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, 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 December 31, 2001:
Common Stock 99,418,745 shares
Class A Common Stock 94,778,097 shares
Class B Common Stock 94,255 shares
MOLEX INCORPORATED
FORM 10-Q
DECEMBER 31, 2001
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Information - Unaudited
Condensed Consolidated Balance Sheets -- 2
December 31, 2001 and June 30, 2001
Condensed Consolidated Statements of Income -- 3
Three and Six Months Ended December 31, 2001 and 2000
Condensed Consolidated Statements of Cash Flows -- 4
Six Months Ended December 31, 2001 and 2000
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 15
PART II - OTHER INFORMATION 16
-1-
MOLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - In Thousands)
ASSETS December 31, June 30,
2001 2001
_________ _________
CURRENT ASSETS:
Cash and cash equivalents $ 214,948 $ 138,438
Marketable securities 12,539 69,394
Accounts receivable - net 350,879 415,798
Inventories 190,194 213,637
Other current assets 52,604 54,598
Total current assets 821,164 891,865
PROPERTY, PLANT AND EQUIPMENT - NET 1,055,219 1,092,567
GOODWILL 157,537 156,697
OTHER ASSETS 57,968 72,498
$2,091,888 $2,213,627
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 126,396 $ 178,035
Accrued expenses 120,804 148,934
Other current liabilities 17,890 47,137
Total current liabilities 265,090 374,106
DEFERRED ITEMS 9,488 8,398
ACCRUED POSTRETIREMENT BENEFITS 41,534 37,660
LONG-TERM DEBT 15,531 19,351
OBLIGATIONS UNDER CAPITAL LEASES 6,304 6,114
MINORITY INTEREST 1,964 2,358
SHAREHOLDERS' EQUITY
Common stock 10,613 10,597
Paid-in capital 303,987 289,683
Retained earnings 1,900,174 1,880,450
Treasury stock (316,295) (281,469)
Deferred unearned compensation (30,538) (28,407)
Cumulative translation and
other adjustments (115,964) (105,214)
Total shareholders' equity 1,751,977 1,765,640
$2,091,888 $2,213,627
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 2 -
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - In Thousands Except per Share Data)
THREE MONTHS ENDED SIX MONTHS ENDED
December 31, December 31,
2001 2000 2001 2000
NET REVENUE $416,460 $629,319 $ 846,913 $1,255,244
COST OF SALES 291,115 388,470 584,264 769,705
Gross Profit 125,345 240,849 262,649 485,539
OPERATING EXPENSES:
Selling 37,220 48,952 74,529 99,426
Administrative 80,652 97,696 146,410 198,110
Total Operating Expenses 117,872 146,648 220,939 297,536
Income from Operations 7,473 94,201 41,710 188,003
OTHER INCOME:
Impairment charge on investments
in other companies (10,000) - (10,000) (2,763)
Foreign currency transaction
gain/(loss) (2,085) 3,011 (3,236) 3,739
Interest income, net 855 1,239 2,898 3,109
Total Other Income/(Loss) (11,230) 4,250 (10,338) 4,085
INCOME/(LOSS) BEFORE INCOME TAXES (3,757) 98,451 31,372 192,088
INCOME TAX EXPENSE/(BENEFIT) (8,021) 30,617 1,912 59,732
NET INCOME $ 4,264 $67,834 $ 29,460 $132,356
EARNINGS PER COMMON SHARE:
BASIC $0.02 $0.35 $0.15 $0.68
DILUTED $0.02 $0.34 $0.15 $0.67
CASH DIVIDENDS PER COMMON SHARE $0.025 $0.025 $0.050 $0.050
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD: BASIC 194,636 195,440 194,931 195,542
DILUTED 196,247 197,860 196,515 198,000
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 3 -
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
SIX MONTHS ENDED
December 31,
2001 2000
CASH AND CASH EQUIVALENTS, Beginning of Period $138,438 $164,288
CASH AND CASH EQUIVALENTS PROVIDED FROM (USED FOR):
Operations:
Net income 29,460 132,356
Add (deduct) non-cash items included in net income:
Depreciation and amortization 111,593 106,785
Amortization of deferred unearned compensation 5,126 5,081
Impairment charge on investments in other companies 10,000 2,763
Fixed asset write downs included in special charges 3,652 -
Other charges to net income 1,412 751
Current items:
Accounts receivable 64,022 (33,247)
Inventories 23,602 (53,085)
Other current assets 1,916 (4,293)
Accounts payable (49,824) (9,450)
Accrued expenses (18,762) 18,451
Other current liabilities (35,801) (2,726)
