95,504,621 shares
Class B Common Stock 94,255 shares
MOLEX INCORPORATED
FORM 10-Q
SEPTEMBER 30, 2001
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Information - Unaudited
Condensed Consolidated Balance Sheets -- 2
September 30, 2001 and June 30, 2001
Condensed Consolidated Statements of Income -- 3
Three Months Ended September 30, 2001 and 2000
Condensed Consolidated Statements of Cash Flows -- 4
Three Months Ended September 30, 2001 and 2000
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 12
PART II - OTHER INFORMATION 13
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MOLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - In Thousands)
ASSETS Sept. 30, June 30,
2001 2001
_________ _________
CURRENT ASSETS:
Cash and cash equivalents $ 193,044 $ 138,438
Marketable securities 20,638 69,394
Accounts receivable - net 392,255 415,798
Inventories 208,767 213,637
Other current assets 59,669 54,598
Total current assets 874,373 891,865
PROPERTY, PLANT AND EQUIPMENT - NET 1,111,338 1,092,567
GOODWILL 157,025 156,697
OTHER ASSETS 76,913 72,498
$2,219,649 $2,213,627
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 159,512 $ 178,035
Accrued expenses 123,012 148,934
Other current liabilities 36,617 47,137
Total current liabilities 319,141 374,106
DEFERRED ITEMS 6,997 8,398
ACCRUED POSTRETIREMENT BENEFITS 45,122 37,660
LONG-TERM DEBT 15,791 19,351
OBLIGATIONS UNDER CAPITAL LEASES 10,158 6,114
MINORITY INTEREST 2,734 2,358
SHAREHOLDERS' EQUITY
Common stock 10,604 10,597
Paid-in capital 292,272 289,683
Retained earnings 1,900,319 1,880,450
Treasury stock (296,861) (281,469)
Deferred unearned compensation (25,633) (28,407)
Cumulative translation and
other adjustments (60,995) (105,214)
Total shareholders' equity 1,819,706 1,765,640
$2,219,649 $2,213,627
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - In Thousands Except per Share Data)
THREE MONTHS ENDED
Sept. 30, Sept. 30,
2001 2000
NET REVENUE $430,453 $625,925
COST OF SALES 293,149 381,235
Gross Profit 137,304 244,690
OPERATING EXPENSES:
Selling 37,309 50,474
Administrative 65,758 100,414
Total Operating Expenses 103,067 150,888
Income from Operations 34,237 93,802
OTHER INCOME (EXPENSE):
Impairment charge - (2,763)
Foreign currency transaction gain/(loss) (5) 728
Interest income, net 2,043 1,870
Other income/(loss) (1,146) -
Total Other Income/(Expense), Net 892 (165)
INCOME BEFORE INCOME TAXES 35,129 93,637
INCOME TAXES 9,933 29,115
NET INCOME $25,196 $64,522
EARNINGS PER COMMON SHARE:
BASIC $0.13 $0.33
DILUTED $0.13 $0.33
CASH DIVIDENDS PER COMMON SHARE $0.025 $0.025
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD: BASIC 195,204 195,638
DILUTED 196,798 198,142
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
THREE MONTHS ENDED
Sept. 30, Sept. 30,
2001 2000
CASH AND CASH EQUIVALENTS, Beginning of Period $138,438 $164,288
CASH AND CASH EQUIVALENTS
PROVIDED FROM (USED FOR):
Operations:
Net income 25,196 64,522
Add (deduct) non-cash items included
in net income:
Depreciation and amortization 55,166 50,458
Amortization of deferred unearned compensation 2,484 2,540
Impairment charge - 2,763
Other charges to net income 1,047 1,405
Changes in working capital:
Accounts receivable 36,014 (33,993)
Inventories 9,124 (28,147)
Other current assets (4,691) (4,812)
Accounts payable (23,566) (15,787)
Accrued expenses (18,278) 23,657
Other current liabilities (17,435) (9,550)
NET CASH PROVIDED FROM OPERATIONS 65,061 53,056
Investments:
Purchases of property, plant and equipment (45,064) (104,435)
Proceeds from sale of property, plant
and equipment 1,155 888