NET CASH PROVIDED FROM OPERATIONS 146,396 163,386
Investments:
Purchases of property, plant and equipment (89,020) (209,870)
Proceeds from sale of property, plant
and equipment 4,232 2,297
Proceeds from sale of marketable securities 1,933,829 2,861,291
Purchases of marketable securities (1,876,974)(2,812,600)
(Increase)/decrease in other assets 4,492 (16,653)
NET CASH USED FOR INVESTMENTS (23,441) (175,535)
Financing:
Increase in short-term loans 959 7,811
Increase in long-term debt 809 338
Decrease in long-term debt (4,724) (385)
Principal payments on capital leases (4,768) -
Cash dividends paid (9,760) (9,780)
Purchase of treasury stock (35,043) (24,979)
Reissuance of treasury stock 1,223 1,661
Exercise of stock options 2,997 3,326
NET CASH USED FOR FINANCING (48,307) (22,008)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 1,862 (7,728)
CASH AND CASH EQUIVALENTS, End of Period $214,948 $122,403
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 4 -
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER AND SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000
(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.
(2) Earnings per Common Share
The reconciliation of common shares outstanding to dilutive common shares
outstanding is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
Weighted average shares
outstanding - basic 194,636 195,440 194,931 195,542
Dilutive effect of stock options 1,611 2,420 1,584 2,458
Weighted average shares
outstanding - diluted 196,247 197,860 196,515 198,000
(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 Six Months Ended
December 31, December 31,
2001 2000 2001 2000
Net income $ 4,264 $ 67,834 $ 29,460 $132,356
Currency translation and
other adjustments (54,969) (15,146) (10,750) (50,443)
Total comprehensive income $(50,705) $ 52,688 $ 18,710 $ 81,913
-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:
Dec. 31, June 30,
2001 2001
Raw Materials $ 28,093 $ 33,729
Work in Process 77,403 87,776
Finished Goods 84,698 92,132
$190,194 $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:
As of and Inter-
for the Six Customer company Total Net Identifiable
Months Ended: Revenue Revenue Revenue Income Assets
<s> <c> <c> <c> <c> <c>
December 31, 2001
United States $ 311,537 $ 43,661 $ 355,198 $ (859) $ 979,965
Americas (Non-US) 20,234 634 20,868 526 50,025
Far East North 177,345 64,931 242,276 17,808 450,787
Far East South 185,983 25,412 211,395 22,545 360,023
Europe 151,788 14,092 165,880 (1,054) 396,371
Corporate and Other 26 - 26 (9,506) 91,528
Eliminations - (148,730) (148,730) - (236,811)
Total $ 846,913 $ - $ 846,913 $ 29,460 $2,091,888
December 31, 2000
United States $ 515,789 $ 63,037 $ 578,826 $ 60,977 $1,012,196
Americas (Non-US) 40,549 8,470 49,019 28 57,975
Far East North 281,062 99,021 380,083 49,163 568,126
Far East South 220,888 32,592 253,480 31,866 350,115
Europe 196,911 31,774 228,685 14,242 429,944
Corporate and Other 45 - 45 (23,920) 164,386
Eliminations - (234,894) (234,894) - (281,506)
Total $1,255,244 $ - $1,255,244 $132,356 $2,301,236
-6-
6) Other items
During the second quarter of fiscal 2002, the Company recorded a pretax charge
of $34.2 million ($25.3 million, net of tax benefit of $8.9 million) comprised
of $18.7 million to reflect costs associated with a further reduction in the
global work force of approximately 800 people, $10.0 million to reflect the
lower current value of investments in other companies, and $5.5 million of
asset write down costs related to operations being closed. Of the
approximately 800 people included in the work force reduction, approximately
400 were directly involved in manufacturing operations and approximately 400
were involved in sales and administrative positions. Employment reductions of
approximately 600 occurred during the second quarter of fiscal 2002, resulting
in cash payments of $5.7 million. The remaining employment reductions will
occur during the second half of fiscal 2002, and severance payments will
continue for up to a year for certain individuals.
Pretax charges of $7.1 million were recorded in cost of sales, $15.6 million
in selling, general and administrative expenses, and $11.5 million in other
expenses. The charges relating to asset and investment write downs were
credited to the respective items on the balance sheet, and the unpaid amounts
relating to employment reductions were included in accrued expenses.
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 ($30.3 million, net of tax benefit of $13.2 million) of which $16.4
million were recorded in cost of sales and $27.1 million in selling, general
and administrative expenses.
-7-
The major components of the fiscal 2001 fourth quarter and fiscal 2002 second
quarter charges, and the remaining accrual balance as of December 31, 2001 were
as follows:
Accrued
June December Cash Assets Balance at
2001 2001 Payments Disposed December 31,
(In thousands) Charge Charge Made and Other 2001
_______________ _________ _________ _________ _________ _________
<s> <c> <c> <c> <c> <c>
Severance and other
benefits $27,690 $18,675 ($19,540) ($ 2,374) $24,451
Inventory write-offs 12,714 - - (12,520) 194
Asset write-offs 3,043 15,483 - (14,822) 3,704
________ _________ _________ _________ _________
Total $43,447 $34,158 ($19,540) ($29,716) $28,349
Also part of the fiscal 2002 second quarter charge is a one time positive tax
planning adjustment related to operations being closed of $5.0 million.
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 will be 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 and other intangible
assets.
-8-
Comparative information on prior periods as if goodwill had not been amortized
in those periods is as follows:
For the Quarter For the Six Months
Ended December 31, Ended December 31,
(In thousands except
for EPS amounts) 2001 2000 2001 2000
Reported net income $ 4,264 $67,834 $29,460 $132,356
Add back: Goodwill amortization - 2,636 - 4,936
Adjusted net income $ 4,264 $70,470 $29,460 $137,292
Basic earnings per share:
Reported net income $ 0.02 $ 0.35 $ 0.15 $ 0.68
Goodwill amortization - 0.01 - 0.02
Adjusted net income $ 0.02 $ 0.36 $ 0.15 $ 0.70
Diluted earnings per share:
Reported net income $ 0.02 $ 0.34 $ 0.15 $ 0.67
Goodwill amortization - 0.02 - 0.02
Adjusted net income $ 0.02 $ 0.36 $ 0.15 $ 0.69
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.
-9-
MOLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net revenues were $416.5 million for the quarter ended
December 31, 2001, down 33.8 percent in US dollars and 32.8 percent in local
currencies over the same period last year. For the six months ended
December 31, 2001, net revenues were $846.9 million compared with $1.25 billion
in the corresponding period last year, declining 32.5 percent in US dollars and
30.6 percent in local currencies. The strengthening of the US dollar compared
with other currencies caused net revenues to decrease $6.4 million and $24.5
million for the quarter and year-to-date periods, respectively.
Net revenue in the Americas region was down 42.0 percent in both US dollars and
local currencies from the prior year quarter while year-to-date net revenue
declined 40.3 percent in both US dollars and local currencies compared with a
strong prior year period. Overall business appears stable based on revenues of
the first two quarters of the current fiscal year and our projections for the
third quarter, but at lower levels than last year. Telecom and data
infrastructure markets remain challenging as well as fiber optics and
high-speed cable.