Proceeds from sale of marketable securities 1,079,420 1,421,196
Purchases of marketable securities (1,030,664)(1,382,775)
Increase (decrease) in other assets 2,399 (10,268)
NET CASH PROVIDED FROM (USED FOR)
INVESTING ACTIVITIES 7,246 (75,394)
Financing:
Increase (decrease) in short-term loans 1,563 (1,207)
Increase in long-term debt 970 284
Decrease in long-term debt (4,530) (591)
Cash dividends paid (4,885) (4,892)
Purchase of treasury stock (14,997) (12,489)
Reissuance of treasury stock 39 728
Exercise of stock options 869 1,433
NET CASH USED FOR FINANCING ACTIVITIES (20,971) (16,734)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 3,270 (3,240)
CASH AND CASH EQUIVALENTS, End of Period $193,044 $121,976
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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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 2001
Annual Report to Shareholders and the 2001 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. Certain
reclassifications have been made to the prior year's financial statements to
conform to the fiscal year 2002 classifications.
(2) Earnings per Common Share
The reconciliation of common shares outstanding to dilutive common shares
outstanding is as follows:
Three Months Ended
September 30,
2001 2000
Weighted average shares outstanding - basic 195,204 195,638
Dilutive effect of stock options 1,594 2,504
Weighted average shares outstanding - diluted 196,798 198,142
(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,
2001 2000
Net income $25,196 $64,522
Currency translation and other adjustments 44,219 (35,297)
Total comprehensive income $69,415 $29,225
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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,
2001 2001
Raw Materials $ 30,736 $ 33,729
Work in Process 91,127 87,776
Finished Goods 86,904 92,132
$208,767 $213,637
5) Segment and Related Information
The Company and its subsidiaries operate in one product segment: the
manufacture and sale of electrical components. Management operates the
business by geographic segments. Information by geographic area is summarized
in the following table:
Inter-
Customer company Total Net Identifiable
Revenue Revenue Revenue Income Assets
September 30, 2001:
United States $160,311 $ 21,658 $181,969 $ 5,393 $ 990,911
Americas (Non-US) 11,471 343 11,814 139 49,151
Far East North 90,154 31,824 121,978 9,954 510,143
Far East South 94,680 12,097 106,777 10,639 357,500
Europe 73,830 6,774 80,604 1,099 417,269
Corporate and Other 7 - 7 (2,028) 127,303
Eliminations - (72,696) (72,696) - (232,628)
Total $430,453 - $430,453 $ 25,196 $2,219,649
September 30, 2000:
United States $259,303 $ 30,478 $289,781 $ 31,672 $1,006,563
Americas (Non-US) 19,856 4,393 24,249 (43) 57,903
Far East North 141,757 52,820 194,577 26,512 595,142
Far East South 114,648 15,437 130,085 15,687 345,066
Europe 90,328 17,043 107,371 6,423 391,875
Corporate and Other 33 - 33 (15,729) 115,520
Eliminations - (120,171) (120,171) - (257,554)
Total $625,925 - $625,925 $ 64,522 $2,254,515
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6) Other items
During the fourth quarter of fiscal 2001, the Company recorded a charge to
reflect costs associated with a reduction in the global work force of
approximately 950 people, write-off of slow-moving and excess inventories and
asset write-offs related to operations being closed.
Pretax charges recorded in the fourth quarter of fiscal 2001 totaled $43.5
million of which $16.4 million were recorded in cost of sales and $27.1 million
in selling, general and administrative expenses.