Quarterly net revenue in the Far East North decreased 35.2 percent in US
dollars and 29.4 percent in local currencies compared to the prior year. For
the six months ended December 31, 2001, revenue declined 36.3 percent in US
dollars and 28.9 percent in local currencies from last year. The decline in
net revenue is the result of business conditions which remain extremely
difficult in this region with the telecom and data infrastructure markets most
severely impacted.
Far East South net revenue for the quarter was down 15.3 percent in US dollars
and 13.7 percent in local currencies from the prior year. For the year-to-date
period, revenue declined 16.4 percent in US dollars and 14.2 percent in local
currencies from last year. The weakness in the personal computer,
computer-peripheral and mobile product markets, while less pronounced in this
region than others, is nonetheless consistent with the slowing in global demand
for technology products occurring in the global electronics industry.
-10-
In Europe, net revenue decreased 30.8 percent in US dollars and 33.7 percent in
local currencies from the prior year quarter. For the six months ended
December 31, 2001, the revenue decline from the comparable prior year period
was 28.6 percent in US dollars and 29.2 percent in local currencies. The region
continues to be affected by the severe decline in telecom infrastructure, as
well as lower demand in wireless communication, which began about seven months
ago.
For the six months ended December 31, 2001, 63.2 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.
During the second quarter of fiscal 2002, the Company recorded a pretax charge
of $34.2 million ($25.3 million, net of tax benefit of $8.9 million) comprised
of $18.7 million to reflect costs associated with a further reduction in the
global work force of approximately 800 people, $10.0 million to reflect the
lower current value of investments in other companies, and $5.5 million of
asset write down costs related to operations being closed.
Gross profit as a percent of net revenue was 30.1 percent for the quarter ended
December 31, 2001 compared to 38.3 percent last year. For the six months ended
December 31, 2001, the gross profit percentage was 31.0 percent, down from 38.7
percent in the prior year period. The December 31, 2001, gross profit margins
include $7.1 million of the charge taken in the quarter, primarily due to costs
from the manufacturing related employment reductions. Gross profit margin is
also down due to higher depreciation expenses and under utilization of factory
capacity as a result of reduced demand. For the six-month period, depreciation
expenses as a percent of net revenue were 11.1 percent compared with 6.9
percent last year. The impact from price erosion and a change in the product
mix toward lower margin products was also a factor.
Selling and administrative expenses were $117.9 million and $220.9 million,
respectively, for the quarter and six month period ended December 31, 2001 as
compared with $146.6 million and $297.5 million, respectively, for the
corresponding periods in the prior year. As a percent of net revenue, selling
and administrative expenses for the quarter were 28.3 percent compared with
-11-
23.3 percent in the prior year, and for the year-to-date period were 26.1
percent compared with 23.7 percent in the prior year. The increases are mainly
due to the inclusion in selling and administrative expenses of $15.7 million of
the second quarter charge related to employment reductions in selling and
administrative areas. Excluding the second quarter charge, selling and
administrative expenses as a percent of net revenue for the quarter were 24.5
percent compared with 23.3 percent in the prior year, and for the year-to-date
period were 24.2 compared with 23.7 percent last year. Also included in
selling and administrative expenses are research and development expenditures,
which for the six months ended December 31, 2001, increased as a percent of net
revenue to 6.6 percent from 5.7 percent in the prior year period.
The foreign currency loss for the six months ended December 31, 2001 includes
$1.4 million related to the asset write down costs for operations being closed.
Interest income, net of interest expense, was $0.9 million in the quarter ended
December 31, 2001 compared with $1.2 million in the prior year and was $2.9
million for the six months ended December 31, 2001 as compared with $3.1
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.
The effective tax rate was 213.5% for the quarter ended December 31, 2001
compared with 31.0 percent in the prior year period and was 6.0 percent for the
six month period compared with 31.0 percent last year. Excluding the impact of
the second quarter charge, the effective tax rate for the six-month period
would have been 16.5 percent. The rate for the quarter and six-month period
was affected by two positive tax adjustments. The first was a $5.0 million one
time tax benefit related to operations being closed as a result of the fiscal
2002 second quarter charge. For the six-month period, this tax benefit reduced
the effective tax rate by six percentage points. The second adjustment was
a $1.4 million positive cumulative impact of adjusting the first quarter
effective tax rate from 28 percent to 24 percent, consistent with the rate for
the six months ended December 31, 2001 and the expected tax rate for the
remainder of fiscal 2002. In addition to the impact of these two positive tax
adjustments, the reduction in the effective tax rate was 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.
-12-
Net income for the quarter was $4.3 million or 2 cents per basic and diluted
share, compared with $67.8 million or 35 cents per basic and 34 cents per
diluted share for the same quarter last fiscal year. Net income for the six
months ended December 31, 2001 was $29.5 million or 15 cents per basic and
diluted share, as compared with net income of $132.4 million or 68 cents per
basic and 67 cents per diluted share, for the same period in the prior year.
Currency translation decreased net income by $0.7 million for the quarter and
by $2.4 million for the six-month period.
The change in comprehensive income in Note 3 is almost entirely due to foreign
currency translation adjustments. During the quarter ended December 31, 2001,
the US dollar was stronger versus the Japanese yen when compared with the prior
year quarter but weaker versus this currency for the six month comparison with
the prior year. This impact was partially offset by a slightly stronger Euro
currency in both the quarter and six-month periods.
LIQUIDITY AND CAPITAL RESOURCES
Molex continues to maintain a strong financial position, funding capital
projects and working capital needs principally out of operating cash flow and
cash reserves, while maintaining a relatively low level of debt. Working
capital at December 31, 2001 was $556.1 million, compared with $517.8 million
at June 30, 2001.
Net cash provided from operations was down from the prior year due to lower net
income offset by a $69.5 million change in working capital. Accounts
receivable and inventories were lower due to the reduced sales activity when
compared with the prior year.
Net cash used for investments was $23.4 million compared with $175.5 million
last year. Capital expenditures were $89.0 million, down from the prior year
total of $209.9 million. Molex plans to invest approximately $175 million in
capital expenditures and approximately $125 million in research and development
during the fiscal year ending June 30, 2002.
Net cash used for financing activities was $48.3 million compared with $22.0
million in the prior period. During the six months ended December 31, 2001,
the Company purchased an aggregate of 1,352,500 shares of treasury stock at an
aggregate cost of $35.0 million. This is in accordance with authorization by
the Board of Directors allowing for the purchase of up to $100 million of
-13-
Company stock during the current fiscal year. The Company also reduced
outstanding debt by $4.7 million and had principal payments on capital leases
of $4.8 million.
Management believes that the Company's current liquidity and financial
flexibility are adequate to support its continued growth based upon the
current cash balances relative to the projected capital spending, stock
buyback authorization and low level of debt.
OUTLOOK
The outlook for the remainder of 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
through the actions it has taken over the past three quarters. New product
development also remains a high priority this fiscal year. 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.
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.
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.
-14-
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.
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 $12.5 million of
marketable securities owned by the Company and the company's $15.5 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.
-15-
Part II - Other Information
Items 1-5. Not Applicable
Item 6.
a. Exhibits
10 Material Contracts
10.5 The 1998 Molex Incorporated Stock Option Plan
(as amended and restated)
-16-
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 12, 2002 /s/ ROBERT B. MAHONEY
----------------- --------------------
Robert B. Mahoney
Corporate Vice President,
Treasurer and
Chief Financial Officer
Date February 12, 2002 /s/ LOUIS A. HECHT
----------------- --------------------
Louis A. Hecht
Corporate Secretary and
General Counsel
-17-