The major components of the fiscal 2001 fourth quarter charge and the
remaining accrual balance as of September 30, 2001 were as follows:
Accrued
Cash Assets Balance at
Total Payments Disposed September 30,
(In thousands) Charge Made and Other 2001
_______________ __________ __________ ____________ ___________
Severance and other benefits $27,690 $10,890 $ 1,845 $14,955
Inventory write-offs 12,714 - 11,887 827
Asset write-offs 3,043 - 2,274 769
__________ __________ ____________ ___________
Total $43,447 $10,890 $16,006 $16,551
7) New accounting pronouncements
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 141, "Business Combinations" as of July 1, 2001. This statement requires
the use of the purchase method of accounting for all business combinations,
thereby eliminating use of the pooling-of-interests method. The Company has
always used the purchase method when accounting for past business combinations
and thus no change in procedures is required going forward.
The Company has also adopted SFAS No. 142, "Goodwill and Other Intangible
Assets" as of July 1, 2001. This statement changes the accounting for
intangible assets and goodwill, which are no longer amortized unless, in the
case of intangible assets, the asset has a finite life. Goodwill and
intangible assets with indefinite lives are now subject to an annual impairment
test. Upon adoption an initial testing of impairment is required. The required
initial benchmark evaluation was performed as of July 1, 2001 resulting in no
impairment in the value of the Company's goodwill.
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Comparative information on prior periods as if goodwill had not been amortized
is as follows:
For the Quarter Ended September 30,
(In thousands except for EPS amounts) 2001 2000
Reported net income $25,196 $64,522
Add back: Goodwill amortization 2,300
Adjusted net income $25,196 $66,822
Basic and diluted earnings per share:
Reported net income $ 0.13 $ 0.33
Goodwill amortization 0.01
Adjusted net income $ 0.13 $ 0.34
On August 16, 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, "Accounting for Asset Retirement Obligations". This pronouncement
addresses the recognition and remeasurement of obligations associated with the
retirement of tangible long-lived assets. On October 3, 2001, the FASB issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
which addresses accounting and reporting for the impairment or disposal of
long-lived assets, including discontinued operations. It establishes a single
accounting model for long-lived assets to be disposed of by sale. Both
statements will be effective for the Company's fiscal year beginning July 1,
2002. The Company is evaluating SFAS No. 143 and SFAS No. 144 to determine
their impact on the consolidated financial statements.
8) Subsequent event
As a result of continuing weak demand, the Company plans further reductions
in employment to be implemented in the fiscal second quarter ending
December 31, 2001. The Company will reduce employment by an additional 800-900
full time personnel and record a pretax charge of approximately $20 million for
this reduction. The Company will also record a pretax charge of approximately
$10 million to reflect the lower current value of investments in other
companies.
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MOLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net revenues were $430.5 million for the quarter ended September
30, 2001, decreasing 31.2 percent in US dollars and 28.3 percent in local
currencies over the prior year period. The strengthening of the US dollar
compared with other currencies caused net revenues to decline $18.0 million
for the quarter.
Net revenue in the Americas region was down 38.5 percent in both US dollars
and local currencies compared with a very strong prior year quarter. The
economic slowdown in the United States has impacted all major markets.
Quarterly net revenue in the Far East North declined 37.3 percent in US dollars
and 28.3 percent in local currencies compared with last year due to substantial
downturns in the data, telecom and industrial markets.
Far East South net revenue for the quarter decreased 17.3 percent in US dollars
and 14.7 percent in local currencies over the prior year quarter due to general
weakening in the personal computer and computer-peripheral product markets.
In Europe, net revenue was down 24.1 percent in local currencies and 26.0
percent in US dollars compared with the same period last year. Reduced demand
in the fiber optic and telecommunications markets was the major cause of the
decline.
For the three months ended September 30, 2001, 62.8 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.
Gross profit as a percent of net revenue was 31.9 percent for the quarter ended
September 30, 2001 compared with 39.1 percent last year due mainly to higher
depreciation expenses and under utilization of factory capacity in light of
reduced demand.
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Selling and administrative expenses were $103.1 million for the first quarter
of fiscal 2002 compared with $150.9 million in the prior year period. As a
percent of net revenue, selling and administrative expenses were 23.9 percent
compared with 24.1 percent for the same period last year. Employment
reductions as well as successful efforts to control costs benefited the current
quarter. Also included in selling and administrative expenses are research and
development expenditures, which for the three months ended September 30, 2001,
increased as a percent of net revenue to 6.7 percent from 5.8 percent in the
prior year period.
The Company recorded an impairment charge on certain available-for-sale
securities during the first quarter of fiscal 2001 based on depressed market
values over the holding period, which are expected to be permanent.
Interest income, net of interest expense, was $2.0 million in the quarter ended
September 30, 2001 compared with $1.9 million in the prior year.
The effective tax rate was 28.0 percent for the first quarter compared with
31.0 percent in the prior year period as a result of a change in the mix of the
Company's pretax earnings from higher rate jurisdictions in which the Company
operates to lower rate jurisdictions, principally in the Far East South, as
well as the ongoing global effort to reduce its income tax burden through a
disciplined repatriation strategy and better planning.
Net income for the quarter was $25.2 million or 13 cents per basic and diluted
share, a 60.9 percent decrease compared with $64.5 million or 33 cents per
basic and diluted share for the same quarter last fiscal year.
The change in comprehensive income in Note 3 is almost entirely due to foreign
currency translation adjustments due to the stronger US dollar versus the
Japanese yen and most European currencies during the quarter ended
September 30, 2001. During the prior year quarter, June 30, 2000 to
September 30, 2000, the US dollar was generally weakening versus these
currencies.
LIQUIDITY AND CAPITAL RESOURCES
Molex's balance sheet continues to be strong. Working capital at September 30,
2001 was $555.2 million compared with $517.8 million at June 30, 2001.
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During the three months ended September 30, 2001, the Company purchased an
aggregate of 570,000 shares of treasury stock at an aggregate cost of $15.0
million. This is in accordance with authorization by the Board of Directors
allowing for the purchase of up to $100 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 current and future growth.
OUTLOOK
The outlook for fiscal 2002 remains challenging based on the uncertainty of the
current worldwide economic conditions. Molex is actively managing its costs
and has significantly improved its overall cost structure. New product
development also remains a high priority this fiscal year.
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.
Molex plans to invest approximately $250 million in capital expenditures and
approximately $140 million in research and development during the fiscal year
ending June 30, 2002.
Molex's global team has considerable experience in managing through difficult
market conditions and is focused on maintaining profitability while developing
the new products necessary to expand its market share. 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,
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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 establishment of
contra-currency accounts in several international subsidiaries, development of
natural hedges and occasional use of foreign exchange contracts.
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. 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 $20.6 million of
marketable securities owned by the Company and the Company's $15.8 million of
long-term debt. The 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 on the marketable
securities. However, such risk is mitigated by the relatively short term, less
than twelve months, nature of these investments. The Company's long-term debt
is generally at fixed rates and primarily consists of bank loans and mortgages.
The Company does not enter into derivative transactions (i.e. interest rate
swaps) with respect to its long-term debt as the current interest expense on
this debt is not deemed material to operations.
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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 26,
2001, the following directors were elected to hold
office for their respective terms according to their
class: Frederick A. Krehbiel, Masahisa Naitoh, Michael J.
Birck and Martin P. Slark. No candidate for director
received less than 79,348,795 votes in favor of their
election nor more than 10,247,029 votes withheld.
Item 5-6. Not applicable
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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 13, 2001 /s/ ROBERT B. MAHONEY
----------------- --------------------
Robert B. Mahoney
Corporate Vice President,
Treasurer and
Chief Financial Officer
Date November 13, 2001 /s/ LOUIS A. HECHT
----------------- --------------------
Louis A. Hecht
Corporate Secretary and
General Counsel
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